Sarcos Technology and Robotics Corporation (NASDAQ:STRC) Q1 2023 Earnings Call Transcript

Sarcos Technology and Robotics Corporation (NASDAQ:STRC) Q1 2023 Earnings Call Transcript May 10, 2023

Sarcos Technology and Robotics Corporation misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $-0.12.

Operator: Good day and thank you for standing by. Welcome to the Sarco’s First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Maria Shelton. Please go ahead.

Maria Shelton: Thank you, operator. Good afternoon everyone, and welcome to the Sarcos Technology and Robotics Corporation first quarter 2023 earnings call. Joining us on the call this afternoon are Sarcos President and Chief Executive Officer, Kiva Allgood; and Chief Financial Officer, Drew Hamer. Kiva will start the call with a discussion of business highlights from the first quarter and recent events, and Drew will then talk in more detail about the financial results before management takes questions from analysts. Before we begin, we must state that today’s call will contain forward-looking statements including statements concerning future commercial production and availability of our products, product features and capabilities, target markets and market trends, size and expectations, customer demand and future financial results, condition and cash flows including revenues, costs, and liquidity.

In addition, any statements about future performance related to our acquisition of RE2, including our expectations regarding the benefits to be achieved, the financial performance of the combined company, integration plans and other statements regarding the combination of the two companies are forward-looking statements. These statements represent management’s beliefs and expectations as to future events of today, but there are many risks and uncertainties that could cause actual results to differ from what we have projected. Among those risks and uncertainties are those described in our annual report on Form 10-Q filed today with the SEC and those mentioned in today’s earnings press release. We encourage you to review the risks and uncertainties described in this press release and in our filings with the SEC for further information regarding these actual and potential risks and uncertainties.

We also encourage you to review the special notes regarding forward-looking statements including in our earnings release and 10-Q for the first quarter 2023 filed with the SEC this afternoon and which we posted in Investors section of our website at sarcos.com and on the SEC’s website. In addition, we’ll be discussing certain non-GAAP financial measures on our call today. Throughout this call, all financial measures will be GAAP, unless otherwise noted. A reconciliation of any non-GAAP measures to the most directly comparable GAAP measures, as well as the description, limitations and rationale for such measures are included in the earnings release filed with the SEC this afternoon and which is available on our website and on the SEC’s website.

A recording of this call will also be available on our website until June 09, 2023. The information that we’re giving on this call is as of today’s date and we undertake no obligation to update the information subsequently. At this point, I’d like to turn the call over to Kiva Allgood, President and CEO of Sarcos. Kiva?

Kiva Allgood: Thank you, Maria. Good afternoon and welcome to everyone joining us on the call today. As you saw in our press release, we are gaining revenue momentum from our product development contracts as we push toward initial commercial production, sales in the coming quarters. Now that some of the Guardian family of products are available for sale, we have been able to get products working out in the real world. And we expect commercial product sales to ramp up in the second half of the year and grow from there. We’re excited about our recent manufacturing agreement with Jabil. And as demand for the Guardian family of products grows, this relationship will allow us to grow beyond our initial production capacity of 300 to 500 units per year.

In March, we attended ConExpo, the largest construction equipment tradeshow in North America, there was tremendous interest in traction at our booth, as we began engagement with more than 70 companies who are speaking with us about how our robotic solutions could help improve their productivity and safety. And they could see firsthand how impactful our Guardian product can be, as we performed demos of the XM and XT doing semi-autonomous and tele operated work at heights such as laser ablation, grinding and cutting, all tasks required in surface preparation, shipbuilding and construction, which we believe represents a large market opportunity for Sarcos. Over the weeklong event, we demonstrated how our solutions which include hardware, software and components improve productivity while keeping workers safe from dangerous working conditions.

Photo by Andy Kelly on Unsplash

Seeing is believing when it comes to Sarcos solutions. And even in the rain the team executed and performed well. Now that our products have come to life, we’ve been actively on the road at industry shows and events and our focus verticals. In April Sarcos took part in the aviation robotics Summit, a three-day invitation only series of workshops, site tours, networking that brought together aviation and robotics industry professionals and experts from around the world. The goal of the summit was to solve aviation business and operational challenges with robotic solutions and advanced the industries focused on improving the travel experience. Jorgen Pedersen, our Chief Operating Officer participated in a panel with Delta Airlines and the CEO of Pittsburgh International Airport to discuss how robotics are critical for the growth of the aviation industry.

And we were thrilled to host more than 60 summit attendees at our Pittsburgh headquarters, where we conducted demonstrations over robotic systems and solutions and spoke about the many aviation specific solutions we have to offer. All attendees were able to see our baggage handling solution as well as the Guardian XT inspecting an airplane fuselage and we received very positive feedback from the aviation industry leaders. We had another opportunity to demonstrate our robotic solutions last week in Houston at the Offshore Technology Conference and Exhibition, where energy professionals exchange ideas on offshore resources and environmental matters. We formally announced our partnership with VideoRay at the OTC show, and we demonstrated how our Guardian C-class can be retrofitted onto their underwater remote operated vehicle.

We bring human like dexterity to VideoRays market leading inspection, class ROV by adding arms and hands. Now it can do complex subsea jobs such as ship maintenance and salvage. It was a great opportunity to promote the Guardian C class as well as our important new agreement with VideoRay. The Underwater Robotics market is growing 13% a year and is expected to be 2.4 billion serviceable addressable market globally in 2024. In addition to industry events, we have been doing onsite customer testing to ensure our system performs as intended, are durable and that our software solutions meet the customer’s specific needs. Putting out a critical step closer to product sale. And as I mentioned on our last call, we completed the final validation in our product development contract for our robotic solar field construction solution to help an industry facing labor shortages, increase productivity, while reducing installation costs.

We’re also on track to achieve ISO 9001 compliance by the end of the year, which will put us on our way to achieving certification in early 2024. We are proactively applying quality standards throughout the business to ensure that we meet the reliability and quality requirements, our customers demand. These events I’ve talked about today are important steps toward commercialization as we introduce our Sarcos Robotic Solutions to potential customers and generate sales momentum. The excitement that comes from witnessing in-person, how revolutionary our technologies are, can’t be duplicated without a sale — with a sales brochure or even a video. The Guardian family of products are bringing advanced technologies such as machine learning, artificial intelligence, physics based modeling and simulation to unstructured spaces.

This is groundbreaking work and set a solid foundation for service delivered RFP, as we launch into industry specific solutions, like the ones we are developing for solar panel installation and baggage handling. These foundational technologies are available now and will enable Sarcos to bring new solutions to market with greater speed at a lower development costs. With this strategy in the market momentum we created at ConExpo, the Aviation and Robotics Summit and the Offshore Technology Conference, we’re confident in our ability to achieve our $23 million to $25 million revenue targets this year as we commercialize our existing lineup, game sales momentum and develop new technologies for the future. Our participation in these events reinforces our commitment to the opportunities we continue to pursue in the aerospace, construction and underwater industries which collectively represent a global TAM opportunity of approximately $185 billion in 2025.

After only recently announcing the commercial availability of product, we are proactively increasing sales while working to reduce operating expenses by refining our business model and reducing third-party R&D costs, all with a goal to be on pace to be cash flow positive in 2025 when we exit 2024 And now I’ll turn it over to Drew to report on the financials.

Drew Hamer: Thank you, Kiva. To everyone on the line, it is a pleasure to be here today speaking with you. Please note that our results for last year include the financial performance of RE2 squared from the close of the transaction on April 25 2022. Also, please note that as we discussed on our last earnings call what was formerly called Research and Development Services revenue is now called product development contract revenue. Product development contract revenue comes from the different types of contractual research and development agreements primarily relating to the development and commercialization of our products, including cost type and fixed price agreements. Now, turning to the financial results, all comparisons I will use are year-over-year.

For the first quarter of 2023, revenue was $2.3 million compared to $700,000 during the first quarter of 2022. The increase was due to increased revenue from product development contracts. Cost of revenue increased by $1.3 million to $1.8 million as compared to $500,000 in 2022, mainly due to the cost associated with the product development contracts, I just mentioned. First quarter 2023 total operating expenses, including cost of revenues were $25.5 million, a decrease from the first quarter of 2022 operating expenses to $6.4 million. I’ll now discuss the operating expenses in more detail. Research and development expenses increased by $3.5 million to $9.4 million in the first quarter. This increase was driven primarily by increased headcount from the acquisition of RE2.

Part of this increase was also related to increase direct materials charges. General and administrative expenses were down $8.1 million to $9.7 million in the first quarter, primarily due to decreased stock-based compensation expense. Sales and marketing expenses were $3.7 million, an increase of $1.5 million, compared to the first quarter of 2022, due to increased costs from a third-party Data Management platform and increased costs from our attendance to ConExpo. The largest construction equipment trade show in North America. First quarter 2023 net loss was $21.5 million, or loss of $0.14 per share, compared to a net loss of $19.2 million, or loss of $0.14 per share in the first quarter of the prior year. First quarter, non-GAAP net loss was $19.4 million, or loss of $0.13 per share, compared to a net loss of $13.3 million, or loss of $0.10 per share in 2022.

We ended the quarter with $94.7 million in unrestricted cash, cash equivalents and marketable securities. I am now going to turn to our financial guidance. For the second quarter of 2023. We expect total revenue to be approximately $2.1 million. Approximately $400,000 of the revenue in the quarter will be revenue from product sales. Reflecting our work to reduce operating expenses, we estimate cash used in the operating activities will average approximately $5 million per month. As of March 31 2023, we have an unconditional purchase commitment of $4 million, which is related to operational expenses and all of which is expected to be settled during the year ended December 31, 2023. We expect to pay this amount in two equal installments, one to each of the second and third quarters of 2023.

Now for the full year 2023. We are reaffirming our full year 2023 financial guidance. Full year total revenue guidance is expected to range between $23 million and $25 million. Product development contract revenue is expected to be approximately 80% of the mix, and it will be weighted toward the second half of the year. Product sales are expected to be approximately 20% of our full year 2023 sales, and we’ll ramp up in the second half of the year. Turning to our operating expenses. Research and development expenses are expected to decrease in 2023 as compared to 2022 as we reduce our engagement with third-party service providers, as we continue to develop and refine our existing products and further enhance efforts on our future products and software.

With the exception of stock-based compensation expense, we expect our general and administrative expenses in 2023 to increase slightly as the company works on its commercialization pathway and maintains public company compliance requirements. Sales and marketing will increase slightly in 2023 in line with the expected revenue growth in the future. Looking at our balance sheet, we are satisfied with our liquidity and currently have no plans to do an equity financing in 2023. Furthermore, we have taken numerous steps to manage our use of cash and believe we have sufficient capital to fund our business for at least the next 12 months without seeking additional capital. As Kiva previously mentioned, we are proactively increasing sales while working to reduce operating expenses, all with a goal to be able to pace to be cash flow positive in 2025 when we exit 2024 Operator, that is the end of my prepared remarks.

I’d like to turn the call over to you now. Would you kindly repeat the instructions to ask a question?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Stephen Volkmann with Jeffries, Stephen, your line is open.

Operator: Hi, Stephen.

Operator: Yes, sir.

Operator: Thank you very much. Our next — please wait for our next call. Our next question comes from the line of Guy Hardwick at Credit Suisse Securities Research. Guy, your line is open.

Operator: [Operator Instructions] Our next question comes from the line of Rob Mason at Baird. Rob, your line is open.

Operator: Thank you very much. At this time, I would like to turn the call back to Kiva Allgood for closing remarks.

Kiva Allgood: Well, thank you. Great questions. Really appreciate you guys joining us today. We’re super excited and optimistic about where the company is headed, especially as we gain market momentum and customer feedback. We’re on track to achieve our targets for the year as we push onward towards commercialization. So thank you for joining us. Keep the questions coming and have a great evening.

Operator: Thank you for your participation in today’s conference. This does conclude the program you may now disconnect.