Filing summary
Entity and period: The supplied filing is Sarcos Technology and Robotics Corporation’s unaudited Form 10-Q for the quarter ended September 30, 2022, not a filing under the name Palladyne AI Corp. The company designs and develops mobile robotic systems; results include RE2, acquired April 25, 2022, only from that date onward.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.7 million | $1.1 million | $8.4 million | $4.1 million |
| Operating loss | $27.3 million | $40.5 million | $81.9 million | $53.3 million |
| Net loss | $22.5 million | $37.0 million | $64.8 million | $47.4 million |
| Net loss per share | $0.15 | $0.35 | $0.45 | $0.45 |
| Operating cash used | Not separately shown for the quarter | $44.4 million | $20.9 million |
Revenue growth was principally from RE2 research and development services. Product revenue remained small: $0.2 million in Q3 and $0.2 million for the first nine months, versus $0.4 million and $0.7 million, respectively, in 2021. Gross profit, calculated as revenue less cost of revenue, was approximately $1.1 million in Q3 and $1.2 million for the nine-month period. These imply gross margins of approximately 23% and 15%, respectively.
Q3 net loss improved year over year, while the nine-month loss widened. Results include non-cash gains from remeasuring warrant liabilities ($1.5 million in Q3; $12.0 million year to date) and an income tax benefit of $2.5 million in Q3 and $4.1 million year to date, associated with RE2 acquisition-related deferred tax liabilities. These items helped reduce reported net loss and are not operating revenue.
Balance sheet, liquidity and capital
- At September 30, 2022, cash and cash equivalents were $16.1 million and marketable securities were $119.3 million, totaling $135.4 million. Working capital was $136.2 million.
- Total liabilities were $13.8 million; the company reported no outstanding debt. Current liabilities were $9.8 million.
- Cash and cash equivalents declined from $217.1 million at December 31, 2021. The company used $44.4 million in operating activities and $149.4 million in investing activities during the first nine months. Investing outflows included $138.7 million of securities purchases and $29.7 million of net cash for the RE2 acquisition.
- Share count increased to 154.6 million at September 30, 2022, from 137.7 million at year-end 2021. RE2 acquisition consideration included cash, shares and assumed options.
Changes, outlook and risks
- RE2 acquisition consideration was approximately $90.1 million, including $30.7 million cash, $44.0 million in common stock and $15.4 million in assumed options. The preliminary allocation included $70.7 million goodwill and $21.3 million acquired intangible assets.
- Management said it had sufficient resources for at least 12 months from the report date, but expected to seek additional financing during that period. It does not expect positive operating cash flow before at least the end of 2024 and expects financing will be needed before then.
- Product timing expectations: Sapien 6M initial commercial production began in September 2022; Guardian XT initial production was expected by year-end 2022, with both products anticipated to be available for delivery in the first half of 2023. Guardian XO initial production was expected in the second half of 2023. These are forward-looking expectations and may be delayed.
- Management prioritized Guardian XT and Sapien 6M and delayed Guardian XO, citing supply constraints and redesign work. It expected internal 2023 capacity of 300–500 units across product lines, depending on mix, and was pursuing contract manufacturing; high-volume partner production was not expected before at least year-end 2023.
- Backlog from remaining performance obligations was $8.1 million, with most expected to be recognized within 12 months. The filing says the core products are not yet broadly commercialized; there were no binding commercial orders for the commercial versions of Guardian XT, Sapien 6M and Guardian XO as described in the risk disclosures. No RaaS subscription agreements were in place.
- Material risks include continuing operating losses and cash burn, future financing and potential dilution, uncertain customer demand and untested RaaS economics, product-development and manufacturing delays, reliance on limited-source suppliers, supply-chain and labor constraints, and RE2 integration risk. The company also disclosed a $36.0 million remaining unconditional Palantir commitment through 2026 under a six-year agreement.
- Management reported disclosure controls were effective at September 30, 2022, and no material quarterly change in internal control over financial reporting. It said a previously identified material weakness related to Old Sarcos’s equity accounting process had been remediated as of June 30, 2022.
Investor verification priorities
- Confirm the issuer identity: the provided 10-Q is for Sarcos Technology and Robotics Corporation, although the request names Palladyne AI Corp.
- Track cash burn, marketable-security balances, financing plans and the stated expectation of no positive operating cash flow before at least the end of 2024.
- Check whether Guardian XT, Sapien 6M and Guardian XO production, delivery and customer-order milestones were achieved, and whether meaningful binding commercial demand emerged.
- Assess RE2 integration, purchase-price allocation, goodwill and intangible-asset assumptions, and whether the acquisition delivers expected commercial benefits.
- Review the effects of warrant remeasurement and acquisition-related tax benefits when comparing reported net losses across periods.
- Monitor potential dilution from equity awards, warrants, acquisition shares and any future financing, as well as the $36.0 million Palantir commitment.