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, 2021, filed November 9, 2021. This does not match the request metadata naming Palladyne AI Corp.; verify the issuer and filing before relying on this summary. Unless noted, dollar amounts below are in millions.
Business context
Sarcos develops mobile robotic systems for industrial use. The quarter includes the September 24, 2021 business combination with Rotor Acquisition Corp., accounted for as a reverse recapitalization; historical operations are those of Old Sarcos. Shares began trading on Nasdaq as STRC and warrants as STRCW on September 27, 2021.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2021 | $1.1 | $4.1 |
| Revenue, 2020 | $1.5 | $5.4 |
| Net loss, 2021 | $(37.0) | $(47.4) |
| Net loss, 2020 | $(6.9) | $(17.0) |
| Basic and diluted loss per share, 2021 | $(0.35) | $(0.45) |
- Revenue declined 25% in the quarter and 24% year to date. Research and development services revenue fell 44% in the quarter and 29% year to date; product sales were $0.4 million in the quarter and $0.7 million year to date.
- Gross profit was approximately $0.2 million for the quarter (about 18% gross margin), versus $0.5 million (about 31%) a year earlier. Nine-month gross profit was $1.3 million (about 31%), versus $1.9 million (about 34%).
- Operating loss was $40.5 million for the quarter and $53.3 million year to date. General and administrative expense rose sharply, to $33.9 million in the quarter and $39.1 million year to date, largely due to merger-related equity compensation.
- Net loss includes a $3.5 million non-cash gain from remeasuring warrant liabilities. Nine-month results also include $2.4 million from forgiveness of the first PPP loan. Total stock-based compensation was $30.8 million year to date, including substantial merger-triggered awards.
- At September 30, cash and cash equivalents were $239.1 million; restricted cash was $2.0 million. Working capital was $238.1 million. Total assets were $250.4 million and total liabilities were $14.0 million.
- Notes payable were $2.0 million, relating to the second PPP loan; the first $2.4 million PPP loan was forgiven in June 2021. The $2.0 million was held in escrow pending SBA-related approvals and potential forgiveness.
- Nine-month cash used in operations was $20.9 million, versus $12.4 million in 2020; investing cash use was $3.0 million, versus $0.8 million. Financing provided $231.5 million, mainly from the business combination and PIPE. The company reported $229.7 million in net proceeds from the combination and PIPE.
Material changes and outlook
- Quarterly operating expenses increased 395% year over year, driven chiefly by stock-based compensation and public-company and transaction-related costs. The merger and PIPE issued 22.0 million PIPE shares at $10 each; 137.6 million shares were outstanding at quarter-end.
- Management said available resources should fund operations and capital expenditure needs for at least 12 months from the report date. It also expects operating and capital expenditures to rise as it develops products, expands staffing and prepares for commercialization.
- Management expected beta units of Guardian XO and Guardian XT for customer pilots in mid-2022 and initial commercial production at the end of 2022, while warning that timing could slip. The company had no RaaS subscription agreements and disclosed no binding commercial commitments for the commercial versions of these core products.
- Management described planned starting subscription prices of approximately $9,000 per month per Guardian XO unit and $5,000 per month per Guardian XT unit, excluding the XT base. These are expectations, not established contract prices.
- Remaining performance obligations (backlog) were $3.4 million at September 30; the company expected about 32% to be recognized in 2021 and the balance in 2022.
- A six-year Palantir software and services agreement carries a total commitment of $42.0 million; $41.1 million remained payable as of September 30. Palantir was also a PIPE investor.
Risks, contingencies and unusual items
- The company reported that disclosure controls were ineffective at quarter-end because of a material weakness involving technical accounting for unusual equity transactions. It was adding experienced accounting personnel and using external consultants to remediate the weakness.
- Management cited COVID-related customer-site restrictions, hiring challenges, supply-chain disruption, component shortages and rising costs as potential sources of product-development and launch delays. Commercial demand, customer adoption and the RaaS model remain unproven.
- The company has a $16.4 million schedule of future operating lease payments and an approximately $41.1 million remaining Palantir commitment. It also disclosed single- or limited-source supplier risks and uncertainty about securing third-party manufacturing.
- Management reported no known legal matters expected to have a material adverse effect and recorded no material loss contingency. A former-employee options dispute was settled without a monetary payment in October 2021 and dismissed with prejudice.
- Warrants are recorded as liabilities and remeasured at fair value, which can cause material non-cash swings in reported earnings. The company also disclosed that warrant exercises could dilute shareholders.
Most important facts for investors to verify
- Confirm the issuer: the filing is for Sarcos Technology and Robotics Corporation, not Palladyne AI Corp.
- Track cash burn against the company’s stated 12-month liquidity assessment, and determine whether escrowed PPP funds are released and the second loan is forgiven.
- Monitor progress toward Guardian XO and XT customer pilots and production, including binding orders, manufacturing arrangements and product safety and performance testing.
- Assess whether revenue growth can offset rising operating costs, and distinguish recurring operating performance from large stock-compensation charges, warrant remeasurement gains and other unusual items.
- Review remediation of the material weakness, the Palantir commitment, potential share dilution from warrants and earn-out shares, and the effect of supplier and COVID-related risks.