Business context and reporting period
The supplied filing is Sarcos Technology and Robotics Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023, filed November 14, 2023. The metadata identifies Palladyne AI Corp.; the filing itself is under Sarcos’s name. The company develops robotics technology and AI/ML software. Share and per-share amounts reflect a 1-for-6 reverse stock split effective July 5, 2023.
After quarter-end, on November 14, the company announced it would focus on its commercial AI/ML software platform and suspend commercialization efforts for subsea, aviation, and solar hardware programs. It planned to retain limited hardware R&D to support software development.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1.8 | $4.7 | $5.4 | $8.4 |
| Operating loss | $(30.8) | $(27.3) | $(83.9) | $(81.9) |
| Net loss | $(29.0) | $(22.5) | $(79.1) | $(64.8) |
| Net loss per share | $(1.13) | $(0.89) | $(3.09) | $(2.68) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(60.1) | $(44.4) |
Gross profit was approximately $0.6 million in Q3 2023, a 33% gross margin, versus $1.1 million and 23% in Q3 2022. For the nine-month periods, gross profit was approximately $1.4 million (27% margin) versus $1.2 million (15% margin). These calculations use reported revenue less cost of revenue.
At September 30, 2023, cash and cash equivalents were $35.3 million and marketable securities were $19.8 million, totaling $55.1 million, down from $114.5 million at December 31, 2022. Current assets were $61.4 million and current liabilities $7.9 million; reported working capital was $53.4 million. Total liabilities were $19.4 million, including $12.7 million in operating lease liabilities. The filing reports no conventional borrowings in the balance sheet presented. Accumulated deficit was $381.7 million.
Backlog was $9.2 million ($7.4 million funded, $1.8 million unfunded); estimated total contract value including unexercised options was $19.1 million. The company reported 25.85 million common shares outstanding at September 30.
Material changes versus prior comparable periods
- Q3 revenue fell 61% year over year, primarily because completed development contracts were not replaced; product revenue rose after sales of two Guardian Sea Class systems. Nine-month revenue declined 36%.
- Q3 net loss widened to $29.0 million from $22.5 million; nine-month net loss widened to $79.1 million from $64.8 million. Nine-month operating cash use increased by $15.7 million.
- Q3 operating expenses included $11.2 million of asset write-down and restructuring charges. Nine-month charges totaled $16.3 million, including inventory write-downs, asset impairments, severance, and accelerated stock compensation. The company also expected $22–$24 million of additional restructuring costs in Q4 2023 and Q1 2024, mostly non-cash accelerated amortization.
- Nine-month R&D expense rose 30%, while G&A fell 50%, largely due to lower stock-based compensation and lower insurance and legal costs. Sales and marketing expense rose 37%.
Outlook, commentary, and risks
- Management expected to launch the commercial AI/ML software platform in the first half of 2024 and begin recognizing sales revenue in the second half of 2024. These are forward-looking expectations, not guarantees.
- The company said it believed available liquidity would support operations for at least 12 months from the report date and, following cost reductions, well into 2025 without needing additional capital. It also said it might raise financing; delays in commercialization could require capital sooner. Equity financing could dilute holders, while debt could impose covenants and interest costs.
- The November restructuring was expected to reduce the remaining workforce by approximately 70%, close the Pittsburgh facility, and consolidate operations in Salt Lake City. Management cautioned that restructuring savings may not meet expectations and that workforce reductions could disrupt execution and remove key expertise.
- Commercial demand, pricing, customer adoption, sales cycles, and the planned SaaS model are unproven. The filing notes the platform remained under development, the company had no commercial software customers, and customer trials or discussions might not lead to subscriptions.
- Other material risks include continued losses and negative cash flow, competition and technology-development risk, product safety and liability exposure, evolving AI and privacy regulation, cybersecurity threats, and the possibility of further financing needs. Nasdaq had notified the company of failure to meet the $1.00 minimum bid-price requirement; it had until April 22, 2024 to regain compliance, subject to applicable conditions.
- The company reported no material legal proceedings or material loss contingency. Management concluded disclosure controls and procedures were effective as of September 30, 2023 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity and corporate-name continuity: this supplied 10-Q is filed by Sarcos Technology and Robotics Corporation, despite the Palladyne AI Corp. metadata.
- Track actual software development, customer testing, binding subscriptions, commercial launch timing, and revenue generation against management’s 2024 targets.
- Reconcile cash burn, restructuring charges and cash payments, expected cost savings, and liquidity runway as subsequent results become available.
- Check Nasdaq bid-price and any market-value compliance status, and assess potential dilution or financing requirements.
- Review the funded versus unfunded backlog and determine whether it converts to revenue; backlog includes unfunded amounts and is not assured revenue.