Business context and reporting period
This is Sarcos Technology and Robotics Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2023, filed May 10, 2023. The filing identifies the registrant as Sarcos, not Palladyne AI Corp.; investors should confirm the requested company identity and any subsequent name change. Sarcos develops mobile robotic systems, including Guardian products, and had acquired robotics developer RE2 in April 2022. The quarter’s results include RE2.
Financial results and liquidity
Unless otherwise noted, amounts are in U.S. dollars.
- Revenue: $2.3 million, up 209% from $0.7 million in Q1 2022. The increase was primarily from RE2 development contracts. Product revenue was zero, compared with $10,000 in the prior-year quarter.
- Profitability: Cost of revenue was $1.8 million, leaving gross profit of approximately $0.5 million and a gross margin of about 22%, versus approximately 34% in Q1 2022. Operating expenses were $25.5 million, and operating loss was $23.2 million, compared with $25.6 million. Net loss was $21.5 million, versus $19.2 million; basic and diluted loss per share was $0.14 in both periods.
- Expense changes: Research and development rose 60% to $9.4 million, and sales and marketing rose 69% to $3.7 million. General and administrative expense fell 45% to $9.7 million, mainly because stock-based compensation declined by $8.3 million from the prior-year period.
- Other income: Net interest income was $1.1 million. A $0.4 million warrant-liability remeasurement loss contrasted with a $6.4 million gain in Q1 2022. Other income included an employee retention credit; the filing reports $1.0 million of other income, net.
- Cash and liquidity: Cash, cash equivalents and marketable securities totaled $94.7 million at March 31, down from $114.5 million at December 31, 2022. Working capital was $101.1 million. Operating cash use was $20.1 million, versus $12.5 million in Q1 2022; investing activities provided $10.3 million, mainly reflecting net marketable-security maturities, and financing activities used $7,000. Cash and cash equivalents alone were $25.4 million.
- Debt and liabilities: The balance sheet reports no borrowing debt. It includes $13.0 million of operating lease liabilities, including $0.9 million current. Total liabilities were $22.1 million.
- Other balance-sheet metrics: Total assets were $147.9 million and stockholders’ equity was $125.7 million. Accumulated deficit was $324.1 million. Inventory increased to $6.1 million from $3.6 million.
Material changes versus the prior comparable period
- Revenue more than tripled, but growth came from acquired RE2 product-development contract work rather than commercial product sales.
- Operating loss narrowed by $2.4 million, while net loss widened by $2.3 million, in part because the prior-year period included a large warrant-liability gain.
- Operating cash use increased by $7.7 million. Management attributed the increase to the larger net loss, working-capital changes—including inventory growth and lower accounts payable—and reduced non-cash expenses, mainly stock-based compensation.
- Cash, cash equivalents and marketable securities declined by $19.8 million from year-end. The company reported a $21.5 million quarterly loss and a $324.1 million accumulated deficit.
- The company had fully impaired its goodwill at December 31, 2022, following a quantitative impairment assessment. No goodwill impairment was recorded in Q1 2023.
Outlook, risks and contingencies
- Management said available cash, cash equivalents and marketable securities should fund operations for at least 12 months from the report date. It did not expect positive operating cash flow until 2025 at the earliest. Management said it had no current plan for an equity financing in 2023, while noting that additional financing may be needed and was expected to help fund product-order production costs.
- Backlog, described as revenue related to remaining performance obligations, was $3.8 million at March 31; most was expected to be recognized within 12 months. The filing states there were no binding customer orders for commercial versions of core systems.
- Management expected 2023 research and development expense to decrease year over year as reliance on third-party R&D resources declined; sales and marketing expense was expected to rise with revenue. General and administrative expense, excluding stock-based compensation, was expected to rise slightly with commercialization and public-company costs.
- The company reported initial production of Guardian XM units beginning in September 2022 and Guardian XT units in December 2022. It estimated internal 2023 capacity of 300–500 systems, depending on product mix, but did not expect to use all of it. High-volume production by its contract manufacturing partner was not anticipated before at least year-end 2023.
- Key risks include unproven demand and commercialization, delayed product development or delivery, reliance on limited-source suppliers, manufacturing scale-up and quality, safety and product-liability exposure, competition, RE2 integration, and continued losses and cash burn. Management said supply-chain, hiring, cost and product-development challenges had affected timelines.
- A $4.0 million unconditional purchase commitment was expected to be paid in two equal installments in Q2 and Q3 2023. The company reported no material accrued legal loss contingency and no current legal proceedings believed likely to have a material adverse effect.
- Nasdaq had notified the company in January 2023 that its share price did not meet the $1.00 minimum bid-price requirement. The initial compliance deadline was July 22, 2023; the company said it would consider available options, including a reverse stock split.
- Disclosure controls and procedures were assessed as effective at March 31, 2023. Management reported no material change in internal control over financial reporting during the quarter. The filing also describes historical control weaknesses that management said had been remediated.
Important facts for investors to verify
- Confirm whether this Sarcos filing is the intended filing for Palladyne AI Corp. and reconcile the issuer’s name and corporate history.
- Track cash burn, working-capital needs, and whether management’s stated liquidity runway remains adequate as commercialization and manufacturing spending continue.
- Verify conversion of the $3.8 million backlog into recognized revenue, and whether commercial product orders and product sales materialize.
- Monitor Guardian product readiness, customer acceptance, safety and reliability testing, supplier availability, and the contract manufacturer’s production ramp.
- Review financing needs and potential dilution, including equity awards and warrants; approximately 20.5 million warrants were outstanding, exercisable at $11.50 per share subject to their terms.
- Check Nasdaq bid-price compliance and any reverse-split or listing developments, as well as progress integrating RE2 and the status of acquisition-related estimates.