Palladyne AI Corp. Q4 FY2022 earnings call

• Sarcos made the RE2 acquisition in 2022, which helps offer a wider range of robotics systems and solutions. - Integrated RE2's Sapien products into the Guardian lineup, including Guardian XM, Sea Class, and XT. - Produced 10 units of Guardian XM in Q4 2022 and signed an agreement with a major contract manufacturer for scaling production. - Conducted field trials such as with the U.S. Navy for the Maritime Mine Neutralization system and with Changi Airport Group for an outdoor autonomous baggage loading system. - Developed AI-based algorithms for semi-autonomous detection, tracking, etc., and launched industry-sponsored research efforts. - Validated the outdoor autonomous manipulation of photovoltaic panels project.

For the fourth quarter of 2022, revenue was $6.1 million compared to $1 million in the fourth quarter of 2021. The increase was primarily due to increased revenue from product development contract revenues. Cost of revenue in Q4 2022 was $4.4 million compared to $1.1 million in 2021. For the full year 2022, revenue increased to $14.6 million from $5.1 million in 2021, mainly due to increased revenue from product development contract revenues. Cost of revenue in 2022 was $11.6 million compared to $3.9 million in 2021.

• First quarter 2023 revenue expected to approximate $2.3 million, all product development contract revenue. Cash used in operating activities estimated at ~$6 million per month. - Full year 2023 revenue expected to range between $23 million and $25 million, with product development contract revenue ~80% of the mix and product sales ramping up in the second half. - Research and development expenses expected to decrease slightly in 2023. General and administrative expenses expected to increase slightly. Sales and marketing expenses expected to increase slightly. - No plans for equity financing in 2023 currently.

• The call contains forward-looking statements with many risks and uncertainties that could cause actual results to differ from projections, including those related to future commercial production, acquisition of RE2, and other statements about the combined company. Risks are described in the annual report on Form 10-K and earnings press release.

Q: Walk through what the gating factors are before recognizing commercial revenue, especially for XM and XT products A: Gating factors include continuing to spend money to get long lead items in time, with some pieces and parts still having long lead times, but the supply chain team has purchased long lead items. Production is ramping, and the sales force can start negotiating contracts.

Q: Since manufacturing XMs in Q4, what about inventories mid-year and cash burn implications A: Cash burn is high in Q1 and expected to decline later as consultant rolls off. Inventories are being produced to meet anticipated demand and for demoing and further testing. Products are ready for commercialization once deemed so, with testing done in Pittsburgh and Salt Lake City.

Q: Sales cycle for new potential customers now that product is available A: Robotics lead time is reduced due to advances in controls and simulation teams. Development time and sales cycle time for targeted use cases are way down as the current product can fit needs without redeveloping for those segments.