Palladyne AI Corp. Q1 FY2023 earnings call

• Gaining revenue momentum from product development contracts and expecting commercial product sales to ramp up in the second half of 2023.
• Recent manufacturing agreement with Jabil to help scale production beyond initial capacity.
• Participation in ConExpo, Aviation Robotics Summit, and Offshore Technology Conference, demonstrating products and forming partnerships.
• Onsite customer testing to ensure product performance and durability.
• On track to achieve ISO 9001 compliance by end of 2023, working toward certification in early 2024.
• Confident in achieving $23 million to $25 million revenue targets for 2023 while working to reduce operating expenses and be cash flow positive in 2025.

For the first quarter of 2023, revenue was $2.3 million compared to $700,000 in the first quarter of 2022, driven by increased revenue from product development contracts. Cost of revenue increased to $1.8 million from $500,000 in 2022. Total operating expenses in Q1 2023 were $25.5 million vs $6.4 million in Q1 2022. For the full year 2023, full year total revenue guidance is expected to range between $23 million and $25 million. Product development contract revenue is expected to be approximately 80% of the mix, weighted toward the second half of the year, and product sales are expected to be approximately 20% of full year 2023 sales, ramping up in the second half.

• Q2 2023 total revenue expected to be approximately $2.1 million, with approximately $400,000 from product sales.
• Estimate cash used in operating activities will average approximately $5 million per month in Q2.
• Full year 2023 revenue guidance remains $23 million to $25 million, with product development contracts making up ~80% and product sales ~20%, ramping in the second half.
• Expect research and development expenses to decrease in 2023 as they reduce engagement with third-party service providers.
• General and administrative expenses expected to increase slightly in 2023, sales and marketing to increase slightly in line with revenue growth.
• Sufficient capital to fund business for at least the next 12 months without additional equity financing in 2023.

• Forward-looking statements included in the call, which are subject to risks and uncertainties that could cause actual results to differ from projections.
• Risks described in the annual report on Form 10-Q filed with the SEC and in the earnings press release, including those related to the acquisition of RE2 and uncertainties in market adoption of products.

Q: Stephen Volkmann asked about the cash use rate in Q2 and if there's an inflection point for the rest of the year, and about product development applications.

A: Drew Hamer said the $5 million per month cash use rate includes a $2 million adjustment, and the run rate for the rest of the year is likely around $4.3 million per month. Kiva Allgood mentioned focus on aviation (work at height), underwater (remote operated tasks), and construction (solar construction) applications, with a semi-automatic approach where a human is in the loop.

Q: Guy Hardwick inquired about Q2 product sales, order book, inventory, and imagery spend.

A: Drew Hamer said there's a pipeline of orders from events like OTC and ConExpo, with first units being tested by customers. Inventory includes a combination of raw materials and finished products, and they've been focused on production of XM, XT, and C Class units.

Q: Rob Mason asked about supply chain components, VideoRay partnership, and navy contract.

A: Kiva Allgood discussed supply chain efforts to secure components, the strong partnership with VideoRay for retrofitting and semi-autonomous underwater tasks, and the relationship with the navy where the partnership can leverage existing contracts and expand commercial applications.