Good day, and thank you for standing by. Welcome to the Third Quarter 2022 Sarcos Technology and Robotics Corporation Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ben Mimmack, Head of Investor Relations. Please go ahead.

Thanks, Amy. Good afternoon, everyone, and welcome to the Sarcos third quarter earnings call. Joining us on the call this afternoon are Sarcos President and Chief Executive Officer, Kiva Allgood; and Chief Financial Officer, Drew Hamer. Kiva will start the call with an overview of the first quarter and recent events, and Drew will then talk in more detail about our financial results before we take questions from analysts. Before we begin, we must state that today's call will contain forward-looking statements including statements concerning future commercial availability of our products, market trends, revenues, cost and liquidity. In addition, any statements about future performance related to our acquisition of RE2, including our expectations regarding the benefits we achieved, the financial performance of the combined company, future market or revenue opportunities, integration plans and other statements regarding the combination of the two companies are forward-looking statements. These statements represent management's beliefs and expectations as to future events as of today, but there are many risks and uncertainties that could cause actual results to differ from what we have predicted. Among those risks and uncertainties are those described in our quarterly report on Form 10-Q filed today with the SEC and those mentioned in today's earnings press release. We encourage you to review the risks and uncertainties described in this press release and in our filings with the SEC for further information regarding these actual and potential risks and uncertainties. We also encourage you to review the special note regarding forward-looking statements included in our earnings release and 10-Q for the third quarter of 2022, and 8-Ks filed with the SEC this afternoon and which will be posted in the Investors section of our website at sarcos.com and on the SEC's website. In addition, we will be discussing certain non-GAAP financial measures on our call today. Throughout this call, all financial measures will be GAAP, unless otherwise noted. A reconciliation of any non-GAAP measures to their most directly comparable GAAP measures as well as the description, limitations and rationale for such measures are included in the earnings release filed with the SEC this afternoon and which is available on our website and on the SEC's website. A recording of this call will also be archived on our website. The information that we're giving you on the call is as of today's date, and we undertake no obligation to update the information subsequently. So thanks again for joining us. At this point, I'd like to turn the call over to our President and CEO, Kiva Allgood.

Thanks, Ben. Good afternoon, and welcome to everyone joining us on the call today. The third quarter has been one of milestone celebrations and significant product and market developments for Sarcos. But before I update you on the third quarter, I wanted to welcome Drew Hamer to his first Sarcos earnings call. I'm delighted to have Drew on board as our new Chief Financial Officer. Drew has over 25 years of financial leadership in the high-growth technology world. He has led teams at companies such as Velodyne Lidar, ON24 and Keynote. Drew's experience and skills will be invaluable as we work to bring our products to market. So welcome to the Sarcos family, Drew. Following my remarks on the quarter, Drew will provide the financial update. We will then open up the call to questions from analysts. During the third quarter, Sarcos celebrated the one-year anniversary of our public listing on the NASDAQ global market. To celebrate this milestone, I was honored to stand alongside our Co-Founder and Executive Chairman, Ben Wolff as he rang the NASDAQ opening bell on July 25. For me, it was a real delight to see our team members, their families and especially our products on the NASDAQ Tower in Times Square. And it reinforces the importance of our mission, to improve worker safety, productivity through robotics. During the quarter, our engineers and development teams were in the field with partners and customers, demonstrating the capability of our robotic system. One of the most involved in demanding field tests was our participation in the Navy's Repair Technology Exercise or REPTX. This took place at Port Hueneme, California. Over almost a week, four Sarcos robotic systems were put to work. These included the Defense version of our teleoperated dexterous robots, the Guardian DX, the Sapien 6M…

Hello, everyone. I'm Drew Hamer. It's an honor to be speaking with you today, and thank you, Kiva, for the warm welcome. I'm delighted to be joining the Sarcos team. Obviously, I'm relatively new to the business, and there's a lot for me to get my arms around. But what has struck me so far is just how much knowledge and enthusiasm there is throughout the Company for the transition to commercial availability of our products. I joined Sarcos to help make a difference in the world of work and to bring products to market. I can't wait to start doing that. Kiva just outlined the excellent progress the business made during the third quarter. I'm now going to update you on the numbers behind the business performance. This afternoon, we released our third quarter earnings and filed our 10-Q. Please note that our results for this year include the financial performance of RE2 from the close of the transaction on April 25. The 2021 results do not include results from RE2. Now turning to the actual results. For the third quarter of 2022, quarterly revenue was $4.7 million compared to revenue in the third quarter of 2021 of $1.1 million. This increase was primarily due to the addition of revenues from RE2 following the acquisition. The primary impact of revenue was an increase in revenue from research and development services to $4.5 million in the third quarter. This was an increase of $3.8 million as compared to the third quarter of 2021. We expect future R&D revenues to continue to be higher year-over-year in the near term, but a focus on accepting only those development contracts that are aligned with our product commercialization efforts may cause these revenues to fluctuate over time. Revenue derived from product sales in the…

[Operator Instructions] Our first question comes from Vraj Patel with Jefferies.

A quick question around the supply chain. In prior quarters, you mentioned the lack of component availability delayed the development of the XO and XT units. Is that largely behind you? And do you have a clean path to commercialization now?

Great question. Thanks, and also appreciate you joining. As we have also mentioned in previous calls, we have done a lot of prepurchasing, which is also noted by Drew. So we do have nice solid line of sight to commercialization and product production for the two targeted products XT and Sapien 6M. That doesn't mean -- clearly don't have a crystal ball. But as of right now, we really have put a lot of effort into making sure that we have all the preproduction parts required.

Understood. And a quick follow-up. You laid out a variety of end markets and industries that could benefit from Sarcos' products. How many of these industries have customers that are currently testing either the XO or XT? And have we seen any orders from them?

Yes. Great question. So we're very focused, as you know, laser-focused on the aviation market. So as we communicated earlier, we've been in-field and testing the trials which is part of our development cycle. So if you remember, as you walk through that process, typical first step is making sure that we have proof of concept and then that drives to commercial trials. So in the segments that we've highlighted, vegetation management at height, the port and construction and aviation, those are where we're really focused right now getting to those commercial trials.

Your next question comes from Guy Hardwick with Credit Suisse.

Could you expound a little bit on the comments regarding the contract manufacturer and how that kind of tallies with the kind of long-term gross margin guidance? I imagine that a ramp in the contract manufacturer has some impact on the profile of gross margin.

Exactly, yes. So we have identified our contract manufacturing partner. They've been on site. We've been ramping. They've had their technicians on. They were actually really helping us, providing some great input and insights on how we can scale more quickly. But you are correct in the sense that as we manufacture on prem, that does have an impact on gross margin. But as we grow in scale, our hope is that with the contract manufacturing partner we'll be able to see increased scalability which clearly will impact gross margin.

And just as a follow-up, obviously, you've begun commercial production of the Sapien 6M. So in terms of numbers of units, are you building an inventory there? And that suggests you have confidence in making sales in at least the next month, a few months, surely? I'm understanding that correctly?

This is Drew. I'll take a stab at this one. So as Kiva mentioned earlier, there is a sales process that we go through, which leads up to and includes what we call field trials. Field trials is one of those kind of last two, three steps before we get to that commercial contract with the customers. As those -- the pipeline has formed in a number of these different industries, as Kiva alluded to earlier, and so the production of these units is now in anticipation that we should see some contracts closing, but we can't announce anything until we've got them signed and in hand. So we'll continue down this road. We are advance purchasing the components. We are building the units, and we're looking forward to some successes and the pipeline continues to fill at the back end of the funnel as well as on the front end of the funnel.

And I'm showing no further questions at this time. I would now like to turn the conference back to Kiva Allgood for closing remarks.

Thank you, Amy. I hope the update today has you as excited about the future of Sarcos as we are and our expanded portfolio. We've begun manufacturing our first commercial robotic system, redesigned human possibilities while enabling the safest most productive workforce. This is a huge milestone for the Sarcos team and looking forward to sharing more with you about it later in the year. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.