“Do you love me?” the robots seemed to ask, as they danced to the tune with the same name. The most common question asked by those who saw that video was whether or not it was real. It was, and if you have a humanoid robot that can maintain its balance enough to do backflips, it isn’t overly difficult to teach it some dance moves. Up until now, humanoid robots like this have largely been a novelty.
Industrial robotics started out as large arms, or sophisticated machines that looked nothing like robots. Then, we saw the emergence of cobots, and a realization that the complexity needs to be placed in the software, not the hardware. Artificial intelligence has made the robotics industry smarter, so maybe now it’s time they became as mobile as humans. Are humanoid robots coming next, or are they the carbon nanotubes of robotics – sounds exciting, but never turns out to be economically viable at scale? A company called Sarcos Robotics thinks that dexterous robots and exoskeletons are right around the corner.
About Sarcos Robotics Stock
Founded in 1983, Salt Lake City’s own Sarcos Robotics has taken in just over $96 million in disclosed funding from some big names like Microsoft, General Electric, Caterpillar, Delta, Boeing, and Schlumberger. The first time we came across the company was back in 2016 when we wrote about Sarcos Robots – Doing the World’s Most Dangerous Jobs. At that time, the company seemed to be like Boston Dynamics – doing lots of cool things while being involved with lots of M&A activities with nothing of real economic value emerging as a result. Today, Sarcos seems to have a plan and funding in the form of a special purpose acquisition company (SPAC) called Rotor Acquisition Corp. (ROT). Let’s peruse the glossy investment deck to see what they’ve been up to.
An Exoskeleton and a Remotely Controlled Robot
This self-described “global leader in dexterous mobile robots” is projecting $2.7 billion in sales just five years from now, primarily from the sale of an exoskeleton and a remotely-operated humanoid-type robot that’s anchored to an aerial work platform and remotely controlled by a human.
Both the exoskeleton and the “AR-enabled teleoperation” robot-on-a-platform are expected to be released next year which coincides with the mad revenue growth projections seen below – a compound annual growth rate (CAGR) of +161% over a period of six years culminating in $2.7 billion in revenues by 2026.
These projections are meaningless without the supporting numbers used to produce them. It’s all a big black box. So are the 2020/2021 revenue numbers we’re given. It’s great to see they have revenues, but it makes a big difference if they’re providing consulting/R&D services on a project basis, or if this is pure robot-as-a-service revenues coming from the development of their first product. If their first product failed, why are we to believe the others will be a success? Build it and they will come rarely works for sophisticated hardware products like robots, which is why there are so many novelty contraptions floating about. Being an inventor and an entrepreneur are two distinctly different talents, and we’re not convinced they’ve made much progress in the sales department yet.
The Glossy SPAC Deck
As usual, we’re not given much in the Sarcos Investor Presentation that elaborates on the offering. The existence of revenues might be the most useful piece of information. There’s the usual banter about “blue ocean opportunities” and giant TAM sandwiches they’re preparing to take a bite out of. The nearly $500 million they’ll raise from the SPAC will fully fund the operation until they become cash flow positive in 2023. That’s the same year they’re expecting to bring in $166 million in revenues.
They’ve had some government contracts in the past and they mention “GS multi-unit sale to US DoD” for 2020. These units are a lot less valuable to the company if they’re being sold as one-time purchases instead of being provided as a service under a recurring revenue business model. This is the sort of information that would probably be found in a proper initial public offering S-1 filing document, but not with a SPAC.
Sarcos has an incredibly talented team of robot scientists who have been building the company’s robotics technology portfolio for the past two decades.
Hopefully, they finally found their product-market-fit and the hockey stick revenue growth is set to follow. At least that’s what the company is telling us:
Sarcos is at a commercial inflection point after 20 years of development
The update they provide from the sales team on the stages of opportunities in the pipeline doesn’t provide much evidence to back that claim up. Sarcos says they have “~7,000 units under discussion,” whatever that means. Then there’s these comments which come verbatim from slide 24:
- Customer A: Contemplating if 100 to 500 units is the right order for the Guardian XO
- Customer B: Could order up to 1,000+ units
- Customer D: Could start ordering in as soon as 6 months
The fact that one of your customers could order units some time in the future and $3 won’t get you a McDonalds Big Mac these days. All these “coulds” lead us to believe they haven’t pre-sold sold many units yet. At least that’s what any sale manager would deduce from all this non-committal language.
Lastly, we’re given some bittersweet info regarding manufacturing at scale. Slide 26 talks about their “asset-light approach to manufacturing” which means they’ll outsource production that’s expected to start happening a year from now. Then, under risk factors, they mention that “Sarcos does not have a current contract with a manufacturer to produce Sarcos’ products at scale.” We would expect they had their manufacturing partner already squared away in anticipation of selling all those units next year that will lead to their $22 million revenue target for 2022. The deck mentions an “anticipated partnership with world-class contract manufacturer,” so we’ll expect to hear more about that soon.
To Buy or Not to Buy
Many moons ago, we wrote about Real-Time Virtual Reality (VR) – The Ultimate Experience, where we visualized a humanoid robot with a 360-degree HD camera mounted atop its head traversing exotic places while we used virtual reality to see what it saw while also controlling it. The emergence of 5G means we’ll have the bandwidth for use cases like this, so we were hoping technology had already advanced to this stage. Maybe it has, but such information is painfully lacking.
For a product that’s expected to be released next year, we’d be stoked to see some demos. That cheesy 1980s-looking video they provide doesn’t tell us much. A guy that appears to be overwhelmed by an overpowering exoskeleton struggles to throw some luggage on a platform using his clawed hand. The teleoperation robot appears in some CGI animations, and then what appears to be some staged settings, before it morphs into some sort of six-armed octopus with a skill saw. There were more videos to watch, but we had enough. What you’re investing in is a company with an extremely talented team of roboticists that have developed a set of products. We’re questioning if they’ve nailed the crucial product-market-fit for any of them aside from the first which appears to be selling. Because they decided to go public using a SPAC, we’re not given enough information to make a decision here, so we’ll check back in next year to see if revenues are coming in.
It’s nice to see ROC stock trading around where it should be – $10 a share. Maybe retail investors are finally realizing that paying a premium for a transaction that hasn’t even been completed yet makes no sense at all. For investors with a high risk tolerance, this team-with-a-dream is fairly priced from the perspective of the institutional investors that participated, but that says nothing about how fairly valued the deal is. Speculate all you want, but you’re better off waiting until there’s more information before going long and strong.
Sarcos has been doing R&D for the past 20 years with any number of products being developed that are cool looking but haven’t been successfully commercialized. Their talented robotics team has taken investment money from some big corporate names that – we can only hope – also provide Sarcos with their first reference customer(s). We’ll check in next year to see how they’re coming along with that 2022 revenue target of $22 million which should start trickling in Q2-2020.
Should the SPAC transaction go through as planned, the combined company (Sarcos and the pile of cash) will trade on Nasdaq under the ticker STRC.
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