When Will Sarcos Robotics Stock Make Money from Robots?

Sometimes the future takes a long time to arrive. That’s a Nanalyze original (as far as we know), and it simply refers to the fact that hype around technology lags far behind commercially viable adoption. Consulting firm Gartner has made a living with its hype cycle charts, but even those don’t necessarily capture the decades-long struggle for some technologies. Consider that the field of artificial intelligence has been around since the 1950s, but it’s only been in the last decade that some forms of AI have become embedded in our everyday lives – and our investment portfolios

Similarly, the first computerized robots as we know them also emerged in the 1950s. While industrial robotics is a relatively mature industry with plenty of investment options, we’re still waiting for C-3PO and R2D2 to roll off the assembly line. In the meantime, we’re left with various riffs on the robotics theme, few of which have been compelling enough to add to our Disruptive Tech Portfolio or Catalog. In this article, we’re following up on Sarcos Robotics (STRC) stock, which we profiled about a year ago after it proposed to merge with a special purpose acquisition company (SPAC) to commercialize full-body robotic exoskeletons and telerobotic systems. 

What is Happening with Sarcos Robotics Stock?

Click for company website

The short answer: not much. The deal closed in September last year, following a pretty standard narrative when it comes to completed SPAC mergers. Since the ticker changed, Sarcos Robotics stock has lost more than half of its value. While there are plenty of other factors in play that are beating stocks down, especially in the tech sector, it’s hard not to put some of the blame on SPACs. That’s because they accounted for more than half of all new public companies over the last couple of years, many of which were in high-risk tech sectors like electric vehicles, space, and biotech, among others. The faucet has been turned off, though a few more SPACs may still trickle through.

Back to the Sarcos Robotics stock story: Originally, the Salt Lake City-based company said the deal would gross nearly $500 million in cash before transaction expenses, including $276 million from the SPAC trust and $220 million from private equity investors, including almost everyone’s favorite big data company Palantir (PLTR). (Incidentally, PLTR itself is down about 70% during the same time period.) At the end of the day, Sarcos Robotics cleared almost $220 million, which included the full amount from the private equity but only about $25 million from the SPAC trust following redemptions and transaction fees. And then more fees and other liabilities:

Net money Sarcos Robotics received from SPAC deal.
SPAC math in action. Credit: Sarcos Robotics

Cashing a check that’s short by more than 55% of the agreed-upon amount is a big hit when you’ve spent more than $300 million in R&D since the 1980s on a capital-intensive venture like robotics. Originally spun out of the University of Utah, the first generation of the company was acquired by Raytheon in 2007 and worked as a division focused on cutting-edge tech for various U.S. agencies that were probably developing killer robots. In 2014, a “consortium” led, in part, by the president of the Raytheon Sarcos division, acquired the business. The second-generation Sarcos then merged with a SPAC, giving birth to a third and latest iteration. Sarcos Robotics is like the Dr. Who of technology companies, with reportedly enough cash on hand to get through the next 12 months tumbling through time and space. 

Robotic Exoskeletons and Teleoperated Robots

Except the company is not trying to invent time travel (as far as we know). Instead, Sarcos Robotics is developing full-body exoskeletons and telerobotic systems for augmenting human strength and safety when it comes to dirty and dangerous jobs. The concept is not new. General Electric experimented with what was a wearable robotic suit back in the 1960s. These early versions were pretty clunky, relying on hydraulic lines to power them. The final GE version, dubbed the Hardiman, did not work all that well, resulting in “a violent uncontrolled motion.” 

The industrial robots from Sarcos are supposed to pair human-like dexterity with the ability to throw around 200-pound sacks of potatoes or spare parts. The ability to swap batteries means the machines are only limited by the human cogs within. And, we have to say, the Guardian XO sure looks stylish:

Guardian XO exoskeleton from Sarcos Robotics
Guardian XO exoskeleton. Credit: Sarcos Robotics

There’s also a line of telerobotics systems, which a human operator controls remotely. 

Teleoperated robotics systems.
A telerobotics system. Credit: Sarcos Robotics

In addition, Sarcos Robotics recently shelled out $100 million – $30 million in cash, $70 million in stock – for a Pittsburgh-based robotics company called RE2. Founded way back in 2001 with just $9 million in disclosed funding, RE2 Robotics develops autonomous and teleoperated mobile robotic systems in the aviation, construction, defense, energy, and medical industries. Most of its products are robotic arms, including underwater systems, though the startup’s robotic perception systems and intelligence software may also prove to be valuable down the road. 

Robotics Market and Sarcos Business Model

This product line puts Sarcos Robotics up against an array of competitors in robotics (more below) and material handling machinery, as well as automation companies like Berkshire Grey (BGRY). The company claims a total addressable market (TAM) of nearly $150 billion based on the total number of workers in the industries (ie., mining to manufacturing to ecommerce) that the company expects to adopt its robotics systems. Assuming 10% adoption, that works out to an immediate $15 billion market, per the company. Initially focused on the United States, Sarcos is also eyeballing markets in South Korea, Japan, and western Europe. The plan is to penetrate these markets not by outright selling its robotic systems but as a robot as a service model (RaaS).

There are a lot of assumptions built into the business plan, since the company is still proving the technology, despite promises to begin commercial production before the end of the year and then deliver the first units in early 2021. Sarcos Robotics recently doubled the size of its headquarters, with manufacturing capacity to produce between 300 and 500 robots per year, though it may also engage third-party manufacturers as well. Just to be clear: No one has committed to buying one unit of anything as of yet. 

Does Sarcos Robotics Stock Have Any Revenues?

So we shouldn’t be surprised to learn that Sarcos Robotics missed big when it promised $9 million in revenue for 2021. In fact, revenue dropped from $8.8 million in 2020 to $5.1 million last year. Management said the declining revenues were “driven by the timing of work efforts on different projects and a focus on projects aligned with our commercialization efforts.” We take that to mean that the company is laser focused on getting robots out the door. Q1-2022 would seem to bolster that narrative, with just $700,000 in revenue. The glossy SPAC deck promised us $22 million in revenue this year. 

Sarcos Robotics revenues.
Credit: Sarcos Robotics

Historically, most of the would-be robotics manufacturer’s revenue comes from R&D services, including a brand-new contract from the U.S. Air Force to develop a “collaborative sensing platform for the detection, tracking, and classification of time-critical objects in dynamic adversarial environments.” That sounds kind of cool but complicated. It’s also probably a much-needed boost with the hardware business in a bit of limbo based on the vague timelines and lack of contracts, commitments, MOUs, and pinkie swears for its robotics systems.

Not to say there are no product sales. There is the Guardian S, a mobile surveillance robot that looks an awful lot like the BigTrak from Milton Bradley, with the bot’s front end resembling the futuristic toy tank of our misspent youth crossed with a stretched-out slinky covered by a sleeve. 

The Guardian S surveillance robot.
The Guardian S surveillance robot. Credit: Sarcos Robotics

There’s also the Guardian HLS, which is just a fancy pneumatic lift marketed to the military for tactical vehicles.

Should You Buy Sarcos Robotics Now?

So, a few things should be apparent by now, as we answer the big question. Sarcos Robotics has mainly been an R&D services provider to the military, pivoting into robotics systems for the military and mainly heavy industry. There’s nothing wrong with any of that, but investors need to be clear what’s included in the bargain. The chances are that if any customers do eventually come forward when the hardware finally hits the factory floor, they’ll be wearing green suits. Military contracts can be lucrative and they can be canceled due to political pressure. We always avoid politics and generally avoid companies with the majority of their revenues dependent on fickle government contracts.

Frankly, we’re also a bit skeptical about the mass adoption that Sarcos Robotics claims it can both foster and profit from. It’s not clear it’s happening for other small public companies developing robotic exoskeletons, though most are focused on medical applications. Rex Bionics no longer appears to be publicly traded. The other three seem to be going nowhere fast when it comes to significant revenue growth since our article on exoskeleton stocks in February 2017:

Revenue
20182021
Cyberdyne7779.T $14.25M$17M
ReWalkRWLK $6.5M$6M
EksoEKSO $11.3M$11.3M
Cyberdyne revenues are converted from the yen, so they are just gross estimates. Credit: Nanalyze

Sporting a market cap north of $600 million, Sarcos Robotics is still the biggest of these robotics companies, but too small for us to consider. Chances are it will get smaller still: Future revenues from its Guardian robotics line remain a black box, though the next filing should include money coming in from newly acquired RE2 Robotics. Sarcos Robotics remains an unknown robotics manufacturer with no solid timeline for mass commercialization. All the guidance we got from the Q1-2022 press release revolved around cash burn not churn rate. Until then, this company is not worth tracking.

Conclusion

It turns out we don’t have to fear the robot revolution, after all. What we should be worried about is that we’re still waiting for the future to arrive while trying to find a pure play low-risk robotic stock investment for Industry 4.0. That’s why we only hold one robotics stock for the long haul, which subscribers can learn more about here.

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