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PA

Palladyne AI Corp. (STRC)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 revenue was $1.28M, down 57.9% YoY, with GAAP diluted EPS of $(1.12) and non-GAAP EPS of $(0.86); gross margin improved to 26% as cost of revenue fell versus Q2 2022 .
  • Management announced a strategic realignment: created an Advanced Technologies software division (AI/SaaS), focused efforts on Guardian Sea Class, aviation and solar, consolidated manufacturing to Salt Lake City, and reduced workforce by ~25% to lower cash usage; quarter-end liquidity was $75.1M and runway guided “into 2025 without additional financing” .
  • Q3 2023 guidance: revenue $1.1–$1.4M, ~$(6.0)M net restructuring expense, average monthly cash usage ~$5.5M in Q3; target to manage to $3.0M per month in 2024 via headcount reductions ($14.6M annual savings) .
  • S&P Global Wall Street consensus estimates were unavailable due to mapping constraints; third-party transcripts indicate non-GAAP EPS of $(0.86) missed expectations and revenue missed as well, but we anchor to S&P and note unavailability .

What Went Well and What Went Wrong

What Went Well

  • Gross margin turned positive to 26% (vs. -4% in Q2 2022) as cost of revenue fell to $0.9M, reflecting lower labor/materials on product development contracts and operational optimization .
  • Strategic focus and AI push: formed the Advanced Technologies division to pursue AI SaaS revenue, supported by an expanded AFRL contract; management emphasized confidence in the refocused portfolio (Sea Class, aviation, solar) .
  • Liquidity preserved: $75.1M in unrestricted cash, cash equivalents, and marketable securities at quarter-end; management stated sufficient liquidity to operate into 2025 without additional financing .
  • Quote: “We are realigning the business and focusing our operations to capitalize on our most promising revenue opportunities… and our newly announced Advanced Technologies division” — Laura Peterson, Interim CEO .

What Went Wrong

  • Revenue declined to $1.28M vs $3.04M in Q2 2022 as product development contract revenue slowed; GAAP net loss widened to $(28.66)M vs $(23.12)M YoY .
  • Operating expenses remained elevated at $31.24M; restructuring charges of $5.11M (inventory write-down $4.4M and fixed asset impairment $0.7M) weighed on results .
  • R&D increased to $11.71M (vs $7.57M YoY) on higher labor/overhead and direct materials post-RE2 acquisition, while revenue traction remained limited in the quarter .

Financial Results

Consolidated Financials (USD Millions unless noted)

MetricQ4 2022Q1 2023Q2 2023
Revenue ($)$6.121 $2.296 $1.277
GAAP Diluted EPS ($)$(0.61) $(0.14) $(1.12)
Non-GAAP Diluted EPS ($)$(0.12) $(0.13) $(0.86)
Gross Margin %N/AN/A26%
Cost of Revenue ($)$4.402 $1.786 $0.943
R&D Expense ($)$10.197 $9.403 $11.706
G&A Expense ($)$12.896 $9.735 $8.252
Sales & Marketing ($)$2.747 $3.741 $4.410
Intangible Amortization ($)$0.819 $0.819 $0.819
Asset Write-down & Restructuring ($)$0.000 $0.000 $5.106
Total Operating Expenses ($)$101.297 $25.484 $31.236
Unrestricted Cash, Cash Equivalents & Marketable Securities ($)$114.5 (YE22) $94.7 $75.1

YoY and QoQ Comparison (Q2 2023 focus)

MetricQ2 2022Q1 2023Q2 2023
Revenue ($)$3.038 $2.296 $1.277
GAAP Diluted EPS ($)$(0.95) $(0.14) $(1.12)
Non-GAAP Diluted EPS ($)$(0.72) $(0.13) $(0.86)
Gross Margin %-4% N/A26%

Revenue Breakdown by Type

Revenue Type ($)Q4 2022Q1 2023Q2 2023
Product Development Contract Revenue$6.036 $2.296 $1.274
Product Revenue$0.085 $0.000 $0.003
Total Revenue$6.121 $2.296 $1.277

KPIs and Cash Usage

KPIQ4 2022Q1 2023Q2 2023 / Q3 Guidance
Unrestricted Cash + Marketable Securities ($)$114.5 $94.7 $75.1
Avg Monthly Cash Usage (Guided)~$6.0M (Q1’23) ~$5.0M (Q2’23) ~$5.5M (Q3’23)
Target Avg Monthly Cash Usage——~$3.0M in 2024
Headcount Reduction Savings——~$14.6M annually from 2024

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 2023—$1.1–$1.4M New
Restructuring Expense (net)Q3 2023—~$(6.0)M, incl. ~$1.5M cash severance/benefits New
Avg Monthly Cash UsageQ3 2023~$5.0M (Q2 2023 guide) ~$5.5M Raised
Avg Monthly Cash Usage Target2024—~$3.0M New
Personnel-related Cash Savings2024 run-rate—~$14.6M annually New
Total RevenueFY 2023$23–$25M (mix ~80% PDC, ~20% Product) Not updated in Q2 release Maintained (no update provided)
Liquidity RunwayMulti-yearSufficient capital ≥12 months Operate into 2025 without financing Extended

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022, Q1 2023)Current Period (Q2 2023)Trend
AI/Technology initiativesAwarded AFRL CSP; demos of Guardian XT/XM; O‑AMPP solar validation Formed Advanced Technologies software division; expanded AFRL AI/software work Increased focus on AI/SaaS
Product performance & commercializationAchieved Guardian XM production goal; aviation baggage loading prototype; subsea progress Focused offerings: Guardian Sea Class, aviation, solar; Blattner agreement to refine autonomous solar system Portfolio narrowed, commercialization emphasis
Supply chain/manufacturing—Consolidated Pittsburgh manufacturing into Salt Lake City Streamlining footprint
Macro/labor—Solar partnership aimed at addressing labor shortages in utility-scale projects Robotics to offset labor constraints
R&D executionR&D elevated post-RE2; Jabil manufacturing agreement to scale R&D up YoY; optimization initiatives to reduce cash usage Tightening spend, targeted programs
Subsea partnershipsNavy field trials; Sea Class capabilities; VideoRay integration Continued emphasis on Sea Class and integrated systems Strategic subsea focus sustained

Management Commentary

  • “We are realigning the business and focusing our operations to capitalize on our most promising revenue opportunities, including Guardian® Sea Class, aviation and solar solutions, and our newly announced Advanced Technologies division.” — Laura Peterson, Interim President & CEO .
  • “We have taken steps to significantly reduce our future cash usage and ended the quarter with $75 million in cash. We believe we have sufficient liquidity to operate into 2025 without additional financing.” — Laura Peterson .
  • “Optimized ongoing operations, taking steps to improve efficiency and reduce cash spend.” — Second quarter highlights .

Q&A Highlights

  • Analysts probed restructuring impacts and runway; management reiterated ~$6.0M net Q3 restructuring expense, ~$1.5M cash severance, and liquidity into 2025, clarifying cost actions support a ~$3.0M monthly cash usage target for 2024 .
  • Questions on AI/SaaS monetization: management discussed the Advanced Technologies division’s platform work and expanded AFRL software scope to enable broader device-agnostic applications beyond Sarcos robots .
  • Commercialization timeline and focus areas: emphasis on Guardian Sea Class, aviation solutions, and autonomous solar construction system with Blattner to address labor/safety in utility-scale projects .

Estimates Context

  • S&P Global Wall Street consensus estimates were unavailable for STRC due to a missing CIQ mapping, so we could not provide authoritative consensus comparisons. Values retrieved from S&P Global were unavailable.
  • Third-party sources indicate Q2 2023 non-GAAP EPS of $(0.86) missed expectations and revenue of ~$1.28M missed as well; we do not anchor to these for formal comparison but note them for context .

Key Takeaways for Investors

  • Liquidity and runway improved via restructuring: ~$75.1M cash/marketable securities and guidance to operate into 2025 without financing; watch execution on reducing average monthly cash usage to ~$3.0M in 2024 .
  • Positive gross margin inflection (26%) driven by reduced cost of revenue—sustaining margin improvement will be key amid modest revenue levels .
  • Strategy pivot to AI/SaaS and targeted robotics (Sea Class, aviation, solar) could diversify revenue; monitor AFRL contract development and Blattner field trials for commercialization signals .
  • Near-term print: Q3 revenue guide $1.1–$1.4M and ~$6.0M net restructuring expense suggest continued transition; trading setups likely hinge on cost control, cash burn trajectory and any incremental contract wins .
  • R&D remains elevated; expect tighter spend post realignment with focus on software platform and core systems—evidence of customer adoption will be crucial .
  • Consensus estimates unavailable via S&P Global; use caution interpreting third-party “miss/beat” narratives until authoritative mapping is restored [GetEstimates error noted].
  • Watch manufacturing consolidation impacts and workforce reductions for operational efficiency and execution risk; savings target ~$14.6M annually starting 2024 .