Symbotic Inc. (NASDAQ:SYM) Q1 2024 Earnings Call Transcript

Symbotic Inc. (NASDAQ:SYM) Q1 2024 Earnings Call Transcript February 5, 2024

Symbotic Inc. misses on earnings expectations. Reported EPS is $-0.08 EPS, expectations were $-0.05. Symbotic Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to Symbotic’s First Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentations, there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. At this time, I’d like to turn the call over to Jeff Evanson, Vice President of Investor Relations. Please go ahead.

Jeff Evanson: Thanks, Val. Hello, everyone. I’m Jeff Evanson, Symbotic’s VP of Investor Relations. Our press release and discussion today will include forward-looking statements based on assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements, including as a result of the factors described in cautionary statements and risk factors in Symbotic’s financial release and regulatory filings with the SEC, by which any forward-looking statements made during this call are qualified in their entirety. In addition, during this call, we will discuss certain financial measures that are not recognized under U.S. Generally Accepted Accounting Principles, which the SEC refers to as non-GAAP measures.

We believe these non-GAAP measures assist management in planning, forecasting and evaluating our business and financial performance, including allocating resources. Reconciliations of these non-GAAP measures to their most comparable reported GAAP measures are included in our financial press release, which is available in the Investor Relations section of our website and is also on file with the SEC. These non-GAAP measures may not be comparable to measures used by other issuers. Today, we’ll provide guidance for the first quarter, including revenue and adjusted EBITDA. We’re not providing guidance for net loss today, which is the most comparable GAAP financial measure to adjusted EBITDA. We’re not able to provide reconciliations of adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of our control and/or cannot be reasonably predicted such as provision for stock-based compensation.

On today’s call, we’ll be joined by Rick Cohen, Symbotic’s Founder, Chairman and Chief Executive Officer; and Carol Hibbard, Symbotic’s Chief Financial Officer. These executives will discuss our first quarter fiscal ‘24 results and our outlook followed by Q&A. With that, I’ll turn it over to Rick. Rick?

Richard B. Cohen: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us to review our most recent results and discuss the year ahead. In our first quarter, we reported strong financial results and posted equally impressive operational results. Our team set a new deployment record, completing the full build, installation, and commissioning process for an entire Symbotic system in only 20 months. While we can’t currently deploy all systems this quickly, this reflects the deployment speed improvements we are making, and we are focused on further reductions in deployment time as we build capacity to support growing customer demand. One such improvement is SymBot. The mobile bot is now well established as our platform workhorse.

SymBot has the newest NVIDIA chips with an enhanced version of our automation software that is powered by artificial intelligence. While SymBot can perform more transactions per hour and has improved the liability over our previous generation bot, SymBot will also improve our ability to deploy systems more quickly and efficiently with even higher customer ROI. SymBot also helps extend the capability of our system and sets the stage for our entry into new markets such as non-ambient food. Turning to BreakPack. Our development of BreakPack progressed faster than expected over this past quarter and has advanced beyond the prototype stage. While we are always refining all our products, BreakPack is now ready for general availability to our full range of potential customers.

Turning to our joint venture, GreenBox is receiving a lot of inbound interest. So like Symbotic, GreenBox is being selective in choosing the right customers to work with. GreenBox will share more about their roadmap for they announced their first customer, but we expect to be recognizing our first revenue from GreenBox in fiscal 2024. So in summary, our story is unchanged. We will continue to innovate, execute and scale to deliver for our customers as we grow and drive increased profitability in a capital efficient way. Now, Carol will discuss our financial results and outlook. Carol?

Carol Hibbard: Thank you, Rick. I’ve enjoyed an exciting first 90 days here at Symbotic. During that time, we’ve enhanced the capability and scope of the entire Symbotic to scale for the future. For example, we successfully implemented SAP software across the company, which helps with everything from scaling to Sarbanes-Oxley compliance. Our first quarter revenue grew to $369 million up nearly 80% compared to the same quarter last year and reflects an accelerated pace of growth from last quarter’s 60% year-on-year growth. This was driven primarily by scale and the increasing number systems we have in deployment. During the first quarter, we initiated five new system deployments and completed three as we continue to add both new customers and additional projects for existing customers.

So at the end of Q1, we had 15 fully operational systems and 37 systems in the process of deployment. This is an increase from 12 operational systems and 35 deployments in progress last quarter and eight operational systems and 22 deployments in progress in the first quarter of last year. We have temporarily stabilized the pace of system deployment starts. Our future revenue growth is really driven by our ability to scale deployments and progress. Continued reductions in system deployment time as demonstrated by the system we recently deployed in just 20 months, leaves us well-positioned to support customer demand. It is important to note that as we scale, our customer base is becoming more diverse. The 37 deployments in progress are with six of our nine customers.

We continue to standardize our system platform and identify opportunities to further streamline our deployment processes. To that end, our network of outsourcing partners is executing well. We continue to see significant opportunities to gain efficiencies over time and to build capacity as we continue to add partners to our outsourcing network. Our backlog remains stable at $23.2 billion and now reflects the addition of Southern Glazer’s, who became a customer in November. Our recurring revenue streams grew 5% sequentially and 45% year-on-year. Adjusting for our 53-week year in 2023, recurring revenue streams reflect nearly a 12% sequential growth, but still below the 25% sequential increase in completed systems, because these systems were completed in the back half of the quarter.

So we expect accelerating recurring revenue growth as we head into our second quarter. Gross margin increased sequentially by 90 basis points to 20%, driven primarily by improvement in system gross margin. While we do not expect gross margin to improve every quarter, we do expect it to improve each year well into our future. Our first quarter non-GAAP system gross margin increased 110 basis points from last quarter. As a reminder, these results still reflect significant costs associated with lower margin innovation projects like BreakPack, the burden of pass through costs to protect gross profit dollars, but can weigh on a reported gross margin percentage and costs associated with rapidly scaling our operations. Our recurring revenue streams again contributed to positive gross profit.

This demonstrates the high leverage in our business model showing that we can be profitable with such a small number of active sites with recurring revenue, while also being invested for the much larger number of systems still in deployment. We continue to expect that as we scale over time that recurring gross margins can trend to over 60%. Operating leverage improved again sequentially as we achieved a 3.8% adjusted EBITDA rate compared to a 3.4% rate last quarter. This is driven by a rapid revenue growth and gross margin expansion along with stable operating expenses. Our cash and equivalents including marketable securities and restricted cash grew $129 million sequentially to $677 million. During the quarter, Walmart exercised its last remaining warrants at $10 per share, adding $159 million to our cash balance.

Excluding the warrant proceeds, this total would have been [$518 million] (ph) reflecting a $30 million use of cash in the quarter. As the working capital benefits of 2023 temporarily reset, we expect cash to decline slightly again in the second quarter before we return to working capital expansion in the back half of 2024. For the Second quarter of fiscal 2024, we expect revenue of $400 million to $420 million and adjusted EBITDA between $12 million $15 million which represents revenue growth of over 50% and improved adjusted EBITDA margin of over 700 basis points, both on a year-on-year basis. We now welcome your questions. Operator, please begin the Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Piyush Avasthy. Your line is open.

Piyush Avasthy: Good evening, guys.

Richard B. Cohen: Hi, Piyush.

Piyush Avasthy: Hi. I think for the second quarter guidance, the implied EBITDA margin is modestly below from what you did in 1Q, maybe some color on what is impacting margins in this quarter? I’m taking a step back, I know you don’t give full year guidance, but when do you expect a more meaningful sequential improvement in margins?

Carol Hibbard: Thanks for your question, Piyush. Our guide for the second quarter reflects our flexibility to accommodate increased spending, if needed, as we need to accelerate deployment schedules and ensure we have a high quality deployment with as little disruption as possible. Ultimately, the customer satisfaction of that quality system rests on Symbotic. And so as we continue to ramp, we’re going to deploy resources as necessary to ensure we meet that schedule. So that’s what we’re seeing for the second quarter. And in terms of the longer term profitability, we continue to be on a trajectory to improve and you’re going to see that start to improve in the second half of the year, and year-over-year continued improvement in our profitability.

Piyush Avasthy: Got it. Helpful. And Rick, I think you talked about BreakPack being available as a standalone product now. Maybe like, talk about the target customers here and how have the initial conversations been?

Richard B. Cohen: Yes. So, the target customers for a BreakPack operation like that would be typically, what you see in BreakPack is customers that are in the drugstore business, which is obviously a big market. And the original BreakPack that we designed for Walmart was really, if you think of it, there’s 4,500 supercenters and there’s 45 drugstores within a Walmart supercenters. So, these would be some of the customers that would logically look at a system like this, smaller store format, smaller customers would be interested in BreakPack, and also people with a long tail of slow movers that might be interested in shipping eaches as opposed to cases. So, we think it’s a very big customer base. We’re not actively selling that BreakPack right now, but we’ve finished the prototype. It’s no longer a prototype. And so, as we get more and more comfortable with it, we will begin to market it as add-on product to our basic product.

Piyush Avasthy: Got it. Very helpful. Appreciate the call, guys.

Carol Hibbard: Thank you.

Operator: Thank you. One moment, please. Our next question comes from the line of Ross Sparenblek of William Blair. Your line is open.

Ross Sparenblek: Hi, guys. Thanks for taking the question.

Richard B. Cohen: Hi, Ross.

Ross Sparenblek: Hi. Maybe on the, the supplier network, I know you guys noted that, you’re still adding suppliers. I thought we’re kind of through that dual sourcing that would then begin to allow you to start, alleviating some of the inventory challenges and bringing down those lead times. Can you just provide any update as, we think of the timing around that?

Richard B. Cohen: Yes. I’ve spent a lot of time with suppliers. What we’re seeing is better inventory, higher quality products coming from our suppliers, which means that we’re actually pushing the suppliers to do a lot more testing in their factories as opposed to on sites. And as a result, you’ll see the implementation time our system is faster, which is why we mentioned the fastest that we’ve done yet. This was completed this past quarter. And when we turned it on, it was above customer expectations for quality. So, what we’re seeing from suppliers now and what we’re working at is the suppliers now understand how real we are. There’s a lot of interest from suppliers. They’re more price competitive. They’re more willing to invest in quality.

So, I think we’re behind, we’re past the struggle is to find good suppliers and now we’re working with more good suppliers to be higher quality and more competitive. So, I think it’s, I think we are in a good place with suppliers now.

Carol Hibbard: Yes. So, Ross, I’ll just add to that. If you think about 2023, it’s really focused on getting those partners, and so there is probably a more substantial growth in terms of the number. Now we’re tweaking because we do need to continue to scale. And as Rick indicated, we know are coming in with a lot greater scale and suppliers are more interested. And so in 2024, as we focus on that, we’re also focused with our suppliers are ensuring we’re gaining those efficiencies, and we’re starting to see the benefit of that.

Ross Sparenblek: Okay. Got it. And then maybe just thinking about, new customer mix, and mix of the year. Can you just, maybe help us, better understand what steel was? And then also, of the five additions, what would have been, kind of customers outside of Walmart?

Carol Hibbard: Yes. So out of our new customers, so as we indicated, we had five new systems in this quarter, one of those was Southern Glazer’s. So we announced in November, we had the addition of Southern Glazer’s. So, that’s our new customer out of that mix of five. The other four were additional statements of work for existing customers. I think that was your first question on the new customer mix. Ross, can you go, you had another part to that, can you?

Ross Sparenblek: Yes. Just understanding what the, steel impact was. I know it’s been pretty variable quarter-to-quarter here.

Carol Hibbard: Yes. So in our contracts, we have pass through clauses that help us see that fluctuation of steel. We actually saw the benefit for steel fluctuation early in the year, now we’re looking at headwinds as we head into 2024, and still seeing that fluctuate, but I will emphasize our contract structure allows us to have some of those costs as pass through, but we continue to monitor that and ensure that we’re getting out ahead of it.

Ross Sparenblek: Got it. So, maybe just real quick, we think about the 90 basis points of sequential margin expansion, we’re steel maybe half of that?

Carol Hibbard: No. Steel would not have been, that big of contribute to that margin expansion.

Ross Sparenblek: Okay.

Carol Hibbard: Yes.

Ross Sparenblek: Thank you, guys.

Carol Hibbard: Okay. Thanks, Ross.

Operator: Thank you. One moment, please. Our next question comes from the line of Matt Summerville of D.A. Davidson. Your line is open.

Matt Summerville: Thanks. Couple of questions. I was wondering if you can maybe take a second back to, some of your prepared remarks just regarding SymBot, can you maybe review with us some of the KPIs, if you will, around SymBot versus, prior, the next closest prior generation, trying to get an understanding for, you mentioned more transactions an hour. If you can kind of put some numbers around how, SymBot is differentiated versus your legacy, gen robots?

Richard B. Cohen: So, the first thing that we did with SymBot is it can actually this may be one of the most important things. It can actually handle a tote, a tapered box and our original bot could not do that. So, that was one of the first things that forced us to relook at long-term flexibility of a SymBot. So, that part didn’t actually help us go faster, but it gave us a much bigger universe of products that we could handle. Most of our competitors might do trays or something else. So, we have a lot more flexibility on what size and shape of packages we can handle. The second thing that SymBot did over what we call [BotX] (ph), it has vision. And in order to put in vision, we needed graphic interfaces. And so, we upgraded to NVIDIA chips, and their vision and graphic interface boards, and so that allows us to actually see boxes that in the past we couldn’t see.

Third thing is, we can pick and place packages 10 seconds faster than we could with the original bot. So, those are some of the other things that we did. And then the last thing is that we can now actually on this bot pick up on inbound, we always were able to bundle and deliver two or three cases at a time. Now for the first time on outbound, we can handle more than one box at a time. So, I won’t give you a lot of numbers because some of the stuff is still proprietary, but you got a sense this bot is, I would say the upgrade for this bot would be from a motorcycle to an SUV.

Matt Summerville: Super helpful there. Thanks, Rick. And then as my follow-up, you kind of talking about BreakPack generally available not really actively selling it yet. I’ll ask the same question along the lines GreenBox, do you expect BreakPack to start to contribute to revenue in fiscal ‘24? And then when do you see Symbotic starting to attack the non-ambient market per one of your other prepared remarks? Thank you.