Joe Giordano: Rick, would you shock you with some of your — in the future, when GreenBox ramps up, like that customers will want some sort of mix of owning Symbotic systems in-house and also kind of renting from GreenBox to kind of diversify their base?
Rick Cohen: Yes. We think that’s very likely to happen. One of the things — one of our basic tenants with Symbotic is the automation that we’re providing is so much more advanced than other automation out there. And our innovation pipeline is continuing to grow — so we actually have to help some of the suppliers that would supply some of our large customers change their supply chains. And so there may be a small customer that can’t afford a Symbiotic System that might go into a GreenBox building and be maybe 10 small customers and that building might feed a very large customer. And so, in order to change the supply chain to be the size that Symbotic I think, can become we have to help a lot of people move into the automation space.
And so, one of the things that you’re going to find is right now, we’re selling very large systems. We shall going in the future, I think, sell a lot of small systems, and that’s really going to expand our game. And that could be both through GreenBox could be in a manufacturing warehouse and it could be at a consolidation center.
Operator: Our next question comes from the line of Ken Newman from KeyBanc Capital Markets. Your line is open.
Ken Newman: Just wanted to circle back on the faster deployment this quarter. Tom, just — any sense on just how much of the closing of the bot manufacturing facility days on cost — fixed cost option going forward? And where do you see other opportunities maybe to take that fixed cost to leverage it out even further?
Tom Ernst: Yes. Thanks for the question, Ken. So, we do think that we ultimately see lower fixed costs, we see overall expanded gross margin, overall expanded margins through this outsourcing initiative. It isn’t the primary reason that we outsourced the manufacture of all our systems. That was really to drive the ability to produce greater number of systems. So in the near term, we do — we are highly encouraged with what we’re getting on the outsourcing network. Recall, a bit over a year ago, we chose to accelerate our level of investment in it, and we actually took a step backwards in our costs. But our experience has been since we did that we feel much more strongly that we’re actually going to see greater margins over the long run.
So, in the near term, it’s about paying for effectively the speed and outsourcing, which we’ve done. And as we move forward from here is where we actually expect to see expanding margins. So I would say we’re seeing an expanding — we’ve seen lower costs overall yet, but the cost is lower enough to pay for the profit margins in our partners so far.
Ken Newman: Understood. And then just for my follow-up. Obviously, some of your customers have talked a little bit more cautiously about higher consumer weakness that’s to fringe through this earnings season. Obviously, it doesn’t seem like you’re being impacted by that at all, but just to clarify and just have the question out there, any sense on whether customers are asking to decelerate or delay deployments or do you think get the sense that this environment maybe drive customers to accelerate their automation plans even further?
Rick Cohen: Yes. I think what we’re seeing is, the customers that we have right now with Symbotic, want to go as fast as they can. They ultimately — we have great customers. They’re winning in their market spaces, and they want to — I think they see headwinds coming and they want to be at the forefront of lowering costs. And I think that’s what — so we’re not seeing any slowdown. If anything, people want to go faster.
Tom Ernst: I’ll add to that. With following the wake of GreenBox, the inbound interest to us has picked up. So our early entry of the sales funnel was bigger than it was a quarter ago.
Ken Newman: Yes. Maybe if I could just squeeze one more in, just on free cash flow. Tom, if I remember correctly, you just mentioned that working capital is still going to be a use this year — just any sense with the margins expecting to structurally get better through the year, any sense on whether free cash flow margin should be better in 2024 than it was in 2023?
Tom Ernst: So working capital was actually a positive contributor to our cash flow for 2023. And I did make a comment that we had some positive timing events in 2023 that gave us a little bit of a tough comp for Q1. But otherwise, we do expect expanding working — expanding cash flow from working capital in all of till 2024 as well.
Operator: Our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open.
Mark Delaney: Let me add my congratulations to both Tom and Carol. A quick question on systems margins. You spoke about ending SymBot production in-house. Maybe you can help us better understand how much that should be in terms of savings or margin expansion? And how long it may take to see that? And then you think about longer term for systems gross margins and getting into the high 20s or even 30% type level in the longer term within systems — maybe talk a bit more around the levers. I mean how much is cost reductions like what you announced today? And how much is maybe the higher priced backlog flowing through and how much might be volume?
