Q1 2023 Symbotic Inc Earnings Call

January 30, 2023

Yes.

Operator 2: Thank you for standing by, and welcome to the Symbotic's Q1 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star one one on your touchtone telephone. As a reminder, this conference call is being recorded. I will now turn the conference over to your host, Mr. Jeff Evanson, Vice President of Investor Relations. Please go ahead.

Operator: Thank you for standing by, and welcome to the Symbotic's Q1 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentations, there'll be a question-and-answer session. To ask a question at that time, please press star one one on your touchtone telephone. As a reminder, this conference call is being recorded. I will now turn the conference over to your host, Mr. Jeff Evanson, Vice President of Investor Relations. Please go ahead.

Thank you for standing by and welcome to the symbiotic as first quarter 2023 financial results Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press star one one when you touch tone telephone.

This conference call is being recorded I would now turn the conference over to your host Mr. Jeff Evanson, Vice President of Investor Relations. Please go ahead.

Jeff Evanson: Thank you, Valerie. Good afternoon, everyone. Welcome to Symbotic's Q1 2023 results webcast. As Valerie mentioned, 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 factors described in the 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.

Jeff Evanson: Thank you, Valerie. Good afternoon, everyone. Welcome to Symbotic's Q1 2023 Results Webcast. As Valerie mentioned, 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 factors described in the 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.

Thank you Valerie and good afternoon, everyone.

Welcome to <unk> first quarter 2023 results webcast.

As Valerie mentioned.

<unk> 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 could differ materially from those projected in the forward looking statements.

Including as a result of factors described in the cautionary statements and risk factors.

X financial release, and regulatory filings with the SEC by.

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 to assist management in planning forecasting and evaluating our business and financial performance, including allocating resources.

Jeff Evanson: 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 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 Q2, including revenue and adjusted EBITDA. We are 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 the provision for stock-based compensation. On today's call, we are joined by Rick Cohen, Symbotic's Founder, Chairman, and Chief Executive Officer, and Tom Ernst, Symbotic's Chief Financial Officer.

Conciliations 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 on file with the SEC.

These non-GAAP measures may not be comparable to measures used by other issuers.

Today, we will provide guidance for the second quarter, including revenue and adjusted EBITDA.

These are not we are not providing guidance for net loss per day, which is the most comparable GAAP financial measure to adjusted EBITDA.

Not able to provide reconciliations of adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of our control <unk> cannot be reasonably predicted such as the provision for stock based compensation.

On today's call. We are joined by Rick Colon, symbiotic founder Chairman and Chief Executive Officer.

And Tom Ernst Symbiotic Chief Financial Officer.

Jeff Evanson: These executives will discuss our Q1 2023 results, our outlook, and then we'll follow up with Q&A. With that, oh, I'm sorry, Rick, go ahead.

These executives who will discuss our first quarter 2023 results our outlook and then we'll follow up with Q&A.

So with that Valerie I'm sorry, Rick.

Rick Cohen: Yeah. Thanks, Jeff. 2023 is off to a great start, and we are excited about our outlook. Again, our results reflect strong execution of our growth opportunity. In our Q1, the Symbotic team delivered triple-digit revenue growth and improved both gross profit and adjusted operating margins. I thank our entire team for their hard work and excellent execution. Last quarter, we highlighted our plans to build on our existing base of outsourcing partners. During this quarter, we added additional tier one suppliers to build capacity to meet our growing demand as well as to ensure supply chain and redundancy. These outsourcing partners now span our full deployment process from manufacturing of bots, cells, and lifts to construction and installation. We're excited about our partners' growing contributions as they help us accelerate delivery of systems while maintaining our extraordinary rate of growth.

Yeah. Thanks, Jeff 2023 is off to a great start.

We are excited about our outlook again, our results reflect strong execution of our growth opportunity.

And our first quarter, the symbiotic team delivered triple digit revenue growth and improved both gross profit and adjusted operating margins.

I, thank our entire team for their hard work and excellent execution.

Last quarter, we highlighted our plans to build on our existing base of outsourcing partners. During this quarter, we added additional tier one suppliers to build capacity to meet our growing demand as well as to ensure supply chain and redundancy.

These outsourcing partners now span our full deployment process for manufacturing a box sells at list to construction and installation work.

We're excited about our partners growing contributions as they help us to accelerate delivery of systems, while maintaining our extraordinary rate of growth. These partnerships will also help us to reduce system costs and streamline deployments and reduced deployment time creates the capacity to satisfy the high demand.

Rick Cohen: These partnerships will also help us to reduce system costs and streamline deployments, and reduced deployment time creates the capacity to satisfy the high demand of our solutions. In summary, our supply chain continues to improve, costs are moderating, and we continue to attract top talent. Demand for our solutions continues to grow, and our contracted backlog now stands at $12 billion. Now, Tom will discuss our financial performance and outlook. Tom.

Our solutions in.

In summary, our supply chain continues to improve.

Moderating and we continue to attract top talent.

And for our solutions continues to grow and our contracted backlog now stands at $12 billion now.

Now Tom will discuss our financial performance and outlook.

Tom Ernst: Thank you, Rick. Our Q1 revenue of $206 million grew 168% over the prior year period. We initiated 6 new system deployments during the quarter and, as planned, advanced 1 system to fully functional production operations. We now have 22 active system deployments with multiple customers, up from 17 systems last quarter and 9 systems in the Q1 of last year. Our extraordinary revenue growth was driven by both progress on deployments already underway and the 6 deployments started during the quarter. We are gaining efficiency in our deployments by standardizing our systems, streamlining our deployment processes, and realizing the benefits of outsourcing. Our cash and equivalents, including marketable securities, grew $94 million sequentially to $448 million due to favorable working capital performance.

Thank you Rick.

Our first quarter revenue of $206 million, 168% over the prior year period.

We initiated six new system deployments during the quarter and as planned advanced one system to fully functional production operations.

We now have 22 active system deployments with multiple customers up from 17 systems last quarter and nine systems in the first quarter of last year.

Our extraordinary revenue growth was driven by both progress on deployment is already underway and the fixed deployments started during the quarter.

We are gaining efficiency in our deployments by standardizing our systems streamlining our deployment processes.

And realizing the benefits of outsourcing.

Our cash and equivalents, including marketable securities grew $94 million sequentially to $448 million due to favorable working capital performance.

Tom Ernst: Looking forward, we believe last quarter's balance of $353 million will be a low watermark. We believe we have more than adequate resources on hand to achieve our strong growth plans and remain very well capitalized to execute our strategy. Recurring revenue grew 25% sequentially as deployments have begun to move to production operations. We now have 8 systems operating at customer sites. In the near to midterm, we expect recurring revenue to be small relative to our rapidly growing systems revenue. Over time, as system completions waterfall, recurring revenue should grow to have a much higher gross margin than systems revenue, as well as become an increasing share of our revenue mix to provide powerful operating leverage to our business. Our Q1 gross margin increased 230 basis points sequentially.

Looking forward, we believe last quarter's balance of $353 million will be a low watermark.

We believe we have more than adequate resources on hand to achieve our strong growth plans and remain very well capitalized to execute our strategy.

Recurring revenue grew 25% sequentially as deployments have begun to move to production operations. We now have eight systems operating at customer sites.

In the near to midterm, we expect recurring revenue to be small relative to our rapidly growing systems revenue.

Over time as system completions waterfall recurring revenue should grow to have a much higher gross margin than systems revenue as well as become an increasing share of our revenue mix to provide powerful operating leverage to our business.

Yes.

Our first quarter gross margin increased 230 basis points sequentially.

Tom Ernst: These results still reflect significant costs associated with rapidly scaling our operations and the burden of elevated pass-through steel costs. In Q1, operating expenses, excluding stock-based comp, declined sequentially, demonstrating the cresting of expenses that we had anticipated. Despite this, we still have ongoing redundant costs associated with ramping partners and ongoing investments in our innovation initiatives, such as SymBot and BreakPack. Operating leverage improved as we achieved a record 7.9% adjusted EBITDA loss rate compared to 27.6% in Q1 a year ago, driven by our revenue growth and moderating operating expenses. Our backlog increased this quarter to $12 billion. Cost-adjusted pricing, the addition of UNFI as a customer, and an additional non-Walmart existing customer deployment start contributed to the 8% sequential increase.

These results still reflect significant costs associated with rapidly scaling our operations and the burden of elevated pass through steel costs.

In the first quarter operating expenses, excluding stock based comp declined sequentially.

Demonstrating the cresting of expenses that we had anticipated.

Despite this we still have ongoing redundant costs associated with ramping partners and ongoing investments in our innovation initiatives, such as Simba and break pack.

Operating leverage improved as we achieved a record seven 9% adjusted EBITDA loss rate compared to two.

27, 6% in the first quarter, a year ago, driven by our revenue growth and moderating operating expenses.

Our backlog increased this quarter to $12 billion.

Cost adjusted pricing. The addition of UNFI as a customer and an additional non Walmart existing customer deployments start contributed to the 8% sequential increase.

Tom Ernst: Turning to our outlook for Q2 of fiscal 2023, we expect revenue of $205 to 230 million and an adjusted EBITDA loss of between $13 and 17 million. This represents 126% revenue growth year-over-year at the midpoint of our revenue guidance range. In closing, 2023 is off to a great start and our team is energized. We are excited about the year ahead and our opportunity to transform the supply chain. We'll continue to scale our business and innovate rapidly to deliver against our $12 billion revenue backlog. We look forward to speaking with you again next quarter to provide an update on our progress. We now welcome your questions. Operator, will you please open the Q&A?

Turning to our outlook for the second quarter of fiscal 2023, we expect revenue.

$205 million to $230 million.

And an adjusted EBITDA loss of between 13 and $17 million.

This represents 126% revenue growth year over year at the midpoint of our revenue guidance range.

In closing 2023 is off to a great start and our team is energized. We are excited about the year ahead, and our opportunity to transform the supply chain.

We will continue to scale, our business and innovate rapidly to deliver against our $12 billion revenue backlog.

We look forward to speaking with you again next quarter to provide an update on our progress.

We now welcome your questions.

Operator, please open the Q&A.

Operator 2: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your telephone. Again, to ask a question, please press star one one. Our first question comes from Matt Summerville of D.A. Davidson. Your line is open.

Operator: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star one one on your telephone. Again, to ask a question, please press star one one. Our first question comes from Matt Summerville of D.A. Davidson. Your line is open.

Thank you.

Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone again to ask a question. Please press star one one our first question comes from Matt Summerville of D. A Davidson your line is open.

Matt Summerville: Thanks. Couple of questions. First, on gross margin and OpEx, how should we be thinking about those items kinda scaling from here? You mentioned OpEx kinda cresting last quarter, so things seemingly moving in the right direction with more efficiencies to be gained. Maybe put a finer point on gross margin, how we should think about that rolling forward from here, and how much, you know, steel is still maybe diluting that margin. I have a follow-up.

Thanks couple of questions first on gross margin and Opex, how should we be thinking about.

Those items kind of scaling from here you mentioned opex kind of cresting last quarter, so things seemingly moving in the right direction with more efficiencies to be gained and then maybe put a finer point on gross margin. How we should think about that rolling forward from here and how much steel is still maybe diluting that margin and then I have a follow up.

Tom Ernst: Yeah. Thank you for the question, Matt. First on the OpEx side, you know, we reported an adjusted OpEx of $52 million. That was lower than both of the prior quarters, as we had fewer third-party expenses. I think a way to think about that is some of that is structural as we're shifting to outsourcing partners, and some of it is just the quarterly variability of our engineering projects. You know, looking through to that, our headcount is up about 9% quarter on quarter. You can see we're still investing and hiring heads as we're able to make benefit of less dependency on third party resources to grow and scale our business. Perhaps shifting over to the gross margin side.

Yes. Thank you for the question Matt.

So first on the Opex side.

We reported an adjusted Opex of $52 million.

That was lowered both of the prior quarters as we had fewer third party expenses. So I think a way to think about that is some of that is structural as we're shifting to outsourcing partners and some of it is it's just the quarterly variability of our engineering projects.

Looking looking through to that our head count is up about 9% quarter on quarter. So you can see we're still investing and hiring heads as we're able to.

Make benefit of less dependency on third party resources to grow.

Grow and scale our business.

Perhaps shifting over to the to the gross margin side.

Tom Ernst: Quarter-on-quarter system gross margin, which drives our overall gross margin, improved sequentially by 250 basis points. You know, this really is an attenuation of some of the effects that we saw last quarter in terms of some of those scaling and project costs that have made their way into gross margin. We began to see some of those recede, and so generally we expect that trend to continue as we look forward over the coming quarters, although it, you know, quarterly progress on that can be stairsteps. You know, I won't predict and give you guidance for exactly how we'd make progress against that.

Quarter on quarter system, gross margin, which drives our overall gross margin improved sequentially by 250 basis points.

This really is.

<unk> of some of the effects that we saw last quarter in terms of.

Some of those scaling and project costs that have made their way into gross margin. We began to see some of those recede and so generally we expect that trend to continue as we look forward over the coming quarters although.

Quarterly progress on that can be can be stair steps. So.

I won't predict I won't predict and give you guidance for exactly how we'd make progress against that but the general trend over the coming quarters, you should expect us to see.

Tom Ernst: The general trend over the coming quarters, you should expect us to see some of those effects of scale, some of those costs that are in gross margin associated with scaling the business begin to attenuate, along with, steel costs begin to flow through as less of a headwind. A way to think about that steel as well, don't forget that we do lock in much of our steel pricing 12 months prior to the start of an installation. So if you look at the steel price indexes, the steel prices have really been lower for about 5 to 6 months. So, we expect kind of the benefit of lower steel prices to wash in over the coming few quarters rather than right away. Does that answer your question, Matt?

Some of those effects of some.

Some of those costs that are in gross margin associated with scaling the business begin to attenuate along with.

Steel costs begin to flow through as less of a headwind.

Way to think about that steel as well don't forget that we do lock in much of our steel pricing 12 months prior to the start of an installation.

So if you look at the steel price indexes.

The steel prices have really been lower for about five to six months.

We expect kind of the benefit of lower steel prices to Washington over the coming few quarters, rather than them right away.

Matt Summerville: That makes sense. Thank you. Yeah. Yeah, that does. Just as a follow-up, from here forward, what are the key incremental steps Symbotic needs to take from an outsourcing standpoint to further accelerate system implementations? When do you think the company will reach an optimal sort of implementation rate? Thank you.

That makes sense. Thank you, yes, yes that does and then just as a follow up from here forward what are the key incremental steps symbiotic needs to take from an outsourcing standpoint will further accelerate.

Implementations and when do you think the company will reach an optimal sort of implementation rate. Thank you.

Rick Cohen: Yes. We spent this last quarter a lot of face-to-face time with suppliers, so we're pretty much locked in our suppliers. We have a couple of very good suppliers that are gonna be ramping up in Q2 and Q3. We're pretty well set with our outsourcing supplier mix. We're seeing as they learn to make the systems better and a little competition, we're seeing the pricing come down. We're also seeing efficiencies of rollout. As we work with the suppliers and redesign small components of it, we're finding that the installs will happen faster. I think the next three to six months, you should see full benefit of the outsourcing of suppliers.

Yes.

So we spent.

Last quarter.

A lot of.

Face to face time with suppliers.

Pretty much locked in our suppliers, we have a couple of.

Very good suppliers that are going to be ramping up in the second and third quarter. So we are pretty well set with our outsourcing supplier mix.

And.

We're seeing.

We're seeing as they learn to.

To make the systems better and a little competition, we're seeing your pricing come down we're also seeing efficiencies of rollout.

And as we work with our suppliers and redesigned small components of it we're finding that the installs will happen faster.

I think the next three to six months you should see full benefit of the outsourcing of suppliers.

Tom Ernst: I'll add to that, Matt, as we just think about the long term, we see this as a continuous opportunity for us to, you know, where the system can be engineered for faster deployments. Our partners are gonna gain efficiency. We're gonna gain speed with it. We think that in addition to Rick highlighting here, these next 3 to 6 months are huge for us. There's gains that we can have over the coming years to continue to speed deployments and get more efficient.

I'll add to that Matt is we just think about the long term we see this as a continuous.

Opportunity for us too.

The system can be engineered for faster deployments, our partners are going to gain efficiency, we're going to gain speed with it. So we think that in addition to Rick.

Rick highlighting these three to six next three to six months are huge for us.

Those gains that we can have over the coming years to continue to speed deployments and get more efficient.

Matt Summerville: Understood. Thank you both.

Understood. Thank you Paul.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Andrew Kaplowitz of Citigroup. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Andrew Kaplowitz of Citigroup. Your line is open.

Thank you.

Please.

Our next question comes from the line of Andrew Kaplowitz Citi. Your line is open.

Andrew Kaplowitz: Good evening, guys.

Afternoon, guys.

Tom Ernst: Good evening.

Andrew Kaplowitz: Can you give us a little more color into the revenue ramp that you're seeing now? I'm sure you wanna be conservative, but at the bottom of your revenue guidance for Q2, you're predicting flat sequential revenue despite your system deployments and Symbotic rapidly scaling its business. Is there something that could hold you back or you're just being conservative, you know, given you never know if supply chain constraints come back? Is there any risk of customers slowing down deployments given macro concerns?

Good evening.

You give us a little more color into the revenue ramp that you're seeing I'm sure you want to be conservative, but at the bottom of your revenue guidance for Q2.

Predicting flat sequential revenue despite your system deployments and symbiotic rapidly scaling its business. So is there something that can hold you back or you just being conservative.

You never know if supply chain constraints come back or is there any risk of customers slowing down deployments, giving given macro concerns.

Tom Ernst: Yeah. Thank you for the question, Andrew. You're right. We're growing rapidly. Our number of systems under deployment is, as you highlighted here, now at 22. That's up 5 net of the one that went into full production from last quarter. That translates into 126% year-on-year revenue growth, which we think is quite rapid. You know, we're planning to deliver and scale against that rapid growth. You know, I think something we...

Yes, thanks for the question Andrew.

No Youre right, we are growing rapidly our number of systems under deployment as you highlighted youre now at 20 twos Thats up up five net of the one that went into full <unk>.

Wanted to full production from last quarter.

That translates into a 126% year on year revenue growth, which we think is quite rapid so.

We're planning to deliver and scale against that rapid growth.

Tom Ernst: You know, one of the things we talked about in our last earnings call was these first few systems, first wave of the few systems we delivered did see somewhat of kind of a stacking of the key concentration of revenue delivered those systems over, really, the prior quarter, a little bit in the Q3 as well. As we begin to deliver more and more waves of systems, they're gonna be more uniformly spaced, and we'll begin to see some of that quarterly variations in revenues smooth out a bit. Really what you're seeing is a function of our sequential growth is more just to do with the concentration of the stacking of some of the smaller number of systems actually in the meat of their deployment.

I think something one of the things we talked about in our last earnings call was these first few systems.

First wave of the <unk> systems, we delivered did see somewhat of a kind of a stacking of the key concentration of revenue deliver those systems over the really the prior quarter, a little bit into Q3 as well.

As we begin to look to deliver more and more ways of systems. They are going to be more uniformly space and will begin to see some of that quarterly variations in revenues smooth out a bit.

But really what youre seeing is a function of our sequential growth is more just to do with the concentration of the stacking of some of the smaller number of systems actually in the meat of their deployment.

Andrew Kaplowitz: Got it. That's helpful. You mentioned backlog at $12 billion. Obviously, it continues to go up. I think you talked about greater than $11 billion last quarter. Is this just more addendums to sort of existing contracts that you have? Or do you continue to win work with new customers? Obviously, we know eventually revenue will begin to eat into that backlog, given it's so big. How are you thinking about backlog at this point? Should it begin to go down now as revenue ramps up, or, you know, still more new awards to be had?

Got it that's helpful. And then you mentioned backlog of 12 billion. Obviously it continues to go up I think you talked about greater than 11 billion last quarter. So is this just more addendums to sort of existing contracts that you have.

Continuing to win work with new customers I. Obviously, we know eventually revenue will begin to eat into that backlog given it's so big but how you're thinking about backlog at this point should it begin to go down now as revenue ramps up or.

More new awards to be had.

Tom Ernst: Yeah. Thanks for the question, Andrew. You're right, backlog did increase, net of the revenue out in the quarter, by about $900 million in the quarter. That really reflects a couple things. It reflects the new UNFI relationship that we announced on last quarter's earnings call that was signed during this quarter. It also reflects an additional existing customer, new deployment we started in the quarter. And then finally, it reflects cost-adjusted pricing for the existing backlog in the quarter that we expect you'll see once a year when we start each calendar year. A little bit different average cost per system in the backlog. You know how you should think about the backlog, our strategy hasn't shifted. We're thrilled with the $12 billion backlog.

Yes. Thanks for the question Andrew So you are right backlog did increase net of the revenue out in the quarter by about 900.

<unk> million dollars in the quarter, so that really reflects a couple of things it reflects the new UNFI.

The relationship that we announced on last quarter's earnings call that was signed during this quarter also reflects an additional existing customer new deployment, we started in the quarter.

And then finally.

Reflects cost adjusted pricing for the existing backlog in the quarter that we expect that you will see once a year when we start each calendar year, so a little bit different average cost per system.

In the backlog.

How you should think about the backlog our strategy hasn't shifted.

We're thrilled with the $12 billion backlog our goal is really not to drive backlog growth, so much but really to drive our customers to being regularly happy and having.

Tom Ernst: Our goal is really not to drive backlog growth so much, but really to drive our customers to being ravingly happy and having and to scale against the opportunity we have. We're looking to add new customers more by the 1 or 2 per year rather than add to the backlog as our primary strategy here in the near term, given that we do have such a strong demand for our systems that we can control adds to backlog as we want them.

And to scale against the opportunity we have we're looking to add new customers more by the one or two per year, rather than add to the backlog as our primary strategy here in the near term gear.

Given that we do have such a strong <unk>.

Demand for our systems that we can control at the backlog as we want them.

Andrew Kaplowitz: Appreciate the color.

I appreciate the color.

Tom Ernst: Thank you.

Thank you.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Mark Delaney of Goldman Sachs. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Mark Delaney of Goldman Sachs. Your line is open.

Thank you one moment please.

Our next question comes from the line of Mark Delaney of Goldman Sachs. Your line is open.

Mark Delaney: Yes. Good afternoon. Thank you very much for taking the questions. Rick, I think your decision to retake the CEO role on, as I understood it, was to streamline the touch points that your customers have and hopefully create some more efficiencies in that sort of relationships. Could you elaborate if that's materializing as you expected?

Yes. Good afternoon. Thank you very much for taking the questions. Rick I think your decision to retake the CEO role on as I understood. It was to streamline the touch points that your customers have and hopefully create some more efficiencies in that set of relationships could you elaborate if that's materializing as you expected.

Tom Ernst: Yeah. I mean, I've been the CEO for most of the time, except for really a short period of time. Yeah, it's playing out the way I thought. Our customers wanna talk to me, they've been talking to me for a long time. I'm really the chief product development officer. When I talk to customers, one of the things they're asking is, because of my deep distribution background, if they think some of the products that they're thinking about are viable. It just makes the logical sales cycle, the proof of concept piece of selling these big pieces of equipment and then the follow-through logical. It's playing out pretty much exactly the way I thought it would.

Rick Cohen: Yeah. I mean, I've been the CEO for most of the time, except for really a short period of time. Yeah, it's playing out the way I thought. Our customers wanna talk to me, they've been talking to me for a long time. I'm really the chief product development officer. When I talk to customers, one of the things they're asking is, because of my deep distribution background, if they think some of the products that they're thinking about are viable. It just makes the logical sales cycle, the proof of concept piece of selling these big pieces of equipment and then the follow-through logical. It's playing out pretty much exactly the way I thought it would.

Yes.

I mean I've been the CEO for most of the time, except for really a short period of time.

<unk> action, so, yes, it's playing out the way I thought.

Customers want to talk to me.

We're talking to me for a long time.

Really the chief product development officer and so.

When I talk to customers.

One of the things that we're asking.

Is because of my deep distribution background, if they think some of the products that they are thinking about are viable and so it just makes logical the sales cycle.

The proof of concept piece of selling these big pieces of equipment and then as a follow through logical so.

So it's playing out pretty much exactly the way we thought it would.

Mark Delaney: That's very helpful. Thanks. My second question was around how to think about the cadence of systems going forward and maybe helping us better understand what's contemplated in the guidance, perhaps in terms of the number of new installations that may be started, and if you think you'll move any other systems into full completion this coming quarter, baked into guidance. Thanks.

That's that's very helpful. Thanks, and then my second question was around how to think about the cadence of systems going forward and maybe help us better understand what's contemplated in the guidance, perhaps in terms of the number of new installations that may be started and if you think you'll move any other systems into a full completion this coming quarter.

Baked into guidance.

Tom Ernst: Yeah. Thanks for the question, Mark. We do anticipate adding more systems each quarter. It's a little bit less predictable on a given quarterly basis exactly how many we'll add. You should expect that, you know, as you look forward over coming quarters, we continue to add systems and potentially in growing numbers as we look forward. Those systems that get added in the quarter don't add as much revenue as the systems that have already been on the books for a couple or a few quarters. You know, I think as you know that our value that we deliver and, thus, the revenue that we carry from those systems is recognized and reported on a percentage completion basis. It's not linear.

Yes. Thanks for the question Mark So we do anticipate adding more systems each quarter, it's a little bit less predictable on a given quarterly basis exactly how many we'll add.

But you should expect that as you look forward over coming quarters, we continue to add systems and potentially in growing numbers as we look forward those systems get added in the quarter, Don don't add as much revenue as the systems that have already been.

On the books for a couple or a few quarters.

I think as you know that.

Our our value that we deliver and thus the revenue that we carried from those systems.

As recognized and reported on a percentage completion basis, but it's not linear but the revenue actually.

Tom Ernst: The revenue actually has a bit of a concentration to the middle of the second half part of the contract when we're doing the meat of the installation and testing of the system. Those early systems do benefit quarterly revenue production, but not as strong as the systems that are well into the meat of installation.

As a bit of a concentration to to the middle part of the.

The carnage in the middle of the second half part of the contract win where we're doing the meat of the installation and testing of the system.

So those early systems do do benefit quarterly revenue production, but but.

Not as strong as the systems that are well into the meat of installation.

Mark Delaney: Thank you.

Thank you.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Nicole DeBlase. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Nicole DeBlase. Your line is open.

Thank you.

Please.

Our next question comes from the line number Nicole Dibiase Your line is open.

Nicole DeBlase: Yeah, thanks. Good afternoon. Maybe just on the outsourcing initiative, it sounds like from the opening remarks that you guys have made really good progress on that. If we were to talk about it in baseball terms, I guess what inning are you in with, you know, all of your projects on outsourcing?

Yes, thanks, good afternoon.

Maybe just.

The outsourcing initiative it sounds like from the opening remarks that you guys have made really good progress on that so if we were to talk about it in baseball terms I guess, what inning are you in with all of your projects on outsourcing.

Rick Cohen: Yeah. In baseball terms, I would say we're probably in the fifth, sixth inning on outsourcing. The partners are doing a good job. We haven't finished the process yet, so I think we're bringing on some new, we haven't announced them yet. We've announced some of it internally. We're bringing on some new, very experienced, manufacturing partners to help us work the outsourcing part of the business. We feel really good about it. The game plan is probably going a little bit better than we thought, which is a nice thing to say. No show stoppers. The world out there of our particular partners is interested in warehouse automation and in making EVs.

Yes, so in baseball terms I would say.

We have.

I would say, we're probably in the sixth inning on outsourcing.

We will we.

Partners are doing a good job.

And.

But we haven't finished that we haven't finished our process yet so I think we are bringing on some new.

We haven't announced them yet we've announced some of it internally, we're bringing on some new very experienced manufacturing partners to help us work outs.

Outsourcing.

The business, so we feel really good about it.

The game plan is probably gone a little bit better than we thought which is a nice thing to say and no no show stoppers.

The world out there of our particular partners.

Is interested in.

Warehouse automation, and then making evs.

Rick Cohen: We're right now have a lot of interest because of our big backlog in warehouse automation. We're very happy with the attention we're getting from suppliers, quite frankly, all over the world. That was not the case a year ago. I guess fifth inning, sixth inning, maybe even seventh inning. We're pretty happy with where we are.

And we're right now have a lot of interest because of a big backlog and warehouse automation. So we're very happy with the attention we're getting from suppliers quite frankly, all over the world.

So that was not the case a year ago. So.

Yes.

Sixth inning, maybe even 17, and we're pretty happy with where we are.

Nicole DeBlase: Got it. Thanks, Rick. That's helpful. One more question for you guys is just, I know you talked about OpEx cresting. Is that also the case for, you know, the subcomponent of R&D? Is that also expected to crest? Just trying to think about all of the innovation initiatives that you guys also have underway.

Got it thanks, that's helpful and then.

One more question for you guys is just I know you talked about Opex cresting is that also the case for the sub component of R&D is that also expected to cross just trying to think about all of the innovation initiatives that you guys also have underway.

Tom Ernst: Yeah. Thanks for the question, Nicole. I would expect modest growth in our OpEx, particularly near term. You know, our OpEx we reported this quarter was relatively light in terms of third-party expenses and kind of special projects. If you take the last three quarters overall, you know, that general comment about crested is generally right, maybe with moderate growth looking forward. In terms specifically with R&D, yes, it applies to R&D as well.

Yes, thanks for the question Nicole.

So I would expect modest growth in our opex, particularly near term.

Our Opex we reported in this quarter was was relatively light in terms of third party expenses and kind of special projects.

If you take the last three quarters overall.

Our general comment about crested is generally right maybe with moderate growth looking forward in terms of specifically with R&D, yes.

Yes, it applies to R&D as well.

Nicole DeBlase: Thanks. I'll pass it on.

Thank you I'll pass it on.

Operator 2: Thank you. One moment, please. Our next question comes from the line of James Ricchiuti of Needham & Company. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of James Ricchiuti of Needham & Company. Your line is open.

Thank you one moment please.

Yes.

Our next question comes from the line of James Ricchiuti.

Needham <unk> company your line is open.

James Ricchiuti: Hi. Thank you. Good afternoon. I think you referenced an order from an existing customer. Was this one of your legacy customers?

Hi, Thank you good afternoon.

I think you referenced.

An order from a.

An existing customer was this one of your your legacy customers.

Tom Ernst: Yeah. Thanks for the question, James. It was. In fact, we disclosed in our proxy filing that customer is C&S Wholesale Grocers.

Yes. Thanks for the question James It was in fact, we disclosed in our proxy filing that that that customer is CNS wholesale grocers.

James Ricchiuti: Got it. I'm wondering if you, as you talk about the supply chain and the contract manufacturing capability that you're bringing on and you expect to see ramp, can you talk about the interest you're getting from new customers and your ability, your capacity to maybe take on newer business? Specifically, I'm wondering, most of your business has been in the US, North America. Is there the potential over the next couple of quarters for you to potentially take on some business in Europe, for instance?

Got it.

I'm wondering if U S.

As you talk about.

The supply chain and the <unk>.

Contract manufacturing capability.

Youre, bringing on do you expect to see ramp.

Can you talk about the interest you are getting from new customers and your ability.

Your capacity to maybe take on newer business and specifically I'm wondering most of your business has been in the U S North America.

Is there the potential over the next couple of quarters for you to potentially take on.

Some business.

In Europe for instance.

Rick Cohen: Yeah. It's you know, it's a fairly long sales cycle, but we've had interest from Mexico, we've had interest from Europe, so we and the numbers are pretty promising. Made a trip to Japan to visit SoftBank. That's a very promising. These high-cost labor markets are interesting. Nothing to announce, nothing probably to announce for a while, but a lot of interest. What we're doing with the supply chain partners, actually, some of the partners are in Europe, places like Italy, Germany. They're actually out there trying to help them sell for us, legitimizing our product. We do have a number of international customers coming to visit in the next 3 to 6 months to go visit sites.

Yes, we.

It is.

It's a fairly long sales cycle, but we've had.

Interest from Mexico, We've had interest from Europe . So we.

<unk>.

And the numbers are pretty promising.

I made a trip to <unk>.

To Japan to visit Softbank.

That's a very promising is these high cost labor markets are interesting so nothing nothing to announce nothing probably to announce for a while but a lot of interest.

And in what we're doing with the supply chain partners actually some of the partners are in Europe places like Italy, Germany.

And so they are actually out there trying to help them sell for us.

Legitimizing our product, we do have a number of.

International customers coming to visit in the next three to six months to go visit sites.

Rick Cohen: One of the things that we're doing with the outsourcing partners is, as we ramp them up, it allows us to complete sites faster. If we can complete sites faster, we can do more sites. One of the things that we're looking at is outsourcing partners, in particular from Europe, that would be good partners in doing European installs.

And one of the things that we're doing with the outsourcing partners is as we ramp them up.

How's us to complete sites faster and if we can complete sites faster, we can do more sites.

And also one of the things that we're looking at is outsourcing partners in particular from Europe that would be good partners and during European installs.

Tom Ernst: I'll just reiterate, James, that, you know, while we're working to create that additional capacity, our operating strategy is to add new customers slowly, kind of ones or twos per year.

And I'll just reiterate that.

While we're working to create that additional capacity our operating strategy is to add new customers slowly kind of one on ones or twos per year.

James Ricchiuti: Okay. Final question from me. When would you anticipate completing the next fully functional system from your backlog, if you can say?

Okay and final question for me.

When would you anticipate completing the next fully functional system from your backlog if you can say.

Tom Ernst: Sure. Thanks for the question, James. You know, it's hard to predict on a given quarterly basis, but as we look forward over the coming quarters, we do anticipate that you'll begin to see us get into a pattern of moving systems from deployment to fully functionally complete at the customer, with increasing regularity.

Sure. Thanks for the question James.

It's hard to predict on a given quarterly basis, but as we look forward over the over the coming quarters, we do anticipate that youll begin to see us getting into a pattern of <unk>.

Moving systems from deployment to fully functionally complete hit the customer.

With increasing regularity.

Mike Latimore: Thanks a lot.

James Ricchiuti: Thanks a lot.

Thanks, a lot.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Mike Latimore of Northland Capital Markets. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Mike Latimore of Northland Capital Markets. Your line is open.

Thank you.

One moment please.

Our next question comes from the line of Michael Latimore of Northland Capital markets. Your line is open.

Mike Latimore: Oh, great. Thank you. Yeah, great results here. Just in terms of the deployment time frames, you know, what are you seeing now? How long do you anticipate deployments to take given some of the added outsourcing capacity here?

Michael Latimore: Oh, great. Thank you. Yeah, great results here. Just in terms of the deployment time frames, you know, what are you seeing now? How long do you anticipate deployments to take given some of the added outsourcing capacity here?

Oh, great. Thank you.

Yes, great great results here.

Just in terms of the deployment timeframes.

What are you seeing that how long do you anticipate deployments to take given some of the <unk>.

Ed It outsourcing capacity here.

Tom Ernst: Yeah, thanks for the question, Mike. We continue to make progress on this front. We are definitely beginning to feel the benefits of having done it many times now, along with beginning to get support from our outsourcing partners that are helping us trend in the right direction. You know, as you would expect, Mike, our first waves of systems take longer than what we expect those next couple of waves to take, particularly in the light of having an extended supply chain where we got out in front and made sure that we started those systems early with an extended supply chain. We are making progress.

Yes, thanks for the question Michael.

So we continue to make progress on this front, we are definitely beginning to feel the benefits of.

Having done it many times now along with beginning to get support from our outsourcing partners that are helping us trend in the right direction and as as you would expect Michael our first wave of systems.

Take longer than we than what we expect.

We expect that those next couple waves to take particularly in the light of having an extended supply chain, where we got out in front and made sure that.

We started those systems early with an extended supply chain. So we are making progress.

Tom Ernst: You know, I think we're generally on track with our plans of where we thought it would be a year ago. You know, to the points of Rick's comments just a minute or two ago, working with these outsourcing partners the next few months really help us unlock the ability to move faster here over just the coming 4, 5, 6 quarters.

I think we're generally on track.

With our plans of where we thought it would be a year ago.

And to the points of Rick's comments.

Just a minute or two ago.

Working with these outsourcing partners. The next few months really help us unlock the ability to move faster here over just the coming 456 quarters.

Mike Latimore: Yeah. Great. As you think about backlog addition opportunities, would they be bigger in terms of new customers, or would it be kind of expansions of current customers? Because I think you know grow backlog longer. Is there one that clearly is a bigger contributor there?

Michael Latimore: Yeah. Great. As you think about backlog addition opportunities, would they be bigger in terms of new customers, or would it be kind of expansions of current customers? Because I think you know grow backlog longer. Is there one that clearly is a bigger contributor there?

Alright.

And then.

And then as you.

Think about.

Backlog addition opportunities would there be a bigger in terms of new customers or would it be kind of expansions. The current current customers see thank you.

Backlog lighter is there one that clearly is a bigger contributor there.

Tom Ernst: I think you'll see a mix of both. You know, again, our strategy here is less to grow backlog and more to scale our operations against the existing backlog. We do anticipate that over the coming handful of quarters, you'll see us add both new customers and new projects with existing customers.

Okay.

I think youll see a mix of both.

Again, our strategy here is less to grow backlog and more to scale our operations against the existing backlog, but we do anticipate that over the coming handful quarters Youll see us add both new customers.

And new projects with existing customers.

Mike Latimore: Got it. Just last on gross margin, I think you gave some color. I just want to be clear. Would it be fair to say gross margin in Q1 would be the trough for the year or low point for the year? Or how should we think about gross margin?

Michael Latimore: Got it. Just last on gross margin, I think you gave some color. I just want to be clear. Would it be fair to say gross margin in Q1 would be the trough for the year or low point for the year? Or how should we think about gross margin?

Okay.

And just last time gross margin.

I think you gave some color you wanted to be clear so.

Is it fair to say gross margin in the first quarter would be the trough for the year or.

Low point for the year, how should we think about gross margin.

Tom Ernst: Yeah, I think we said pretty clearly last quarter we expected, when we reported a 15% gross margin, that that was a low watermark. We emphatically feel that that's still very much a low watermark. Progress against the 18.7% we reported this quarter, we expect to see that happen. Yeah, but the progress can be stairstep. We'll talk about the progress as we make it each quarter.

Yes, I think I think we said pretty clearly last quarter, we expected when we reported a 15% gross margin, but that was a low watermark. So we emphatically feel that that's still very much a low watermark.

Progress against the $18 seven we reported this quarter, we expect to see that happen.

But the progress can be stair steps. So we'll talk about the progress as we make it each quarter.

Mike Latimore: Got it. Yeah. Great. Thank you.

Michael Latimore: Got it. Yeah. Great. Thank you.

Okay, great. Thank you.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Chris Snyder of UBS. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Chris Snyder of UBS. Your line is open.

Thank you one moment please.

Our next question comes from the line of Chris Snyder of UBS. Your line is open.

Chris Snyder: Thank you. I understand the outsourcing push is helping to accelerate the rate of system deployments, but is there any negative offset on the gross margin line? Because I believe in the past, the company has spoken to or talked to a high 20% gross margin target, versus kind of high teens% today within systems. Is that target still achievable with a higher level of outsourcing?

Thank you.

I understand the outsourcing push is helping to accelerate the rate of system deployments, but is there any negative offset on the gross margin line.

Because I believe in the past the company has spoken to a or talk to a high 20% gross margin target.

First kind of high teens today within systems is that target still achievable with a higher level of outsourcing yes.

Tom Ernst: Yeah. Thanks for the question, Chris. In fact, we think that our gross margins are higher long term under our outsourcing initiative. Now we did talk last quarter about the aggressive ramp to bring on some of these outsourcing partners was definitely coming along with some increased short-term expenses to ramp these partners. As you can imagine, we have redundant resources, right, as we're ramping partners, and redundant supply chains, and kind of a whole host of costs that not only flow through COGS, but also flow through OpEx. We are still seeing some of those transitory costs associated with the outsourcing program that is a negative near-term impact to gross margin.

Yes. Thanks for the question Chris in fact, we think that our gross margins are higher long term under our outsourcing initiative.

No we did talk last quarter about the aggressive ramp.

To bring on some of these outsourcing partners was definitely.

Coming along with some increased short term expenses to ramp. These partners as you can imagine we have redundant resources, where it is we're ramping partners.

<unk> redundant supply chains, and kind of a whole host of cost not only flow through Cogs, but also flow through opex. So we are still seeing some of the those transitory costs associated with the outsourcing program that that is a negative near term impact to gross margin.

Tom Ernst: We think that very quickly flips to a positive and over the long term leads to, you know, not only higher gross margins, but just, the ability to deliver these systems with less risk and the ability to do many, many more systems concurrently than we could do on our own.

But we think that that very quickly flips to a positive and over the long term leads to.

Not only higher gross margins, but just the one.

Ability to deliver the systems with less risk and the ability to do many many more systems concurrently then we could do on our own.

Chris Snyder: Thank you. If I could just may follow up quickly on that. Yeah, if I look from fiscal Q1 to fiscal Q2, you know, the company is guiding revenue up, you know, mid-single digit, high single-digit percent at the midpoint, but a roughly unchanged EBITDA loss. Is that just due to the ramping of the outsourced partners? Is that like affecting margin down on the gross margin side or the OpEx side?

Thank you if I can just maybe follow up quickly on that if I look from fiscal Q1 to fiscal Q2.

Company is guiding revenue.

Mid single digit high single digit percent at the midpoint, but are roughly unchanged EBITDA loss is that just due to the ramping of the.

Outsource partners and theirs is that like effective margin down on the gross margin side or the opex side.

Tom Ernst: I think one of my comments I made in the prepared remarks was that we saw a relatively low amount of third party and special projects in fiscal Q1. Those costs can be variable and a little bit less easy to predict on kind of a quarter-in-quarter-out basis. I think the implicit in my Q2 guidance is a little bit more of an average type of quarter in terms of third party and one-time costs relative to what we expect looking forward for the year. Does that help?

So I think.

What do I comments I made in the prepared remarks was that we saw a relatively low amount of.

Third party.

Special projects in fiscal Q1.

Those costs are it can be variable and a little bit less easy to predict on kind of a quarter in quarter out basis.

I think the.

Implicit in my Q2 guidance is a little bit more of an average type of quarter in terms of third party and onetime costs relative to what we expect looking forward for the year.

Chris Snyder: Yeah, no, absolutely. Thanks. If I could just follow up on something maybe more thematic. If you guys look at the backlog of projects or your engagement with customers, is it more on the brownfield side, essentially, you know, upgrading or modernizing an existing facility? Or is it more greenfields, just kind of new warehouse capacity coming to the market? Thank you.

Does that help.

Yes, absolutely thanks, and if I could just follow up on.

Something maybe more thematic if you guys look at the backlog of projects.

Projects are your engagement with customers is it more on the brownfield side, essentially upgrading or modernizing an existing facility or is it more greenfields I'm, just kind of new warehouse capacity coming to the market. Thank you.

Tom Ernst: Yeah, our existing backlog, Chris, is heavily concentrated to retrofits to brownfield. That being said, as we think about the market over the long term, we see a very, very large market opportunity with greenfield as well. I think, as you know, one of the key benefits that we have as a business is there is no other end-to-end automation technology that can really work effectively and efficiently in a brownfield environment. Shifting to the greenfield market, we're incredibly more economically efficient. We just bring a much, much stronger ROI versus legacy generation end-to-end automation systems. We do anticipate that you'll hear us over the coming years talk more and more about greenfield opportunities as well. Today, backlog is highly brownfield.

Yes, our existing backlog, Chris is heavily concentrated to retrofit the brownfield.

That being said as we think about the market over the long term, we see a very very large market opportunity with greenfield as well.

I think as you know one of our key.

One of the key benefits that we have as a business is there is there is no other.

End to end.

Automation technology that can really work effectively and efficiently in a brownfield environment.

But shifting to the greenfield market.

We're incredibly more economically efficient, we just bring a much much stronger ROI versus legacy generation end to end automation systems. So we do anticipate that Youll youll hear us over the coming years talk more and more about greenfield opportunities as well today backlog is highly brownfield.

Chris Snyder: Thank you.

Thank you.

Tom Ernst: Thank you, Chris.

Operator 2: Thank you. Thank you. One moment, please. Our next question comes from the line of Rob Mason of Baird. Your line is open.

Operator: Thank you. Thank you. One moment, please. Our next question comes from the line of Rob Mason of Baird. Your line is open.

Thank you. Thank you.

Thank you one moment please.

Our next question comes from the line of Rob Mason of Baird. Your line is open.

Rob Mason: Yes, good afternoon. I just had a quick question, Tom. I think you mentioned that you expect cash, you know, to be at the low water mark. Obviously, you know, inferring you'll build cash through the year. I was just curious if you could speak to how the cash flow profile, you know, should play out this year. I'm just curious how lumpy the payments, you know, from your customers could be on a quarter-to-quarter basis. Just, you know, how we should think about free cash flow generation through the year or cash generation through the year. And then secondarily, you know, with the push on outsourcing that you've had, has there been any change in how you view CapEx or the capital intensity from, you know, maybe the plan when you first came public?

Yes, good afternoon.

Just had a quick question Tom I think you mentioned that you expect cash.

To be at the low watermark, obviously, youll build ensuring youll build cash through the year. Just I was curious if you could speak to how the cash flow profile.

Should play out this year I'm, just curious how lumpy the payments.

From your customers could be on a quarter to quarter basis just.

How we should think about free cash flow generation through the year of cash generation through the year.

And then secondarily with the push on outsourcing that <unk> had has there been any change in <unk>.

Capex or.

The capital intensity from maybe the plan win.

Your first came public.

Tom Ernst: Yeah. Thanks for the question, Rob. You are correct. Our cash flow from the customer payment side is actually quite a bit lumpy. We tend to have large milestone payments from our customer that are far fewer, therefore lumpier than our vendor payments, which are much smoother, as well as our revenue is quite a bit smoother. The quarterly performance on the cash, you definitely could potentially see up and down sequential type of quarters. That being said, we feel confident enough to say that our starting cash position, which is of $353 million to start Q1, is our low water mark for the year.

Yes, thanks for the question Rob.

You are correct, our cash flow from the customer.

Payment side is actually quite a bit lumpy.

We tend to have.

Large milestone payments from our customers that are far fewer therefore lumpier than then.

Our vendor payments, which are much smoother as well as our revenue is quite a bit smoother. So.

The quarterly performance on the cash you definitely can could potentially see up and down sequential type of quarters that being said, we feel we feel confident enough to say that our starting cash position which was.

$352 million to start Q1 is our low watermark for the year.

Tom Ernst: Shifting to your CapEx question, now, you know, we anticipate that our CapEx will be relatively light. In our operating plans for this year, our CapEx is essentially associated with office equipment and a little bit of engineering test tools. You know, that being said, as we think about kind of mid-long term, there's definitely the potential that we could have projects where we do use more CapEx, but in the nearer term, we expect to be pretty CapEx light.

Shifting to your Capex question.

No.

We anticipate that our capex will be relatively light.

Our operating plans for this year.

Our capex is essentially associated with office equipment, and a little bit of engineering test tools.

That being said as we think about the mid long term, there's definitely the potential that we could we could have projects, where we do use more capex, but in the near term, we expect to be pretty Capex light.

Rob Mason: What do the contracts for newer customers, maybe like the ones you just brought, the one that you just brought on, does the cash flow, the upfront cash flow, upfront payments, does that continue with new contracts as well?

Do the does the contracts for newer customers.

Like the ones that you just brought the one that you just brought on does the cash flow the upfront cash flow upfront payments does that.

Continue with new contracts as well.

Tom Ernst: Yeah, Rob, we thank you. We don't like to speak to specific new customers, but if I generalize across our near-term pipeline, in general, yes, we anticipate that we have a strong working capital positive relationship across the life cycle of our projects with our customers. That doesn't mean in the future that we won't support a customer that wants to pay more perhaps and have a more even or even slightly negative cash flow. We'll reserve that opportunity for later, but for now our business is constructed with strong positive working capital.

Robert Thank you, we don't like to speak to specific new customers, but if I generalize across our near term pipeline.

In general, Yes, we anticipate that we have a strong working working capital positive relationship across the lifecycle of our projects with our customers.

That doesn't mean in the future that we want to support a customer that wants to pay more perhaps and have a.

More even or even slightly negative cash flow. So we'll reserve that opportunity for later, but for now our business are constructed with strong positive working capital.

Rob Mason: Very good. I'll get back in the queue. Thanks.

Very good I'll get back in the queue. Thanks.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Joe Giordano of Cowen. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Joe Giordano of Cowen. Your line is open.

Thank you one moment please.

Our next question.

Our next question comes from the line of Joe Giordano of Cowen Your line is open.

Joe Giordano: Hey, guys. Thanks for taking my questions.

Hey, guys. Thanks for taking my questions.

Tom Ernst: Sure thing, Joe. Hello.

Sure thing Joe Hello.

Joe Giordano: Hey. So Tom, when I think about this quarter versus last quarter and your actual results versus what you guided, like, can you maybe contrast how you formulated the guides? You know, last quarter obviously was like a substantial massive beat over the top end. This is still very strong over the top end, but the magnitude is very different. Like how, when you formulated those initial estimates versus what came out, like how talk us through how those were different.

Hey.

So Tom when you when I think about this quarter versus last quarter and your actual results versus what you guided like can you. Maybe contrast, how you formulated the guidance.

Last quarter, obviously was substantial massive beat over the top of that and this is still very strong over the top end, but the magnitude is very different so like how when you formulated those initial estimates versus what came out like talk us through how those are different.

Tom Ernst: Yeah. Maybe just one observation to give you a little context is how we think about it. We're beginning to benefit from having more systems add up, therefore, the variability and volatility in what we predict is lessening, right? Less variability. We're able to get a little bit tighter range. I think you can see that implicit in the guidance too, as our guidance ranges are narrowing a little bit as times move forward. You know, look, thinking back to Q3 and Q4, where you saw some pretty significant top-line beats, you know, I'll point back to the words we used at the time. As we were compressing schedules and we were kind of hitting key milestones a little bit more rapidly, that led to some pretty strong outperformance.

Yes, maybe just one observation to give you a little caught.

Context of how we think about it we are beginning to benefit from having more systems add up therefore, the variability and volatility in what we predict.

As is lessening right, so less less variability, we're able to get a little bit tighter range. I think you can see that implicit in the guidance to is our guidance ranges are narrowing a little bit as times move forward. So.

Thinking back to Q3, and Q4, where you saw some pretty significant top line beats.

I'll point back to the words, we use at the time.

We are compressing schedules and we're kind of hitting key milestones at a little bit more rapidly that led to some pretty strong outperformance.

Tom Ernst: Well, now we're getting a little bit more spread across these systems. It's just a bit more predictable.

Well now, we're getting a little bit more spread across the system.

A bit more predictable.

Joe Giordano: Yeah, that makes sense. As you guys have been adding at an accelerating rate here, you know, you added 3 a couple quarters ago, then 4, then 5, and 6. Like, what is there like a target that you're trying to get up to? Is it 10? Like, what, how many can you guys theoretically even put into production in a quarter? How many do you even like want to?

Yes that makes sense.

And as you guys have been adding.

At an accelerating rate here and you added three a couple of quarters ago, then four than five and six like is there like a target that youre trying to get up to.

Is it 10 like how many can you guys theoretically even.

Put into production in a quarter and how many do you even like want to.

Tom Ernst: Right. We're not looking to add an additional system each quarter, if that makes sense. Our goal is to enable the right ecosystem of outsourcing partners that manufacture everything we do, right? Symbotic sells partners that install and run the projects for construction and installation, and then to be a fantastic manufacturer and a designer of these systems that enable those partners to have this business scale so that we can do multiples of what we're doing today. Our focus is on scaling this business to really address the massive TAM that exists. I won't predict how many that gets to, but we do believe it's many multiples of what we're doing today.

Alright, so so we're not looking to add an additional additional system each quarter if that makes sense.

<unk>.

But our goal is to enable the right ecosystem of outsourcing partners that manufacture everything we do right sandbox sells.

Partners that install and run the projects for construction and installation.

And then to be a fantastic manufacturer and designer.

Designer these systems that enable those partners to have this business scale. So that we can do multiples of what were doing today.

Our focus is on scaling this business to really address the massive tam that exists. So I wont predict how many that gets too, but we do believe it's many multiples of what were doing today.

Joe Giordano: Maybe last, Rick, when I speak to clients, after having the initial discussion about, you know, the technology itself and the market you serve, it always comes back to the share structure and liquidity. Just curious for your comments on how you see that now and where you'd ideally like to see that potentially in the future, if it's different than it is today.

And then maybe lastly, Rick.

When I speak to clients after really having the initial discussion about the technology itself and the markets you serve it always comes back to the share structure and liquidity in just curious for your comments on how you see that now and where you'd ideally like to see that potentially in the future. If it's different than it is today.

Rick Cohen: What's the question? The share structure?

What's the question the sheer structure liquidity as always.

Joe Giordano: Like, the liquidity of the shares is always like the first question I get asked from clients. I'm just curious if you have any comments on where that is now and how is it optimal? How do you plan on. Are there things you can do to address that?

Quantity of the shares is always like the first question I get asked from clients and just curious do you have any comment on.

Where that is now in.

Is it optimal.

Are there things you can do to address that.

Rick Cohen: Yeah. No, I think, it's fine where it is today. It's not optimal. I think at some point, the reason I say it's fine where it is today because we are just ramping. As we think to respond to, reflect on what Tom said, if we're gonna grow at multiple times our sales and do multiple applications, we probably are going to want more shares out there. We don't have to do that. We're in a very strong cash position, and our contracts are structured to do that. It is something that I think about. I'm not hung up on owning, between me and SoftBank and Walmart, having just three people own such a large percentage of the shares.

Yes, no I think.

Okay.

It's fine where it is today, it's not optimal I think at some point.

The reason I say, it's fine where it is today.

We are just ramping.

As we think.

So.

Respond to reflect on what Tom said, if we're going to grow at multiple times.

Our sales and do multiple applications, we probably are going to want.

More shares out there.

And so we.

We don't have to do that we're generating we're in a very strong cash position and our contracts are structured to do that but it is something that I think about so I'm not I'm not hung up on owning.

Sure.

<unk> and Softbank and Walmart, having just three people own such a large percentage of the shares we like when the time is right to have large investors on more of the shares and we think we will have very good uses for that liquidity.

Rick Cohen: We'd like, when the time is right, to have large investors own more of the shares, and we think we will have very good uses for that liquidity.

Tom Ernst: One thing that we have seen a little bit of a benefit from, Joe, recently that you may have seen is we have seen lockup triggers be released. So we now have 22% of the 555 million shares are now unlocked. You know, to Rick's point, a significant portion of that is held by affiliated partners of ours, SoftBank and Walmart. But we are beginning to see the benefit of increased employee shares and all those shares being unlocked as well that might begin to alleviate a relatively less liquid stock out there.

One thing that we have seen a little bit of a benefit from Joe recently that you may have had.

We have seen as we have seen.

Yeah.

Lockup triggered the release so we now have.

22% of the.

555 million shares are now unlocked.

To Rick's point, a significant portion of that is held by our affiliated partners of ours.

Softbank and Walmart.

But we are beginning to see the benefit of increased employee shares in all of those shares being unlocked as well that might begin to alleviate a relatively less liquid stock out there.

Joe Giordano: It's all very helpful. Thanks, guys.

That's all very helpful. Thanks, guys.

Tom Ernst: Thank you.

Operator 2: Thank you. One moment, please. Our next question comes from the line of Derek Soderberg of Cantor Fitzgerald. Your line is open.

Operator: Thank you. One moment, please. Our next question comes from the line of Derek Soderberg of Cantor Fitzgerald. Your line is open.

Thank you.

Thank you one moment please.

Our next question comes from the line of Derek Soderberg cancel your line is open.

Derek Soderberg: Yeah. Hi, guys. Thanks for taking my questions. I wanted to start with software revenue. Tom, I guess I would have expected that software license revenue would have been a bit higher. Can you just help me understand, you know, how many of the 8 live production modules are generating software license revenue today? And is that software fee sort of in the mid-single digits % annually? Is that correct?

Yeah, Hi, guys. Thanks for taking my questions I wanted to start with software revenue, Tom I guess I would've expected.

Software license revenue would have been a bit higher can you just help help me understand how many of the eight live production modules are generating a software license revenue today.

Is that software fee sort of in the mid single digits percentage annually is that correct.

Tom Ernst: Yeah. Thank you for the question, Derek. So we have eight systems that are up and running in fully functional production mode, and all of those are receiving software and operations revenue. Now, don't forget that six of those were pre our generally available launch of new product. Those six generational technologies were sold effectively as prototypes, proof of concepts, and carry generally not only less software revenue than our go-forward business model, but much less profitable software revenue. The other thing to remember, too, is that these two systems that have come live since, you know, one of them was late in the last quarter, the other one was late in the quarter prior to that. Those waterfall streams are just starting to trickle in.

Yes. Thank you for the question Eric So we have eight systems that are up and running and fully functional production mode.

And all of those are receiving software operations revenue now don't forget that six of those were pre.

Or generally available launch of new product.

So those six generational technologies were sold effectively as prototypes proof of concepts.

And Carrie generally not only less software revenue than our go forward business model, but much less profitable software revenue.

The other thing to remember too is that these two systems that have come lot. Since one of them was late in the last quarter. The other one was late in the quarter prior to that so those waterfall streams are just starting to trickle in.

Tom Ernst: You should expect to see it build from here, but it will build slowly. You know, I think importantly as well, while we're growing our systems revenue rapidly, continue to represent a small portion of our overall revenue. Operations revenue and software revenue taken together, for those systems in our backlog, the $12 billion backlog, represent a mid-single digit percentage of revenue, not individually each component, but taken together.

You should expect to see it build.

From here, but it will build slowly.

<unk>.

I think importantly, as well, while we're growing our system's revenue rapidly.

Continue to be.

Continue to represent a small portion of our overall revenue so operation's revenue and soft revenue taken together.

For those systems in our backlog the $12 billion backlog represent a mid single digit percentage of revenue not individually each component, but taken together.

Derek Soderberg: Got it. That's very helpful. My follow-up is on the backlog. I'm curious if part of the backlog growth with existing customers included BreakPack. I'm just curious if that's the case. Within the $12 billion backlog, are there any agreements in there for non-ambient food or cold storage applications, or is it all ambient food and generalized merchandise?

Got it that's very helpful. And then my follow up is on the backlog I'm curious if part of the backlog growth with existing customers included break pack I'm just curious that curious if thats. The case and then within the $12 billion backlog are there any agreements and therefore non ambient food.

Our cold storage applications or is it all ambient food and generalized merchandize.

Tom Ernst: Yeah. Thanks, Derek. No, you should read the backlog increase besides the two new systems, the UNFI system and the C&S system I referred to. That's the bulk of that is associated with cost-adjusted pricing across the existing backlog rather than a change in the mix of the systems.

Thanks Derek.

So no you should read the backlog increase besides the two new new systems. The UNFI system in the CNS system I referred to.

That's the bulk of that is associated with cost adjusted pricing across the existing backlog rather than a change in the mix of the systems.

Derek Soderberg: Got it. Within the backlog, are there, you know, applications in cold storage in there?

Okay got it and then within the backlog are there.

Applications in cold storage.

Tom Ernst: No, we haven't addressed that. You know, if that's something that might be hard to address as we look forward. Our customers' strategies are often something they wanna keep to themselves. No, we haven't addressed the mix of the specific technologies in our backlog.

And there.

We haven't addressed that.

That's something that might be hard to address as we look forward to our customers.

Strategies are often something they want to keep keep to themselves.

So no we haven't addressed address the mix of.

The specific technologies in our backlog.

Derek Soderberg: Great. Thanks, guys.

Great. Thanks, guys.

Tom Ernst: Thank you.

Operator 2: Thank you. I'm showing no further questions at this time. I'll turn the call back over to Jeff Evanson for any closing remarks.

Operator: Thank you. I'm showing no further questions at this time. I'll turn the call back over to Jeff Evanson for any closing remarks.

Thank you.

Thank you I'm showing no further questions at this time I'd like to turn the call back over to Jeff Evanson for any closing remarks.

Jeff Evanson: Thank you, Valerie, and thank you everyone for joining our call tonight. We appreciate your interest in Symbotic, and we look forward to seeing you at conferences, on our warehouse tours, or virtually when we talk over the next quarter. Have a great night. Bye-bye.

Thank you Valerie and thank you everyone for joining our call Tonight.

We appreciate your interest and symbiotic and we look forward to seeing you at conferences on our warehouse tours or virtually when we talk over the next quarter have a great night.

Operator 2: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

Operator: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.

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Q1 2023 Symbotic Inc Earnings Call

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