Q3 2023 Symbotic Inc Earnings Call

July 31, 2023

Okay.

Good morning, ladies and gentlemen, thank you for standing by welcome to Smart third quarter 2023 financial results conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to answer questions. During the session you will need to press star one.

<unk> on your telephone you well down here and automatic message advising Yohan sways. Please note that today's conference is being recorded.

I'll now hand, the conference I'll, let you speak of host Jeff Evenson VP of Investor Relations. Please go ahead.

Good morning, everyone.

Up here and Olivia Thank you for the introduction.

Welcome to symbiotic third quarter 2023 financial results webcast.

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 <unk>.

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

Mics 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 FCC he 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 our 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 fourth quarter, including revenue and adjusted EBITDA, we are not providing guidance for net loss today.

Which is the most comparable GAAP financial measure adjusted EBITDA.

We're not able to provide reconciliations of adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations.

Side of the control and cannot be reasonably predicted.

Such as provision for stock based compensation.

On today's call. We are joined by Rick covered somebody Who's founder Chairman and Chief Executive Officer.

And Tom Ernst Symbiotic Chief Financial Officer.

These executives will discuss our third quarter 2023 results and our outlook.

By Q&A.

And with that I'll turn it over to Rick for some opening remarks, Craig. Thank you Jeff. Good morning, everyone. Thank you for joining us to review our third quarter financial results.

Since we spoke last quarter, we have demonstrated our ability to successfully do at least two important things that once first we achieved record quarterly results and second we launched the green box joint venture.

We were able to report strong third quarter results in part because of our outsourcing strategy related to deployments.

We are pleased with these partnerships and they are beginning to bear fruit and our supplier ecosystem continues to ramp.

Tom will talk more about the quarterly details. So instead I want to emphasize how excited we are about our green box joint venture with Softbank.

Green box is the realization of our vision I've had for many years to bring anyone AI enabled automation to companies of all sizes. We are excited about green box because it adds more than $500 billion per year to our total addressable market by bringing automation to all customers.

Warehouse costs for these customers are typically two to three times higher than they are for large customers. This means green box can offer small and medium sized businesses a great value proposition.

Sharing more of the value of our biotechnology and we already have interest from potential customers.

We capture this value three ways, one through a large higher margin system contract that is backed by Softbank.

Two by securing three times the level of recurring revenue streams.

We get today.

And three we get to 135% of our highly profitable Green box business.

We were fortunate, perhaps softbank joined us as a partner and Green box to help us with capital to help drive our go Big go fast strategy.

In fact in the early years of CNS, if I had more capital I could've grown CNS to a much larger company than it is today. So I made the decision early on to adopt more capital through from from Green box each of the symbiotic network <unk>.

<unk> also wanted higher pricing more recurring revenue and a way to capture more of the value stream from our technology.

Softbank wanted a larger stake and symbiotic as.

As negotiations advanced I decided we could get to consensus by agreeing to sell about 4% of my family, 78% ownership stake down to about 74% and that we sold at about $28 and.

And I was happy to do so because I am quite confident green box will create much more value for symbiotic than what I gave up and I was able to do it with no dilution to shareholders.

The launch of the Green box joint venture was demand led so.

So we know these services won't be attractive to prospective customers.

While we are anxious to bring green box to market like symbiotic, we intend to infuse the green box culture with the same Northstar, creating bragging me happy customers.

Therefore, our customer launch will not come before the business operations already some time in 2024, which is when we anticipate securing our first green box customers.

Don't lose focus on our existing customers, who will help us get to this point, we will continue to take care of all of that large customers and scale up for Walmart and all the rest of our customers I would like to thank all of these customers as well as our associates shareholders partners and suppliers, who have made this quarter such a well rounded success.

Now Tom will discuss our financial performance and outlook Tom.

Thank you Rick.

We grew our third quarter revenue, 78% compared to a year ago to $312 million.

The strong growth was driven by solid execution on existing deployments and new deployments starts.

We continue to see acceleration in the rapid pace of installation of deployments with the help of our partnership initiatives as well as to our ongoing efforts to standardize our platform and streamlined our deployment processes.

Our backlog at the end of the third quarter was about $12 billion.

The Green box joint venture, we completed last week as another approximately $11 billion to backlog, bringing our total backlog now to about 23 billion.

$11 billion for Green box is backed by the capital of Green boxes investors led by Softbank.

We initiated six new system deployments during the quarter and advanced one system to full operation.

As of the end of the third quarter, we have 10 fully operational systems and 33 systems in the process of deployment with multiple customers.

An increase from 28 systems last quarter and 13 systems in the third quarter of last year.

Our sales and deployment progress for platform purchases continues at a rapid pace.

Each quarter, we add new deployments from multiple customers for example progress with Walmart continues to plan and we recently started the deployment of the second of five warehouse facilities with UNFI.

Recurring revenue continued to grow sequentially as deployments move to production.

We now have 10 systems operated at customer sites.

Our system completions increase our recurring revenue should continue to grow and have a much higher gross margin than systems revenue.

This quarter, we posted strong improvement in recurring gross margin at the time and recurring revenue becomes an increasing share of our revenue mix. It can provide a powerful operating leverage to our business.

Our third quarter adjusted gross margin was consistent with last quarter.

These results still reflect significant costs associated with lower margin innovation projects, the burden of elevated pass through steel cost.

And the costs associated with rapidly scaling our operations.

Operating leverage improved again sequentially as we achieved a 1% adjusted EBITDA loss rate compared to 4% last quarter and 12%.

Last year a loss rates.

This was driven by a rapid revenue growth and gross profit growth along with slower operating expense growth.

Gross margin was consistent with last quarter as we maintained our focus on rapidly scaling deployment capability.

Our cash and equivalents, including marketable securities and restricted cash grew $48 million sequentially to 513 billion.

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

$290 to $310 million.

And to report, our first profitable quarter with adjusted EBITDA between zero and $3 billion positive.

Finally, I'd like to address some topics related to our green box joint venture announcement.

As Rick mentioned.

The way we have structured the green box joint venture allows us to rapidly transform a very large segment of the supply chain in a very capital efficient way to harvest significant returns for shareholders.

Symbiotic hasn't noncancelable committed contract with Green box for the purchase of $7 5 billion, it's about X systems.

This contract allows for a visible deployment schedule and is backed by the investment partnership with Softbank and survive.

We believe that Green box is a great opportunity for certain for symbiotic shareholders.

<unk> are very excited about its future.

In all scenarios, but at all times after our initial $35 million funding symbiotic as cash flow from Green box will be positive net of any incremental capital needed to support <unk> growth.

This means that symbiotic shareholders are protected such that EBIT in the remote scenario, where no systems are ordered a net cash payment is due to symbiotic for approximately $2 billion.

By Softbank.

We're confident and excited about the launch of this joint venture as we're responding to market demand signals.

In addition to the large committed order for systems sales and recurring revenues that follow it we believe green box can generate strong returns.

Thus, we expect somebody 35% interest in Green box subscription business will yield a strong cash flow stream to somebody.

In conclusion, we're continuing we're continuing to scale, our business and innovating rapidly to deliver for our customers.

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.

Ladies and gentlemen, if you'd like to ask a question at this time you wanted to Westar one one on your telephone and wait for your name to be announced to withdraw your question Crestar. One again, please standby will be compiled Kenny roster.

Now first question coming from the line of Andy Kaplowitz with Citi. Your line is open.

Hey, good morning, everyone.

Good morning, Andy.

Tom can you talk about your adjusted gross profit margin and what you would expect moving forward as we go into FY 'twenty four and obviously remained relatively steady as you said despite higher sales. So how do you look at gross margin from here why didnt. It didnt. It didnt collect a bit more as I think you said last quarter that steel would be a tailwind at least in Q4 and I think last quarter you may.

And innovation related headwinds could diminish a bit.

Yeah. Thanks for the question Andy So gross margin, we continue to expect that particularly when youre watching us track over time, so over an annual basis, we expect to see our gross margin expanded on a given quarterly basis. There can be some variability to that expansion as we're seeing here in this Q4 were sequentially.

<unk>.

Flat at 18, 3%.

Continues to be the same factors that we've been seen Andy where we are.

We see that expansion coming to as the impact of a handful of things abate over time, particularly the redundant costs associated with just growing so fast.

The rate of expansion of our business along with the rate of shift to our outsourcing partners, where we have other costs.

We continue to see those abating over time as you mentioned steel continues to be a headwind when we look relative to the 10 year average we.

We do think that we've seen a modest benefit in this quarter and last quarter continue to expect to see a modest benefit relative to where we were three or four quarters ago. However, the steel index actually has been going up over the recent few months and it seems to be still at a relatively high elevated level to look 10 year average.

So we think that there is potentially a longer term opportunity for that to abate overtime.

And then finally.

Recurring revenue margins are expanding we had a significant expansion of.

Recurring gross margins out of 6% loss rate versus where we were a year ago in the 32% loss rate.

However, we see a lot more power as we continue to waterfall recurring revenues on in these deals gain scale in that business.

Where we see long term structure structural recurring gross margins recurring side.

North of 60% over the long term so again.

As we look over an annual basis, you should expect to see expansion.

That's very helpful and then Tom maybe just on the revenue side.

Revenues, obviously stepped up nicely over the last few quarters, we see your guide for Q4, you see sort of where the street is for FY 'twenty for I'm sure you don't want again, a ton of guidance, but does your backlog the maturation of your outsourcing strategy support the kind of growth. The street is projecting at this point for for FY 'twenty four.

Any sort of initial thoughts would be appreciated.

Yes, Thanks, Andy.

So we're looking forward to to fast growth in 2024 that Youre right.

Providing guidance specific guidance for revenue on a quarterly basis, but our growth next year is going to be underpinned by the ramping of sites and deployment. We have so we do anticipate seeing healthy growth as we look into next year.

<unk>.

And we expect that.

We expect that.

The little commentary on our Q4 and.

And your question as well.

Our Q3 really did exceed our expectations significantly we saw some.

Timing benefits just speed up our deployment is picking up.

Perhaps also creates a little bit of a sequential compare to Q4.

In terms of why we see a flattish type of sequential growth in Q4.

Tom just a quick follow up there like six systems initiate a new and continue to see that continue to rise from here right because it's been a little bit stable over the last few quarters.

You can see some lumpiness here as well and so it has been kind of consistent.

I think over the long run you will see growth there, but it won't be surprising when we have if we are.

Have quarters, where were actually down sequentially.

Timing on those system deployments starts does depend on customer's readiness as well so there will be some quarterly variability, but as we move forward you should expect to see growth.

Thank you every quarter.

Thank you and our next question coming from the line of Matt Summerville with D. A Davidson your line is open.

Thanks, Justin.

A couple of quick questions back to the gross margin topic. Tom can you maybe parse out some of the headwinds and tailwind from a quantification standpoint, whether or not you've seen any tangible benefit from restructuring actions taken last quarter and what lies ahead in that regard.

About how to kind of model this.

Yes. Thanks for the question, Matt We did see some benefits in the quarter, we continue to see though that our outsourcing initiatives leaves a lot of opportunity for us to continue to see expansion over time. So we're only seeing the earliest.

Those benefits.

We're continuing to invest significantly in our major inhibition innovation initiatives as well so that continues to be something that that we think has a significant payoff over time.

Rick mentioned that these these are multiple occasions, but are our major platform release of our autonomous bought Simba along with our brake pad project are two major renovation projects that we're investing in the near term.

That <unk>.

Cost us on the gross margin line that are going to have big payoffs.

And then finally, just the rate of speed at which we're growing kind of the redundant cost I think you can take those in kind of that order of that.

That's the magnitude of it.

Expansion opportunity that we see as we look forward over the coming.

Years to expand.

Got it and I was wondering if you guys can maybe talk a little bit qualitatively with the green box.

JV formally announced what has inbound early potential customer feedback then and then Tom I wanted to make sure I understood can you just go over that the situation that would drive that $2 billion inbound payment to symbiotic with respect to the green box I want to make sure I heard you correctly. Thank you guys.

Sure Matt So we have received from numerous channels.

Interest in Green box.

This has been demand led and as Rick mentioned in his prepared remarks.

His vision for the company has been to be able to provide warehousing as a service.

But it's a huge opportunity which is to provide much higher quality at lower cost.

Services to end customers and so this vision hasnt been new and the interactions we've had with customers for quite some time hasn't has expressed.

Interest in this business model.

Since the announcement, although it's only a week old we've received.

We've seen it.

Inbound expressions of interest in hearing what it's about.

Ill.

Mind, you that what we said last week on what rich said the day as well that.

Our first goal here is to is to get this business up and running and then standup to go to market and it management and then we'll bring it out a new co brand new customers. Some time in 2024. So we'll keep you updated on that.

And the progress on the $2 billion question. So.

As we think about green box, we have structured this business such that.

In all scenarios, including the base growth scenarios, along with the more aggressive growth scenarios as we think about the execution of the business.

We structured it's not only such that we have control and visibility over that scheduling to make it.

Efficient for our planning purposes, and incorporate the rest of our customers' capacity slots around green box.

But to also be cash flow positive at every interaction we have with green box. So that means that the payments that are due to US proceed the payments that go out the door yet.

<unk> any capital requirements that are necessary in the faster growth scenarios of Green box, where we're actually funding capital.

In support of our 35% ownership position.

We thought about every scenario there's possibility.

And we thought about the extreme downside case that what a green box for whatever reason had to cancel while in that case, we have a sizable.

Sizable payment that's due to us for all of the profit that would be would have been received on that entire seven $5 billion order.

Plus plus our first recurring annual commitment so that nets to us over $2 billion.

Just wanted to highlight the level of capital investment that our partners and we are taking on here and belief in the business.

Thanks, Tom.

Thank you Matt.

Thank you and our next question coming from the line of Mike Latimore with Northland Capital. Your line is open.

Great. Thanks, Jeff.

The results there.

I guess.

Thinking about the fourth quarter.

Should we think about cash flow exceeding EBIT again here.

Trend last couple of quarters.

Yes, thanks for the question Mike.

We continue to be expect to be cash flow positive for the year and we can have cash flow variability.

Tend not to guide on the cash flow line, but generally you should expect that our trend will be that.

The dynamic you're describing where our working capital as a net production.

And beyond our EBITDA will be the case.

Cash flow can be a little bit lumpier than that our revenue can be.

Because of our.

Our revenue recognition is percentage of completion.

Little bit more topically spread, whereas sometimes that the cash flow for the glass customers can be just a couple of three invoices per <unk> system purchase so they can concentrate a little bit.

Got it.

And then Tom in the past you've given some general color on number of deployments that are hitting kind of the big as to Rev. Rec phase.

How would you characterize that dynamic in the fourth quarter.

Mike the dynamic continuous as to what we've seen in the past and that is that while we are percent complete on a rev. Rec basis, those systems that have gotten about a year into the deployment schedule, where the most expensive part of the physical installation phase.

Is occurring as were the strongest revenue generation is so I think if you think about what we've disclosed in the past about number of systems in deployment.

Those systems that were in deployment.

<unk>.

By the end of Q2 and started in Q3 of those 9% to 13 of the ones that are generating the strongest revenue contribution.

Here in our fiscal fourth quarter.

Yeah.

Okay. Thank you.

Thank you Mike.

Yeah.

Thank you and our next question coming from the line of Nicole <unk> with Deutsche Bank. Your line is open.

Yes, thanks, good morning, guys.

Good morning, Nicole.

Just on the backlog now being 23 billion. I guess are you guys saw that last focus on going after sales to new customers similar to what you announced with UNFI earlier this year or is that still a focus for management.

So our first focus has always been and Rex words, breaking the happy customers. So it's it's it's making sure that everything we are deploying that.

What was $11 billion $12 billion in it.

23.

Results in really happy customers.

In addition to that we do intend to bring it on new customers by the ones or twos per year, and the new kind of here in the near term.

And so.

We've already brought on.

Two new customers this year and launch Green box. So it's a pretty big year for US I think we're we're a little bit above that one or two.

But I think as you look forward you should expect to see is first and foremost focused on executing the backlog.

And then where it makes sense to have that right incremental customer or two.

Okay got it thanks, Tom and then.

G&A ticked down a bit Q on Q.

This quarter I guess like is is this level of SG&A sustainable or anything to highlight there.

While we do continue to see.

Project and other <unk> and other variable activity at a pretty significant run rate basis in our fiscal Q3 as we saw in fiscal Q2.

The slight downtick, there, but I think as you look forward, we actually see some of that abate a little bit more of this is partially being offset by we are we have expanded our hiring a little bit.

Our head count is up.

About.

100 heads to about 1300 people quarter on quarter.

I think as you think about that moving forward our expectation would be that you should expect moderate opex expansion looking forward.

Consistent with what we thought as we framed out the near term future over the over this year.

But that moderate head count expansion against strong revenue growth, we continue to see some some strong operating leverage.

Thanks, I'll pass it on.

Yeah.

Thank you I'm on for next question and our next question coming from the line of Greg Palm with Craig Hallum. Your line is now open.

Yes. Thanks, Congrats on the continued progress I guess, just looking back on the quarter in terms of the upside I think you mentioned speed of deployment. So what exactly is outperforming I mean are you deploying more systems than maybe what you initially thought or are you deploying faster meaning your.

Able to capture recognize more revenue within the quarter, just a little bit more thoughts on the progress would be helpful.

But what we're seeing Greg is that with each new system as it goes through phases, we're able to shave off some marginal time here or there and the new systems, we're starting we're putting in a slightly faster target timeline.

This is consistent with what our goals were.

Not what we needed to do that to keep the business plan.

But also still leaves a huge opportunity where we're still.

Expecting assistance, we started today are a little bit under two years from from that launch and deployment until we get that deployment completed and the customer begins to ramp up the full production use our goals over the long term are still too materially.

Cut that time through both technology and processing partners.

We're over the long run we look to move to.

Take that.

Two six months, if we can.

Got it okay that makes sense and then just a little bit more on gross margin. So if we look at it based on segment.

At least sequentially you did see a bump in systems margin, but you saw a pretty significantly.

Higher loss on software maintenance support and operation services. So I'm just kind of curious how you sort of view that looking forward in terms of the gross profit loss by segment.

I think if you Gregg.

Greg If you look at it on a non-GAAP basis Youll see more consistent.

He actually expansion on the recurring line.

And more static a little bit more static and the system line.

So youre seeing a little bit of an effect of.

Accounting treatment done.

Stock based comp.

Created a difference to the GAAP results.

Do you know off the top of your head.

Stock based comp by segment in terms of the mix or proportion.

I think we have that in the reconciliation table.

Thanks.

I can follow up with you offline too.

Yes, we'll follow up if it is on the table in the release, though.

Okay. It sounds good thanks.

Alright, thank you.

Thank you and our next question coming from the line of Chris Schneider with UBS. Your line is open.

Thank you maybe starting with the Green box JV can you just talk a little bit about the plan for managing these facilities is this something that softbank will be doing.

Because it does seem that these.

The commercial bird and for managing these multi tenant facilities could be pretty high. Thank you.

Yes, so so.

This is Rick.

So symbiotic will.

Run the systems as we do with many of our customers.

The commercial relationship is being developed between Softbank symbiotic and quite frankly, there are three PL operators today that we'd like to partner with us on some of the cusp.

Customer acquisition so.

<unk>.

So.

Think of it this way.

Symbiotic will sell a system the green box and remarks will be just another traditional customer for symbiotic.

As a management team that green box will have to develop which is we have inquiries now and so we're developing that management team as we speak and it could be a combination of some of our partners who.

For instance, a port operator could be a partner who has customers, but with higher symbiotic to be the operator of the system. So theres a couple of relationships here, there's the commercial relationship, which we're going to have to scale and build the sales force, but outside of that we're not going to we take we're not going to be in the <unk>.

Struction business, we think will go into probably existing businesses are have real estate partners, who have already built buildings. So it's it's not as complex on the outside as it might seem in Softbank.

<unk> been working on this for well over a year talking to various different customers, but yes, we will have to develop a sales force and our commercial <unk>.

Focus and that will be on green box and the reason we set up the structure. The way. We did is we did not want to burden symbiotic with that overhead we wanted to keep somebody as a pure play and then green box will be a commercial.

<unk> force driven three PL kind of operator, finding the right partners and they will simply buy the systems from symbiotic sabbatical run their systems, but symbiotic will not be involved in getting the commercial customers.

Thank you really really helpful. Another kind of standard question that we're getting on the deal is that.

On the conference call last week, you said that.

Symbiotic will not need to contribute any more capital outside of the original 35, but green box.

We will be taking on more capital presumably from Softbank.

Will that come through green box in the form of <unk>.

Debt to Softbank will it be incremental equity that they're getting I guess, what are they going to get as they continue to put more capital in to grow grow Green box. Thank you.

Yes, thanks for that Chris So we do anticipate that that green box will require capital and Thats, because we anticipate a very strong growth profile for the business.

So.

Now that capital is going to come in the form of it'll be netted against cash flow that is due to somebody for the purchase of the system. So we will be funding and took what we anticipate we will be funding capital.

But as I mentioned it'll come out of the cash flow, we get softbank will be putting capital in directly to support the growth now over time, we anticipate that we will be able to bring on that capacity as well so.

We anticipate that that in the growth phase ahead of green box being cash flow positive in its own right with its own subscription customers.

That capacity can begin to supplant some of the capital calls that are necessary to support the growth.

I appreciate if I could just squeeze one last one another.

Kind of a common question.

I think right now there's 33 systems under deployment.

Green box, we'll start ordering next year, where do you think I guess.

Paucity for units under deployment could be.

Say 12, or 18 months from now I'm, just trying to get a sense for kind of how that goes.

Green box growth came later and thank you so much.

So Chris we've been building, our supplier network and our outsourcing partners and our operations to provide the scale to really open up the business model.

I don't think we want to set out a target and the timeframe, but our goal is to really just to ensure that we build that whole supplier network to more than support the $23 billion, we have in backlog along with.

Along with as I mentioned, we want to create additional capacity spots for our existing customers and four of those potentially want to do one to two new customers per year, we're bringing on so we do believe that the outsourcing progress that we've made to date gives us the visibility to do that already today and what we're looking to do is hard and are deep in that supply chain.

So that we can create more capacity beyond that.

Thank you appreciate it.

Thank you.

Thank you and our next question coming from the line of Rob Mason with Baird. Your line is now open.

Yes. Good morning, Scott. This is maybe just to follow on to that last question just I am curious how far out you.

You can secure that your partner resources for the deployment of these systems and also thinking about.

What steps you're taking to insulate.

Stronger pool on industry resources.

You look out two years or three years, the warehouse automation market is.

Longer than it is today, which.

Some step back by some some of the larger players in the industry.

Were to come back how do you insulate against pull on those resources.

Okay. So so this is vic so I've spent a lot of time on this over the last six months and there's two things that we're doing so we continue.

Continue to find new partners.

That want to build systems for US we're also continuing to find new suppliers that.

May have.

As you said.

Sure.

Seeing their backlog greatly cut down and so we're developing a different type of relationship with the suppliers. So we're developing this is what I did in my past life with CNS diesel real partnerships. So these are going to be long term partnerships and quite frankly, we're going to be a very large customer to a law.

A lot of suppliers, but we are not single sourcing anything.

And we're finding suppliers.

The world.

I think we're feeling pretty good about the ability to keep our supply chains running.

One of the things that.

As I think the whole community has seen both the supplier community is seeing as how predictable.

We really are very few times, where these kinds of suppliers actually have visibility to a five or six year backlog.

And so that's what we have so we're very excited about the suppliers. The question you were asking before and as the suppliers build higher and higher quality into their products. The installation times go down.

Faster and then we didn't buy more systems.

And install more systems so.

We're very very aware of what happened in the last couple of years about supply chains, breaking and we're very very focused on making sure that doesn't happen to us.

Yes.

Okay, very good and just to follow up with respect to Green box.

It sounds like bill pursue or secure some customers early on before you launch your systems into them, but as you think about this going forward would you expect that.

They would deploy systems on spec or.

Would they need to have customers under contract before they would place an order.

With you I think I think I think they're going to do both.

One of the reasons.

And my prior one of the reasons that we did this deal with Green box is.

I wanted to Japan, a couple of times spent a lot of time with masa.

Because who's on our board from Softbank has been.

<unk>.

Champion of this idea but.

I believe that if we create a network and so some of these sites will be speculative and that's so that's a risk that softbank was willing to take the returns should be great.

And so it's worth it but it's.

It's not it's not a risk that I think symbiotic should've taken as a public company that started out as a warehouse automation company. So that's why we partnered with them, but I think there will be facilities that we will build and wait for it to come and then I think there will be other facilities that we will build as we are talking right now.

<unk>.

Where customers are saying, we have a demand for this we didn't know.

That you could one is what what <unk> does that is so special it's very very hard for <unk> operators to pulp multi tenants in a single facility and we're hearing that over and over from <unk> operators and the reason is is because they had mistakes they have errors and it's very hard to keep the inventory under control.

And this is what we're seeing over the last six months.

If a customer orders a million cases, we ship 1 million cases, we might have one era, but we might not and we don't even know why we would have that so we're nearly perfect inventory accuracy perfect shipping accuracy.

And that enables a whole new industry and a whole new way of creating these <unk> operations. So we're really really excited about and so I'm really excited about and even some of the three PL partners and operators, who are talking to us about could they buy our systems. They're excited. So we think this is this is a new market.

That I don't think people fully understand and it's a very very big market.

Very good I appreciate it.

Yeah.

Thank you and our next question coming from the line of Joe Giordano with Cowen. Your line is now open.

Hey, good morning, guys.

Alright.

There's a lot of the operational questions have been asked maybe I can kind.

Kind of go through a couple of things that have been coming to us from clients over the last couple of days since Green box you see there definitely seems to be some confusion about.

Kind of how this works.

Rick.

The company that comes out of this back in now does the JV debt in a way, it's kind of self funding its own revenue to some extent I think thats driving some confusion can you maybe talk to us about like.

If symbiotic didn't didn't go. This route if you are not going to do green box, but you still wanted to accomplish what Remoxy is doing like you wanted to do this all organically what would you have had to do at symbiotic organically to stand up this organization what would that have meant in terms of capital in terms of management bandwidth. If you were to do it yourself incentive through this mechanism.

So great question, So obviously I thought long and hard about doing it ourselves, but what I realized was with the backlog that symbiotic has the startup costs.

For green box or for outsourcing and building the spec buildings, but of all fell onto symbiotic would've been very very confusing to our investors.

So what we did is we separated it out.

And the pricing that somebody has to green box, because we understand what a big value creation is we're getting we're getting a very.

Large percentage of the profits both through software and through margins to symbiotic, while still offering great returns to softbank. So.

If I was the lesson that I learned is it CNS, which I still own a 100% of and it's a large business but.

But if I never took outside capital because I liked owning 100%.

If I had taken outside capital earlier, we would have done a couple of massive acquisitions, which we didnt get done because we wanted the capital just at the right time and not give up any shares.

So I think that really hurts symbiotic hertz D&S in the long run so one of the things I've thought about with Green box is to create it we're going to create a whole new infrastructure market.

We need to get the capital early but we also need to keep symbiotic as a pure play and so what we get is we get very very healthy software license fees out of Green box very healthy margins higher than we get today.

And then because it's really we created this business with the help of Softbank, but a lot of it was something why softbank invested in symbiotic early on we talked about this with them. When we did our first look for a partner for this back so on 35% of the profit.

Eight of Green box will come back to symbiotic as a distribution. So when you add those three profit streams, it's not as good as if I did it myself, but I think in the long term, it's going to be a lot more profitable in the early years and if I had waited to do this and I think it would have taken five or six years to do it and I think.

It would've been a lot of confusion at symbiotic. So that's why I chose to do it now this way.

And so I hope I answered your question.

That's great color I appreciate it and then maybe just last one because I think there was also some confusion at the shelf registration happened at the same time and maybe there was like the initial response.

But maybe people were worried about a liquidity event can you talk about what that registration did and what the actual near term capital needs of legacy symbiotic or at this time I mean, given your cash position it doesn't seem like the primary share issuance is really necessary.

Yes, thanks for that question Joe.

We did fail.

Shelf as you saw the S. Three registration of this was our first opportunity to do that so.

You have to anniversary a public listing per year and then the subsequent months as what you can file that we felt like it was good governance to have that shelf in place should we want that streamline process to any future.

Either debt or equity capital raise.

And you're right as we look at our business. We are cash flow positive have been for three quarters of our own anticipate that for this year with expanding margins looking forward.

And then.

That's the business before Green box.

Green box on top of and we expect that actually will be margin enhancing on the cash flow basis. So we don't really see a core general operational need for the business.

At this point so.

As we look forward to our cash generation.

Perfect. Thanks, guys.

Thank you.

Thank you and our next question coming from the line of Mark Delaney with Goldman Sachs. Your line is open.

Yes, good morning, and thanks very much for taking my questions first just hoping you could please provide an update on how brake pad development is progressing and how feedback has been on that capability.

Yes sure.

The break pack is is.

It's progressing quite well.

There's been a lot of issues starting up a whole new.

Basically it's a whole new business, it's a whole new product line for us but.

I'm spending a lot of time down there the whole team is spending a lot of time down there. It's on track, it's going to be a great product we are already starting to work with.

Walmart on.

The learnings that we have from the first system and what the second system would look like which will be better faster and cheaper so I would say.

Happy with break back and we think it's going to be.

A very good product for us to rollout to the whole marketplace and I'll say I'll add to that Mark that we continue to expect that.

We'll likely do a one more proof of concept before making a generally available.

Add that I agree with Rick and the feedback we get from our prospects and our existing customers as intense interest in this product.

That's all helpful color I appreciate that and my second question was on the systems gross margin I believe the company has articulated the potential for that to eventually reach the high Twenty's, if not if not even 30% overtime. So could you comment in more detail on what the key factors would be to get to that sort of a gross margin relative to the current level.

And then any rough sizing of how much the various factors could add to margins. Thanks.

Yeah. Thanks for the question Mark. So so we do continue to see that as we think about the backlog here pretty green box.

We have a structural gross margin that over time, so over the coming.

Coming years that we can begin to approach that high twenty's to closer to 30% type of structural gross margin on a system basis.

I'll emphasize as well that as you layer on recurring revenues, which have a higher structural gross margin over the long run that we think we can on.

On that preexisting backlog.

Take our blended gross margins higher than that.

So as we're bringing on new business or new business is coming in at margins that are that are higher than that so that's providing continued support.

Or for longer term gross margins.

The factors really are unchanged as to where were some of that margin power comes from.

The biggest things are that we're investing a lot in.

Innovation projects, such as break pack, you asked about <unk>, but.

Those those are lower margin revenues as they flow through our income statement on the Cogs line.

Just the nature of delivering the product so.

A significant portion of the innovation cost actually flow through our Cogs.

Along with the second biggest factor is just how fast we're moving and moving with outsourcing partner. So we continue to have significant redundant costs.

Startup and shutdown cost effectively startup costs with the outsource partner shutdown costs internally those are going to continue in the near term, but we anticipate that as quarters roll out those those redundant costs abate over time and help provide us lift and expansion.

Thank you.

Thank you and our next question coming from the line of Derek <unk> with Cantor Fitzgerald. Your line is now open.

Yeah, Hey, guys. Thanks for taking my questions.

I wanted to clarify some earlier remarks around the outsourcing model.

Just looking at the backlog very sizable for you guys to fulfill over the next five or six years or so.

Can the existing outsourcing model supply that backlog today.

Do you need to continue to build that out how much more work do you have left.

That outsourcing partner list to the point, where you can fulfill that backlog or do you feel like you can deliver on that with your your list of outsourcing partners to that.

It can Derek short answers that can we have stress tested this.

Network as we have it today that we're continuing to work to get that network efficient and hard to expand that even further but.

We entered the Green box contract, we're confident that our outsourcing partners and our plan as we have it now is is more than adequate.

Got it that's great and then as my follow up and maybe this one for Rick just on Green box I'm curious who wins with this business model is this better for smaller firms or large firms does this in any way change your priority selling to sort of the other big box retailers.

Sort of laid out in your growth strategy.

Can you talk about sort of the size of the firms.

Anything on that.

Would be great. Thanks.

Sure.

So.

First of all.

We're continuing to sell.

The big box guys the wholesalers.

UNFI just announced that they are.

Our second system with them. So we have we have a lot of.

A lot of those type of customers still in the pipeline, which will get announced when we signed deals with them, but there's a lot of that in the pipeline.

So.

One of the things that.

So and Greenbrier, So one of the things I wanted to do that.

I really didn't know quite.

A little bit surprised how big this market is.

Considering that I thought I was just gonna do automation for CNS 10 years ago and find out how how much in demand and this product is so we still have in the big box.

And we continue to talk to existing customers about even more projects. So that's one thing.

The Green box, let me give you an example of so green box could be.

As small as.

Mama Browns.

Spaghetti sauce that.

It makes a something that you might buy.

Online or you might buy it at a whole foods, a small supplier and their warehousing products before they're shipping somewhere so that could be somebody that takes 50000 case positions and are building. The holds a million dollars. So that would be a small customer it could be a lot of small customers on the other hand, one of the <unk>.

Things that we've talked to Softbank about which is one of the reasons why we're excited them as a partner so.

The sovereign wealth funds all of them, whether it's Singapore or UAE or the Saudis.

They're all very large owners of ports and the way the porch work is that.

They basically build warehouses for people and then they have operators. So if you automated all the ports in the world that would probably be the world's largest customer.

So so they are both big customers and small customers, so who would go into the ports everybody. That's unloading containers has got a store that stuff somewhere.

So you could have big customers.

Today, only do that themselves and now we could offer somebody like some of the big shoe companies instead of having six warehouses, where they put their shoes. They might want to have 20 warehouses that are much more efficient freight wise they can't do that today because they have these massive warehouses with massive.

Warehouse management systems, and so we could say.

Could you could store.

200000 boxes, instead of 2 million boxes in our facility and spread around the country. So.

The concept that we're talking about that's the way I describe it is it's a combination of iron mountain, which created a whole business for <unk>.

Secure storage.

And of course.

Not a great business anymore, because of everything going online, but when it started.

The business that nobody really understood because everybody's toward the records themselves. So there were small customers and big customers that extreme and then the other thing that I focus on is all these storage sheds that are being built around the country. They never stop building them every time, they build an apartment building. They build these more storage units nobody had any idea how big.

That business was 20 years ago, if they had they would have built them all out so we're offering both small customers and large customers a whole different supply chain flexibility that they never had before.

Awesome. Thanks, guys.

Thank you Derek.

Thank you Anne.

<unk>.

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

Alright, Thank you everyone for joining our call today.

We appreciate all your interest and symbiotic and look forward to seeing many of you at investor conferences.

On facility tours or when we talk again next quarter. Thanks again goodbye.

Ladies and gentlemen that does now conference for today. Thank you for your participation you may now disconnect.

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Good morning, ladies and gentlemen, thank you for standing by.

<unk> third quarter 2020 financial results conference call and webcast at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.

Dan had an automatic message advising Johan <unk> Suisse. Please note that today's conference is being recorded I will now hand, the conference over to your Speaker host, Jeff Evenson VP of Investor Relations. Please go ahead.

Good morning, everyone kept here and Olivia Thank you for the introduction.

Welcome to <unk> third quarter 2023 financial results webcast.

Our press release and discussion today will include forward looking statements based on assumptions that are subject to risks and uncertainties.

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 synthetics 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.

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

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

We're not providing guidance for net loss today.

Thanks.

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 the control and cannot be reasonably predicted.

Such as 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.

These executives will discuss our third quarter 2023 results and our outlook.

I'd like Q&A.

And now with that ill turn it over to Rick for some opening remarks, Rick. Thank you Jeff. Good morning, everyone. Thank you for joining us to review our third quarter financial results.

Since we spoke last quarter, we have demonstrated our ability to successfully do at least two important things at once versus we achieved record quarterly results and second we launched the green box joint venture.

We were able to report strong third quarter results in part because of our outsourcing strategy related to deployments.

We are pleased with these partnerships and they are beginning to bear fruit and our supplier ecosystem continues to ramp.

Tom will talk more about the quarterly details. So instead I want to emphasize how excited we are about our green box joint venture with Softbank.

Green box is the realization of a vision I have had for many years to bring anyone AI enabled automation to companies of all sizes. We are excited about green box because it adds more than $500 billion per year to our total addressable market by bringing automation to all customers.

Warehouse costs for these customers are typically two to three times higher than they are for large customers. This means green box can offer small and medium sized businesses and great value proposition.

Im showing more of the value of our technology and we already have interest from potential customers.

We capture this value three ways, one through a large higher margin system contract that is backed by Softbank.

Two by securing three times the level of recurring revenue streams.

We get today.

And three we get to 135% of our highly profitable Green box business.

We were fortunate to have Softbank joined us as a partner and green box to help us with capital to help drive our go baked go past strategy.

In fact, if I in the early years of CNS, if I had more capital I could've grown CNS to a much larger company than even it is today. So I made the decision early on to adopt more capital through from Ron Green box each of the symbiotic network <unk>.

<unk> also wanted higher pricing more recurring revenue in a way to capture more of the value stream from our technology.

Softbank wanted a larger stake in somatic.

As negotiations advanced I decided we could get to consensus by agreeing to sell about 4% of my family, 78% ownership stake down to about 74% and that we sold at about $28 and I was happy to do so because I am quite confident green box will create much more value for symbiotic.

Then what I gave up and I was able to do it with no dilution to shareholders.

The launch of the Green box joint venture was demand led so we know these services will be attractive to prospective customers.

We are anxious to bring <unk> to market like somebody we intend to infuse the green box culture with the same northstar of creating rang me happy customers. Therefore.

Therefore, our customer launch will not come before the business operations already some time in 2024, which is when we anticipate securing the first green box customers.

I don't lose focus on our existing customers, who will help us get to this point, we will continue to take care of all of our large customers and scale up for Walmart and all the rest of our customers I would like to thank all of these customers as well as our associates shareholders partners and suppliers, who have made this quarter such a well rounded success.

Now Tom will discuss our financial performance and outlook Tom.

Thank you Rick.

We grew our third quarter revenue, 78% compared to a year ago to $312 million.

The strong growth was driven by solid execution on existing deployments and new deployments starts.

Our backlog at the end of the third quarter was about $12 billion.

The Green box joint venture, we completed last week as another approximately $11 billion to backlog, bringing our total backlog now to about 23 billion.

The $11 billion for Green box is backed by the capital of Green boxes investors led by Softbank.

We initiated six new system deployments during the quarter and advanced one system to full operation.

As of the end of the third quarter, we have 10 fully operational systems and 33 systems in the process of deployment with multiple customers.

An increase from 28 systems last quarter and 13 systems in the third quarter of last year.

Our sales and deployment progress for our platform purchases continues at a rapid pace.

Each quarter, we add new deployments from multiple customers for example progress with Walmart continues to plan and we've recently started deployment of the second of five warehouse facilities with UNFI.

Recurring revenue continued to grow sequentially as deployments move to production.

We now have 10 systems operated at customer sites.

S system completions increase our recurring revenue should continue to grow and have a much higher gross margin than systems revenue.

This quarter, we posted strong improvement in recurring gross margin at a time as recurring revenue becomes an increasing share of our revenue mix. It can provide a powerful operating leverage to our business.

Our third quarter adjusted gross margin was consistent with last quarter.

These results still reflect significant costs associated with lower margin innovation projects, the burden of elevated pass through steel cost.

And the costs associated with rapidly scaling our operations.

Operating leverage improved again sequentially as we achieved a 1% adjusted EBITDA loss rate compared to 4% last quarter and 12%.

Last year of loss rates.

This was driven by a rapid revenue growth and gross profit growth along with slower operating expense growth.

Gross margin was consistent with last quarter as we maintained our focus on rapidly scaling deployment capability.

Our cash and equivalents, including marketable securities and restricted cash grew $48 million sequentially to 513 billion.

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

$290 million to $310 million.

And to report, our first profitable quarter with adjusted EBITDA between zero and $3 million positive.

Finally, I'd like to address some topics related to our green box joint venture announcement.

As Rick mentioned.

Symbiotic hasn't noncancelable committed contract with Green box for the purchase of $7 5 billion and subarctic systems.

This contract allows for a visible deployment schedule and is backed by the investment partnership with Softbank and survive.

We believe that Green box is a great opportunity for <unk> shareholders.

<unk> are very excited about its future.

In all scenarios and at all times after our initial $35 million funding symbiotic as cash flow from Green box will be positive net of any incremental capital needed to support <unk> growth.

This means that symbiotic shareholders are protected such that even in the remote scenario, where no systems are ordered a net cash payment is due to some bought it for approximately $2 billion.

By Softbank.

We're confident and excited about the launch of this joint venture as we are responding to market demand signals.

In addition, there is a large committed order for systems sales and recurring revenues that follow it we believe green box can generate strong returns.

Thus, we expect somebody 35% interest in Green box subscription business will yield a strong cash flow stream to somebody.

In conclusion, we're continuing we're continuing to scale, our business and innovating rapidly to deliver for our customers.

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.

Now first question coming from the line of Andy Kaplowitz with Citi. Your line is open.

Hey, good morning, everyone.

Good morning, Andy.

Tom can you talk about your adjusted gross profit margin I'm like you would expect moving forward as we go into FY 'twenty four and obviously remain relatively steady as you said despite higher sales. So how do you look at gross margin from here and why Didnt. It didnt quite a bit more as I think you said last quarter that steel would be a tailwind at least in Q4 and I think last quarter you made.

And innovation related headwinds could diminish a bit.

Yes. Thanks for the question Andy So gross margin, we continue to expect that particularly when youre watching us track over time, so over an annual basis, we expect to see our gross margin expanded on a given quarterly basis. There can be some variability to that expansion as we're seeing here in this Q4 were sequentially.

<unk>.

At 18, 3%.

<unk> continues to be the same factors that we've been seen Andy where we are.

We see that expansion coming as the impact of a handful of things abate over time, particularly the redundant costs associated with just growing so fast.

The rate of expansion of our business along with the rate of shift to our outsourcing partners, where we have redundant costs.

We continue to see those abating over time as you mentioned steel continues to be a headwind when we look relative to the 10 year average we.

We do think that we've seen a modest benefit in this quarter and last quarter continue to expect to see a modest benefit relative to where we were three or four quarters ago. However, the steel index actually has been going up over the recent few months it seems to be still at a relatively high elevated level to the 10 year average so.

So we think that there is potentially a longer term opportunity for that to abate overtime.

And then finally.

Recurring revenue margins are expanding we had a significant expansion of.

Recurring gross margins about a 6% loss rate versus where we were a year ago and the 32% loss rate.

However, we see a lot more power as we continue to waterfall recurring revenues on in these deals gain scale in that business.

So where we see long term structure structural recurring gross margins on recurring side.

With a 60% over the long term so again.

We book over an annual basis, you should expect to see expansion.

It's very helpful and then Tom maybe just on the revenue side.

Revenues, obviously stepped up nicely here over the last few quarters, we see your guide for Q4.

Sort of where the street is for FY 'twenty two I'm sure you don't want again kind of guidance, but does your backlog the maturation of your outsourcing strategy support the kind of growth. The street is projecting at this point for for FY 'twenty for any sort of initial thoughts would be appreciated.

Yes, Thanks, Andy.

So we're looking forward to to fast growth in 2024 that you are right. We are providing guidance specific guidance for revenue on a quarterly basis, but our growth next year is going to be underpinned by the ramping sites and deployment. We have so so we do anticipate seeing healthy growth as we look into next year.

And we expect that.

We expect that.

Yes, a little commentary on our Q4.

And your question as well.

Our Q3 really did exceed our expectations significantly we saw some.

Timing benefits just speed up our deployment is picking up.

Perhaps also creates a little bit of a sequential compare to Q4.

In terms of why we see a flattish type of sequential growth in Q4.

Tom just a quick follow up Dan like six systems initiate a new and continue to see that continue to rise from here right.

Been a little bit stable over the last few quarters.

You can see some lumpiness here as well and so it has been kind of consistent.

I think over the long run you will see growth there, but it won't be surprising when we have if we have quarters, where Brexit Dallas sequentially.

Timing on those system deployment starts does depend on customer's readiness as well so there will be some quarterly variability, but as we look forward you should expect to see growth.

Thank you to every quarter, though.

Okay.

Thank you and our next question coming from the line of Matt Summerville with D. A Davidson your line is open.

Thanks.

Think about how to kind of model this.

Yes, thanks for the question Matt.

We did see some benefits in the quarter, we continue to see though that our outsourcing initiatives leaves a lot of opportunity for us to continue to see expansion over time. So we're only seeing the earliest.

Those benefits.

We're continuing to invest significantly in our major inhibition innovation initiatives as well so that continues to be something that we think has a significant payoff over time.

Rick mentioned that these these are multiple occasions, but are our major platform release of our autonomous bought sandbox all along with our brake pad project are two major renovation projects that we're investing it in the near term.

That.

Cost us on the gross margin line that are going to have big payoffs.

<unk>.

And then finally, just the rate of speed at which we're growing kind of the redundant cost I think you can take those in kind of that order of that.

That's that's the magnitude of.

Expansion opportunities, we see as we look forward over the coming couple of years to expand.

Got it and I was wondering if you guys could maybe talk a little bit qualitatively with the green box.

<unk> formally announced what has inbound early potential customer feedback then and then Tom I wanted to make sure I understood can you just go over that the situation that would drive that $2 billion inbound payment to symbiotic with respect to the green box I want to make sure I heard you correctly. Thank you guys.

Sure Matt So we have received from numerous channels.

Interest in Green box.

This has been demand led and as Rick mentioned in his prepared remarks.

His vision for the company has been to be able to provide warehousing as a service.

It is a huge opportunity which is to provide much higher quality at lower cost.

Services to end customers and so this vision hasnt been new and the interactions we've had with customers for quite some time hasn't has expressed.

Interest in this business model.

Since the announcement, although it's only a week old we've received.

We've seen.

Inbound expressions of interest in hearing what it's about.

Ill.

Mind, you that what we said last week and where we're at today as well that.

Our first goal here is to is to get this business up and running and then stand up the go to market and it management and then we'll bring it out a new co brand new customers. Some time in 2024. So we'll keep you updated on that.

And then the progress on the $2 billion question. So.

As we think about green box, we have structured this business such that.

In all scenarios, including the base growth scenarios, along with the more aggressive growth scenarios as we think about the execution of the business.

We structured it's not only such that we have control and visibility over that scheduling to make it.

Efficient for our planning purposes, and incorporate the rest of our customers' capacity slots around green box.

But to also be cash flow positive at every interaction we have with green box so that means that the.

The payments that are due to US proceed the payments that go out the door yet.

Including any capital requirements that are necessary in the faster growth scenarios of Green box, where we're actually funding capital in support of our 35% ownership position.

And as we thought about every scenario there's possibility.

We thought about the extreme downside case that what a green box for whatever reason had to cancel while in that case, we have a sizable <unk>.

<unk> payment that's due to us for all of the profit that would be would have been received on that entire seven $5 billion order.

Plus our first recurring annual commitment and so that that nets to us over $2 billion.

Just wanted to highlight the level of capital investment that our partners and we are taking on here and belief in the business.

Thanks, Tom.

Thank you Matt.

Thank you and our next question coming from the line of Mike Latimore with Northland Capital. Your line is open.

Great. Thanks, Yeah impressive results there.

I guess as you're thinking about the fourth quarter.

Should we think about cash flow exceeding EBITDA again here.

Trend last couple of quarters.

Yes, thanks for the question Mike.

We continue to be expect to be cash flow positive for the year.

And we can have cash flow variability so.

I tend not to guide on the cash flow line, but generally you should expect that our trend will be that the dynamic you're describing where our working capital as a net production above and beyond our EBITDA will be the case on.

Cash flow can be a little bit lumpier than that our revenue can be.

Because.

Our revenue recognition is percentage of completion.

Little bit more topically spread, whereas sometimes that the catalog customers can be just a couple of three invoices per system purchase so they can concentrate a little bit.

Got it.

And then Tom in the past you've given some general color on number of deployments that are hitting kind of vague as to Rev. Rec phase.

How would you characterize that dynamic in the fourth quarter.

Mike the dynamic continuous as to what we've seen in the past and that is that while we are percent.

<unk> on a Rev rec basis, those systems that have gotten about a year into the deployment schedule, where the most expensive part of the physical installation phase is.

Is occurring as were the strongest revenue generation is so I think if you think about what we've disclosed in the past about number of systems in deployment.

Those systems that were in deployment.

The safe.

By the end of Q2 and started in Q3 of those 9% to 13 of the ones that are generating the strongest revenue contribution.

Here in our fiscal fourth quarter.

Yeah.

Okay. Thank you.

Thank you Mike.

Thank you and our next question coming from the line of Nicole to bus with Deutsche Bank. Your line is now open.

Yes, thanks, good morning, guys.

Good morning, Nicole.

Just on the backlog now being 23 billion I guess are you guys thought that last focus on going after sales to new customers similar to what you announced with UNFI earlier this year or is that still a focus for management.

So our first focus has always been and Rex words frequently happy customers. So it's it's making sure that everything we are deploying that.

What was 11 billion or $12 billion and is now 23 <unk>.

Results in really happy customers.

In addition to that we do intend to bring it on new customers by the ones or twos per year in the new here in the near term.

And so we've already brought on.

Two new customers this year and launched Green box. So it's a pretty big year for us I think where we're a little bit above that one or two.

But I think as you look forward you should expect to see is first and foremost focused on execute the backlog.

And then where it makes sense to have that incremental customer or two.

Okay got it thanks, Tom and then.

G&A ticked down a bit Q on Q and this quarter I guess is this level of SG&A sustainable or anything to highlight there.

While we do continue to see.

Project and other <unk> and other variable activity at a pretty significant run rate basis.

In our fiscal Q3 as we saw in fiscal Q2.

Slight downtick, there, but I think as you look forward, we actually see some of that abate a little bit more on this is partially being offset by we are we.

Have expanded our hiring a little bit.

Our head count is up.

About.

100 heads to about 1300 people quarter on quarter.

I think as you think about that moving forward our expectation would be that you should expect.

<unk> Opex expansion looking forward kind of consistent with what we thought.

We framed out the near term future over the over this year.

But thats moderate headcount expansion against strong revenue growth, we continued to see some some strong operating leverage.

Thanks, I'll pass it on.

Okay.

Thank you. Our next question. Our next question coming from the line of Greg Palm with Craig Hallum. Your line is now open.

Yes. Thanks, Congrats on the continued progress I guess, just looking back in the quarter in terms of the upside I think you mentioned speed of deployment. So what exactly is outperforming I mean are you deploying more systems than maybe what you initially thought or are you deploying faster meaning your.

We're able to capture recognize more revenue within the quarter, just a little bit more thoughts on the progress would be helpful.

This is consistent with what our goals were.

Not what we needed to do that to keep the business plan.

But also still leaves a huge opportunity where we're still.

Expecting assistance, we started today are a little bit under two years from from that loss of deployment until we get that deployment completed and the customer begins to ramp up the full production use our goals over the long term are still too materially.

Cut that time through both technology and processing partners.

We're over the long run we look to move to.

Take that.

Two six months, if we can.

Got it okay that makes sense and then just a little bit more on gross margin. So if we look at it based on segment.

At least sequentially you did see.

Bumping systems margin, but you saw a pretty significantly high.

Higher loss on software maintenance support and operation services. So I'm just kind of curious how you sort of view that you know looking forward in terms of the gross profit loss by segment.

I think if you Greg.

Greg If you look at it on a non-GAAP basis Youll see more consistent.

You'll see actually expansion on the recurring line.

And more static a little bit more static and the system line.

So youre seeing a little bit of an effect.

Accounting treatment done.

Stock based comp.

Create a difference to the GAAP results.

Do you know off the top of your head stock based comp by segment in terms of the mix or proportion.

I think we are at the reconciliation table.

Thanks.

I can I can follow up with you offline too.

Yes, we'll follow up if you have it it is on the table on the release, though.

Okay. It sounds good thanks.

Alright, thank you.

Thank you.

Next question coming from the line of Chris <unk> with UBS. Your line is open.

Thank you.

Maybe starting with the Green box JV can you just talk a little bit about the plan for managing these facilities is this something that softbank will be doing.

Because it does seem that these.

The commercial burden for managing these multi tenant facilities could be pretty high. Thank you.

Yes, so so.

This is Rick.

So symbiotic will.

Run the systems as we do with many of our customers.

The commercial relationship is being developed between Softbank symbiotic and quite frankly, there are three PL operators today that we'd like to partner with us on some of the customer acquisition. So it's the <unk>.

So.

So think of it this way.

Symbiotic will sell a system the green box and remarks will be just another traditional customer for symbiotic.

Then there is a management team that green box will have to develop.

Rich.

As we have inquiries now and so we're developing that management team as we speak and it could be a combination of some of our partners who.

For instance, a port operator could be a partner who has customers, but with higher symbiotic to be the operator of the system. So theres a couple of relationships here, there's the commercial relationship, which we're going to have to scale and build a sales force, but outside of that we're not going to we take we're not going to be in the.

<unk> business, we think we will go into probably existing businesses are have real estate partners, who have already built buildings. So it's.

It's not as complex on the outside as it might seem in Softbank.

<unk> been working on this for well over a year talking to various different customers, but yes, we will have to develop a sales force and our commercial.

Focus and that will be on green box and the reason we set up the structure. The way. We did is we did not want to burden symbiotic with that overhead we wanted to keep some buying as a pure play and then green box will be a commercial.

Sales force driven three PL kind of operator, finding the right partners and they will simply buy the systems from symbiotic symbiotic will run their systems, but symbiotic will not be involved in getting the commercial customers.

Thank you really really helpful. Another kind of steady question that we're getting on the deal is that.

On the conference call last week, you said that.

Symbiotic will not need to contribute any more capital outside of the original 35, but green box.

We'll be taking on more capital presumably from Softbank.

Will that come through Green box in the form of debt to Softbank will it be incremental equity that they're getting I guess what are they going to get as they continue to put more capital in to grow grow Green box. Thank you.

Yes, thanks for that Chris So we do anticipate that that green box will require capital and Thats, because we anticipate a very strong growth profile for the business. So.

Now that capital is going to come in the form of it'll be netted against cash flow that is due to symbiotic for the purchase of the system. So we will be funding and took what we anticipate we will be funding capital.

But as I mentioned it'll come out of the cash flow we get.

Softbank will be putting capital in directly to support the growth now over time, we anticipate that we will be able to bring on that capacity as well so.

We anticipate that that in the growth phase ahead of green box being cash flow positive on its own right with its own subscription customers.

Capacity can begin to supplant some of the capital calls that are necessary to support the growth.

I appreciate if I can just squeeze one last one another.

A common question I.

I think right now there's 33 systems under deployment.

Green box, we'll start ordering next year, where do you think I guess.

Paucity for units under deployment could be.

12, or 18 months from now I'm, just trying to get a sense for kind of how that.

Green box growth in later and thank you so much.

So Chris we've been building, our supplier network and our outsourcing partners in our operations to provide the scale to really open up the business model.

And so that we can create more capacity beyond that.

Thank you appreciate it.

Thank you.

Thank you and our next question coming from the line of Rob Mason with Baird. Your line is now open.

Yes. Good morning. This is maybe just to follow on to that last question just I am curious how far out you.

You can secure that your partner resources for the deployment of these systems and also thinking about.

What steps, you're taking to insulate I guess, a stronger pool on industry resources.

You look out two years or three years, the warehouse automation market is.

<unk> than it is today, which there's been some step back by some some of the larger players in the industry.

Were to come back how do you insulate against pull on those resources.

Okay. So so this is vic so I've spent a lot of time on this over the last six months and there's two things that we're doing so we continue.

Can continue to find new partners.

That want to build systems for US we're also continuing to find new suppliers that.

May have.

As you said.

Seeing their backlog greatly cut down and so we're developing a different type of relationship with the suppliers. So we're developing and this is what I did in my past life with CNS diesel real partnerships. So these are going to be long term partnerships and quite frankly, we're going to be a very large customer to a lot.

Suppliers, but we are not single sourcing anything.

And we're finding suppliers around the world. So I think we're feeling pretty good about the ability to keep our supply chains running.

One of the things that is.

As I think the whole community has seen both the supplier community as seen as how predictable.

Really there are very few times, where these kinds of suppliers actually have visibility to a five or six year backlog and so that's what we have so we're very excited about the suppliers. The question you were asking before and as the suppliers build higher and higher quality into their.

<unk> the installation times go down.

Pastor and then we didn't buy more systems.

And install more systems so.

We're very very aware of what happened in the last couple of years about supply chains, breaking and we're very very focused on making sure that doesn't happen to us.

Okay, very good and just to follow up with respect to Green box.

It sounds like bill pursue or secure some customers early on before you launch your systems into them, but as you think about this going forward would you expect that.

They would deploy systems on spec or would they need to have customers under contract before they would place an order.

With you I think I think I think they are going to do both I mean, one of the reasons that.

And my prior one of the reasons that we did this deal with Green box.

I spent.

I wanted to Japan, a couple of times spent a lot of time with masa.

Our cost who's on our board from Softbank has been great.

Champion of this idea but.

We I believe that if we create a network and so some of these sites will be speculative and that's so that's a risk that softbank was willing to take the returns should be great.

And so it's worth it but it's.

Al.

Where customers are saying, we have a demand for this we didn't know.

That you could one of what <unk> does that is so special is very very hard for <unk> operators to pulp multi tenants in a single facility and we're hearing that over and over from <unk> operators and the reason is is because they had mistakes they have errors and it's very hard to keep the inventory under control.

And this is what we're seeing over the last six months.

If a customer orders a million cases, we ship a million cases, we might have one era, but we might not and we don't even know why we would have that so we're nearly perfect inventory accuracy perfect shipping accuracy.

And that enables a whole new industry and a whole new way of creating these three PL operation. So we're really really excited about and Softbank is really excited about and even some of the three PL partners and operators, who are talking to us about could they buy our systems. They're excited. So we think this is this is a new market.

That I don't think people fully understand it's a very very big market.

Very good I appreciate it.

Yeah.

Thank you and our next question coming from the line of Joe Giordano with Cowen. Your line is now open.

Hey, good morning, guys.

Okay.

Just a lot of the operational questions have been asked maybe I can.

Kind of go through a couple of things that have been coming to us from clients over the last couple of days and screen box because there definitely seems to be some confusion about.

Kind of how this works.

Rick.

A company that comes out of the back and now does it JV debt.

It's kind of self funding its own revenue to some extent I think thats driving some confusion can you maybe talk to us about like.

So great question, So obviously I thought long and hard about doing it ourselves, but what I realized was with the backlog that symbiotic has the startup costs.

For green box or for outsourcing and building the spec buildings, but of all fell onto symbiotic would've been very very confusing to our investors.

So what we did is we separated it out.

And the pricing that symbiotic has to green box, because we understand what a big value creation is we're getting we're getting a very.

A large percentage of the profits both through software and through margins to symbiotic, while still offering great returns to softbank. So.

If I was the lesson that I learned is at CNS, which I still own 100% of and it's a large business, but if I never took outside capital because I liked owning 100%.

And if I had taken outside capital earlier, we would've done a couple of massive acquisitions, which we didnt get done because we wanted the capital just at the right time and not give up any shares and so I think that really hurts symbiotic hertz D&S in the long run so one of the things I've thought about with Green box is.

So we're going to create a whole new infrastructure market.

Our 35% of the profit of Green box will come back to symbiotic as a distribution. So when you add those three profit streams, it's not as good as if I did it myself, but I think in the long term, it's going to be a lot more profitable in the early years than if I had waited to do this.

It would have taken five or six years to do it and I think there would've been a lot of confusion at symbiotic. So that's why I chose to do it now this way.

And so I hope I answered your question.

That's great color I appreciate it and then maybe just last one because I think there was also some confusion that the.

Shelf registration happened at the same time and maybe there was like the initial response suggested that maybe people were worried about a liquidity event can you talk about what that registration did and what the actual near term capital needs of legacy symbiotic or at this time I mean, given your cash position it doesn't seem like the primary share issuance is really new.

Sorry.

Yes, thanks for that question Joe.

We did fail.

<unk>.

Shelf as you saw the S. Three registration of this was our first opportunity to do that so.

You have to anniversary a public listing per year and then the.

Subsequent months as what you can file that we felt like it was good governance to have that shelf in place.

We want that streamline process to any future.

Either debt or equity capital raise.

And you're right as we look at our business. We are cash flow positive have been for three quarters of our own anticipate that for this year with expanding margins looking forward.

And then that's the business before green box at.

Green box on top and we expect that actually will be margin enhancing on a cash flow basis. So we don't really see a core general operational need for the business.

At this point so.

<unk>.

As we look forward to our cash generation.

Perfect. Thanks, guys.

Thank you.

Thank you and our next question coming from the line of Mark Delaney with Goldman Sachs. Your line is open.

Yes sure.

The break pack is.

It's progressing quite well.

There's been a lot of issues starting up a whole new.

Basically it's a whole new business, it's a whole new product line for us but.

I'm spending a lot of time down there the whole team is spending a lot of time down there. It's on track, it's going to be a great product.

Already starting to work with Walmart.

Walmart on.

The learnings that we have from the first system and what the second system would look like which will be better faster and cheaper so I would say.

Happy with break back and we think it's going to be.

A very good product for us to rollout until the whole marketplace.

I'll add to that Mark that we continue to expect that.

We'll likely do a one more proof of concept before making a generally available.

Just add that I agree with Rick and the feedback we get from our prospects and our existing customers as intense interest in this product.

And then any rough sizing of how much the various factors could add to margins. Thanks.

Yes. Thanks for the question Mark. So so we do continue to see that as we think about the backlog here pretty green box.

That we have a structural gross margin that over time so.

Cutting.

Coming years that we can we can begin to approach that high twenty's to closer to 30% type of structural gross margin on a system basis.

I'll emphasize as well that as you layer on recurring revenues, which have a higher structural gross margin over the long run that we think we can on that preexisting backlog.

Take our blended gross margins higher than that.

So as we're bringing on new business or new business is coming in at margins that are that are higher than that so that's providing continued support.

Or for longer term gross margins.

The factors really are unchanged as to where were some of that margin power comes from the biggest things are that we're investing a lot in innovation projects such as break pack you asked about <unk>, but.

Those those are lower margin revenues as they flow through our income statement on the Cogs line.

Just the nature of delivering the product so the significant portion of the innovation cost actually flow through our Cogs.

Along with the second biggest factor is just how fast we're moving and moving with outsourcing partner. So we continue to have significant redundant costs.

Thank you.

Thank you and our next question coming from the line of Derek <unk> with Cantor Fitzgerald. Your line is open.

Yeah, Hey, guys. Thanks for taking my questions.

Wanted to clarify some earlier remarks around the outsourcing model.

Just looking at the backlog very sizable for you guys to fulfill over the next five or six years or so.

Can the existing outsourcing model supply that backlog today.

We need to continue to build that out how much more work do you have left.

Getting that outsourcing partner list to the point, where you can fulfill that backlog or do you feel like you can deliver on that with your your list of outsourcing partners to that.

It can Derek short answers that can we have stress tested this network as we have it today that we're continuing to work to get that network efficient and hard to expand that even further but as we entered the green box contract, we're confident that our outsourcing partners and our plan as we have it now is.

Is more than adequate.

Got it that's great and then as my follow up and maybe this one for Rick just on Green box I'm curious who wins with this business model is this.

For smaller firms or large firms.

This in any way change your priority selling to sort of the other big box retailers sort of laid out in your growth strategy can.

Can you can you talk about sort of the size of the firms.

Anything on that.

That'd be great. Thanks.

Sure.

So.

First of all.

We're continuing to sell.

The big box guys the wholesalers.

Do you have enough I, just announced that they are.

Our second system with them, so and we have we have a lot of.

And one of those type of customers still in the pipeline, which will get announced when we signed deals with them, but there's a lot of that in the pipeline.

So.

One of the things that.

So and Greenbrier, So one of the things I wanted to do that.

Is that really didn't know.

Quite frankly, a little bit surprised how big this market is considering.

Considering that I thought I was just gonna do automation for CNS 10 years ago.

I know how how much in demand. This product is so we still have in the big box.

And we continue to talk to existing customers about even more projects. So that's one thing.

The Green box, let me give you an example of so green box could be.

As small as.

Mama Browns.

Spaghetti sauce that.

It makes a something that you might buy.

On online or you might buy it at a whole foods, a small supplier and their warehousing products before they're shipping somewhere so that could be somebody that takes 50000 case positions in a building that holds a million so that would be a small customer it could be a lot of small customers on the other hand, one of the.

Things that we've talked to Softbank about which is one of the reasons why we're excited them as a partner so.

The sovereign wealth funds all of them, whether it's Singapore or UAE or the Saudis.

They're all very large owners of ports and the way the porch work is that they they.

They basically build warehouses for people and then they have operators.

So if you automated all the ports in the world that would probably be the world's largest customer.

So so they're both big customers and small customers, so who would go into the ports everybody. That's unloading containers, that's got a store that stuff's somewhere and so you could have big customers that today only do that themselves and now we could offer somebody like some of the big shoe companies instead of having six warehouse.

Where they put their shoes, they might want to have 20 warehouses that are much more efficient freight wise they can't do that today because they have these massive warehouses with massive.

Warehouse management systems, and so we could say you know.

You could you could store.

200000 boxes, instead of 2 million boxes in our facility and spread around the country. So.

The concept that we're talking about the way I describe it is it's a combination of iron mountain, which created a whole business for <unk>.

Secure storage.

And of course.

Not a great business anymore, because of everything going online, but when it started.

The business that nobody really understood because everybody's toward the records themselves. So there were small customers and big customers, yes that extreme and then the other thing that I focus on is all these storage sheds that are being built around the country. They never stop building them every time, they build an apartment building. They build these more storage units nobody had any idea how big.

Awesome. Thanks, guys.

Thank you Derek.

Thank you.

<unk>.

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

Alright, Thank you everyone for joining our call today.

We appreciate all your interest and symbiotic and look forward to seeing many of you at investor conferences.

Facility tours or when we talk again next quarter. Thanks again goodbye.

Ladies and gentlemen that does now conference for today. Thank you for your participation you may now disconnect.

Q3 2023 Symbotic Inc Earnings Call

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