Q4 2023 Symbotic Inc Earnings Call

November 20, 2023

Good day, and thank you for standing by and welcome to the symbiotic fourth quarter and.

Fiscal year 2023 financial results.

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Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jeff Evenson, Vice President of Investor Relations. Please go ahead.

Hello, and welcome to <unk> fourth quarter 2023 financial results webcast.

Jeff <unk> VP of Investor Relations.

Our press release and discussion today will include forward looking statements based on assumptions.

They're subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements, including as a result of factors described in cautionary statements and risk factors in <unk> 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 to assist management in planning forecasting and evaluating our business and financial performance, including allocating resources.

Reconciliations of these non-GAAP measures to their most comparable reported GAAP measures are included in our financial press release, which is available in the Investor Relations section of our website and is also on file with the SEC.

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

Today, we will provide guidance for the first quarter fiscal 'twenty, four including revenue and adjusted EBITDA.

We do not provide guidance for our net loss, which is the most comparable GAAP financial measure to.

To adjusted EBITDA, we are not able to provide reconciliations to adjusted EBITDA.

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

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

Tom Ernst Synbiotics, Chief Financial Officer as.

As well as Carol Hebard, our CFO successor designate.

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

Led by Q&A.

Rick would you take it away. Please thank you Jeff.

Good afternoon, everyone. Thank you for joining us to review our 2023 results.

To discuss the year ahead.

First I'd like to highlight some of our most important achievements in the past year.

Fiscal 2023 was Europe doubles.

Doubling our sites and deployment our revenue nearly doubled and set us up for a strong revenue growth in 2024.

Gross profit grew even faster more than doubling as gross margins increased significantly and the number of stores served by the symbiotic system nearly doubled as our technology now serves over 3000 customers stores.

Such growth presents a contrast to the annual revenue declines many vendors are supply chain technologies are reporting and is a testament to the strong and growing demand for the symbiotic systems.

Today's symbiotic systems are moving goods at a rated capacity of more than 400 million cases per year and we are.

Currently in the process of deploying additional capacity related to move another one 6 billion cases annually.

This compares with the annual total U S addressable market of over 500 billion cases move per year. So clearly we see significant opportunities for continued strong revenue growth for many years to come.

We recently welcomed our newest customers southern glazer as wine and spirits to the symbiotic family.

Southern Glazer as the world's largest distributor of beverage alcohol. This announcement represents another win outside the food and packaged goods verticals and demonstrates the capability of the symbiotic system to efficiently manage goods with a range of SKU profiles with complex handling.

And loading challenges all wide.

Operating in a regulated industry.

Of course with such high demand for our systems, our ability to scale operations as the primary governor on our revenue growth to that end, we have continued to invest heavily in extending and strengthening our network of outsourcing partners in manufacturing.

And installation so we can maintain our focus on innovation and product development.

Currently we have hired in our supply chain to position symbiotic for even faster deployments continued revenue growth and steadily improving margins.

We've continue to rapidly innovate and Simba, our ninth generation automated bot is now in full production approaching 4000 units.

Operation.

These are units are running in the field everyday and they make our supply chain, even more agile accurate and efficient.

Improved vehicle dynamics and navigation as well as improved case handling simba boost the number of transactions per hour that a bond can handle over our previous generation models.

Furthermore, Simba is engineered to take advantage of the average six terabytes of data per day generated by a typical system, we expect our artificial intelligence and software enhancements to serve as an efficiency and reliability multiplier and Simba is purpose built to realize.

These benefits overtime.

The first prototype of our each handling technology bright pack is now delivering to stores every day and we're pouring our learnings from this system into our next break pack prototype, while we continued to ramp and test <unk>.

Done it all of this while delivering increased profitability and cash flow. Our gross margins have improved substantially our recurring revenue streams are now profitable and we achieved our goal of positive adjusted EBITDA, all while posting our fourth consecutive quarter of increased cash on.

Ian.

All of this success has been the result of creative problem solving and the hard work of our team members.

I'd like to thank the entire symbiotic team for making all of this possible and we continue to pursue additional challenge to enhance and build the symbiotic team.

Now turn to what we plan to achieve in 2024, our goal will be to do more of the same.

That is to scale execute and innovate to deliver for our customers in the new year.

We will maintain our focus on delivering great systems for customers, while scaling for rapid growth as we continue to accelerate our time to deploy systems.

We'll continue to invest in innovation to increase the cable.

Any of the <unk> solution.

Introduce new products and drive profitability through expanding margins for both systems and recurring revenue streams.

Turning to Green box this will be an important year for our joint venture with Softbank.

Green box has been recruiting for its leadership team and that is well underway inbound interest in green box has exceeded expectations and we continue to anticipate announcing the first green box customer in 2024.

We remember.

And box is just like any other customer for us business sales of Green box is a sales same as any other seo we make.

The added benefit that we own 35% of Green box, which is what we believe will be a very profitable investments that generate strong cash flow for symbiotic shareholders.

Finally, we will continue to judiciously grow our team as we continue to focus on innovation in town in the areas of software and hardware engineering and artificial and data intelligence.

Tom will talk more about the quarterly financial details, but before that I would like to introduce Carol.

<unk> member of our senior management team.

<unk> will take over the role of Chief Financial Officer from Tom next month as Tom begins retirement. Thank you. Tom we have been fortunate to have overlap between these two talented executives to ensure a smooth transition and I would like to thank Tom for his hard work. So Carol would you mind sharing a few words now.

Rick I'm excited to join the symbiotic what Rick and his team are building is truly amazing.

Or is it helping to take some bought it to the next level as we bring greater value to our customers and make the supply chain more agile and efficient for everyone.

As far as the meeting many of you soon.

Tom over to you to take us through the financial results.

Thank you Carol welcome to the symbolic team.

Before I begin I would like to personally thank the entire team that's about it.

There has been an absolute honor and pleasure to work with such a talented team and to be part of our amazing journey.

I am proud of the progress made thus far and look forward to watching the journey to completely transform the supply chain.

Turning to our quarterly results, our fourth quarter revenue grew to $392 million.

Up 60% compared to a very strong fourth quarter a year ago.

The revenue growth this quarter was driven driven primarily by faster execution on deployments.

The pace of new system starts and the acceleration of system installations saw a market improvement.

We initiated four new system deployments during the quarter and advanced two systems to full operation.

As of the end of the fourth quarter, we had 12 fully operational systems.

35 systems in the process of deployment.

This represents an increase from 10 operational systems and 33 deployments in progress last quarter, and seven operational systems, and 17 deployments and progress in the fourth quarter of last year.

While system deployment starts were down slightly from last quarter, a more important way to think about deployment starts in our revenue growth is that with 35 systems and progress at quarter ended this represents an over 100% increase from the 17 systems and.

And progress a year ago and leaves us very well positioned for strong revenue growth in the quarters ahead.

Time to deploy a system is also important to driving revenue growth and we continue to shrink the time of deployments with the help of our partnership initiatives as well as through our ongoing efforts to standardize our platform and streamline our deployment processes.

As Rick mentioned, our network of outsourcing partners is executing well.

We continue to see significant opportunities to gain efficiencies over time and add depth as we continue to add more partners to our outsourcing network.

Our our outsourcing partners are ramping so well during the fourth quarter, we chose to and autonomous bought manufacturing operations in our Wilmington, Massachusetts location.

<unk> established a $14 million restructuring reserve, primarily associated with the dissolution of materials at inventory.

Our backlog at the end of the fourth quarter was $23 3 billion.

Which includes the addition of the Green box joint venture we announced in August.

Remember the addition of over $11 billion of backlog from Green box is backed by the capital of Green boxes investors led by Softbank and us are noncancelable commitments.

Once these contracted green box installations are complete we expect that this agreement alone will contribute over $500 million of high margin recurring revenue per year to our overall revenue growth.

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

Each quarter, we add new deployments for multiple customers.

For example, progress with Walmart continues to plan every recently started deployment of the second of five warehouse facilities with UNFI.

It is important to note that as we scale our customer base is becoming more diverse.

The 30, 35 deployments and progress our bricks are with six different customers.

In total all eight of our customers are generating revenue for us and this is before considering the recently announced agreement with southern lasers, which started in our fiscal first quarter of 2024.

We reached an important milestone this quarter with our recurring revenue streams now reaching positive gross margin.

This show is the high leverage in our business model that we can be profitable with such a small number of active sites with recurring revenue while also being invested for the much larger number of systems installed deployment.

We continue to expect that as we scale over time that recurring gross margins could trend to over 60%.

Our adjusted gross margin increased by 80 basis points to 19, 1% up from 18, 3% last quarter, driven primarily by recurring revenue streams, turning to profitability along with a slight improvement in system gross margin.

Our fourth quarter system, adjusted gross margin increased 20 basis points sequentially from last quarter.

These results still reflect significant costs associated with lower margin innovation projects the burden of pass through costs to protect gross profit dollars, but that can weigh on our reported gross margin percentage.

And costs associated with rapidly scaling our operations.

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

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

Our cash and equivalents, including marketable securities and restricted cash grew $35 million sequentially. So we ended the year with $548 million on hand.

Combined these balances increased almost $200 billion over the past year.

Driven by the positive working capital benefit of our customer and vendor invoicing terms.

We also had some timing benefits in 2023 to provide a tough comparison in the first quarter of 2024, otherwise, we anticipate seeing a working capital expansion again for 2024.

In conclusion, 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.

I'd like to personally thank you for your interest in symbiotic as I hand, the reins over to Carol.

Karen will now provide our guidance for the first quarter.

Thanks, Tom for the first quarter of fiscal year 2024, we expect revenue of $350 million to $370 million.

And adjusted EBITDA between 11 and $14 million.

Which represents revenue growth of 70% to 79% and adjusted EBITDA margin, increasing over 11 percentage points, both on a year on year basis. We now welcome your questions. Operator will you. Please open the Q&A.

Thanks.

Thank you.

Reminder, to ask a question you will need to press star one on your telephone and wait for a name to be announced to withdraw. Your question. Please press star one again, please standby and we compile the Q&A roster.

One moment for our first question.

Our first question comes from the line of Matt Summerville from D. A Davidson your line is open.

Thanks, I wanted to talk about some of the newer generation technology Sim, but Rick I think you mentioned the number of transactions those bots can handle on a per hour basis are higher than eight John I was wondering if you could give a little more numerical color behind that and then I'd be curious if youre able to disclose.

Where you are trying to take the next generation of break pack, where youre trying to do more of the deep innovation in those systems and then I have a quick follow up.

Sure. Thanks.

Thanks for the question so.

The.

Simba, which is what we transitioned to this past year.

Has.

Yes.

Nvidia chips.

It has xavier.

Chip Senate and we now have on these bots eight cameras.

And we're in the process of being able to use the additional processing power.

Actually identify packages.

In Chile too.

To actually identify.

<unk>, which today the bots are relatively blind essentially controlled but over time, they're going to be able to see each other and therefore, they are actually going to be able to go faster.

Which.

We'll essentially be collision avoidance. So that's that's a major project for us.

Thing Thats happening is because of the vision and in this term you call. It AI, but the ability to recognize packages, where maybe a flat has popped open or a box is crushed and still be able to pick that box means that.

<unk> actually don't get stuck anymore, and therefore, they're continuously running and therefore their transaction rates are going up.

I won't.

Right now about how much we expect those rates to go up but over time over the next year, we expect them to go up pretty significantly.

And in addition, one of the things that we're working on is to be able to actually remote control or bought so today the bots using all this additional power.

<unk> can make decisions, but in the instance, now where our robot can't make a decision or get stuck because let's say a box opens in some honey spills on the deck essentially our box will become a drone we can actually run those spots remotely over time anywhere in the world and Thats also going to make.

Nobody in the world has that capability in the system.

We're taking the same software the same logic.

Not not exactly the same chips, but similar chips, but use of vision.

On our many bought which is what will allow a brake pad solution to process lots of transactions in a very small area and be able to do essentially batch large batch picking of individual items. So break open a case take a pack put it on a mini bought many bought drives.

Down a deck very similar to what we have on a regular transfer deck, but at a mini version and be able to drop something in a toe. So those are all innovations that we're working very hard and the good news is where the talent we have is doing great and where.

Wiring lots of new talent as well.

Appreciate that color and then either Tom or Carol maybe can you just talk about what the go forward kind of cadence looks like for gross profit more adjusted gross profit margin from here as we move through 'twenty four and how.

That informs you about the longer term potential for gross profitability. Thank you.

Absolutely Matt. Thanks for the question. So we continue to see very strong leverage in the business.

Not only at the gross profit level, but in the operating.

Barge level as well so I think what you should expect us, particularly when youre looking on a year on year basis, you should expect that the company will continue to make.

Steady progress individual quarters, you may see.

Some stronger sequential quarters of weaker sequential quarters.

Theyre just due to the variability of the timing of.

Improvements in things that we're working on that could impact that gross margin line.

But this.

This quarter, we just posted a 19, 1% gross margin we think reflects.

The balance of healthy profitability with really spending to move very fast. So we were continuing to invest quite aggressively into new technology, such as <unk> talked about and you also asked about great pack as well. These are important new innovations for us that debt.

Our absolutely we're excited to be investing in along with.

Our sourcing network is working really well for US there is still a significant level of redundant spend it inefficient spend as we're getting that network up to speed up continued to extended advance. So we see strong leverage above one 1% as you look out.

On an odd, particularly on an annual basis, and then look out over the mid to longer term.

Thanks, guys.

Thank you Matt.

One moment for our next question.

And our next question comes from the line of Andy Kaplowitz from Citi. Your line is open.

Hey, good afternoon, everyone.

Hi, Andy.

Tom maybe you can give us a little more color into just your southern glazer customer, but really the vertical you really havent spoken at before about it before so maybe you could talk about the Tam and despite your focus on Green box could you continue to see this sort of 1% to two new customers such as southern Glazer in 'twenty four and beyond.

Yes, thanks for that.

Question, Andy maybe I'll take the first ever if you have any comments on it so.

Andy We think we think that symbiotic solves a fundamental problem that exists across the broad economy and that's the fundamental problem.

Taking large concentrated homogeneous qualities of pallets and cases and getting the rate case out to the next node in the supply chain. So thats problem exists clearly in our first several customers that we have.

One that you know no wells, such as Wal Mart, and CNS wholesale grocers, and Albertsons and target, but it exists just is fundamentally in liquor distribution as it does in other verticals that we see as kind of the next step in our strategically address market and so.

And you are pushing your question, we do want to go out and win those one or two new customers per year that continue to give us that experience of bringing this technology and that fundamental problem solving to those new verticals and just getting in the data flow improvement. It out. So we're excited about southern lasers.

Our strategy for penetrating as those direct customers theyre going to build captive systems by the ones or twos for Europe, and then Green box gives us the ability really to turbocharge that attack on the market and enable green box to get out and service customers, even more broadly and move down market as well.

To help us really more rapidly and more efficiently penetrate the wholesale.

And then Tom over the last few quarters. Your quarterly revenue has been beating quarterly guidance by really an increasing rate I know you want to be conservative, but maybe talk about what has been getting better versus your own expectations. I think you said, it's the pace of deployments that is accelerating and then with the understanding that maybe there is some season now in the business why would revenue.

Can you be sequentially down in Q1, 'twenty versus Q1 versus Q4 'twenty three.

Yes, thanks for the question Andy So.

Yeah, I don't I don't think you should expect a seasonality in our business. If there's any seasonal effects is really yet to see if a microscope.

What we've experienced here, particularly as 2023 has transpired is that we've seen.

A combination of two things, we've seen very healthy improvement in our ability to deliver across the spectrum of our build phase and installation phase of our deployments.

Meaningful improvements are speed to do so and so.

We think about that as we look forward. We continue to expect that we're going to we're going to deliver systems faster. However, those those that speed can come.

Since there are step functions, we don't expect it will we'll see acceleration every quarter in fact, we anticipate some quarters you can see.

You could see challenge as you can see in these can come not just from our own capabilities, but it can come from customer issues. So.

You never know when theres going to be a tornado or a flood or a hurricane that slows us down and so that's the other half is while we're getting faster.

We just have not had those kinds of things that have really slowed us down that are beyond our control as well, particularly here in the second half of 2023. So I don't think you should read in that you should expect somebody to be beating their numbers by greater amounts every quarter.

We've had a couple of very strong quarters here in a row.

And as we think about upsetting guidance forward, we try to kind of bring that altogether, one final effect too.

In this fiscal fourth quarter, we did have some minor timing things that helped us that maybe take a little bit of revenue out of Q1 into Q4 that are just timing considerations as well so.

I feel like Q4 is an exceptionally strong quarter relative to some of them that we've had recently.

I appreciate it Tom Good luck to you and welcome Carl.

Thank you Eddie.

One moment for our next question.

Our next question comes from the line of Nicola Glass from Deutsche Bank. Your line is open.

Yeah. Thanks for the question guys good afternoon.

Maybe just starting with the recurring revenue profitability that you pointed out in the prepared remarks is the expectation that now that that is recurring revenues have turned positive from a profit perspective that that is sustainable from here.

Thanks for the question Nicole we do it we do think it's sustainable I was a pretty significant sequential wise improvement in those margins. So.

<unk>.

Again on a quarterly basis, you can see some minor retrench, but I think you should expect the general trend is expansion so.

I think as we as.

Perhaps Carol comes to explain how we close out 2024, I would expect somebody sees some some meaningful expansion not necessarily on a quarter wise basis, though nicole, but but yes, we're very encouraged.

The pieces that are going into this recurring revenue expansion.

We're beginning to get more of the revenues as we now have 10 systems up and running generate a recurring revenue. Meanwhile were invested for the.

45 total systems, we have this 335 systems were in various stages of.

Deploying and we have.

Let me correct myself, we have 12 up and running now so that the total together is 47, so our best in for 47 systems, but only getting recurring revenue and 12. So I think as we move forward with time that ratio of recurring systems that are paying recurring revenue. The number we're invested to scale into begins to be more and more favorable as just as does just.

Overall scaled kind of a platform so.

And again as I said in my prepared remarks over the long run we do think that the mix of recurring revenues against the push us closer to it and then eventually through a 60% gross margin.

Got it that's clear thanks, Tom and then just any thoughts on what to do.

24, like the SG&A line or the R&D line or are we at.

A reasonable run rate to model moving forward or anything to point out there.

Yes. Thanks for the question Nicole we do think we have a very strong level of investment in both operating expense lines and we have the luxury of not needing to expand those.

We continue to feel like we are investing more in research and development than anybody else and supply chain technology automation.

Not only that but we think that our R&D is extensively pointed at new product new product innovation, whereas our competition has to invest heavily in tech debt and just maintaining what they have.

Similarly, with our SG&A line, while there are certainly some some parts of our SG&A that we'll need to scale as we grow there are other parts of our SG&A that are redundant spend so we're in a luxury standpoint of where we don't feel that we need to expand those however, given our market opportunity to use a expect a symbiotic will continue to modestly expand both of those lines looking forward.

Sure.

As we scale our operations and that will be in contrast to what we expect to be strong much stronger revenue growth. So that's the implicit high operating leverage we see in the business.

Thanks, Tom I'll pass it on.

Thank you Nicole.

One moment for our next question.

Our next question will come from the line of Derek Soderberg from Cantor Fitzgerald. Your line is open.

Yeah, Hey, guys. Thanks for taking my questions and Gals know.

So I think you guys are really on an ongoing basis, finding areas, where you can speed up the deployment timelines can you talk maybe a little bit about where along the project youre seeing.

Are you finding ways to sort of speed up that process and maybe if you could just quantify how long the average deployment takes at this point.

Maybe I'll start with the qualification of Rick do you want to talk about some of the things that we see we can do over the long run.

Yes, Derik when we when we first became a public company, we talked about those systems. We are starting we expect it to be around two years or so in terms of from the start of a project launch until we actually turned it up in <unk>.

Customer took acceptance and began ramping full usage.

Those first systems that actually went live we're actually north of two and a half years and so what we're experiencing now though.

Is that the.

We're hitting effectively.

<unk>.

These systems here in 2000, and therefore, we're going to hit on that two year timeframe and the systems that we're rolling out now we expect to be under 22 months. So what we're seeing progress and as we're carving days out and occasionally occasional innovations our carbon weeks out, but we continue to see over the long run that there's meaningful opportunity is not.

From a process standpoint, or partnership standpoint, but from a technology in search that we can do over the long run that can meaningfully carbon to that so we look to we look to try to drive that under 22 months total deployment time too.

Along our <unk> goal is to get it under six months.

Over the long long run, but you break your way so I'll talk about some of the things that we can do.

Yes, I mean, some of the things that we're doing is that as we.

As our volume has increased.

And that we're able to.

Continuously produce instead of starting and stopping and so two things have happened our suppliers are getting better we are building an auditing quality into the products at the factory, where they are being built and so that reduces the amount of inspection and installation timelines.

Site and Thats all that that's a very powerful thing for us and the other thing is that we're able to just we're in the process now of building up just continuous flow of manufacturing.

We're not building for specific sites. So we have a pretty good backlog, we have good visibility as to where it is and so we're starting to.

Build.

Ahead, not a lot ahead, but ahead enough so that when we deploy at a site. We can we can sequence everything much more accurately than we could before and the other thing that's happened a lot of people have talked about it is we're post COVID-19 now the supply chains are a little more stable.

We're still very proactive about making sure that we protect our supply chain and we have multiple sources, but it's just we're just getting much better at it and we're getting and our suppliers are getting much better at manufacturing.

Got it well really appreciate the detail and then as my follow up just as it relates to your outsourcing initiatives. It sounds like the plan is to slowly keep expanding that network on an ongoing basis.

But how many systems do you think today, you can sort of concurrently deploy before augmenting or expanding that supplier base. I mean can you get to 50 or 60 with the current supply base.

Help us sort of quantify the.

And part of that capacity that you are out to that it would be helpful. Thanks.

So Derek before we continue expanding our our network today, we feel that we've already solved for growth for the coming.

Two to three years in terms of our capacity of our existing network. So what we're doing is actually solving for even longer term growth and just creating a healthy level of innovation and competition.

And to increase in that data flow that we have to our network today.

Got it thanks guys.

Thank you. Thank you.

One moment for our next question.

Our next question comes from the line of Greg Palm from Craig Hallum. Your line is open.

Yeah.

Yeah, Hey, everyone. Thanks for taking the questions Tom Congrats again on the retirement and Carol welcome aboard.

Thank you Greg.

I guess.

Really good results not all often pick out.

So I guess I'll, maybe just.

One thing that I thought maybe it could have been a little bit better.

Systems gross margin.

I think you mentioned.

On our math up slightly quarter over quarter, even though a pretty big jump in revenues were there any.

Headwinds at all relative to what you saw in Q3 from a cost absorption standpoint, I mean, I know, it's lumpy and over time. It goes up but was maybe thinking it could have been a little bit better just based on the revenue drop.

Yes, actually Greg, we see a very ripe opportunity to be much more efficient and the cost of delivery of our systems.

Some of those costs.

Our customers bear and many of the costs are customers don't bear and these are the ones that youre asking about and so we made we've made the conscious choice to grow as fast as we are to put as much innovation as we have on the field as we have.

Very clearly we spend a lot of our time as an executive team here at this company focused on exactly the point of your question.

Why do we have wasteful and inefficient and redundant costs at the gross margin line.

We know the costs because we're moving so fast but that is a focus of our intense effort as a team and so yeah.

I think as we as we've begun to plan.

Process.

Partners in our network and what we do as a leadership team there are very clear clear and tangible things that are kind of just highly inefficient that flow into our gross margin line that we think we can improve on over time and just to give some examples some of these have to do with how do you deal with.

Order and make sure that your inventory deploy the right way.

See as we as we terminated our manufacturing operations for example, we would be.

We chose to restructure those operations.

The distribution of materials that inventory, we took a $14 million restructuring charge is just one example.

So that that actually doesn't affect the gross margin lines. That's one example of inefficiency.

Other examples include.

We continue to have redundant teams that are that are procuring in a region for the arrival of materials on site.

We think that as we begin to as we continue to get deeper with our supplier network.

Those teams can cannot only be leaner, but ken can process, the flow and get and get the materials to site and a more cost efficient manner.

I mean, you gave given just a couple of examples of really a dozen that are we focused on as a team.

Yeah that makes sense I appreciate the color.

Just on the overall ramping up of deployment, it's been impressive and it's clearly clearly.

Sourcing strategy has.

Well exceeded.

Patients relative to maybe a year year and a half ago.

I know you've been talking about this.

Adding one or two customers a year I think.

You have added maybe more like three plus green box in the last I don't know 12 14 months or so.

Is it time to think that you could be adding more than one to two a year just based on some of the success over the last year or are you still trying to be a little bit more conservative there.

Well, Greg our systems and deployment are up.

Over 100% year on year and we are.

We are more than comfortable with the number of new customers added in the fact that we do have now.

Deployments in light with seven customers.

With the addition of Green blocks, we still feel like the 1% to two customers per year is the right break for us in the near term.

We continue to move forward.

Don't forget the Green box is one customer that eventually we anticipate we'll be adding many many customers in that vehicle for us to do exactly what you are suggesting how do we expand the number of customers while onboard we didnt green boxes vehicle by which we can do that far more efficiently, but for right now.

Direct customers.

But right number of process is looking for is one or two per year.

Okay Fair enough that's a luck congrats again.

Thank you.

Thank you one moment for our next question.

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

Hey, guys.

Yes, Tom.

Just a question on like when you give guidance right. So now you have 100% more project.

Systems in deployment given that just the nature of how these are all.

Percentage of completion, and adding a new layer every quarter right.

His guidance inherently more challenging to give now because you have so many more of these layers in and.

35, as opposed to <unk> 17, a year ago.

Okay.

I don't think it's inherently more difficult.

Anything.

Fact that we have.

Now <unk>.

35 systems and deployment generating revenue means that you get a little bit of an averaging in and some of that variability up say, having one project and a surprise either positive or negative means.

Little bit less on a percentage basis right alright, Joe, but what is the challenges when you are growing as fast as we are and win.

Milestones can be meaningful.

A movement of a day or two at quarter end can be a meaningful amount of revenue. So.

No.

Fundamentally, though I don't think that visibility.

Favorability we have.

Is not decreasing.

It's marginally improving.

Fair enough and then on Green box.

Obviously as you guys went down this road and you kind of I'm sure you've kind of tested the waters with some potential anchor tenants.

Customers, there, but I'm just curious as to what needs to be in place from a structure standpoint management standpoint strategy standpoint that green box for you to be able to start producing for them or getting revenue from that customer.

Yes, so ill.

This is Rick I'll take that so when.

Okay.

So there is a I would say, there's just a pattern that I go through.

Which is what we went through last year, which was really focus on scaling and availability.

Getting suppliers and reliability, so that was last year.

I'm spending a lot of time with.

With customers right now.

<unk> customers about green box and so it just getting the right.

Lots of different potential customers for green box to some very big ones.

Be some smaller ones there'll be some ones that would be surprising to you and so I'm spending.

A lot of time traveling and as we figure out.

And we're also interviewing people, but we haven't.

We haven't hired anybody yet, but we're interviewing to find out what kind of mix. We wanted the management team Softbank.

I have spent a lot of time together, we brought in a little bit of consulting work from some different consultants and probably bring in some more so.

That's the stage, we're at and you have to remember we have some time, because we're pretty well built out for 2024. So what we're really talking about is <unk>.

Picking a couple which is exactly what we did with symbiotic beginning a couple of core customers, who may have different characteristics than you might see with a typical symbiotic customer and that's why we're doing green box sometime in 2024, we'll we'll put a spade in the ground and say Okay. This is where we're going to dig this is what we're going to.

Build and then we will build out that network.

Rick what would it shock you if some of your <unk> in the.

A few Cherilyn green box will ramps up like that customers will want some sort of mix of owning symbiotic systems in house and also kind of renting from green box to kind of diversify.

Okay.

Yes, we think Thats, we think thats very likely to happen.

Well one of the things one of our basic tenants with green with symbiotic as the automation that we're providing.

Is so much more advanced than other automation out there.

And our innovation pipeline is is is continuing to grow so we actually asked to help some of the suppliers that would supply some of our large customers change their supply chains and so there may be a small customer they can't afford a symbiotic system that might go into.

Agreeing box building.

And B, maybe 10 small customers in that.

Building might feed a very large customer.

And so that.

Yes.

In order to change the supply chain.

So be the size that symbiotic I think can become.

We have to help a lot of people move into the automation space and so one of the things that you're going to find is right. Now we're selling very large systems are actually going on in the future I think so a lot of small systems, and that's really going to expand our tam and that could be both through green box could be at a manufacturing.

Your house.

And it could be at a consolidation center.

Great color. Thank you.

Thanks, Joe.

One moment for.

Our next question.

Our next question comes from the line of Ken Newman from Keybanc capital markets. Your line is open.

Hey, good evening thanks.

Thanks for taking the question.

Hi, Ken.

Hey, there just wanted to circle back on the faster deployment this quarter.

Tom just any sense on just how much of the closing of the BOP manufacturing facility stays on cost fixed cost absorption going forward.

Where where do you see other opportunities maybe to take that fixed cost leverage it out even further.

Yes. Thanks for the question, Ken So we do think that.

That we ultimately see.

Sure.

Lower fixed cost we see overall expanded gross margin overall expanded margins through this outsourcing initiative.

It isn't the primary reason that we outsourced the manufacturer of all our systems that was really to drive the ability to produce greater number of systems.

In the near term we do we are highly encouraged with what we're getting out of the outsourcing network.

Recall a bit over a year ago, we chose to accelerate our level of investment that we actually took a step backwards in our costs.

But our experience has been since we did that debt.

We feel much more strongly that we're actually going to see greater margins over the long run so in the near term.

It's about <unk>.

<unk> four effectively the speed in our sourcing, which we've done and as we move forward from here is where we actually expect to see expanding margins. So I wouldn't say, we're seeing expanding mark we've seen lower cost overall, yet, but the cost is lowered enough to pay for the profit margins that our partners so far.

Understood.

And then just for my follow up obviously some of your customers have talked a little bit more cautiously about higher consumer weakness the fringe through this earning season, obviously it doesn't seem like you are being impacted by that at all but just just to clarify and just have a question out there.

Any sense on what their customers are asking too.

Decelerate or delay deployments or.

Thank you have a sense that this environment maybe.

Drive customers to accelerate their automation planting further.

Yes, I think I think what we're seeing is.

The customers that.

And we have right now with the symbiotic when it goes fast as they can.

<unk>.

We have great customers they are winning in their market spaces and they want to I think they see headwinds coming and they want to be at the forefront of lowering costs and I think thats. What so we're not seeing any slowdown if anything people want to go faster.

I'll add to that with with following in the wake of Green box the inbound interest to us as picked up so are our near.

Our.

Early entry of the sales funnel is bigger than it was a quarter ago.

Yes, maybe.

Maybe if I could just squeeze one more in just on free cash flow.

Tom if I if I remember correctly, you just mentioned that working capital is still going to be used this year.

Just any sense with the margins expecting to structurally get better through the year.

Any sense on whether free cash flow margin should be better in 2024 than it was in 2003.

So.

Working capital is actually a positive contributor to our cash flow for 2023.

I did make a comment that.

We had some positive timing events in 2023 that give us a little bit of a tough comp for Q1, but otherwise we do expect expanding working cap expanding cash flow from working capital in all of fiscal 2024 as well.

Okay.

Understood. Thanks, a lot.

Thank you.

Thank you one moment for our next question.

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

Yes. Good afternoon, Thanks for taking my questions and let me add my congratulations to both Tom and Carol.

Quick question on thank Burton.

Systems' margins you spoke about <unk> production in house, maybe you can help us better understand how much that should lead to in terms of savings or margin expansion and how long. It may take to see that and then you think about longer term for systems gross margins and getting into the high <unk> or even 30% type of level and the longer.

Term within systems, maybe talk a little bit more around the levers I mean, how much is cost reductions like what you announced today and how much is maybe the higher priced backlog flowing through and how much might be volume.

Yeah. Thanks for the question and certainly those are both drivers Mark as we look over the long run so our experience in the actuals to date through fiscal 2023 was it was a significant year of investment for us in terms of getting somebody out in prototyping and proof of concept and getting these.

First almost 4000 units now up in field tested and so so theres been a net investment relative to their prior generation in the actuals.

It's not something that changes kind of in a stepwise way as we look forward mark but it is something that we do anticipate seeing leverage as we deliver the next units going forward.

This is leveraged its really comes from two primary drivers first.

It's.

Engineering change in final release kind of gets out in the field, which drives better performance and then its scale manufacturing with outsourcing partners brings the cost of those units down which drives up.

The margin and so that's going to.

We anticipate that as we plan out over the coming several quarters those those improve kind of consistently over time.

Okay. That's helpful and my second question was just thinking about the backlog and the opportunity to expand with some of our current customers.

What around Green box and of course, Walmart as a key customer and has.

So that gives you spoken out anything youre able to but when we think of some of the other customers and albertsons of target and I'm trying to get into any specific customer plans, but when we think about some of the other customers who do have systems. What do you think it might take for some of those other customers to expand and place new bookings with you and you guys have been would want.

<unk> in house, or maybe that screen box, but youre just wondering wondering when we may perhaps see some some additional backlog for some of these other customers.

Might take for them to to put those Buckingham.

Yes, I'll take that so this is Rick so I think from.

A good example would be.

With southern Glazer <unk>, so our first site for them, it's been announced as is.

Las Vegas.

And it's.

And some big site, but they but that that space is regulated.

And so it's a state by state. So they may end up actually wanting smaller systems and a number of places and I think we also expect some of our other customers may want smaller systems and smaller systems surprisingly are more difficult.

In the sense of they're easier to build but if you have less <unk>.

Harsh to them they have to be more reliable and so we've been working very very hard and that's what I was talking about the new chipsets the reliability of the artificial intelligence the ability to run our site remotely so.

I think we're having those discussions with people now we're having similar discussions with people in a for instance in the green box opportunity that saying I cant I don't want to put out the capital now, but if I don't put up the capital I don't save any money. So I'd, rather do a small green box system or our party.

Dissipate because at least I'll save money and so all of those factors are in play and that's that's what we're attacking all of them at the same time, but.

But it's not it's not one size fits all.

Ahead of that Mark So we have deployments with seven customers in flight. The strong majority of those were given them a system at a time.

I think as we move forward the strategy is not to add customers that have large amount of backlog.

You'll probably see more of more of kind of the mix, we have now where we're giving customers a site at a time as common.

Thank you.

Thank you one moment for our next question.

Our next question will come from the line of Jim Ricchiuti from Needham Your line is open.

Thank you.

When you're talking about.

Smaller systems, how how much of a role if any re pack.

And this.

As you begin to think about different types of declines.

Yes, so brake pad. So break pack is something we've talked about it's actually very few customers at this point that have seen the right pack operation and it's still a prototype.

We've learned a tremendous amount and it's working very well.

But there's a lot of innovation that we will have on the brake pad two site.

And we have a lot of we have a lot of customers that are saying when it's ready please let us know.

But you don't see this necessarily.

Will this be a key element as you go forward.

Pursue be able to offer customers.

Smaller deployments or should we just think about the traditional system that you have scaled down we're a smaller deployment.

Yes, so so but the answer to your question is both so we could see you could sell a small system.

That supports in a break neck system. So, let's say somebody has a more slower moving items or is a smaller retailer they still have their fast moving items, but our system. The main system provides a storage sortation and selection solution, but then for instance, somebody that is.

Shipping totes or shipping smaller quantities to drug or convenience.

They can put a small regulus system in combined with the brake pack and that would be a very good solution for them.

Got it and final question.

Tom.

I thought I heard you mention that there was some modest level of revenues that.

Came out of.

Fiscal Q1 into Q4.

Potentially drove some of the upside to revenues I'm wondering if you can quantify it.

That's right that's right, it's a modest level.

I don't want to quantify that hard, but but think about a mid single digit percent.

Okay. Okay. Thanks, a lot.

Thank you one moment for our next question.

And our last question for today will come from the line of Rob Mason from Baird. Your line is open.

Yes, good afternoon.

Question about your <unk>.

Just your system starts.

So if I if I have my figures correct.

In 2022.

New system starts with <unk>. This year they are 23.

So stepped up about 10.

That roughly kind of high single digits to low double digits is that roughly the trajectory we should think about.

On a go forward basis in terms of how you were able to add stack system starts year to year.

Well, Rob I don't think we quantify that looking forward, but.

The way, we think about it is brick sets the culture for the company and we say it every everyday here breaking a happy customer so first and foremost we want to ensure the 30 devices because they havent slate.

But the customer is breaking the happy with them when they are done and then our goal after that just grows fast and so our customers want us to move as fast as they can we have more people that want to become customers and so we don't really think about it in terms of we're going to add 10, a year, we think about the balance of those two goals against each other.

I see I see that's helpful.

Just a question around.

Southern Glazers as well you mentioned break pack, but I'm just curious is that a opportunity for brake packed it strikes me as a customer with a lot of mixed case.

Opportunity just in terms of the way their operations. Ron is is that assumed there as well.

Our break boxes.

I think the technology is applicable for lots of different customers.

So that's the way that's why I would look at it might be slightly different things, we have to do but yes. It is.

Applicable to lots of different customers.

Yeah.

Just last question real quick I did notice that there was a.

Our new senior VP.

Added at some point during the period.

For the international regions, just any commentary.

Larry there in terms of how youre thinking about pursuing international expansion.

And I'm curious would it be more likely with <unk>.

Existing customers first.

In that respect or <unk>.

Seeking new customers.

Well, we did say when we announced green box that Green box is targeted at being a global distribution network and we also have talked about how our operating plans are that we do expect that our direct captive customers as well, we see a global opportunity with European touch one of the more attractive markets. So we felt that it was it was a good time.

To begin thinking about what what.

Having that connection point, a business leader that can help us with the with the reach of the euro.

Makes sense makes sense.

Thank you.

Congrats Tom and welcome Carol.

Thank you Rob.

Thank you that's all the time, we have for questions for today I would now like to.

Turn it back to Jeff Evanson for any closing remarks.

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

We appreciate your interest and symbiotic arent seeing many of you at Investor conferences.

Facility tutors or when we talk again next quarter. Thank you bye.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.

Okay.

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Okay.

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Yeah.

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Yes.

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Good day, and thank you for standing by and welcome to the symbiotic fourth quarter and.

In fiscal year 2023 financial results.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.

Didn't hear an automated message advising your hannahs race to withdraw your question. Please press star one again.

Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jeff Evenson, Vice President of Investor Relations. Please go ahead.

Hello, and welcome to <unk> fourth quarter, 2023, and financial results webcast, and Jeff <unk> VP of Investor Relations.

Our press release and discussion today will include forward looking statements based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements, including as a result of factors described in cautionary statements.

And risk factors and somebody next 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 refers to as non-GAAP measures.

We believe these non-GAAP measures to assist management in planning forecasting and evaluating our business and financial performance, including allocating resources.

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

Today, we will provide guidance for the first quarter fiscal 'twenty, four including revenue and adjusted EBITDA.

We do not provide guidance for our net loss, which is the most comparable GAAP financial measure to.

To adjusted EBITDA, we are not able to provide reconciliations to adjusted EBITDA.

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

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

Tom Ernst Synbiotics, Chief Financial Officer as.

As well as Carol Hibbard, our CFO successor designate these.

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

By a Q&A.

Rick would you take it away. Please thank you Jeff.

Good afternoon, everyone.

Thank you for joining us to review our 2023 results.

To discuss the year ahead.

First I would like to highlight some of our most important achievements in the past year.

Fiscal 2023 was Europe doubles by doubling our sites and deployment our revenue nearly doubled and set us up for a strong revenue growth in 2024.

Gross profit grew even faster more than doubling as gross margins increased significantly.

The number of stores served by the <unk> system nearly doubled as a technology now serves over 3000 customers stores.

Such growth presents a contrast to the annual revenue declines many vendors of supply chain technologies are reporting and is a testament to the strong and growing demand for the symbiotic system.

Today's symbiotic systems are moving goods in a rated capacity of more than 400 million cases per year.

Currently in the process of deploying additional capacity related to move another one 6 billion cases annually.

We recently welcomed our newest customers southern glazer as wine and spirits to the symbiotic family. So.

Glaciers as the world's largest distributor of beverage alcohol. This announcement represents another win outside the food and packaged goods verticals and demonstrates the capability of the symbiotic system to efficiently manage goods with a range of SKU profiles. It was complex handling them.

Loading challenges all wide, while operating in a regulated industry.

Of course with such high demand for our systems, our ability to scale operations.

Primary governor on our revenue growth to that end, we have continued to invest heavily in extending and strengthening our network of outsourcing partners in manufacturing.

And installation so we can maintain our focus on innovation and product development concur.

Concurrently we have heightened our supply chain to position symbiotic for even faster deployments continued revenue growth and steadily improving margins.

We've continue to rapidly innovate and Simba, our ninth generation automated bot is now in full production approaching 4000 units in.

In operation.

These are units are running in the field everyday and they make our supply chain, even more agile accurate and efficient.

With improved vehicle dynamics and navigation as well as improved case handling simba boost the number of transactions per hour than a bond can handle over our previous generation models.

And Simba is purpose built to realize these benefits overtime.

The first prototype of our each handling technology break pack is now delivering to stores every day and we're pouring our learnings from this system into our next break pack prototype, while we continued to ramp and test.

We've done it all of this while delivering increased profitability and cash flow our gross margins have improved substantially our.

<unk> revenue streams are now profitable and we achieved our goal of positive adjusted EBITDA.

All while posting our fourth consecutive quarter of increased cash on hand.

All of this success has been the result of creative problem solving and the hard work of our team members I'd like to thank the entire symbiotic team for making all of this possible and we continue to pursue additional challenge to an <unk>.

Hans and build the symbiotic team.

Now turn to what we plan to achieve in 2024, our goal will be to do more of the same that is to scale execute and innovate to deliver for our customers and the new year.

We will maintain our focus on delivering great systems for customers, while scaling for rapid growth as we continue to accelerate our time to deploy systems. We will continue to invest in innovation to increase the cables ability of the <unk> solution <unk>.

We introduced new products and drive profitability through expanding margins for both systems and recurring revenue streams.

Turning to Green box this will be an important year for our joint venture with Softbank.

We remember Green box is just like any other customer for us business sales of Green box is a sales same as any other seo we make.

With the added benefit that we own 35% of Green box, which is what we believe will be a very profitable investments that generate strong cash flow for symbolic shareholders.

Finally, we will continue to judiciously grow our team as we continue to focus on innovation and talent in the areas of software and hardware engineering and artificial and data intelligence.

Tom will talk more about the quarterly financial details, but before that I would like to introduce Carol.

Newest member of our senior management team Carol will take over the role of Chief Financial Officer from Tom next month as Tom begins retirement. Thank you. Tom we have been fortunate to have overlap between these two talented executives to ensure a smooth transition and I would like to thank Tom for his hard work so Carol.

Would you mind sharing a few words now thank.

Thank you Rick I am excited to join the symbiotic what Rick and his team are building is truly amazing.

Look forward to helping to take some bought it to the next level as we bring greater value to our customers and make the supply chain more agile and efficient for everyone. I look forward to meeting many of you soon.

Tom over to you to take us through the financial results.

Thank you Carol welcome to the symbolic team.

Before I begin I would like to personally thank the entire team that's about it.

It's been an absolute honor and pleasure to work with such a talented team and to be part of our amazing journey.

I'm proud of the progress made thus far and look forward to watching the journey to completely transform the supply chain.

Turning to our quarterly results, our fourth quarter revenue grew to $392 million.

Up 60% compared to a very strong fourth quarter a year ago.

The revenue growth this quarter was driven driven primarily by faster execution on deployments.

The pace of new system starts and the acceleration of system installations saw a market improvement.

We initiated four new system deployments during the quarter and advanced two systems to full operation.

As of the end of the fourth quarter, we had 12 fully operational systems and 35 systems in the process of deployment.

This represents an increase from 10 operational systems and 33 deployments in progress last quarter, and seven operational systems, and 17 deployments and progress in the fourth quarter of last year.

And progress a year ago and leaves us very well positioned for strong revenue growth in the quarters ahead.

As Rick mentioned, our network of outsourcing partners is executing well.

We continue to see significant opportunities to gain efficiencies over time and to add depth as we continue to add more partners to our outsourcing network.

Our our outsourcing partners are ramping so well that during the fourth quarter, we chose to and autonomous bought manufacturing operations in our Wilmington, Massachusetts location.

And established a $14 million restructuring reserve, primarily associated with the dissolution of materials ad inventory.