Q2 2024 Serve Robotics Inc Earnings Call

Okay.

Speaker Change: I would now like to hand, the conference over to your host head of Communications and Investor Relations Duca sell well. Please go ahead.

Speaker Change: Thank you operator, and good afternoon, everyone.

Speaker Change: Welcome to serve robotics second quarter 2024 earnings call.

Speaker Change: On the call today, we have <unk> CEO and cofounder Ali Cassani.

Speaker Change: And our CFO, Brian Reed.

Speaker Change: During today's call, we may present, both GAAP and non-GAAP financial measures.

Speaker Change: We needed a reconciliation of GAAP to non-GAAP measures can be found in our earnings release filed earlier today.

Speaker Change: Certain statements in this presentation and on this call are forward looking statements.

Speaker Change: You should not place undue reliance on forward looking statements.

Speaker Change: Actual risks may differ materially from these forward looking statements and we do not undertake any obligation to update any forward looking statements, we need to be except as required by law.

For more information about factors that may cause actual results to differ materially from forward looking statements. Please refer to the press release, we issued today as well as the risks and uncertainties described in our most recent Form 10-K and in other filings made with the SEC.

Speaker Change: We published our quarterly earnings press release prepared remarks, and supplemental slides to our Investor Relations website earlier today and we ask you to review those documents if you haven't already.

Speaker Change: With that let me hand, it over to Ali.

Ali Cassani: Thank you okay. Thank you all for joining first inaugural earnings call.

Ali Cassani: We have already read our earnings release from earlier today and this call. We will cover four topics first I would like to briefly introduce the company to do a few who are new to our story.

Ali Cassani: I'll share our near term plans to scale our fleet through 2000 robots.

Ali Cassani: Brian will discuss our Q2 results and the financial impact of our upcoming Swiss growth on.

Brian Reed: And finally, I would like to spend a little bit of time outlining our long term vision.

Brian Reed: At the end, we will spend the remaining time answering your questions.

Brian Reed: Let's start by sharing a quick history of several bodies.

Speaker Change: My co founders and I first started this effort as advanced projects Division of postpaid in 2017 before spinning out of Uber into an independent company in 2021.

Speaker Change: Airbus founded with the vision to revolutionize last mile transportation using autonomous robots to help answer. This question why did reverse coupon burritos and telecom costs.

Our team comes with a desktop experience and food delivery automation and robotics. This positions us well to serve the growing last line that would be very market, including food delivery for approximately half of all types are less than two five miles on a well suited for sidewalk robots.

Speaker Change: Provide a robotics delivery experience that we expect we will continue to be alive customers improve reliability for merchants reduce traffic congestion and eliminate vehicle emissions.

Speaker Change: And even improve safety for pedestrians and cyclists.

Speaker Change: Scale, we expect our robots to complete deliveries at lower cost than careers, making last mile more affordable and accessible which in turn could boost local economies yes.

Speaker Change: We estimate that by reducing car troops delivery robots can direct greenhouse gas emissions by over 700 Mega tons annually, which represents 2% of all global emissions approximately.

Speaker Change: If you live in Los Angeles, you've probably seen our friendly robots daily Bang on sidewalks already.

Speaker Change: You've seen them on TV back on John Mcclain, as Netflix special everybody's in L. A or the latest Beverly Hills Cop movie.

Speaker Change: Our clients fleet has been in operation since 2022, and we've delivered to tens of thousands of households throughout Los Angeles, serving over 300 restaurants.

Speaker Change: And we have been consistently increasing our delivery volume by double digits months 11 months for the past 30 months.

Business generates revenue from three main sources first is delivered as a service. This is the revenue we may for delivering packages.

And on this call are forward looking statements.

Speaker Change: Operator, sweeper robots, we don't sell them to anyone.

statements in this presentation and on this call are forward-looking statements. You should not place undue reliance on forward-looking statements.

Speaker Change: Second revenue stream is out of home advertising.

Speaker Change: This is what we get paid for placing ads on our robots.

These two revenue streams scale as a function of our fleet size and we're fortunate to have global enterprise partners and have more demand than available supply.

Actual risks may differ materially from these forward-looking statements and we do not undertake any obligation to update any forward-looking statements we make today except as required by law.

Speaker Change: A third revenue stream is software.

Speaker Change: Independent of our fleet size.

For more information about factors that may cause actual results to differ materially from forward-looking statements, please visit our website at www.thevenusproject.com.

Speaker Change: This quarter software revenues represented by our income from nonrecurring services contract with Magna International.

Please refer to the press release we issued today, as well as the risks and uncertainty these describe in our most recent Form 10-K and in other filings made with the SEC.

Speaker Change: Our software revenue is and not to a broader vision and part of our Master plan that goes beyond last one is food delivery.

Speaker Change: Time begins with commercializing our robotics platform for food delivery, but we will then expand beyond food into other last mile categories. As we bring down the cost of delivery and finally, we will use on our core technology to power any new robots that need to coexist with humans and navigate a complex environment.

Speaker Change: We published our quarterly earnings press release, prepared remarks, and supplemental slides to our investor relations website earlier today and we ask you to review those documents if you have not already.

Speaker Change: With that, let me hand it over to Ali.

Speaker Change: I'll speak about our broader vision at the end of this presentation.

Ali: Thank you Adukei and thank you all for joining SARS Inaugural Earnings Call.

Speaker Change: The final topic to touch on before discussing Q2 is competitive differentiation we.

Ali: You may have already read our earnings release from earlier today. In this call, we will cover four topics. First, I would like to briefly introduce the company to those of you who are new to our story. Second, I'll share our near-term plans to scale our fleet to 2,000 robots.

We believe service is differentiated by a few key strengths and this includes a first of a kind level four autonomous robots deployed in a tier one city like Los Angeles.

Speaker Change: Our years of experience collecting data and insights from commercially operating an autonomous fleet.

Ali: Third, Brian will discuss our Q2 results and the financial impact of our upcoming fleet growth. And finally, I would like to spend a little bit of time outlining our long-term vision. At the end, we will spend the remaining time answering your questions.

Our robust data driven approach to engineering and go to market, which was only made possible because we were born inside the industry I had access to unique proprietary data.

Brian: Let's start by sharing a quick history of Cell Robotics.

Speaker Change: Also our history of forming valuable strategic relationships with partners, such as Uber Magna and media delivery hero and 711.

Speaker Change: My co-founders and I first started this effort as the Advanced Projects Division of Postmates in 2017, before spinning out of Uber into an independent company in 2021.

Speaker Change: And finally, a superior experience for restaurants on customers compared to what they use today with the company into out of the way, let's dive into the highlights of Q2.

Speaker Change: CERB was founded with a vision to revolutionize last-mile transportation using autonomous robots to help answer this question, why deliver two-pound burritos in two-ton cars?

Speaker Change: As you May know in April Sir completed a successful public offering an uplifting onto the NASDAQ capital market after raising $40 million in new financing and we began trading under the ticker symbol F E RV.

Speaker Change: Our team comes with a depth of experience in food delivery, automation, and robotics. This positions us well to serve the growing last mile delivery market, including food delivery, where approximately half of all trips are less than 2.5 miles and are well suited for sidewalk robots.

Speaker Change: This was an important milestone in our journey, providing us with an important source of capital for growth. We have also continued to extend our track record of operational growth and had a strong quarter in Q2 across our primary metrics daily active robots and daily supply hours daily active robots measured as the average number.

Speaker Change: We provide a robotic delivery experience that we expect will continue to delight customers, improve reliability for merchants, reduce traffic congestion and eliminate vehicle emissions, and even improve safety for pedestrians and cyclists.

Speaker Change: For robots in the field performing daily varies by daily supply hours measures. The average number of hours per day that are robots already to perform database.

Speaker Change: At scale, we expect our robots to complete deliveries at lower costs than couriers, making last mile more affordable and accessible, which in turn could boost local economies.

These metrics are important as they provide a high level gauge of our operating efficiency and indicate progress than I had myself project deployments.

Speaker Change: We estimate that by reducing car trips, delivery robots can lower greenhouse gas emissions by over 700 megatons annually, which represents 2% of all global emissions approximately.

Speaker Change: During Q2, we have 48 daily active robots that represents a 23% increase quarter over quarter, and 85% increase compared to Q2 last year.

Speaker Change: If you live in Los Angeles, you've probably seen our friendly robots delivering on sidewalks already. Or maybe you've seen them on TV, like on John Mulaney's Netflix special, Everybody's in L.A., or the latest Beverly Hills Cop movie.

Speaker Change: These robots produced 385 daily supply hours.

Speaker Change: 8% increase quarter over quarter, and 106% increase compared to Q2 of 2023.

Speaker Change: Together this led to our Q2 delivery on branding revenues, increasing by 80% over the prior quarter and by 178% compared to the same quarter last year.

Speaker Change: Our current fleet has been in operation since 2022, and we've delivered to tens of thousands of households throughout Los Angeles, serving over 300 restaurants.

Speaker Change: And we've been consistently increasing our delivery volume by double digits month over month for the past 30 months.

Speaker Change: Accomplished is why holding flat, our corresponding cost of revenues quarter over quarter and observed over 50% gross margin improvement compared to the same period last year.

Speaker Change: Our business generates revenue from three main sources. First is delivery as a service. This is the revenue we make for delivering packages. We operate our fleet of robots. We don't sell them to anyone.

Speaker Change: This positive impact of gross margin was driven by improvements throughout our autonomy software and operation stacks. For example, we've steadily increased the average speed of robots. We have also continued improving robots at autonomous navigation capabilities, a more challenging environment, resulting in reduced rates off of Humana.

Speaker Change: Our second revenue stream is out-of-home advertising. This is what we get paid for placing ads on our robots.

Speaker Change: These two revenue streams scale as a function of our fleet size, and we are fortunate to have global enterprise partners and have more demand than available supply.

Intervention and we've made improvements to our Ross planning lowest cost productivity and improve daily deployment operations.

Speaker Change: Our third revenue stream is software, which is independent of our fleet size.

Speaker Change: As we continue to improve our operations the pave the path to scale up our fleet through 2000 robots.

Speaker Change: This quarter's software revenue is represented by our income from non-recurring services contract with Magna International.

Speaker Change: As you May know the 2000 robot expansion is under an agreement to be hybrid Uber eats, which allows us to rapidly scale by having access to existing delivery demand in each city V go through.

Speaker Change: Our software revenue is a nod to our broader vision and part of our master plan that goes beyond land-smart food delivery.

Speaker Change: Our plan begins with commercializing our robotics platform for food delivery, but we will then expand beyond food into other last-mile categories as we bring down the cost of delivery.

Speaker Change: The ability to scale through partners like Uber is one of the key strengths of our business model is designed our robots to be extremely simple to interact with and require minimal training.

Speaker Change: And finally, we will use our core technology to power any new robots that need to coexist with humans and navigate our complex environments. I'll speak about our broader vision at the end of this presentation.

Speaker Change: Able to onboard new merchants through luber with a simple email message I would like to share what we expect that fleet expansion process to look like over the coming months.

Speaker Change: The final topic to touch on before discussing Q2 is competitive differentiation. We believe CERV is differentiated by a few key strengths, and this includes a first-of-a-kind, level-four autonomous robot deployed in a Tier 1 city like Los Angeles.

Speaker Change: The scale up is proceeding in four phases design manufacturing deployment and scaled operations.

Speaker Change: Ill go into further detail on this but the headline message here is that once we execute on this plan. We expect to have 2000 robots generate $60 million to $80 million in revenue run rate annually.

Speaker Change: Our years of experience collecting data and insights from commercially operating an autonomous fleet.

Speaker Change: Let's begin with the design phase the foundation of our growth philosophy effective robot design and.

Speaker Change: A robust, data-driven approach to engineering and go-to-market, which was only made possible because we were born inside the industry and had access to unique proprietary data.

Speaker Change: Ensuring that we have high performance and reliable hardware software enables us to continuously improve operational performance and unit economics.

Speaker Change: Also, our history of forming valuable strategic relationships with partners such as Uber, Magna, Nvidia, Delivery Hero, and 7-Eleven.

Since 2017, if design successive iterations of our robots from the ground up based on unique operational insights as well as proprietary data we had on last mile delivery.

Speaker Change: And finally, a superior experience for restaurants and customers compared to what they use today. With the company intro out of the way, let's dive into the highlights of Q2.

Speaker Change: I'm really excited to share that would be completed the design phase of our third generation hardware that'll be used to scale, our fleets to 2000 robots.

Speaker Change: Engineering validation and test units or EVP of <unk>.

Speaker Change: As you may know, in April SEV completed a successful public offering and uplisting onto the NASDAQ capital market after raising $40 million in new financing and we began trading under the ticker symbol SERV.

Speaker Change: Third the validation and testing phase as of last month and now we are in the certification process.

Speaker Change: We are very proud of the improvements we've made to our robots with the introduction of the third generation fleet will have more to share about the gen. Three robots, but for now I'll highlight a few areas of improvement.

Speaker Change: This was an important milestone in our journey, providing us with an important source of capital for growth.

Speaker Change: We've also continued to extend our track record of operational growth and had a strong quarter in Q2 across our primary metrics.

Speaker Change: First we've made significant upgrades to our sensor suite and introduced a five times increase in onboard compute this with power our newest AI models that drive our continuous autonomy improvements.

Speaker Change: daily active robots, and daily supply hours. Daily active robots measure the average number of robots out in the field performing deliveries, while daily supply hours measure the average number of hours per day that our robots are ready to perform deliveries.

Speaker Change: Second we have a new drivetrain on battery pack design with 67% more battery capacity. These upgrades enabled a new robot to move twice as fast travel twice as far on a single charge brakes, 40% more quickly.

Speaker Change: These metrics are important as they provide a high-level gauge of our operating efficiency and indicate progress in advance of larger fleet deployments.

Speaker Change: Spent six more hours in the field every single day.

Speaker Change: During Q2, we had 48 daily active robots. That represents a 23% increase quarter-over-quarter and 85% increase compared to Q2 last year.

Speaker Change: And last but not least all of the above improvements and more back complex five cutting our hardware costs roughly in half so to sum up upgraded sensors five times more compute power for more AI more battery more range faster robots more operating hours and all of that.

Speaker Change: These robots produced 385 daily supply hours, a 28% increase quarter-over-quarter, and a 106% increase compared to Q2 2023.

Speaker Change: At half the cost of a robot.

Speaker Change: This brings us to the second phase manufacturing.

Speaker Change: Together, this led to our Q2 delivery and branding revenues increasing by 80% over the prior quarter and by 178% compared to the same quarter last year.

Speaker Change: We're now preparing this third generation robots for scaled manufacturing as you may have seen in our April announcement, we have contracted Magna international one of the largest contracts vehicle manufacturers to be our contract manufacturer.

Speaker Change: We accomplished this while holding flat our corresponding costs of revenues quarter over quarter and observed over 50% gross margin improvements compared to the same period last year.

Speaker Change: We have also assembled a full supply chain and began the initial steps of manufacturing our next generation of robots and multi step process that will continue throughout the rest of the calendar year. We expect this robot to roll off the production line by the end of Q4 2024.

Speaker Change: This positive impact to gross margin was driven by improvements throughout our autonomy, software, and operations stacks.

Speaker Change: For example, we've steadily increased the average speed of robots.

Speaker Change: This leads me to the third space deployment.

Speaker Change: We've also continued improving robots' autonomous navigation capabilities in more challenging environments, resulting in reduced rates of human intervention. And we've made improvements to our route planning, lowered cost of connectivity, and improved daily deployment operations.

Speaker Change: Our expansion plan involves geographic expansion within both our core operating footprint in Los Angeles, as well as expansion into new cities.

Speaker Change: You may have seen in June we expanded our daily Bay area into Koreatown in L. A and began onboarding local merchants throughout our partnership with Uber eats.

Speaker Change: As we continue to improve our operations, we pave the path to scale up our fleet to 2,000 robots. As you may know, the 2,000 robot expansion is under an agreement we have with Uber Eats, which allows us to rapidly scale by having access to existing delivery demand in each city we go to.

Speaker Change: We intend to continue this geographical expansion by rolling out at least 250 additional robots in Los Angeles by the end of Q1, 2025, and entering one new major metro market by the end of Q2, our deployment goal remains 2000 robots by the end of 2025 and as previously disclosed.

Speaker Change: The ability to scale through partners like Uber is one of the key strengths of our business model. We've designed our robots to be extremely simple to interact with and require minimal training, so we are able to onboard new merchants through Uber with a simple email message.

Speaker Change: Some new markets under consideration include San Diego, Dallas, and Vancouver, Canada.

Speaker Change: Once we have initial deployments completed the fourth and final phase is scaled operation.

Speaker Change: I would like to share what we expect the fleet expansion process to look like over the coming months.

Speaker Change: This is the process of improving operational performance and efficiency in a new geography over time.

Speaker Change: The scale-up is proceeding in four phases, design, manufacturing, deployment, and scaled operations.

Speaker Change: We've spent over six years designing a robots and the past three years, focusing on developing tools and processes to improve our operational capacity over this time, we've learned that a significant local economies of scale in robotics television and that much of efficiency is driven by advanced algorithms for tax planning.

Speaker Change: We'll go into fair detail on this, but the headline message here is that once we execute on this plan, we expect to have 2,000 robots generate $60 to $80 million in revenue run rate annually.

Speaker Change: Let's begin with the design phase. The foundation of our growth starts with effective robot design. Ensuring that we have high performance and reliable hardware and software enables us to continuously improve operational performance and unit economics.

Speaker Change: Allocation of our most expensive resource labor.

Speaker Change: Progress on operational efficiency has led to a track record of steady increase in delivery volume by making consistent improvements to our deployment plan placement off robot autonomy SASSA and operations, which have also translated into consistent decreases in our dollar cost of revenue has anybody also.

Speaker Change: Since 2017, we've designed successive iterations of our robots from the ground up based on unique operational insights as well as proprietary data we had on last mile delivery.

Speaker Change: Lately, we've found that at full utilization each robot can be expected to pay for itself in less than one year.

Speaker Change: I'm really excited to share that we have completed the design phase of our third generation hardware that will be used to scale our fleet to 2,000 robots.

Speaker Change: Naturally this rollout plan, you'll have important financial impacts.

Speaker Change: The Engineering Validation and Test Units, or EVT, have entered the validation and testing phase as of last month, and now we are in the certification process.

Speaker Change: Much of our manufacturing and production costs will be front loaded and our 2025 revenues you'll require investment beginning in 2024.

Speaker Change: We are very proud of the improvements we've made to our robots with the introduction of the third generation fleet. We'll have more to share about the Gen 3 robots, but for now, I'll highlight a few areas of improvement.

Speaker Change: Once we complete the four phases. We just discussed we expect a new fleet of robots to generate 60 to 80 million in annual revenue run rate with that let me turn it over to Brian to further discuss the rollout on our financials.

Speaker Change: First, we've made significant upgrades to our sensor suite and introduced a five-times increase in onboard compute. This would power our newest AI models that drive our continuous autonomy improvements.

Brian Reed: Thanks, Alex and good afternoon, everyone I'd like to outline the financial impact of our near term deployment plan beginning with design.

Brian Reed: As already mentioned the design of our third generation robot is complete.

Speaker Change: Second, we have a new drivetrain and battery pack design with 67% more battery capacity.

Brian Reed: Continue to explore ways to reduce hardware cost, while improving AI and software capabilities.

Speaker Change: These upgrades enable the new robot to move twice as fast, travel twice as far on a single charge, break 40% more quickly, and spend 6 more hours in the field every single day.

Brian Reed: As a result arch has reduced the cost of the third generation robots by approximately 50% and we have direct line of sight to further cost reductions intended to be incorporated throughout the 2000 unit production run.

Speaker Change: And last but not least, all of the above improvements and more were accomplished by cutting our hardware costs roughly in half.

Brian Reed: We are now focused on executing the full scale manufacturing of these robots as such during the second quarter, we commenced investment and nonrecurring engineering neutral way to prepare for production.

Speaker Change: So to sum up, upgraded sensors, 5 times more compute power for more AI, more battery, more range, faster robots, more operating hours, and all of that at half the cost per robot.

Brian Reed: Our supply chain team has been diligently securing materials and components from our global supplier network to meet production targets.

Speaker Change: This brings us to the second phase, manufacturing. We are now preparing the third generation robots for scaled manufacturing. As you may have seen in our April announcement, we have contracted Magna International, one of the largest contract vehicle manufacturers, to be our contract manufacturer.

Brian Reed: Initial orders were placed with all vendors and we have started receiving materials for our third generation robots. Thanks.

Brian Reed: Thanks to our strategic partnerships and supplier agreements such as Alastair, we are well positioned to maintain steady supply minimize potential disruptions and control costs.

Speaker Change: We have also assembled our full supply chain and began the initial steps of manufacturing our next-generation robots, a multi-step process that will continue throughout the rest of the calendar year. We expect the first robots to roll off the production line by the end of Q4 2024.

Brian Reed: As we entered the deployment phase of our strategy is focused on generating immediate revenue through both delivery and advertising strengths. Our AI driven robots are a quest to operate in new cities from day, one thanks to their advanced sensors and navigation capabilities.

Speaker Change: This leads me to the third phase, deployment.

Speaker Change: Our expansion plan involves geographic expansion within both our core operating footprint in Los Angeles, as well as expansion into new cities.

Brian Reed: These minimize the need for pre mapping, allowing us to quickly capitalize on the growing demand for last mile delivery solutions in urban environments.

Speaker Change: As you may have seen, in June, we expanded our delivery area into Koreatown in LA and began onboarding local merchants throughout our partnership with Uber Eats.

Brian Reed: We will take a deliberate phased approach to deployment rolling out robots in batches, starting in Q1 2025.

Speaker Change: We intend to continue this geographical expansion by roaming out at least 250 additional robots in Los Angeles by the end of Q1 2025.

Brian Reed: As we move into the scaled operation phase our goal is to maximize the utilization of each robot, thus maximizing profitability and driving competitive margins.

Speaker Change: entering one new major metro market by the end of Q2. Our deployment goal remains 2,000 robots by the end of 2025. And as previously disclosed, some new markets under consideration include San Diego, Dallas, and Vancouver, Canada.

Brian Reed: Robots are expected to achieve full cost recovery within 12 months after reaching full utilization.

Brian Reed: Executing our strategy effectively on our fleet of 2000 robots is anticipated to achieve annual revenues of $60 million to $80 million and positive gross margin.

Speaker Change: Once we have initial deployment completed, the fourth and final phase is scaled operation. This is the process of improving operational performance and efficiency in a new geography over time.

Brian Reed: It is important to note that full utilization in a new city may take anywhere from six months to one year to achieve.

Speaker Change: We've spent over 6 years designing our robots and the past 2 years focusing on developing tools and processes to improve our operational capacity.

Brian Reed: With minimal regulatory barriers for sidewalk robots in most U S cities had strong support from local governments review robotic delivery as a way to reduce congestion accidents and carbon emissions. We are confident that this plan will allow us to scale efficiently and sustainably.

Speaker Change: Over this time, we've learned that there are significant local economies of scale in robotic delivery, and that much of our efficiency is driven by advanced algorithms for task planning and better allocation of our most expensive resource, labor.

Speaker Change: Now turning to our second quarter financial results.

Speaker Change: Our progress on operational efficiency has led to a track record of a steady increase in delivery volumes by making consistent improvements to our deployment plan, placement of robots, autonomy software, and operations.

Speaker Change: Revenue for the second quarter was 468000, which included 296000 of software service revenue from our agreement with Mazda.

Speaker Change: As we expected this service contract was substantially completed during the second quarter and as a result, we do not anticipate material revenue from software services in Q3 2024.

Speaker Change: which have also translated into consistent decreases in our dollar cost of revenue per delivery. Ultimately, we found that at full utilization, each robot can be expected to pay for itself in less than one year.

Speaker Change: We saw strong growth in our delivery and branding revenues during the second quarter, which generated 172000, an increase of 80% quarter over quarter and 178% over the same period prior year.

Speaker Change: Naturally, this rollout plan will have important financial impacts, since much of our manufacturing and production costs will be front-loaded, and our 2025 revenues will require investment beginning in 2024.

Speaker Change: As Alan described several improvements throughout our autonomy and software stack enabled our cost of revenues to remain relatively flat when compared to last quarter.

Speaker Change: Once we complete the four phases we just discussed, we expect the new fleet of robots to generate $60 to $80 million in annual revenue run rates. With that, let me turn it over to Brian to further discuss the rollout and our financials.

Alan: As a result delivery and branding gross margins improved to 64% quarter over quarter and improved 85% compared to the same period prior year.

Brian: Thanks, Alex. And good afternoon, everyone. I'd like to outline the financial impact of our near-term deployment plan, beginning with design. I'd like to outline the financial impact of our near-term deployment plan, beginning with design. I'd like to outline the financial impact of our near-term deployment plan, beginning

Alan: Operating expenses for the second quarter were $8 7 million and includes $3 5 million of noncash stock based compensation expense.

Brian: As Ali mentioned, the design of our third-generation robot is complete.

Speaker Change: We continue to explore ways to reduce hardware costs while improving AI and software capabilities.

Speaker Change: Net operating loss for the second quarter was $9 million remaining flat compared to the prior quarter.

Speaker Change: As a result, ARCH has reduced the cost of the third generation robot by approximately 50% and we have direct line-of-sight to further cost reductions intended to be incorporated throughout the 2,000 unit production run.

Speaker Change: Due to the upfront capital requirements for our fleet, we will continue to explore effective financing solutions for our robots.

Speaker Change: June we received signed commitments with existing equipment financing partners for $11 6 million as.

Speaker Change: We are now focused on executing the full-scale manufacturing of these robots. As such, during the second quarter, we commenced investment in non-recurring engineering and tooling to prepare for production.

Speaker Change: As of today no amount has been drawn under these facilities.

Speaker Change: As of June 30, the company had $28 8 million of cash and cash equivalents, our second quarter free cash flow calculated as cash flow from operations minus capital expenditures was $6 5 million and included $1 $1 million related to the initial manufacturing costs.

Speaker Change: Our supply chain team has been diligently securing materials and components from our global supplier network to meet production targets.

Speaker Change: Initial orders were placed with all vendors, and we have started receiving materials for our third-generation robots.

Speaker Change: In July the company completed a $15 million private placement transaction with a single institutional investor.

Speaker Change: Thanks to our strategic partnerships and supplier agreements, such as ALSTR, we are well-positioned to maintain steady supplies, minimize potential disruptions, and control costs.

Speaker Change: This was an opportunistic fund raise for which we will use the proceeds not only to extend the operation.

Speaker Change: As we enter the deployment phase, our strategy is focused on generating immediate revenue through both delivery and advertising streams. Our AI-driven robots are equipped to operate in new cities from day one thanks to their advanced sensors and navigation capabilities.

Speaker Change: But reduce equipment financing costs and make targeted investments to our technology stack.

Speaker Change: With our strong balance sheet, we are optimistic about our future prospects and excited to drive market innovation within last mile delivery I will now turn it back to Ali.

Speaker Change: These minimize the need for pre-mapping, allowing us to quickly capitalize on the growing demand for last-mile delivery solutions in urban environments.

Speaker Change: Now that we have discussed the financials and near term deployment plans, let's take a step back and look at the Big picture.

Speaker Change: We will take a deliberate phased approach to deployment, rolling out robots in batches starting in Q1 2025.

Ali Cassani: I would like to share with you my view of how transportation will be evolving over the coming years and how that relates to our voice yes, Sir.

Speaker Change: Now you can ship packages from China to the U S for $2, but.

Speaker Change: As we move into the scaled operation phase, our goal is to maximize the utilization of each robot, thus maximizing profitability and driving competitive margins.

Speaker Change: But delivering from China town to your home cost 10 Bucks.

Speaker Change: This is because of the long distance shipping has benefited from significant automation, but last one transportation has not seen similar advances.

Speaker Change: Robots are expected to achieve full cost recovery within 12 months after reaching full utilization.

Speaker Change: A cargo ship with a crew of 'twenty moves more goods than the entire British Navy up a 100000 people did a few hundred years back but on average mailman today does the work of two people from a 100 years ago. That's a 5000 times productivity gain in shipping versus two times.

Speaker Change: Executing this strategy effectively on our fleet of 2,000 robots is anticipated to achieve annual revenues of $60 to $80 million and positive gross margin.

Speaker Change: It is important to note that full utilization in a new city may take anywhere from six months to one year to achieve.

Speaker Change: With minimal regulatory barriers for sidewalk robots in most U.S. cities and strong support from local governments who view robotic delivery as a way to reduce congestion, accidents, and carbon emissions, we are confident that this plan will allow us to scale efficiently and sustainably.

Speaker Change: Gain in last mile.

Speaker Change: Fixing this gap is a massive market opportunity and I see artificial intelligence as it unlocks that's because while we scaled our muscles going from horses to steam engines to gas engines on electric motors.

Speaker Change: Just haven't been able to scale our brains on.

Speaker Change: Now turning to our second quarter financial results.

Speaker Change: Now a.

Speaker Change: A few people on a giant ship can move millions of packages at once but ships don't help with last mile delivery.

Speaker Change: Revenue for the second quarter was $468,000 which included $296,000 of software service revenue from our agreement with MAGNA.

Speaker Change: Sure.

Bill: Bill one person one box all the way to your front door.

Speaker Change: As we expected, this service contract was substantially completed during the second quarter. And as a result, we do not anticipate material revenue from software services in Q3 2024.

Speaker Change: This massive historical gap in progress paired with the new Atlanta is an AI and robotics is why I have focused our efforts on last mile transportation as a first market. It seems clear to me that there is more value to capture in last mile than any other leg restaurants flotation.

Speaker Change: We saw strong growth in our delivery and branding revenues during the second quarter, which generated $172,000, an increase of 80% quarter-over-quarter, and 178% over the same period prior year.

Speaker Change: Even with these last mile food delivery is a particularly great beachhead.

Speaker Change: Three times, a day that has been rapid and steady growth in market size tanks still hungry customers yet most delivery platforms are yet to turn profitable because we need our meals within 30 minutes and can't wait for them to show up in our big truck. The next day.

Speaker Change: As Ali described, several improvements throughout our autonomy and software stack enabled our cost of revenues to remain relatively flat when compared to last quarter.

Ali: As a result, delivery and branding gross margins improved 64% quarter over quarter and improved 85% compared to the same period prior year.

Speaker Change: Meanwhile, everyone complains about cost right.

Speaker Change: Strong say theyre overcharged customers say database too expensive and drivers aren't paid enough and some regulators have stepped into the fray, but their efforts seem likely to exasperate rather than improve cost pressures.

Ali: Operating expenses for the second quarter were $8.7 million and include $3.5 million of non-cash stock-based compensation expense.

Speaker Change: All of this is due to the inherent cost of last mile and by addressing it we help unlock massive potential estimated at $450 billion by the end of the decade.

Ali: Net operating loss for the second quarter was $9 million, remaining flat compared to the prior quarter.

Ali: Due to the upfront capital requirements for our fleet, we will continue to explore effective financing solutions for our robots. In June, we received signed commitments with existing equipment financing partners for $11.6 million.

Speaker Change: This brings us back to our solution at personal sized robot that can navigate to human environment lifestyle box.

Speaker Change: Third delivery robots that are currently deployed in L. A 400 restaurants have over a thousand times less kinetic energy them cost they can safely stop at any time for remote human assistance.

Ali: As of today, no amount has been drawn under these facilities.

Ali: As of June 30th, the company had $28.8 million of cash and cash equivalents. Our second quarter free cash flow calculated as cash flow from operations minus capital expenditures was $6.5 million and included $1.1 million related to initial manufacturing costs.

Speaker Change: They plug N play into cities and need no new infrastructure and the address half of last mind database because median delivery distance is only a couple of miles.

Speaker Change: Even compared to other automated solutions, such as autonomous vehicles or drones. We believe our robots are inherently safer in fact, we complement aves undrawn, because we don't need dedicated parking or loading area like they do and we can pick up orders for them from places they cannot reach.

Ali: In July, the company completed a $15 million private placement transaction with a single institutional investor.

Ali: This was an opportunistic fundraise for which we will use the proceeds not only to extend the operational delay, but reduce equipment financing costs and make targeted investments to our technology stack.

Speaker Change: Also our robots are not heavily regulated like Avis Undrawn Saar as a matter of fact currently in the U S. By default our robots are allowed to operate anywhere.

Ali: With our strong balance sheet, we are optimistic about our future prospects and excited to drive market innovation within last mile delivery. I will now turn it back to Ali.

Speaker Change: To sum up I believe that we can bring robots at scale to our public spaces as a truly new form of transportation for the 21st century, one that our society deserves because not only do we lower delivery costs.

Ali: Now that we've discussed the financials and near-term deployment plans, let's take a step back and look at the big picture. I would like to share with you my view of how transportation will be evolving over the coming years and how that relates to our work here at CERF.

Speaker Change: Also reduce pollution congestion and traffic accidents.

Speaker Change: But last mile is only the sites for US we have a three step master plan, which I quickly mentioned at the beginning of the call and hope to speak about more in the future.

Ali: Right now, you can ship packages from China to the U.S. for $2.

Ali: But delivering from Chinatown to your home costs $10.

Speaker Change: One of our Master plan is to commercialize with delivery starting with our 2000 robots for Uber eats because food delivery is one of the most expensive last mile applications today.

Ali: This is because long-distance shipping has benefited from significant automation, but last-mile transportation has not seen similar advances.

Ali: A cargo ship with a crew of 20 moves more goods than the entire British Navy of 100,000 people did a few hundred years back.

Speaker Change: As the scale of sleep and lower delivery costs step two is to expand to all other last month's sectors beyond food on sidewalks.

Ali: But an average mailman today does the work of two people from a hundred years ago. That's a 5,000 times productivity gain in shipping versus 2 times gain in last mile.

Speaker Change: We'd be delivering groceries or medications or other parcels to customers on sidewalks.

Speaker Change: Or moving things retain other environments, such as malls airports hospitals or factories and step three is to use our core ROE bodies tech to power all robots globally that want to coexist with humans and navigate a complex environment that they're they have four wheels or two legs.

Ali: Fixing this gap is a massive market opportunity and I see artificial intelligence as its unlock.

Ali: That's because while we scaled our muscles, going from horses to steam engines to gas engines and electric motors, we just haven't been able to scale our brains.

Speaker Change: I think many people share this vision that overcoming years youre going to see a rapid rise in the use of robots with some technology visionaries, even forecasting proliferation of 1 billion robots within the next 25 years.

Ali: Until now. A few people on a giant ship can move millions of packages at once, but ships don't help with last mile delivery. There, it's still one person, one box, all the way to your front door.

Speaker Change: And for that to materialize robots youll need to enter our spaces, we can be a natural partner for robot makers, new on hold including those working on humanoid form factors, because they too need to walk among humans and that's something we are really good at we've been building AI models to help robot navigate.

Ali: This massive historical gap in progress

Speaker Change: Paired with the new advances in AI and robotics is why I have focused our efforts on last mile transportation as our first market. It seems clear to me that there is more value to capture in last mile than any other leg of transportation.

Speaker Change: Complex human environment for the last seven years, and that's our three step Master plan.

Speaker Change: Even within last mile, food delivery is a particularly great beachhead.

Speaker Change: Food delivery.

Speaker Change: Last mile beyond food database, and then use our technology to power other robots moving among humans.

Speaker Change: We eat three times a day. There's been rapid and steady growth in market size, thanks to hungry customers. Yet, most delivery platforms are yet to turn profitable because we need our meals within 30 minutes and can't wait for them to show up in a big truck the next day.

Speaker Change: Before we bring this to a conclusion and open up for questions I want to emphasize our clients focus on the first phase of our vision, which is to scale up our food delivery fleet.

Speaker Change: We have spent the last seven years preparing for this moment and with the incredible progress Youre seeing in AI and robotics and the increasing demand for last mile automation. We are confident in our strategy to lead that autonomous daily the industry and bring more efficiency into last mile.

Speaker Change: Meanwhile, everyone complains about cost. Restaurants say they're overcharged, customers say delivery is too expensive, and drivers aren't paid enough. And some regulators have stepped into the fray, but their efforts seem likely to exasperate rather than improve cost pressures.

Speaker Change: All of this is due to the inherent cost of last month, and by addressing it, we help unlock massive potential estimated at $450 billion by the end of the decade.

Speaker Change: Before I answer any questions.

Speaker Change: Want to truly thank each and every team member at Sir and every partner to serve for the Onvia van commitment and resilience.

Speaker Change: This brings us back to our solution, a personal-sized robot that can navigate human environments like sidewalks.

Speaker Change: <unk> been instrumental in driving our success in meeting our strategic objectives.

Speaker Change: Look forward to continuing this journey, together and achieving greater and milestones in the quarters and years ahead. Thank you Andrew.

Speaker Change: Served delivery robots that are currently deployed in LA for hundreds of restaurants have over a thousand times less kinetic energy than cars. They can safely stop at any time for remote human assistance.

Speaker Change: And with that let's turn it over to questions.

Speaker Change: Okay.

Speaker Change: Thank you, ladies and gentlemen, I will now pass the conference over to <unk> for questions. Please go ahead.

Speaker Change: They plug and play into cities and need no new infrastructure, and they address half of last mile deliveries because median delivery distance is only a couple of miles.

Speaker Change: Even compared to other automated solutions, such as autonomous vehicles or drones, we believe our robots are inherently safer.

Speaker Change: To begin by saying, thank you to all the investors and analysts who submitted.

Speaker Change: Great questions to us over email, we really appreciate your engagement.

Speaker Change: In fact, we complement AVs and drones because we don't need dedicated parking or loading area like they do, and we can pick up orders for them from places they cannot reach.

Speaker Change: So to start off lets start with our composite question that.

Speaker Change: That covers many of the common questions. We received many wanted to understand how we receive orders how far our robots goal how do they manage handoffs to customers, where they can go inside buildings et cetera.

Speaker Change: Also, our robots are not heavily regulated like AVs and drones are. As a matter of fact, currently in the US, by default, our robots are allowed to operate anywhere.

Speaker Change: So Ali why don't you start by walking us through how the robots work exactly.

Speaker Change: To sum up, I believe that we can bring robots at scale to our public spaces as a truly new form of transportation for the 21st century, one that our society deserves, because not only do we lower delivery costs, we also reduce pollution, congestion, and traffic accidents.

Speaker Change: Thank you I think Jay let me start at the beginning every morning robots had out of work cut out to work on their own from our central facility. They stay out all day and then they return home at night once Theyre done.

Speaker Change: But last mile is only the start for us. We have a three-step master plan which I quickly mentioned at the beginning of the call and hope to speak about more in the future.

Speaker Change: They can go all day on a single charge and they can go upwards of 20 miles every single day.

Speaker Change: That's our clients' robots third Gen robots that I mentioned earlier are doubling does range.

Speaker Change: Step one of our master plan is to commercialize food delivery, starting with our 2,000 robots for Uber Eats, because food delivery is one of the most expensive last-mile applications today.

Speaker Change: And average daily very today takes our robots about a mile.

Speaker Change: The order process from a customer point of view.

Speaker Change: As we scale our fleet and lower delivery costs, step two is to expand to all other landmine sectors beyond food and sidewalks.

Speaker Change: Just like any other order it starts by placing an order on our rates.

Speaker Change: And at the end of the process being notified that the order.

Speaker Change: This could be delivering groceries or medications or other parcels to customers on sidewalks.

Speaker Change: Excuse me and the order has been asking into our robots.

Speaker Change: Then heads over to the restaurant and once it's been ignored inside the restaurant to have the stats come out and load the robot spend that food is prepared.

Speaker Change: or moving things within other environments, such as malls, airports, hospitals, or factories.

Speaker Change: And step three is to use our core robotic tech to power all robots globally that want to coexist with humans and navigate our complex environments, whether they have four wheels or two legs.

Speaker Change: But then pass it over to the customer who uses that will be its app to track the progress just like any other order.

Speaker Change: And once the robot arrives at the destination clauses.

Speaker Change: He has notified.

They are able to go out and outside to retrieve that item now note that the robot does not enter the building at rates on the site and the customers can use the button in the Hubei each path, so unlocked and retrieve that item.

Speaker Change: I think many people share this vision, that over coming years, we are going to see a rapid rise in the use of robots, with some technology visionaries even forecasting proliferation of 1 billion robots within the next 25 years. And for that to materialize, robots will need to enter our spaces.

Speaker Change: Currently the robot only has a single cargo space, but we've done batch deliveries in the past that would be the 100% success rate and the interior of the robot is fully customizable.

Speaker Change: We can be a natural partner for robot makers new and old, including those working on humanoid form factors, because they too need to walk among humans.

Speaker Change: I should mention that our customers are generally happy to come outside to meet the robots because getting to deliver in a robot means that they don't need to chip.

Speaker Change: And that's something we are really good at. We've been building AI models to help robots navigate complex human environments for the last seven years.

Speaker Change: And it happens that shipping is one of the biggest cost components that customers perceive it.

And then finally once the robot is done with that did you Bury it heads to the nearest restaurant for the next order.

Speaker Change: And that's our three-step master plan. Solve food delivery, solve last mile beyond food delivery, and then use our technology to power other robots moving among humans.

Speaker Change: Okay, great. Thank you. So our next question comes from Rommel Dionisio from Aegis capital.

Speaker Change: Before we bring this to a conclusion and open up for questions, I want to emphasize our current focus on the first phase of our vision, which is to scale up our food delivery fleet.

Rommel Dionisio: He is asking can you. Please describe sequential growth in delivery volume in early during the current quarter.

Speaker Change: We have spent the last seven years preparing for this moment, and with the incredible progress we are seeing in AI and robotics, and the increasing demand for last-mile automation, we are confident in our strategy to lead the autonomous delivery industry and bring more efficiency into last mile.

Speaker Change: Sure I can take that wanted to do so.

Speaker Change: No further question.

Speaker Change: As you know, we don't provide quarter over quarter specific delivery data, but we're very happy that this quarter. We extended the 30 months track record of double digit month over month increases and we're seeing that in our delivery volumes each month.

Speaker Change: Before answering questions, I want to truly thank each and every team member at CERF and every partner to CERF for their unwavering commitment and resilience.

Speaker Change: More importantly, we have the key metrics that we do disclose in our filings earlier today. Those include daily active robots, and those increased 23% quarter over quarter and about 106% compared to Q2 last year.

Speaker Change: You have all been instrumental in driving our success and meeting our strategic objectives. I look forward to continuing this journey together and achieving greater milestones in the quarters and years ahead. Thank you. And with that, let's turn it over to questions.

Speaker Change: And we also had a 28% increase in our daily supply hours from all of those robots.

Speaker Change: Thank you. Ladies and gentlemen, I will now pass the conference over to Aduke for questions. Please go ahead.

Speaker Change: As Alan mentioned just to tie those together then we were able to have an 80% increase in the delivery and branding revenues.

Speaker Change: Within the quarter compared to last quarter, and most importantly, I would say we did all of that by holding the cost of revenues flat when we looked at Q1 versus Q2.

Speaker Change: Serve Robotics

Aduke: I'd like to begin by saying thank you to all the investors and analysts who submitted great questions to us over email. We really appreciate the engagement.

Speaker Change: And we're really going to be focusing and continuing to execute to make the economics work as we grow the fleet. So thanks Shlomo.

Aduke: So, to start off, let's start with a composite question that covers many of the common questions we received.

Aduke: Many wanted to understand how we receive orders, how far our robots go, how they manage handoffs to customers, whether they can go inside buildings, etc.

Speaker Change: Thanks, Brian and then if I can add some color to that that statement. The reason, we've been able to grow our revenue while keeping the costs flat is that we've been making a ton of improvement. So our software. So that's one of them is back and also to the baby update those robots.

Aduke: So, Ali, why don't you start by walking us through how the robots work exactly.

Speaker Change: This includes increasing the average speed up the robots, making that economy work better in difficult environments.

Ali: Thank you, Adike. Let me start at the beginning. Every morning, robots head out of work, head out to work, usually on their own, from our central facility. They stay out all day, and then they return home at night once they're done.

Speaker Change: Reducing the rates of human interventions, improving route planning and much more of that hopefully will speak to more in the future.

Ali: They can go all day on a single charge, and they can go upwards of 20 miles every single day. And that's our current robots. The third-gen robots that I mentioned earlier are doubling that range.

Okay. Thanks. Our next question comes from Chris <unk>, the founder of LD micro.

Speaker Change: How do you guys measure success on the engineering side, well the robots have more functionality and more users in the years to come.

Ali: An average delivery today takes a robot about a mile.

Ali: The order process from a customer's point of view is just like any other order. It starts by placing an order on Uber Eats and at the end of the process being notified that the order has been assigned to a robot.

Speaker Change: Thank you Chris This is a great question ultimately everything really Columbus balance with poor performance areas, which is safety.

Speaker Change: That's what my satisfaction.

Speaker Change: The economics and market size.

Ali: A robot then heads over to the restaurant, and once it's there, it notifies the restaurant to have the staff come out and load the robots when the food is prepared. The robot then heads over to the customer, who uses the Uber Eats app to track the progress, just like any other order.

Speaker Change: Our software and hardware.

Speaker Change: Reiteration, we need to first and foremost make sure that we are operating safely.

Speaker Change: And once you say if you wanted to make sure that you are timely and reliable so that the customers are happy.

Speaker Change: Once you have those table stakes to get it out. The next step is to make sure that we are reducing costs for last mile <unk> compared to what it is today and then lastly, as we expand the capabilities of the robots, we are increasing the size of our market opportunity.

Ali: And once the robot arrives at the destination, the customer is notified and they are able to go outside to retrieve their item. Now note that the robot does not enter the building, it waits outside, and customers can use the button in the Uber Eats app to unlock and retrieve their item.

Speaker Change: So every successful successive generation of robots.

Ali: Currently, the robot only has a single cargo space, but we've done batch deliveries in the past with 100% success rate, and the interior of the robot is fully customizable.

Speaker Change: Both hardware and software has been improving these four areas.

Speaker Change: I didn't have a really strong track records and it comes to safety and reliability and customer satisfaction.

Ali: Also, I should mention that customers are generally happy to come outside to meet the robot because getting their delivery in a robot means that they don't need to tip. And it happens that tipping is one of the biggest cost components that customers perceive.

Speaker Change: And our existing robots can serve last mile urban delivery the short distance database that has it.

Speaker Change: Total addressable market up hundreds of billions of dollars. So our focus out of those four areas. Today is mainly on one which is unit economics, which is we want to make.

Ali: And then finally, once the robot is done with that delivery, it heads to the nearest restaurant for the next order.

Speaker Change: Daily base profitable as we scale our suites.

Romel Dionisio: Okay, great. Thank you. So, our next question comes from Romel Dionisio from Aegis Capital and he is asking, can you please describe sequential growth in delivery volume in LA during the current quarter?

Speaker Change: Third generation of robot that'd be just announced has improved and number of key areas that touches on all of those performance areas specifically on unit economics, like having more battery, which means more range and more hours of operation every day. It improves economics, because we can do more database robots pay day therefore.

Aduke: Sure. I can take that one, Aduke. So thanks, Ramel, for the question. As you know, we don't provide quarter-over-quarter specific delivery data, but we're very happy that this quarter we extended the 30-month track record of double-digit month-over-month increases.

Monetize the fixed costs over more daily base faster robots also improved economics, because you do more database, but it also improves customer satisfaction.

Speaker Change: Of course, reducing the cost of the robot is a really important contributor to our Gulf of reducing that would be very cautious.

Romel Dionisio: and we're seeing that in our delivery volumes each month.

Speaker Change: Got you.

Speaker Change: Thanks Ali our next question is from Bryan King Slur at Alliance Global partners.

Romel Dionisio: More importantly, we have the key metrics that we do disclose in our filings earlier today. Those include the daily active robots.

Speaker Change: He says can you speak to the competitive landscape and can you explain how serves the robot compares to others.

Romel Dionisio: And those increased 23% quarter over quarter, and about 106% compared to Q2 last year. And we also had a 28% increase in our daily supply hours from all of those robots.

Yes. This is a great question.

Speaker Change: I guess, it's important to highlight that robots like ours can have a variety of applications from warehouses two campuses to urban environments like where we are focused on.

Romel Dionisio: As Ali mentioned, just to tie those together then, right, we were able to have an 80% increase in the delivery and branding revenues within the quarter compared to last quarter.

Speaker Change: There are a number of players that are on campuses today.

Speaker Change: Two there may be looking at it as two pitches are more akin to a closed environment.

Speaker Change: And, most importantly, I'd say we did all of that by holding the cost of revenues flat when we looked at Q1 versus Q2. And we're really going to be focusing and continuing to execute to make the economics work as we grow the fleet. So, thanks, Ramel.

Speaker Change: <unk> repetitive routes that don't necessarily need a sophisticated I found that's funded me on AI system, whereas when you're on the city something I'd walk you need really really mature and sophisticated AI. That's winding me. So that you can navigate that environment in a safe and reliable way and thats, what <unk> been creating channels.

Ramel: Thanks, Brian. And if I can add some color to that last statement.

Speaker Change: <unk> got a really good place for four robots, because that's that added simplicity, but it's also a smaller market that spending on that debate compared to cities and populated centers. So for those reasons, we have been focusing on cities rather than campuses. We are building that deep taken AI that's needed to set up a much bigger market would be better.

Ramel: The reason we have been able to grow our revenue while keeping the cost flat

Speaker Change: is that we've been making a ton of improvements to our software, to our autonomy stack, and also to the way we operate the robot. This includes increasing the average speed of the robot.

Speaker Change: making the autonomy work better in difficult environments, reducing the rate of human interventions, improving route planning, and much more that hopefully we'll speak to more in the future.

Speaker Change: Army.

Speaker Change: And as we do that speaking of expense why their environments, including campuses as well, but ultimately this is a really huge market and there's room for many great companies to be build on robot anybody whether it's warehouse sorry, I cannot peso aside.

Speaker Change: Okay, thanks. Our next question comes from Chris Lahaji, the founder of LDMicro.

Ali Cassani: Okay. Thanks Ali.

Speaker Change: Next question is also a composite question from email what is the price of the robot can what can you tell us about bom cost.

Chris Lahaji: He asks, how do you guys measure success on the engineering side? Will the robots have more functionality and more uses in the years to come?

Thank you.

Speaker Change: Thank you, Chris. This is a great question. Ultimately, everything really comes down to four performance areas, which is safety, customer satisfaction, unit economics, and market size.

Our cost per robots continues to come down significantly.

Speaker Change: It is based on a number of factors, we don't disclose the specific number but yes.

Speaker Change: The main drivers that brings the cost down first of all when we are building robots as a one off low volume suite in the past obviously they cost more but now that you are scaling up the ramp up the volume helps us bring the costs down.

Speaker Change: So, our software and hardware, at every iteration, we need to first and foremost make sure that we are operating safely.

Speaker Change: And once you are safe, you want to make sure that you are timely and reliable so that the customers are happy.

Speaker Change: A lot of the components in the robots. They are also getting cheaper and better overtime like our batteries are on pure divestments or is are getting cheaper over the years, we've been operating.

Speaker Change: Once you have those table stakes sorted out, the next step is to make sure that we are reducing costs for last mile delivery compared to what it is today. And then lastly, as we expand the capabilities of the robot, we are increasing the size of our market opportunity.

Speaker Change: But most importantly is the design of the robot we've done significant improvements throughout the iterations of the boundaries and indeed to bring the cost per robot down, which as I said, it's a box in the third generation is about half of the cost of previous generations.

Speaker Change: So, every successive generation of our robots, both hardware and software, have been improving these four areas.

Speaker Change: Our 2000 robots that they're launching but it will be easy.

Speaker Change: We already have a really strong track record when it comes to safety and reliability and customer satisfaction. And our existing robots can serve last-mile airborne delivery, the short-distance deliveries that has a total addressable market of hundreds of billions of dollars.

Speaker Change: You've mentioned publicly before that our robots will cost less than the cheapest new car you can buy in the United States and as we said in the call earlier at full utilization in each robots with paper its absolutely mathematically.

Speaker Change: So, our focus out of those four areas today is mainly on one, which is unit economics.

Speaker Change: Okay. Thanks Ali and the next question is from Larry.

Speaker Change: which is we want to make deliveries profitable as we scale our fleet.

Speaker Change: Why limit your potential to just serving food what about delivering packages for USPS, Fedex Amazon and others.

Speaker Change: And our third generation robot that we just announced has improved a number of key areas that touches on all of those performance areas, but specifically on unit economics.

Speaker Change: Barry you are a visionary.

Speaker Change: Like, having more battery, which means more range and more hours of operation every day, it improves economics because we can do more deliveries per robot per day, therefore amortize the fixed cost over more deliveries.

Speaker Change: I could not agree more there is a lot of what's in the shelf biotech beyond food delivery and I outlined US index reached the Masterplan earlier issues that food delivery is only a first step.

Speaker Change: Faster robots also improves economics because you do more deliveries a day, but it also improves customer satisfaction

Speaker Change: I mentioned, the second step to be expanding beyond into adjacent areas like groceries medications on parcels, which I believe is what Mary was referring to.

Speaker Change: Of course, reducing the cost of the robots is a really important contributor to our goal for reducing the delivery cost.

Speaker Change: There are also other use cases for robot dedicated that don't exist today like reverse logistics imagine what it would look like if you could reach anything in robots in a cheap and convenient way.

Speaker Change: Cheers. Cheers.

Speaker Change: Thanks Ali. Our next question is from Brian Kingsler at Alliance Global Partners. He says, can you speak to the competitive landscape and can you explain how Servz robot compares to others?

Speaker Change: Or using them to enable and support other automated daily day vehicles like ABS Undrawn side I mentioned during the presentation and then finally <unk>.

Speaker Change: <unk> would be to use our technology to really power other robots and bringing other robots that once we exist with humans and navigate our environments agile market.

Speaker Change: Yeah, this is a great question and I guess it's important to first highlight that robots like ours can have a variety of applications from warehouses to campuses and to urban environments like where we are focused on.

Ali Cassani: Thanks Ali our next question comes from E mail, either robots frequently stolen or Vandalised candy defend themselves.

Speaker Change: There are a number of players that are on campuses today.

Speaker Change: The way we look at it is cannabis are more akin to a closed environment.

Speaker Change: with fixed, repetitive routes that don't necessarily need as sophisticated of an autonomy and AI system. Whereas when you're on the city sidewalk, you need really, really mature and sophisticated AI and autonomy so that you can navigate that environment in a safe and reliable way.

Speaker Change: So this is a question that I get more often than it actually has to deal with cases up vandalism.

Speaker Change: First off our robots and have secured cargo as we mentioned earlier and only the intended cost stomach can get their package.

Speaker Change: Indeed, the robust operating fairly crowded environments during busy hours. So that they are equipped with cameras and sensors. They have remote communication and they have loud speakers. So they have a lot of deterrence.

Speaker Change: And that's what we've been creating.

Speaker Change: Campuses are a really good place for robots because of that added simplicity, but it's also a smaller market with less spending on delivery compared to cities and populated centers.

Speaker Change: Design into them on into that maybe upgrades.

Speaker Change: For those reasons, we have been focusing on cities rather than campuses. We are building that deep tech and AI that's needed to serve a much bigger market with better economics.

Speaker Change: But having said that perhaps the most important thing to mention is the proof that'd be having the numbers, which I said earlier over the years, we have tens of thousands of daily basically have done we have not as much higher daily very success rates and even korea's perhaps today and it's very rare for a package to be delivered success.

Speaker Change: And as we do that, we can expand to other environments, including campuses as well. But ultimately, this is a really huge market and there's room for many great companies to be built around robot delivery, whether it's in a warehouse or a campus or a sidewalk.

Speaker Change: Really neither alone to be stolen or vandalized.

Speaker Change: The last thing I would mention is if you visit.

Speaker Change: Both of our operating areas in L. A what probably is going to surprise you. Most is how quickly people have become indifferent to the robots. There just walking by if nothing is not bending even though.

Speaker Change: Okay. Thanks, Holly. Our next question is also a composite question from email. What is the price of the robot? What can you tell us about bomb cost?

Speaker Change: Yes.

Speaker Change: It can be quite an incredible experience to see one of these rollouts moving around I would imagine that when mailboxes Bedfast introduced people had a similar kind of saying that their stuff is gonna be sitting there in a box in public and people can have analyzer I steal them, but today, we don't notice mailboxes anymore.

Speaker Change: Thank you. Our cost per robot continues to come down significantly. It is...

Speaker Change: Based on a number of factors, we don't disclose the specific number, but there are

Speaker Change: three main drivers that bring the cost down. First of all, when we are building robots as a one-off, low-volume fleet in the past, obviously they cost more. But now that we are scaling up, the ramp up, the volume, helps us bring the cost down.

Speaker Change: <unk> appears to me that our robots on the same trajectory of becoming noticeable mailbox, except for meals and just like mailboxes robots are also going to make lives better.

Speaker Change: Secondly, a lot of the components in the robots, they're also getting cheaper and better over time. Like our batteries, our computers, our sensors are getting cheaper over the years we've been operating.

Speaker Change: Okay, Great I believe we've covered all the immediate questions for today, and so with that I'd like to thank everyone for participating in <unk> first.

Speaker Change: But most importantly is the design of the robot. We've done significant improvements throughout the iterations we've done recently to bring the cost per robot down, which as I said, it's about in the third generation is about half of the cost of previous generations.

Speaker Change: Hmm.

Speaker Change: Virtual conference call and hand, it back to the operator to close.

Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect.

Speaker Change: For our 2,000 robots that we are launching with Uber Eats, we've mentioned this publicly before, that a robot will cost less than the cheapest new car you can buy in the United States. And as we said in the call earlier, at full utilization, each robot would pay for itself with less than.

Speaker Change: Okay, thanks Ali. The next question is from Larry. Why limit your potential to just serving food? What about delivering packages for USPS, FedEx, Amazon and others?

Speaker Change: Larry, you are a visionary. I could not agree more. There is a lot of potential for our tech beyond food delivery. And I outlined this in the three-step master plan earlier, which is that food delivery is only our first step.

Speaker Change: that I

Speaker Change: I mentioned the second step to be expanding beyond into adjacent areas like groceries, medications, and parcels, which I believe is what Larry was referring to.

Speaker Change: There are also other use cases for robot delivery that don't exist today, like reverse logistics. Imagine what it would look like if you could return things in robots in a cheap and convenient way.

Larry: Or, using them to enable and support other automated delivery vehicles like AVs and drones that I mentioned during the presentation.

Larry: And then finally, step three would be to use our technology to really power other robots and bring other robots that want to exist with humans and navigate our environments to market.

Ali: Thanks Ali. Our next question comes from email. Are the robots frequently stolen or vandalized? Can they defend themselves?

Speaker Change: So this is a question that I get more often than I actually have to deal with cases of vandalism. First off, our robots have a secured cargo, as we mentioned earlier, and only the intended customer can get their package.

Speaker Change: Secondly, the robots operate in fairly crowded environments and during busy hours. So they're equipped with cameras and sensors. They have remote communication. They have loudspeakers. So they have a lot of deterrence.

Speaker Change: design into them and into the way we operate.

Speaker Change: But having said that, perhaps the most important thing to mention is the proof that we have in the numbers, which I shared earlier. Over the years, with tens of thousands of deliveries we've done,

Speaker Change: we have had a much higher delivery success rate than even couriers have today. And it's very rare for a package to not be delivered successfully, leave alone to be stolen or vandalized.

Speaker Change: And the last thing I would mention is if you visit, if you go to our operation areas in L.A.

Speaker Change: What probably is going to surprise you most is how quickly people have become indifferent to the robots. They're just walking by as if nothing is happening, even though as a first-time observer it can be quite an incredible experience to see one of these robots moving around.

Speaker Change: I would imagine that when mailboxes were first introduced, people had a similar concern that their stuff is going to be sitting there in a box in public and people can vandalize or steal them. But today, we don't notice mailboxes anymore.

Speaker Change: It definitely appears to me that our robots are in the same trajectory of becoming an unnoticeable mailbox except with wheels. And just like mailboxes, our robots are also going to make lives better.

Speaker Change: Okay, great. I believe we've covered all the immediate questions for today and so with that I'd like to thank everyone for participating in CERF's first virtual conference call and hand it back to the operator to close.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Speaker Change: Serve Robotics

Speaker Change: Thank you for standing by and welcome to CERB Robotics second quarter 2024 earnings conference call.

Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Head of Communications and Investor Relations, Aduke Sawil. Please go ahead. Thank you. Thank you. Thank you.

Aduke Sawil: Thank you, Operator, and good afternoon, everyone. Welcome to CERV Robotics' second quarter 2024 earnings call.

Speaker Change: On the call today, we have CERF's CEO and co-founder, Ali Khashoggi, and our CFO, Brian Reid.

Speaker Change: During today's call, we may present both GAAP and non-GAAP financial measures.

Speaker Change: If needed, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release filed earlier today.

Speaker Change: Certain statements in this presentation and on this call are forward-looking statements.

Speaker Change: You should not place undue reliance on forward-looking statements.

Speaker Change: Actual risks may differ materially from these forward-looking statements and we do not undertake any obligation to update any forward-looking statements we make today except as required by law.

Speaker Change: For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainty these describe in our most recent Form 10-K and in other filings made with the SEC.

Speaker Change: We published our quarterly earnings press release, prepared remarks, and supplemental slides to our Investor Relations website earlier today, and we ask you to review those documents if you have not already.

Speaker Change: With that, let me hand it over to Ali.

Ali Khashoggi: Thank you, Adukei, and thank you all for joining SEV's inaugural earnings call.

Ali Khashoggi: You may have already read our earnings release from earlier today. In this call, we will cover four topics.

Ali Khashoggi: First, I would like to briefly introduce the company to those of you who are new to our story. Second, I'll share our near-term plans to scale our fleet to 2,000 robots.

Ali Khashoggi: Third, Brian will discuss our Q2 results and the financial impact of our upcoming fleet growth. And finally, I would like to spend a little bit of time outlining our long-term vision.

Brian Reid: At the end, we will spend the remaining time answering your questions.

Brian Reid: Let's start by sharing a quick history of Cell Robotics.

Speaker Change: My co-founders and I first started this effort as the Advanced Projects Division of Postmates in 2017, before spinning out of Uber into an independent company in 2021.

Speaker Change: CERB was founded with a vision to revolutionize last-mile transportation using autonomous robots to help answer this question, why deliver two-pound burritos in two-ton cars?

Speaker Change: Our team comes with a depth of experience in food delivery, automation, and robotics. This positions us well to serve the growing last-mile delivery market, including food delivery, where approximately half of all trips are less than 2.5 miles and are well suited for sidewalk robots.

Speaker Change: We provide a robotic delivery experience that we expect will continue to delight customers, improve reliability for merchants, reduce traffic congestion and eliminate vehicle emissions, and even improve safety for pedestrians and cyclists.

Speaker Change: At scale, we expect our robots to complete deliveries at lower costs than couriers, making last mile more affordable and accessible, which in turn could boost local economies.

Speaker Change: We estimate that by reducing car trips, delivery robots can lower greenhouse gas emissions by over 700 megatons annually, which represents 2% of all global emissions approximately.

Speaker Change: If you live in Los Angeles, you've probably seen our friendly robots delivering on sidewalks already. Or maybe you've seen them on TV, like on John Mulaney's Netflix special, Everybody's in LA, or the latest Beverly Hills Cop movie.

Speaker Change: Our current fleet has been in operation since 2022, and we've delivered to tens of thousands of households throughout Los Angeles, serving over 300 restaurants.

Speaker Change: And we've been consistently increasing our delivery volume by double digits month over month for the past 30 months.

Speaker Change: Our business generates revenue from three main sources.

Speaker Change: First is delivery as a service. This is the revenue we make for delivering packages. We operate our fleet of robots, we don't sell them to anyone.

Speaker Change: Our second revenue stream is out-of-home advertising. This is what we get paid for placing ads on our robots.

Speaker Change: These two revenue streams scale as a function of our fleet size, and we are fortunate to have global enterprise partners and have more demand than available supply.

Speaker Change: Our third revenue stream is software, which is independent of our fleet size.

Speaker Change: This quarter's software revenue is represented by our income from non-recurring services contract with Magna International.

Speaker Change: Our software revenue is a nod to our broader vision and part of our master plan that goes beyond a last-minute food delivery.

Speaker Change: Our plan begins with commercializing our robotics platform for food delivery, but we will then expand beyond food into other last-mile categories as we bring down the cost of delivery.

Speaker Change: And finally, we will use our core technology to power any new robots that need to coexist with humans and navigate our complex environments. I'll speak about our broader vision at the end of this presentation.

Speaker Change: The final topic to touch on before discussing Q2 is competitive differentiation. We believe CERV is differentiated by a few key strengths, and this includes a first-of-a-kind level 4 autonomous robot deployed in a Tier 1 city like Los Angeles, N.Y.

Speaker Change: Our years of experience collecting data and insights from commercially operating an autonomous fleet.

Speaker Change: A robust, data-driven approach to engineering and go-to-market, which was only made possible because we were born inside the industry and had access to unique proprietary data.

Speaker Change: Also, our history of forming valuable strategic relationships with partners such as Uber, Magna, NVIDIA, Delivery Hero and 7-Eleven.

Speaker Change: And finally, our superior experience for restaurants and customers compared to what they use today. With the company intro out of the way, let's dive into the highlights of Q2.

Speaker Change: As you may know, in April CERF completed a successful public offering and uplisting onto the NASDAQ capital market after raising $40 million in new financing and we began trading under the ticker symbol SERV.

Speaker Change: This was an important milestone in our journey, providing us with an important source of capital for growth.

Speaker Change: We've also continued to extend our track record of operational growth and had a strong quarter in Q2 across our primary metrics.

Speaker Change: daily active robots, and daily supply hours. Daily active robots measure the average number of robots out in the field performing deliveries, while daily supply hours measure the average number of hours per day that our robots are ready to perform deliveries.

Speaker Change: These metrics are important as they provide a high-level gauge of our operating efficiency and indicate progress in advance of larger fleet deployments.

Speaker Change: During Q2, we had 48 daily active robots. That represents a 23% increase quarter-over-quarter and 85% increase compared to Q2 last year.

Speaker Change: These robots produced 385 daily supply hours, a 28% increase quarter-over-quarter, and a 106% increase compared to Q2 2023.

Speaker Change: Together, this led to our Q2 delivery and branding revenues increasing by 80% over the prior quarter and by 178% compared to the same quarter last year.

Speaker Change: We accomplished this while holding flat our corresponding cost of revenues quarter over quarter and observed over 50% gross margin improvement compared to the same period last year.

Speaker Change: This positive impact to gross margin was driven by improvements throughout our autonomy, software, and operation stacks. For example, we've steadily increased the average speed of robots.

Speaker Change: We've also continued improving robots' autonomous navigation capabilities in more challenging environments, resulting in reduced rates of human intervention. And we've made improvements to our route planning, lowered cost of connectivity, and improved daily deployment operations.

Speaker Change: As we continue to improve our operations, we pave the path to scale up our fleet to 2,000 robots. As you may know, the 2,000 robot expansion is under an agreement we have with Uber Eats, which allows us to rapidly scale by having access to existing delivery demand in each city we go to.

Speaker Change: The ability to scale through partners like Uber is one of the key strengths of our business model. We've designed our robots to be extremely simple to interact with and require minimal training so we are able to onboard new merchants through Uber with a simple email message.

Speaker Change: I would like to share what we expect the fleet expansion process to look like over the coming months.

Speaker Change: The scale-up is proceeding in four phases, design, manufacturing, deployment, and scaled operations.

Speaker Change: We'll go into fair detail on this, but the headline message here is that once we execute on this plan, we expect to have 2,000 robots generate $60 to $80 million in revenue run rate annually.

Speaker Change: Let's begin with the design phase. The foundation of our growth starts with effective robot design. Ensuring that we have high performance and reliable hardware and software enables us to continuously improve operational performance and unit economics.

Speaker Change: Since 2017, we've designed successive iterations of our robots from the ground up based on unique operational insights as well as proprietary data we had on last mile delivery.

Speaker Change: I'm really excited to share that we have completed the design phase of our third generation hardware that will be used to scale our fleet to 2,000 robots.

Speaker Change: The Engineering Validation and Test Units, or EBT, have entered the validation and testing phase as of last month, and now we are in the certification process.

Speaker Change: We are very proud of the improvements we've made to our robots with the introduction of the third generation fleet. We'll have more to share about the Gen 3 robots, but for now, I'll highlight a few areas of improvement.

Speaker Change: First, we've made significant upgrades to our sensor suite and introduced a five-times increase in onboard compute. This would power our newest AI models that drive our continuous autonomy improvements.

Speaker Change: Second, we have a new drivetrain and battery pack design with 67% more battery capacity.

Speaker Change: These upgrades enable the new robot to move twice as fast, travel twice as far on a single charge, break 40% more quickly, and spend 6 more hours in the field every single day.

Speaker Change: And last but not least, all of the above improvements and more were accomplished by cutting our hardware costs roughly in half.

Speaker Change: So to sum up, upgraded sensors, 5 times more compute power for more AI, more battery, more range, faster robots, more operating hours, and all of that at half the cost per robot.

Speaker Change: This brings us to the second phase, manufacturing. We are now preparing the third generation robots for scaled manufacturing. As you may have seen in our April announcement, we have contracted Magna International, one of the largest contract vehicle manufacturers, to be our contract manufacturer.

Speaker Change: We have also assembled our full supply chain and began the initial steps of manufacturing our next generation robots, a multi-step process that will continue throughout the rest of the calendar year. We expect the first robots to roll off the production line by the end of Q4 2024.

Speaker Change: This leads me to the third phase, deployment.

Speaker Change: Our expansion plan involves geographic expansion within both our core operating footprint in Los Angeles, as well as expansion into new cities.

Speaker Change: As you may have seen, in June, we expanded our delivery area into Koreatown in LA and began onboarding local merchants throughout our partnership with Uber Eats.

Speaker Change: We intend to continue this geographical expansion by roaming out at least 250 additional robots in Los Angeles by the end of Q1 2025.

Speaker Change: entering one new major metro market by the end of Q2. Our deployment goal remains 2,000 robots by the end of 2025. And as previously disclosed, some new markets under consideration include San Diego, Dallas, and Vancouver, Canada.

Speaker Change: Once we have initial deployment completed, the fourth and final phase is scaled operation. This is the process of improving operational performance and efficiency in a new geography over time.

Speaker Change: We've spent over 6 years designing our robots and the past 2 years focusing on developing tools and processes to improve our operational capacity.

Speaker Change: Over this time, we've learned that there are significant local economies of scale in robotic delivery, and that much of our efficiency is driven by advanced algorithms for task planning and better allocation of our most expensive resource, labor.

Speaker Change: Our progress on operational efficiency has led to a track record of a steady increase in delivery volumes by making consistent improvements to our deployment plan, placement of robots, autonomy software, and operations.

Speaker Change: which have also translated into consistent decreases in our dollar cost of revenue per delivery. Ultimately, we found that at full utilization, each robot can be expected to pay for itself in less than one year.

Speaker Change: Naturally, this rollout plan will have important financial impacts, since much of our manufacturing and production costs will be front-loaded, and our 2025 revenues will require investment beginning in 2024.

Speaker Change: Once we complete the four phases we just discussed, we expect the new fleet of robots to generate $60 to $80 million in annual revenue run rate. With that, let me turn it over to Brian to further discuss the rollout and our financials.

Brian Reid: Thanks Alex and good afternoon everyone. I'd like to outline the financial impact of our near-term deployment plan beginning with design.

Brian Reid: As Allie mentioned, the design of our third-generation robot is complete.

Brian Reid: We continue to explore ways to reduce hardware costs while improving AI and software capabilities.

Brian Reid: As a result, ARCH has reduced the cost of the third generation robot by approximately 50% and we have direct line-of-sight to further cost reductions intended to be incorporated throughout the 2000 unit production run.

Brian Reid: We are now focused on executing the full-scale manufacturing of these robots. As such, during the second quarter, we commenced investment in non-recurring engineering and tooling to prepare for production.

Brian Reid: Our supply chain team has been diligently securing materials and components from our global supplier network to meet production targets.

Brian Reid: Initial orders were placed with all vendors, and we have started receiving materials for our third-generation robots.

Brian Reid: Thanks to our strategic partnerships and supplier agreements, such as ALSTR, we are well-positioned to maintain steady supplies, minimize potential disruptions, and control costs.

Brian Reid: As we enter the deployment phase, our strategy is focused on generating immediate revenue through both delivery and advertising streams. Our AI-driven robots are equipped to operate in new cities from day one thanks to their advanced sensors and navigation capabilities.

Brian Reid: These minimize the need for pre-mapping, allowing us to quickly capitalize on the growing demand for last-mile delivery solutions in urban environments.

Brian Reid: We will take a deliberate phased approach to deployment, rolling out robots in batches starting in Q1 2025.

Brian Reid: As we move into the scaled operation phase, our goal is to maximize the utilization of each robot, thus maximizing profitability and driving competitive margins.

Brian Reid: Robots are expected to achieve full cost recovery within 12 months after reaching full utilization.

Brian Reid: Executing this strategy effectively on our fleet of 2,000 robots is anticipated to achieve annual revenues of $60 to $80 million and positive gross margin.

Brian Reid: It is important to note that full utilization in a new city may take anywhere from six months to one year to achieve.

Brian Reid: With minimal regulatory barriers for sidewalk robots in most U.S. cities and strong support from local governments who view robotic delivery as a way to reduce congestion, accidents and carbon emissions, we are confident that this plan will allow us to scale efficiently and sustainably.

Speaker Change: Now turning to our second quarter financial results.

Speaker Change: Revenue for the second quarter was $468,000 which included $296,000 of software service revenue from our agreement with Magna.

Speaker Change: As we expected, this service contract was substantially completed during the second quarter. And as a result, we do not anticipate material revenue from software services in Q3 2024.

Speaker Change: We saw strong growth in our delivery and branding revenues during the second quarter, which generated $172,000, an increase of 80% quarter-over-quarter, and 178% over the same period prior year.

Speaker Change: As Allie described, several improvements throughout our autonomy and software stack enabled our cost of revenues to remain relatively flat when compared to last quarter.

Allie: As a result, delivery and branding gross margins improved 64% quarter over quarter and improved 85% compared to the same period prior year.

Speaker Change: Operating expenses for the second quarter were $8.7 million and include $3.5 million of non-cash stock-based compensation expense.

Speaker Change: Net operating loss for the second quarter was $9 million, remaining flat compared to the prior quarter.

Speaker Change: Due to the upfront capital requirements for our fleet, we will continue to explore effective financing solutions for our robots. In June, we received signed commitments with existing equipment financing partners for $11.6 million.

Speaker Change: As of today, no amount has been drawn under these facilities.

Speaker Change: As of June 30th, the company had $28.8 million of cash and cash equivalents.

Speaker Change: Our second quarter free cash flow calculated as cash flow from operations minus capital expenditures was $6.5 million and included $1.1 million related to initial manufacturing costs.

Speaker Change: In July, the company completed a $15 million private placement transaction with a single institutional investor.

Speaker Change: This was an opportunistic fundraise for which we will use the proceeds not only to extend the operational runway, but reduce equipment financing costs and make targeted investments to our technology stack.

Speaker Change: With our strong balance sheet, we are optimistic about our future prospects and excited to drive market innovation within last mile delivery. I will now turn it back to Ali.

Ali Khashoggi: Now that we've discussed the financials and near-term deployment plans, let's take a step back and look at the big picture. I would like to share with you my view of how transportation will be evolving over the coming years and how that relates to our work here at CERF.

Speaker Change: Right now, you can ship packages from China to the U.S. for $2. But delivering from Chinatown to your home costs $10.

Speaker Change: This is because long-distance shipping has benefited from significant automation, but last-mile transportation has not seen similar advances.

Speaker Change: A cargo ship with a crew of 20 moves more goods than the entire British Navy of 100,000 people did a few hundred years back.

Speaker Change: But an average mailman today does the work of two people from a hundred years ago. That's a 5,000 times productivity gain in shipping versus 2 times gain in last mile.

Speaker Change: Fixing this gap is a massive market opportunity and I see artificial intelligence as its unlock.

Speaker Change: That's because while we scaled our muscles, going from horses to steam engines to gas engines and electric motors, we just haven't been able to scale our brains.

Speaker Change: until now.

Speaker Change: A few people on a giant ship can move millions of packages at once, but ships don't help with last mile delivery. There, it's still one person, one box, all the way to your front door.

Speaker Change: This massive historical gap in progress

Speaker Change: Paired with the new advances in AI and robotics is why I have focused our efforts on last mile transportation as our first market. It seems clear to me that there is more value to capture in last mile than any other leg of transportation.

Speaker Change: Even within last mile, food delivery is a particularly great beachhead.

Speaker Change: We eat three times a day. There's been rapid and steady growth in market size thanks to hungry customers. Yet, most delivery platforms are yet to turn profitable because we need our meals within 30 minutes and can't wait for them to show up in a big truck the next day.

Speaker Change: Meanwhile, everyone complains about cost. Restaurants say they are overcharged, customers say delivery is too expensive, and drivers aren't paid enough. And some regulators have stepped into the fray, but their efforts seem likely to exasperate rather than improve cost pressures.

Speaker Change: All of this is due to the inherent cost of last month, and by addressing it, we help unlock massive potential, estimated at $450 billion by the end of the decade.

Speaker Change: This brings us back to our solution, a personal-sized robot that can navigate human environments like sidewalks.

Speaker Change: Serve delivery robots that are currently deployed in L.A. for hundreds of restaurants have over a thousand times less kinetic energy than cars. They can safely stop at any time for remote human assistance.

Speaker Change: They plug and play into cities and need no new infrastructure. And they address half of last mile deliveries because median delivery distance is only a couple of miles.

Speaker Change: Thank you so much for watching!

Speaker Change: Even compared to other automated solutions, such as autonomous vehicles or drones, we believe our robots are inherently safer. In fact, we complement AVs and drones because we don't need dedicated parking or loading areas like they do, and we can pick up orders for them from places they cannot reach.

Speaker Change: Also, our robots are not heavily regulated like AVs and drones are. As a matter of fact, currently in the US, by default, our robots are allowed to operate anywhere.

Speaker Change: To sum up, I believe that we can bring robots at scale to our public spaces as a truly new form of transportation for the 21st century.

Speaker Change: One that our society deserves, because not only do we lower delivery costs, we also reduce pollution, congestion, and traffic accidents.

Speaker Change: But last mile is only the start for us. We have a three-step master plan which I quickly mentioned at the beginning of the call and hope to speak about more in the future.

Speaker Change: Step one of our master plan is to commercialize food delivery, starting with our 2,000 robots for Uber Eats, because food delivery is one of the most expensive last-mile applications today.

Speaker Change: As we scale our fleet and lower delivery costs, step two is to expand to all other landmine sectors beyond food and sidewalks.

Speaker Change: This could be delivering groceries or medications or other parcels to customers on sidewalks.

Speaker Change: or moving things within other environments, such as malls, airports, hospitals, or factories.

Speaker Change: And step three is to use our core robotic tech to power all robots globally that want to coexist with humans and navigate our complex environments, whether they have four wheels or two legs.

Speaker Change: I think many people share this vision, that over coming years, we are going to see a rapid rise in the use of robots, with some technology visionaries even forecasting proliferation of 1 billion robots within the next 25 years.

Speaker Change: And for that to materialize, robots will need to enter our spaces.

Speaker Change: We can be a natural partner for robot makers new and old, including those working on humanoid form factors, because they too need to walk among humans.

Speaker Change: And that's something we are really good at. We've been building AI models to help robots navigate complex human environments for the last seven years.

Speaker Change: And that's our three-step master plan. Solve food delivery. Solve last mile beyond food delivery. And then use our technology to power other robots moving among humans.

Speaker Change: Before we bring this to a conclusion and open up for questions, I want to emphasize our current focus and the first phase of our vision, which is to scale up our food delivery fleet.

Speaker Change: We have spent the last seven years preparing for this moment, and with the incredible progress we are seeing in AI and robotics, and the increasing demand for last-mile automation, we are confident in our strategy to lead the autonomous delivery industry and bring more efficiency into last mile.

Speaker Change: Before answering questions, I want to truly thank each and every team member at CERV and every partner to CERV for their unwavering commitment and resilience.

Speaker Change: You have all been instrumental in driving our success and meeting our strategic objectives. I look forward to continuing this journey together and achieving greater milestones in the quarters and years ahead. Thank you. And with that, let's turn it over to questions.

Speaker Change: Thank you. Ladies and gentlemen, I will now pass the conference over to Aduke for questions. Please go ahead.

Aduke Sawil: I'd like to begin by saying thank you to all the investors and analysts who submitted great questions to us over email. We really appreciate the engagement.

Aduke Sawil: So, to start off, let's start with a composite question that covers many of the common questions we received.

Ali Khashoggi: Many wanted to understand how we receive orders, how far our robots go, how they manage handoffs to customers, whether they can go inside buildings, etc. So Ali, why don't you start by walking us through how the robots work exactly.

Ali Khashoggi: Thank you Adike. Let me start at the beginning. Every morning robots head out of work, head out to work, usually on their own, from our central facility. They stay out all day and then they return home at night once they're done.

Speaker Change: They can go all day on a single charge, and they can go upwards of 20 miles every single day. And that's our current robots. The third-gen robots that I mentioned earlier are doubling that range.

Speaker Change: An average delivery today takes a robot about a mile.

Speaker Change: The order process from a customer's point of view is just like any other order. It starts by placing an order on Uber Eats and at the end of the process being notified that the order has been assigned to a robot.

Speaker Change: A robot then heads over to the restaurant, and once it's there, it notifies the restaurant to have the staff come out and load the robots when the food is prepared. The robot then heads over to the customer, who uses the Uber Eats app to track the progress, just like any other order.

Speaker Change: And once the robot arrives at the destination, the customer is notified and they are able to go outside to retrieve their item. Now note that the robot does not enter the building, it waits outside and customers can use a button in the Uber Eats app to unlock and retrieve their item.

Speaker Change: Currently, the robot only has a single cargo space, but we've done batch deliveries in the past with 100% success rate, and the interior of the robot is fully customizable.

Speaker Change: Also, I should mention that customers are generally happy to come outside to meet the robot because getting their delivery in a robot means that they don't need to tip. And it happens that tipping is one of the biggest cost components that customers perceive.

Speaker Change: And then finally, once the robot is done with that delivery, it heads to the nearest restaurant for the next order.

Romel Dionisio: Okay, great. Thank you. So, our next question comes from Romel Dionisio from Aegis Capital and he is asking can you please describe sequential growth in delivery volume in LA during the

Aduke Sawil: Sure. I can take that one, Aduke. So, thanks, Ramel, for the question. As you know, we don't provide quarter-over-quarter specific delivery data, but we're very happy that this quarter we extended the 30-month track record of double-digit month-over-month increases.

Aduke Sawil: and we're seeing that in our delivery volumes each month.

Aduke Sawil: More importantly, we have the key metrics that we do disclose in our filings earlier today. Those include the daily active robots.

Aduke Sawil: And those increased 23% quarter over quarter, and about 106% compared to Q2 last year. And we also had a 28% increase in our daily supply hours from all of those robots.

Aduke Sawil: As Ali mentioned, just to tie those together then, right, we were able to have an 80% increase in the delivery and branding revenues.

Ali Khashoggi: within the quarter compared to last quarter.

Speaker Change: And, most importantly, I'd say we did all of that by holding the cost of revenues flat when we looked at Q1 versus Q2. And we're really going to be focusing and continuing to execute to make the economics work as we grow the fleet. So, thanks, Ramel.

Ramel: Thanks, Brian. And if I can add some color to that statement.

Ramel: The reason we have been able to grow our revenue while keeping the cost flat

Speaker Change: is that we've been making a ton of improvements to our software, to our autonomy stack, and also to the way we operate the robots. This includes increasing the average speed of the robots,

Speaker Change: making the autonomy work better in difficult environments, reducing the rate of human interventions, improving route planning, and much more that hopefully we'll speak to more in the future.

Chris Lahaji: Okay, thanks. Our next question comes from Chris Lahaji, the founder of LDMicro. He asks, how do you guys measure success on the engineering side? Will the robots have more functionality and more uses in the years to come?

Speaker Change: Thank you, Chris. This is a great question. Ultimately, everything really comes down to four performance areas, which is safety, customer satisfaction, unit economics, and market size.

Speaker Change: So, our software and hardware at every iteration, we need to first and foremost make sure that we are operating safely.

Speaker Change: And once you're safe, you want to make sure that you are timely and reliable so that the customers are happy.

Speaker Change: Once you have those table stakes sorted out, the next step is to make sure that we are reducing costs for last mile delivery compared to what it is today. And then lastly, as we expand the capabilities of the robots, we are increasing the size of our market opportunity.

Speaker Change: So, every successive generation of our robots, both hardware and software, have been improving these four areas.

Speaker Change: We already have a really strong track record in terms of safety and reliability and customer satisfaction. And our existing robots can serve last-mile airborne delivery, the short-distance deliveries that has a total addressable market of hundreds of billions of dollars.

Speaker Change: So, our focus out of those four areas today is mainly on one, which is unit economics.

Speaker Change: which is we want to make deliveries profitable as we scale our fleet.

Speaker Change: And our third generation robot that we just announced has improved a number of key areas that touches on all of those performance areas but specifically on unit economics.

Speaker Change: Like, having more battery, which means more range and more hours of operation every day, it improves economics because we can do more deliveries per robot per day, therefore amortize the fixed cost over more deliveries.

Speaker Change: Faster robots also improves economics because you do more deliveries a day, but it also improves customer satisfaction.

Speaker Change: Of course, reducing the cost of the robots is a really important contributor to our goal for reducing delivery costs.

Speaker Change: Thank you. Cheers.

Speaker Change: Thanks Ali. Our next question is from Brian Kingsler at Alliance Global Partners. He says, can you speak to the competitive landscape and can you explain how Servz robot compares to others?

Speaker Change: Yeah, this is a great question and I guess it's important to first highlight that robots like ours can have a variety of applications from warehouses to campuses and to urban environments like where we are focused on.

Speaker Change: There are a number of players that are on campuses today.

Speaker Change: The way we look at it is campuses are more akin to a closed environment.

Speaker Change: with fixed repetitive routes that don't necessarily need as sophisticated of an autonomy and AI system. Whereas when you're on the city sidewalk, you need really, really mature and sophisticated AI and autonomy so that you can navigate that environment in a safe and reliable way.

Speaker Change: And that's what we've been creating.

Speaker Change: Campuses are a really good place for robots because of that added simplicity, but it's also a smaller market with less spending on delivery compared to cities and populated centers.

Speaker Change: For those reasons, we have been focusing on cities rather than campuses. We are building that deep tech and AI that's needed to serve a much bigger market with better economics.

Speaker Change: And as we do that, we can expand to other environments, including campuses as well. But ultimately, this is a really huge market and there's room for many great companies to be built on robot delivery, whether it's a warehouse or a campus or a sidewalk.

Speaker Change: Our next question is also a composite question from email. What is the price of the robot? What can you tell us about bomb cost?

Speaker Change: Thank you. Our cost per robot continues to come down significantly. It is...

Speaker Change: Based on a number of factors, we don't disclose the specific number, but there are

Speaker Change: three main drivers that bring the cost down. First of all, when we are building robots as a one-off, low-volume fleet in the past, obviously they cost more. But now that we are scaling up, the ramp-up, the volume helps us bring the cost down.

Speaker Change: Secondly, a lot of the components in the robots, they're also getting cheaper and better over time, like our batteries or computers, our sensors are getting cheaper over the years we've been operating.

Speaker Change: But most importantly is the design of the robot. We've done significant improvements throughout the iterations we've done recently to bring the cost per robot down, which as I said, it's about in the third generation is about half of the cost of previous generations.

Speaker Change: For our 2,000 robots that we are launching with Uber Eats, we've mentioned this publicly before that a robot will cost less than the cheapest new car you can buy in the United States. And as we said in the call earlier, at full utilization, each robot would pay for itself in less than a year.

Speaker Change: Okay, thanks Ali. The next question is from Larry. Why limit your potential to just serving food? What about delivering packages for USPS, FedEx, Amazon and others?

Speaker Change: Larry, you are a visionary. I could not agree more. There is a lot of potential for our tech beyond food delivery. And I outlined this in the three-step master plan earlier, which is that food delivery is only our first step.

Speaker Change: that I

Speaker Change: I mentioned the second step to be expanding beyond into adjacent areas like groceries, medications, and parcels, which I believe is what Larry was referring to.

Speaker Change: There are also other use cases for robot delivery that don't exist today, like reverse logistics. Imagine what it would look like if you could return things in robots in a cheap and convenient way.

Larry: Or, using them to enable and support other automated delivery vehicles like AVs and drones that I mentioned during the presentation.

Larry: And then finally, step three would be to use our technology to really power other robots and bring other robots that want to exist with humans and navigate our environments to market.

Ali Khashoggi: Thanks Ali. Our next question comes from email. Are the robots frequently stolen or vandalized? Can they defend themselves?

Speaker Change: So this is a question that I get more often than I've actually had to deal with cases of vandalism. First off, our robots have a secured cargo, as we mentioned earlier, and only the intended customer can get their package.

Speaker Change: Secondly, the robots operate in fairly crowded environments and during busy hours. So they're equipped with cameras and sensors. They have remote communication. They have loudspeakers. So they have a lot of deterrence.

Speaker Change: design into them and into the way we operate.

Speaker Change: But having said that, perhaps the most important thing to mention is the proof that we have in the numbers, which I shared earlier. Over the years, with tens of thousands of deliveries we've done, we have had a much higher delivery success rate than even couriers have today.

Speaker Change: And it's very rare for a package to not be delivered successfully, leave alone to be stolen or vandalized.

Speaker Change: And the last thing I would mention is if you visit, if you go to our operation areas in LA,

Speaker Change: What probably is going to surprise you most is how quickly people have become indifferent to the robots. They're just walking by as if nothing is happening, even though as a first-time observer it can be quite an incredible experience to see one of these robots moving around.

Speaker Change: I would imagine that when mailboxes were first introduced, people had a similar concern that their stuff is going to be sitting there in a box in public and people can vandalize or steal them. But today, we don't notice mailboxes anymore.

Speaker Change: It definitely appears to me that our robots are in the same trajectory of becoming an unnoticeable mailbox except with wheels. And just like mailboxes, our robots are also going to make lives better.

Speaker Change: Serve Robotics

Speaker Change: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.