Q3 2024 Serve Robotics Inc Earnings Call

November 7, 2024

Thank you for standing by my name is Kathleen and I will be your conference operator today.

Speaker Change: At this time I would like to welcome everyone to the third quarter as we saw some 24 financial results and conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Speaker Change: After the Speakers' remarks, there will be a question and answer session.

Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question press the star one again.

Speaker Change: Thank you and now I would like to turn the call over to Andy could tell well.

Speaker Change: Head Communications and Investor Relations. Please go ahead.

Speaker Change: Thank you operator, and good afternoon, everyone welcome to serve robotics third quarter 2024 conference call.

Speaker Change: With me today are served CEO and co founder Ali Christiani, and our CFO, Brian Reed.

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

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 call are forward looking statements 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 uncertainties described in our most recent Form 10-K and in other filings made with the SEC.

Speaker Change: We published our quarterly financial press release, an updated corporate presentation to our Investor Relations website earlier. This afternoon, 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 Christiani: Thanks, a lot okay, alright, since our last call in August we've been busy.

Ali Christiani: We're making a lot of progress that I would like to catch you offline today I'll try to keep your choice.

Ali Christiani: First let's talk about our progress towards scaling.

Ali Christiani: We are on track to be close to a thousand robots by the end of 2025.

Speaker Change: I agree maybe Dubai pushing.

Speaker Change: Pushing us towards expected run rate of $50 million to $80 million in annual revenue once the robots are deployed Andres full utilization.

Speaker Change: And I want to reveal our next city beyond la today, so stay tuned.

Speaker Change: Next we're going to dive into some of the strategies that we are making including todays announcement about acquiring the execution robotics startup vivo, Inc. But also talked about our new partnership with Shake Shack and wing aviation and also give you a quick update on our voice with Magna International and then I'll pass it to <unk>.

Speaker Change: Brian will walk you through last quarter's financials and our recent financing so that's jumping.

Speaker Change: I am happy to report that we are on track to beat our rollout plan and refund.

Speaker Change: We announced our third Gen robots and widely initially expected them to hit the sidewalks. Early next year. We are now set to deploy 75 of them by Vcs that that's going to double our delivery fleet.

Speaker Change: By the end of Q1, we will have to 150 ft is robust cruising on la <unk> as planned and we are still on track.

Speaker Change: This new market outside of <unk> by the end of Q2 next year now on the manufacturing side our.

Speaker Change: Third Gen robots are rolling off the Assembly line with the first funds already delivered to us.

Speaker Change: These units were delivered a few weeks ahead of schedule and they have performed well and certification testing.

Speaker Change: Our approach is still faced and antibody deploying in batches and ensure that we are scaling smoothly with 250 more robust coming to light in Q1 next year, we are expanding into new areas, including downtown La subtle and Westwood I was there last week visiting two new robot depots that secured.

Speaker Change: And exploring new neighborhoods that youre going to be Saturday.

We will start delivering in these neighborhoods over the next couple of weeks effectively doubling the number of restaurants that we serve on our platform.

As the fleet grows over the coming weeks and months, we also plan to extend our service into other neighboring areas.

Speaker Change: Now for the big reveal our first market outside of La is going to be the Dallas Fort worth Metro.

Speaker Change: Dallas is a density with a booming commercial hub and in innovating edge is the first city to permit beyond line of sight drone delivery for example.

Speaker Change: Back in August we kicked off our partnership to deliver shake shack orders with our robots NLS. We are optimistic that this will expand to new cities as we show their value off robots discount also serve as a model for other national partners.

Speaker Change: This particular partnership came through our relationship with Uber, which is a nice reminder of how <unk> enterprise relationships can actually be valuable for Sir.

Speaker Change: Next let's talk about the wing aviation, we announced this October that robots and drones are turning up for deliveries.

Speaker Change: Has done hundreds of thousands at elevated worldwide from medications to library books in coffee in food and Dallas Fort Worth is one of the first U S. Metros that has cleared drone operations beyond line of sight.

Speaker Change: This partnership is really one of our client success.

Speaker Change: <unk> fully showing this model works can open up opportunities for both companies by combining our robots with being drawn we are covering both short and long distance database together addressing elevated up to six miles.

Speaker Change: This is an ideal way for our merchant partners to automate a large portion of their deliveries and we believe that multimodal robotic delivery will be the most efficient most for millions of packages delivered every day.

Speaker Change: As I like to tell my team the only thing Thats Kool aid and robust is robust undrawn working together we've been working on this partnership for some time and I'm excited to see what potentially can unlock I believe this can help us accelerate our conversations with national chains as well.

Speaker Change: I think the last few years have been all about every startup working in silos on getting those tests are working and get ready for scale, but now we are finally, putting the pieces of the puzzle together to bring forward. This future of automated delivery that you've all been waiting for.

Speaker Change: And one bit of news to share is that we expect to launch the <unk> pilot in Dallas in the coming weeks. This aligns well with our plan to expand to Dallas Fort worth by Q2, 2025 and full scale.

Speaker Change: Finally, a quick update about our collaboration with Magna International.

Speaker Change: We haven't talked about this before but our software services work with Magna is moving into a new phase Magna is one of the world's largest auto manufacturers and they're also assembling our new robots over the past three quarters in recognized revenue from a nonrecurring software services contract with them, which mostly wrapped up in Q2.

Speaker Change: Now we've entered the second phase, which should generate a few hundred thousand in revenue next year, the worst relates to magna licensing SaaS software to create new products and while the revenue is nonrecurring is a testament to our relationship with Magna and our tech leadership in the field.

Speaker Change: next year. The work relates to Magna licensing their software to create new products. While the revenue is not recurring, it's a testament to our relationship with Magna and our tech leadership in the field.

Speaker Change: Alright, one last thing.

Speaker Change: We have signed an agreement to acquire <unk>, Inc.

Speaker Change: Right no down from recent headlines about auto Caddo that robot that haves avocado prep time and was developed by vivo in collaborations at Chipotle.

Speaker Change: We are bringing the reboot team onboard to expand into kitchen automation.

Speaker Change: <unk> food chain have limited time towards the tech startups, so offering both kitchen and herbicide solutions to them would make us a one stop shop for their needs. This is a valuable competitive advantage. We've launched there are solving the same problem, which is labor shortage with a similar tax which is AI robotics and for the St.

Speaker Change: Partners. So this will deepen our relationship with national chains, and as we expand our delivery footprint it can accelerate our integration with them.

Speaker Change: And other benefits from this is <unk> founder, Bob Jordan and his stellar team joining us bus is a big name and put automation unfounded MISO robotics before people. He was also one assess earliest packers and soon after we spun out of Bluebird. He joined our board over the years. He has opened many doors for us with some of the biggest names in there.

Speaker Change: With the industry.

Speaker Change: Steel honored because it's not often you can assemble a team of experienced founders together all pulling in the same direction.

Speaker Change: On top of the team and hedge there is also potential revenue growth on cash flow here.

Speaker Change: Autocar is in pilot at Chipotle, and if all goes well with the stage gates validation process it could roll out to more stores and bringing a fresh revenue stream.

Speaker Change: To sum up this acquisition as a strategic milestone that brings us an exciting products a brilliant team a deeper partnership with national chains, and a potential new revenue and cash flow stream.

Speaker Change: Due to the smaller size of the deal we won't be disclosing the terms and it remains subject to customary closing conditions, but I can share that is an all stock transaction.

Speaker Change: We believe <unk> balance sheet cash will be sufficient to fund the avocado pilot after which it is expected to ramp up revenue.

Speaker Change: I'm really excited about this potential acquisition and I cannot wait to update you as we move forward.

Speaker Change: So let's recap.

Speaker Change: A bit ahead of schedule on our 2000 robot deployment.

Speaker Change: This year and we're looking at a sweet twice the size we had originally planned.

Speaker Change: Also quickly expanding our service area in Los Angeles to downtown La <unk> and Westwood.

Speaker Change: We've got a new partnership with shake shack in La which we hope you'll expand and pave the way for future National partners.

Speaker Change: Then there is a collaboration with meaning where robots and drones are teaming up we expect it to be up and running in the coming weeks, allowing us to cover a big range of delivery distances together.

Speaker Change: This will also bring us to Dallas Fort worth area for the first time initially at a small scale for the wing pilot and then for a full expansion and expect that by the end of Q2 2025.

Speaker Change: There is also the partnership with Magna, which is going strong with a new software services space underway and lastly, we are excited about bringing vivo into therefore once the potential transaction closes.

Speaker Change: Together, we expect to be able to offer a more complete solution to restaurant partners. Thanks to both of <unk> and deepen our relationship with them and potentially speed up our revenue growth and path to profitability.

Speaker Change: All of this aligns with the Masterplan I shared with you on our last earnings call on food delivery first then expand into other verticals and finally use our core robotics tech to power, new robots forums that coexist with humans.

Speaker Change: Alright, Thats it from me, Brian Please take over with the third quarter financials and insights.

Brian Reed: Thanks Ali.

Brian Reed: Today I'll walk through our solid financial performance in Q3 talk about the steps we've taken to increase our financial flexibility and provide directional insights as we look forward to a transformative 2025.

Brian Reed: We delivered total revenue of 222000 for the third quarter 2024.

Brian Reed: Delivery and branding revenues contributed 183000 with delivery revenue seeing a 49% increase over the prior quarter and a 108% increase from the same period prior year.

Brian Reed: The increase was attributed to improved utilization of our existing delivery fleet, which benefited from both software enhancements and operational improvements during the quarter.

Brian Reed: While marginal in their dollar impact. These improvements are critical as we prepare for fleet expansion.

During the third quarter, we had 59 daily active robots, representing a 23% increase quarter over quarter, and 97% increase compared to the same period prior year.

Brian Reed: These active robots produced an average of 465 daily supply hours, a 21% increase quarter over quarter, and 108% increase compared to the same period prior year.

Brian Reed: As communicated last quarter, we saw a reduction in our third quarter software services revenue, which contributed $39000 during the quarter.

Brian Reed: While our initial software services contract with Magna is complete we look forward to providing further services under the recently signed agreements.

Brian Reed: From this we anticipate recognizing a few hundred thousand dollars of additional revenues in the first half of 2020.

Brian Reed: Our cost of revenue during the third quarter was 377000 and the decline in reported gross margin compared to the previous quarter was primarily due to a reduction in higher margin software services revenue on a year.

Brian Reed: Year over year basis, our delivery and branding gross margins improved 84% compared to the same period prior year.

Brian Reed: Stock based compensation for the third quarter was $2 2 million compared to $3 5 million in the prior quarter and <unk> 1 million in the same period prior year.

Brian Reed: Operating expenses for the third quarter were $8 3 million compared to $8 7 million in the prior quarter and $5 1 million in the same period prior year.

Brian Reed: In the third quarter, we had interest income of 449, reflecting the benefits of the higher cash balance following the recent capital raise transactions and debt repayments I will explain in a moment.

Brian Reed: That compares to interest expense of 260000.

Brian Reed: And $1 5 million in the prior quarter and a year ago, respectively.

Brian Reed: Our net loss for the third quarter shrunk to $8 million compared to $9 million in the prior quarter.

Brian Reed: Turning to our cash position and financial flexibility for.

Brian Reed: For the third quarter free cash flow calculated as cash flow used in operations minus capital expenditures was negative $10 1 million and included approximately $6 9 million related to manufacturing costs.

Brian Reed: However, our overall cash position was bolstered by two equity transactions.

Brian Reed: Our July and August transactions, where private placement offerings, consisting of pre funded warrants to purchase shares of common stock and warrants exercisable for common stock.

Brian Reed: These transactions and associated warrant exercises generated net proceeds of $32 3 million in the quarter.

Brian Reed: These transactions not only delivered substantial liquidity for the company, but were executed at favorable premiums to our April 2020 for NASDAQ listing price.

Brian Reed: In addition, we also received 700000 from proceeds of additional warrant exercises as of September 32024, there were approximately $5 5 million warrants outstanding with a weighted average exercise price of $5 four one.

Brian Reed: We fully repaid the outstanding balance on our secured term loan reducing the companys balance to zero as of September 30.

Brian Reed: This positions us with a strong cash balance of $50 9 million, which we anticipate provide sufficient capital to support our 2000 robot rollout in 2025.

Brian Reed: Earlier today, we established a new ATM program, providing us with further flexibility in capital raising.

Brian Reed: Our current balance sheet and forward projections do not indicate any immediate need for capital. We view this as a prudent step.

Brian Reed: <unk> us with important optionality, if our capital needs change or we see new opportunities in the marketplace.

Brian Reed: Our total available credit on our signed commitments with equipment financing partners remains at $11 6 million.

Brian Reed: As of today no amount has been drawn under these facilities and due to the upfront capital requirements for our fleet. We will continue to explore effective financing solutions for our robots.

The net result of these important steps to secure our financial position is that we have alleviated the significant out for our going concern as of the filing of our Form 10-Q. This afternoon.

Brian Reed: The recently announced acquisition of Eagle, which Ali discussed earlier presents a compelling opportunity for our organization, while we're not yet releasing financial information as we work towards completing the transaction. We have initiated preparations to ensure a smooth integration process as Ali noted this acquisition is structured.

Brian Reed: As an all stock transaction with no upfront cash consideration and zebu brings our balance sheet, which we expect to be sufficient to fund the operations through the duration of the auto pilot phase.

Brian Reed: Post closing, we anticipate a modest increase in our quarterly operational cash use primarily driven by head count and production readiness costs.

Brian Reed: It's important to note that this is a relatively minor transaction and we have no plans to seek additional capital to finance this acquisition.

Brian Reed: We remain committed to a disciplined approach to capital management focused on strengthening our balance sheet to deliver sustainable growth and long term value for our shareholders.

Speaker Change: Lastly, I'd like to provide some directional insights as we look towards 2025.

Speaker Change: Our financial outlook continues to project a run rate of $60 million to $80 million in annualized revenue once the robots are deployed and reach full utilization.

Speaker Change: Specifically, we anticipate growth in delivery and branding revenue streams, resulting from the ongoing geographical expansions in Los Angeles expansion into the Dallas Fort Worth Metro area scheduled by the end of Q2 and additional cities throughout the year.

Speaker Change: As previously indicated the majority of the 2000 robots related to our Uber contract will be deployed in the second half of 2025, and therefore, we expect our revenue to be weighted towards the latter half of the year.

Speaker Change: For branded growth, we are exploring resources to expand our revenue pipeline meeting strong demand from customers seeking to leverage our expanding suite for advertising campaigns.

Speaker Change: Software service revenue should be considered nonrecurring in the near term.

Speaker Change: We will provide specific updates on software contracts as appropriate.

Speaker Change: Our newly signed software services agreement was $90 is expected to generate a few hundred thousand dollars in additional revenues in the first half of 2025.

Speaker Change: These updates are consistent with previous statements and underscore our ongoing commitment to disciplined strategic growth.

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

Speaker Change: Thank you we will now move into addressing questions I'd like to start by thanking all the investors and analysts who submitted questions to us via E Mail. We appreciate your engagement.

Speaker Change: So this first question is from Mike Latimore at Northland.

Speaker Change: The end of 2025 do you expect to have 2000 robots in total our 2000 robots. In addition to 2024 levels.

Speaker Change: Yeah, I'll take that one.

Speaker Change: This first one.

Speaker Change: Yeah for sure Thanks, Mike.

Speaker Change: So you have to be clear, we are aiming to have a total of 2000 robots by the end of the year 2025.

Speaker Change: To clarify that it doesn't mean that the entire 2000 robot suite will be active robots and then service at all times.

Speaker Change: As you could expect managing a larger fleet.

Speaker Change: We have to have maintenance on that we will use the fleet for some R&D efforts.

Speaker Change: We're thinking about that right now probably in the high single digit percentages.

Speaker Change: With respect to the 2000 robots.

Speaker Change: Hope that provides some color.

Speaker Change: Okay. Thank you Brian. This next question is from Rommel Dionisio at Aegis.

Speaker Change: He is asking could you discuss the advantages on the third generation robots in more detail specifically, how much might revenue generation improve and hull was manufacturing cost half dwell functionality was increased.

Speaker Change: Ali do you want to take this one.

Speaker Change: Absolutely.

Speaker Change: So our search and robots have about 70% more batteries. They have about twice as much speed. They can basically deliver more items per day.

Client robots, that's what drives there.

Speaker Change: Revenue increase also they have better sensors on five times more compute power, which is what.

Speaker Change: Basically what that means is that they can generate that revenue more efficiently.

Speaker Change: But what I'm, particularly proud about is the fact that we have achieved all of these improvements in our robots while at the same time decreasing the cost of the robot in half. So we've made certain components that used to be off the shelf are now being made in house. This removes overheads.

Speaker Change: <unk> robust southern now optimized from a design point of view for costs, So a better manufacturing and lower parts costs.

Speaker Change: We also have components that have improved in terms of both performance on costs because of Moore's law and that kept batteries and lidar in Gpus and lastly, we are building robots at a larger scale than previous appeals, which also helps us reduce costs.

Speaker Change: Also expect that all of these trends will continue moving forward because we are going to improve our designs and remove further components.

Speaker Change: The shelf and also scale further so bringing the costs down from all those forces that I just mentioned earlier.

Speaker Change: Okay. Thanks Ali.

Speaker Change: Alright, another question from Bryan Kipp Linger at Alliance Global.

Speaker Change: How many stores are signed up to use serves the robot delivery and how does this compare quarter over quarter and year over year. One is a reasonable goal for the number of stores opting into use of robots a year from now in your current regions in Hawaii.

Speaker Change: So thats a multi part question Ali do you want to take this one.

Speaker Change: Absolutely.

Ali Christiani: So currently we have more than 400 restaurants that we are serving in Los Angeles I believe last quarter. The number we had shared was in the 300 range.

Ali Christiani: So that's already grown and just in the next couple of weeks as we expand in Los Angeles, We expect our total numbers almost double so you would have about 750 restaurants that will be serving just in Los Angeles, we don't have projections for where we are going to be next year, but that kind of gives you a sense of what the expanse.

Ali Christiani: Churn rate is going to look like.

Okay. Thank you alright. The next question is one that we got from quite a few of you via E mail and it's about an election.

Speaker Change: Do you anticipate any impacts to <unk> from the recent election, such as shifts in local regulation or any impact on possible targets.

Speaker Change: Brian.

Brian Reed: Yes, let me tackle that one.

Brian Reed: So obviously, we don't have a crystal ball with respect to how the tariffs and the percentages are going to play out over the next four years, but color for that is we're going to track.

Brian Reed: Both the recent election from a regulatory and a policy standpoint, as well as the tariffs.

Brian Reed: Regulation and policy our team is dialed in from a metro and neighborhood perspective.

Brian Reed: And favorably we see a lot of legislation that's being proactively passed to allow our robots to operate on the sidewalks. So we're looking for trends there that we'll continue to monitor on the tariff side.

Brian Reed: I would provide that in our supply chain is global but most of our materials are coming from countries other than China.

Brian Reed: So with respect to the magnitude there we'll provide more information.

Brian Reed: More more concrete terms come to the market.

Speaker Change: Okay. Thank you next question is from Glenn Mattson at Landberg can you share details on your plans to scale beyond procurement of the robot Theres also deployment and getting them into service can you talk about acceptance by restaurants and customer.

Speaker Change: <unk> and everything necessary to maximize revenue per robot.

Speaker Change: Ali would you want to take this one.

Speaker Change: Absolutely.

Speaker Change: So we have we have an effective expansion playbook.

Speaker Change: As we have been expanding in Los Angeles, and you've been doing pilots outside of Los Angeles eight starts by selecting the cities and neighborhoods Youre going to based on historical database data.

Speaker Change: This is something we have a unique skill set around because we were born inside one of the largest delivery platforms and are really familiar with that data and the insights.

Speaker Change: Once we choose the markets you're expanding to be secured depots.

Speaker Change: <unk> placed a robot.

Speaker Change: For example, our recent <unk> expansion.

Speaker Change: Required two new depots that we just secured and then as we do that of course, we put in place the field operations team line charge offs, managing and charging them maintaining their robots and then once.

Speaker Change: Once that's in place, we obviously work with our partners like Uber to get married champion customers onboard in many cases getting your restaurant onboard is a simple email that influence and about the program.

Speaker Change: And they can opt out if they do not wish to be part of the program Dolby found that to be a very low percentage.

Speaker Change: In some cases like certain <unk> may have custom.

Speaker Change: Point of sale system in that case you need.

Speaker Change: A different kind of outreach on integration work and then customers are also the same day, usually placed an order and then find out that the restaurant ordering farm is supported by serve again, they can opt out so.

Speaker Change: So choose but theyre also informed that they won't have to provide a chips to a robot which is something customers finding really compelling. So in both cases, we find really low opt out rates people are generally both merchants and customers excited to use the robot and then once you have all these pieces of course the final step is shipped our robots to those operating.

Speaker Change: Areas.

Speaker Change: Okay. Thank you.

Our next question is from Richard Shannon at Craig Hallum, and it's on utilization.

Speaker Change: On the Q2 call Ali you said, we have more demand than supply. But then you also said you expect it could take up to a year to see full utilization of the 2000 robots how should we resolve these two comments.

Ali Christiani: Well there are a number of steps going between securing demand and addressing it.

Ali Christiani: Obviously, you start by setting up robots on operations, but once you do that you know it takes us a few weeks and sometimes a few months to become really efficient in that area. We have to for example get familiar with the geography map. This space even as we are operating we are collecting more information and new information has become.

Ali Christiani: Across New places for example identified routes that are faster than others.

Ali Christiani: You don't really operate at peak performance from day, one and of course you also have this process is getting more and more merchants onboard again, a lot of stone can be on boarded and E mail some of them require additional steps, but the nice thing about this is that once you do a cost some integration with someone that's HSR and future menu.

Ali Christiani: Go to a new neighborhoods and you see the same merchants you don't have to do that anymore. So it becomes even faster and more efficient and then over time, you off course kind of get better and better at this process. I think there are a lot of examples for this kind of growth playbook, including even in food delivery and ride sharing where you can see that every subsequent market launch.

Ali Christiani: Folks get better at doing it and can't get to peak efficiency faster, we expect to have the same kind of learning curve and get better overtime.

Speaker Change: Okay. Thank you.

Speaker Change: Another question from Mike Latimore of Northland.

Speaker Change: He says you say that 2000 robots could generate between $60 million to $80 million in revenue does that range include branding Cu and what happened what needs to happen to get to the upper end of that range.

Brian Reed: Brian I think this one might be for you.

Brian Reed: Yes, let me elaborate and it kind of continues on <unk> previous question about all the all the steps, we're going to take with respect to expansion but.

Brian Reed: Hit the first question, yes, the $60 million to $80 million is delivery and branding in that number.

Brian Reed: We would expect that delivery services will contribute the majority of that revenue as we start to ramp up and hit the run rates that we're talking about.

Brian Reed: I think it comes down to utilization on those robots, and then increasing our AD conversions on our branding campaigns.

Brian Reed: As we mentioned in the script, we will have.

Brian Reed: Focused resources and figuring out as we expand into each of these cities in metros, how we can best capitalize on the branding and advertising revenue that's available to us. So that's something else that will be definitely focusing our attention on.

Brian Reed: And the piece that's not in here just to be clear.

Speaker Change: As software.

Speaker Change: We've been consistent that the software should be.

Speaker Change: Should be considered nonrecurring as we move forward there will be exceptions like we talked about with Magna and will address those more on a one off basis moving forward.

Speaker Change: Okay perfect. Thank you. The next question is from Aaron Kessler at Seaport.

Speaker Change: What are you seeing from a competitive standpoint from other sidewalk robot company would you expect industry consolidation.

Speaker Change: Maybe you can answer this one.

Speaker Change: Certainly.

Speaker Change: We've seen a lot of.

Speaker Change: Different approaches to delivery in general whether long or short distance. There are few different bets over the years taken specifically with sidewalk robots I think robotics is very sexy. It addresses a major pain point that attracts a lot of efforts.

Speaker Change: Over the years, we've seen some contrarian bets taken here, but I think we are now starting to see the markets largely validate a lot of the design and go to market decisions that we've made since early days. For example, we initially saw folks using robots to be fairly minimal capabilities like usually short battery life no lidar small.

Speaker Change: Six field drivetrain architecture remotely operated.

Speaker Change: A lot of these are now much more focused on campuses.

Speaker Change: And we've also seen robots on let's say by claims.

Speaker Change: Now.

Speaker Change: I'm seeing this pattern of folks increasing battery life, realizing that they have to cover all day battery, which is similar to irobot, replacing six fields with four wheels, because it's about being more efficient then you're trying to have the right amount of battery life.

Speaker Change: Or even changing messaging allowance emphasizing AI on autonomy, even if they are not that far along.

Speaker Change: So I don't see anyone focus on bike lanes anymore. So a lot of these decisions I think youre starting to see a pattern us.

Speaker Change: Folks are converging I, obviously take a lot of pride in.

Speaker Change: Decisions, we made early in the best you've taken been proven right I think.

Speaker Change: Folks that have started in a different spot based on limitations that may be why there are a lot of folks focused on campuses.

Speaker Change: More toward giving MRI and closing environments.

Speaker Change: And then when you look at the biggest market environment for these robots to urban environments, we are really leading the pack.

Speaker Change: So overall I do expect this kind of convergence.

Speaker Change: Obviously keep our ISO claims for consolidation opportunities, we've had some inbound interest as well.

Speaker Change: Farm teams that needed more support but to date, we haven't seen anything any technology or product.

Speaker Change: It seems like.

Speaker Change: An acquisition that makes sense for us and then the last thing I would just mention is the way things are moving forward based on Atlas and information that is out there by the end of next year when we deploy our 2000 robots, we expect to be if.

Speaker Change: It's not one of the largest if not the largest one of the largest fleets in North America so be it.

Speaker Change: Feel like we are in a very good position.

Speaker Change: Okay, great. So speaking of potential acquisitions and the last question is a composite of.

Speaker Change: Some E mails that we've gotten in the last hour and it's about the VEBA transaction can you explain how you expect the vivo acquisition to play out and what serves relationship with Chipotle will be and what next steps will be for the auto condo product moving past the pilot stage.

Speaker Change: Ali.

Speaker Change: Absolutely. So autocar is kind of being piloted by Chipotle.

Speaker Change: That's all we can share about that right now, but obviously, we've done our diligence we feel really good about the technology and the team and the opportunity and we are also excited to collaborate with chipotle.

Speaker Change: The key insight I think is.

Speaker Change: That's as we've expanded our footprint and expanded our relationship with restaurants at the I understand that to be able to have.

Speaker Change: A deeper partnership with them.

Speaker Change: You need to address their pain points more holistically because.

Speaker Change: Folks don't have.

Speaker Change: China.

Speaker Change: Have infinite bandwidth.

Speaker Change: Time to explore every single technology out there every single startup out there what we want to be able to offer them is a more holistic solution. So that we can actually meet them, where they are and I think they're looking at their kitchens, they're looking at their delivery and kind of.

Speaker Change: Cap side, and we can be a one stop shop now that people will be joining us and that's really the objects each year and at this moment, we are going to launch thousands of robots next year.

Speaker Change: Our hope is that with products like the Autocar.

Speaker Change: We are going to have similar type of scale happening in a not too distant future.

Speaker Change: Great.

Speaker Change: The kitchen automation side of our business. When this acquisition is completed.

Speaker Change: Okay perfect. Those are all the questions we have for today.

Speaker Change: Thank you everyone for joining us and we look forward to continuing the dialogue.

Speaker Change: Operator over to you.

Speaker Change: Ladies and gentlemen, thank you all for joining that concludes today's call you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Kathleen: Thank you for standing by my name is Kathleen and I will be conference operator today.

Kathleen: At this time I would like to welcome everyone to the third quarter of 2024 financial results and conference call.

Kathleen: All lines have been placed on mute to prevent any background noise.

Kathleen: After the Speakers' remarks, there will be a question and answer session.

Kathleen: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question press the star one again.

Speaker Change: Thank you and now I would like to turn the call over to Andy could tell well.

Speaker Change: Head Communications and Investor Relations. Please go ahead.

Speaker Change: Thank you operator, and good afternoon, everyone welcome to serve robotics third quarter 2024 conference call.

Speaker Change: With me today are served CEO and co founder Ali Christiani, and our CFO, Brian Reed.

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

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 call are forward looking statements you should not place undue reliance on forward looking statements 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: With that let me hand, it over to Ali.

Ali Christiani: Thanks, a lot okay.

Ali Christiani: Alright, since our last call in August we've been busy.

<unk> been making a lot of progress that I would like to catch you up on today I'll try to keep your choice.

Ali Christiani: Let's talk about our progress towards scaling.

Ali Christiani: We are on track to deploy 2000 robots by the end of 2025.

Ali Christiani: The agreement be Dubai.

Pushing us towards expect that run rate up $50 million to $80 million in annual revenue once the robots are deployed and reach full utilization.

Ali Christiani: And I want to reveal our next city beyond late today, so stay tuned.

Ali Christiani: Next we're going to dive into some of the strategies that we are making including todays announcement about acquiring the traditional robotics startup vivo, Inc. But also talked about our new partnership with Shake Shack and wing aviation and also give you a quick update on our work with Magna International and then I'll pass it to <unk>.

Ali Christiani: Brian will walk you through last quarters financials on our recent financing so that's jumping.

Speaker Change: I am happy to report that we are on track to beat our rollout plan, we recently announced our third Gen robots on widely initially expected them to hit the sidewalks. Early next year. We are now set to deploy 75 of them by Dci.

Speaker Change: That's going to double our database.

Speaker Change: By the end of Q1, we will have two 150 ft. Its robust cruising on la <unk>.

Speaker Change: And we are still on track to anti <unk>.

Speaker Change: New market outside of <unk> by the end of Q2 next year now on the manufacturing side.

Speaker Change: Third Gen robots are rolling off the Assembly line with the first funds already delivered.

Speaker Change: These units were delivered a few weeks ahead of schedule and they have performed well and certification testing.

Speaker Change: Our approach is still faced and any bright deploying in batches and ensure that the ice skating smoothly with 250 more robots coming too late in Q1 next year, we are expanding into new areas, including downtown La <unk> and Westwood I was there last week visiting two new robot depots that <unk>.

Speaker Change: And exploring new neighborhoods that theyre going to be serving.

Speaker Change: I will start delivering in these neighborhoods over the next couple of weeks effectively doubling the number of restaurants that we serve on our platform.

As the fleet grows over the coming weeks and months, we also plan to expand our services into other neighboring areas.

Speaker Change: Now for the big reveal our first market outside of M&A is going to be that Dallas Fort worth Metro.

Speaker Change: Dallas is a density booming commercial hub and in innovating edge is the first city to permit beyond line of sight joined <unk> for example.

Speaker Change: Expanding that would let us ramp up our partnership with being aviation after that pilot as well bye.

Speaker Change: By year end 2025, yes, I expect it to be on track to deploy all 2000 robots Abbvie plan aiming to get to run rate at $60 million to $80 million in analog revenue once they hit full utilization, reaching new cities will take about six to 12 months.

Speaker Change: The full cost recovery for each robot is also expected to occur within 12 months.

Speaker Change: Now, let's dive into some of their strategic announcements, we've recently made.

Speaker Change: Shake shack.

In August we kicked off our partnership to deliver shake shack orders with our robots in ally. We are optimistic that this will expand to new cities as we show their value off robots.

Speaker Change: This can also serve as a model for other national partners.

Speaker Change: To clarify administered exchange through our relationship with Uber, which as of now.

Speaker Change: Nice reminder of <unk>.

Speaker Change: Enterprise relationships can actually be valuable for us there.

Next let's talk about the wing aviation.

Speaker Change: Announced this October that robots and drones are teaming up with any base <unk> has hundreds of thousands of antibodies worldwide from medications to library books in coffee in food and Dallas Fort Worth is one of the first U S. Metros that FBA drone operations beyond line of sight.

This partnership is really quantify successfully.

Speaker Change: Successfully showing this model works can open up opportunities for both companies.

Speaker Change: By combining our robots remain drawn we are covering both short and long distance to any base together addressing elevated up to six miles.

Speaker Change: This is an ideal way for our merchant partners to automate a large portion of their deliveries and we believe that multimodal robotic delegate there'll be the most efficient most for millions of packages innovate every day.

Speaker Change: As I like to tell my team the only thing Thats Kool aid on robots is robust undrawn working together.

Speaker Change: Working on this partnership for some time and I'm excited to see what potentially can unlock I believe this can help us accelerate our conversations with national chains as well.

Speaker Change: I think the last few years have been all about every startup working in silos on getting their techs are working get ready for scale, but now we have finally, putting the pieces of the puzzle together to bring forward. This future automated delivery that you've all been waiting for.

Speaker Change: Finally, a quick update about our collaboration with Magna International we hadn't talked about this before but our software services work with Magna is moving into a new phase Magna is one of the world's largest auto manufacturers and they are also assembling our new robots over the past three quarters being recognized revenue.

Speaker Change: From a nonrecurring software services contract with them, but it's mostly wrapped up in Q2 now you've answered the second phase, which should generate a few hundred thousand in revenue next year, the worst relates to magna licensing SaaS software to create new products and while the revenue is nonrecurring is a testament to our relationship with <unk>.

Speaker Change: And our tech leadership in the field.

Speaker Change: Alright, one last thing.

Speaker Change: We have signed an agreement to acquire <unk>, Inc.

Speaker Change: No doubt from recent headlines about auto kadow that robot that half avocado prep time and was developed by vivo in collaborations at Chipotle.

Speaker Change: We are bringing the <unk> team on board to expand into Qishan automation.

Speaker Change: Big food chains have limited time to walk the tech startups, so offering both kitchen and herbicide solutions to them would make us a one stop shop for their needs. This is a valuable competitive advantage. We've launched there are solving the same problem. This is labor shortage with the similar attacks, which is AI robotics and for the St.

Speaker Change: Partners. So this will deepen our relationship with national chains, and as we expand our delivery footprint it can accelerate our integration with them.

Speaker Change: And other benefits from this <unk> found that Bob Jordan and his fellow team joining us plus is a big name and put automation on founded MISO robotics before people. He was also one assess earliest packers and soon after we spun out of Bluebird. He joined our board over the years. He has opened many doors for us with some of the biggest names in there.

Speaker Change: For the industry.

Speaker Change: Feel honored because it's not often you can assemble a team of experienced founders together or putting in the same direction.

Speaker Change: On top of the team and Tech there's also potential revenue growth on cash flow here.

Speaker Change: <unk> is in pilot at Chipotle, and if all goes well with the stage gates validation process it could roll out to more stores and bringing in a fresh revenue stream.

Speaker Change: To sum up this acquisition as a strategic milestone and that brings us an exciting product a brilliant team a deeper partnership with national chains, and a potential new revenue and cash flow stream.

Speaker Change: Due to the smaller size of the deal we won't be disclosing the terms and it remains subject to customary closing conditions, but I can share that it is an all stock transaction.

Speaker Change: We believe <unk> balance sheet cash will be sufficient to fund the avocado pilot after which it is expected to ramp up revenue.

Speaker Change: I'm really excited about this potential acquisition and I cannot wait to update you as we move forward.

Speaker Change: So let's recap.

Speaker Change: A bit ahead of schedule on our 2000 robot deployment.

Speaker Change: This year that we are looking at our fleet twice the size we had originally planned.

Speaker Change: I'll also quickly expanding our service area in Los Angeles to downtown La <unk> and Westwood.

Speaker Change: We've got a new partnership with shake Shack in La basically hope youll expand and pave the way for future National partners.

Speaker Change: Then there is a collaboration with me, but robots and drones are tuning up.

Speaker Change: This would be up and running in the coming weeks, allowing us to cover a big range of fairly very distances together.

Speaker Change: This will also bring us to Dallas Fort worth area for the first time initially at a small scale for the wing pilot and then thoughtful expansion and expect that by the end of Q2 2025.

Speaker Change: There is also the partnership with Magna, which is going strong with a new software services space underway and lastly, we are excited about bringing <unk> into the fold, what's the potential transaction closes.

Speaker Change: All of this aligns with the Masterplan I shared with you on our last earnings call on food delivery fast then expand into other verticals and finally use our core robotics tax to power new robots forms that coexist with humans.

Brian Reed: Alright, that's it from me Brian Please take over with the third quarter financials and insights.

Brian Reed: Thanks Ali.

Brian Reed: We delivered total revenue of 222000 for the third quarter 2024.

Brian Reed: Deliberate branding revenues contributed 183000 with.

Brian Reed: With delivery revenue seeing a 49% increase over the prior quarter and a 108% increase from the same period prior year.

Brian Reed: The increase was attributed to improved utilization of our existing delivery fleet, which benefited from both software enhancements and operational improvements during the quarter.

Brian Reed: While marginal in their dollar impact. These improvements are critical as we prepare for fleet expansion.

Brian Reed: During the third quarter, we had 59 daily active robots, representing a 23% increase quarter over quarter, and 97% increase compared to the same period prior year.

Brian Reed: These active robots produced an average of 465 daily supply hours, a 21% increase quarter over quarter, and 108% increase compared to the same period prior year.

Brian Reed: As communicated last quarter, we saw a reduction in our third quarter software services revenue, which contributed $39000 during the quarter.

Brian Reed: While our initial software services contract with Magna is complete we look forward to providing further services under the recently signed agreements from.

Brian Reed: This we anticipate recognizing a few hundred thousand dollars of additional revenues in the first half of 2025.

Brian Reed: On a year over year basis, our delivery and branding gross margins improved 84% compared to the same period prior year.

Brian Reed: Stock based compensation for the third quarter was $2 2 million compared to $3 5 million in the prior quarter and $0 1 million in the same period prior year.

Brian Reed: Operating expenses for the third quarter were $8 3 million compared to $8 7 million in the prior quarter and $5 1 million in the same period prior year.

Brian Reed: In the third quarter, we had interest income of 449000.

Brian Reed: Reflecting the benefits of the higher cash balance following the recent capital raise transactions and debt repayments I will explain in a moment.