Yahoo Finance Symbotic Inc. (NASDAQ:SYM) Q2 2024 Earnings Call Transcript
Symbotic Inc. (NASDAQ:SYM) Q2 2024 Earnings Call Transcript May 6, 2024
Symbotic Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to Symbotic Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today Jeff Evanson, Vice President of Investor Relations. Please go ahead.
Jeff Evanson: Thank you, Lisa. As a reminder, some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statements. In addition, during this call we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings release, which is distributed and available to the public through our Investor Relations website located at ir.symbotic.com.
On today's call, we are joined by Rick Cohen, Symbotic's Founder, Chairman and Chief Executive Officer; and Carol Hibbard, Symbotic's Chief Financial Officer. These executives will discuss our second quarter fiscal 2024 results and our outlook followed by Q&A. Rick?
Rick Cohen: Thank you, Jeff. Good afternoon and thank you for joining us to review our most recent results. Our second quarter reflects solid financial progress. At the same time, we accelerated the pace of innovation significantly during the quarter. We will discuss some of our recent innovations at our Investor Day on May 9. You can sign up for the webcast on the IR page of our website. Key innovations this quarter include advancing our core technologies in artificial intelligence and automation, improving system performance and the customer experience, enhancing safety and accelerating deployment. I'd like to quickly highlight some important software improvements made this quarter. First, we improved our time space reservation routing algorithms.
This allowed us to more than double transfer debt capacity and boost bot density, which helps to increase throughput and system capacity. Second, we transitioned our code base to a microservices architecture for increased modularization. This enables more efficient coding, evolution and support. Finally, on the hardware side, with the addition of a new AI chip, we have increased the computational power of Symbotic. This higher compute power is key to unlocking more of the value of artificial intelligence across the entire Symbotic System. This quarter, we also wrapped up the restructuring and outsourcing of our manufacturing operations and standardized on the SymBot for all future deployments. This summer, we will begin the installation of our second brakepack solution with an undisclosed customer.
We're excited about the potential of this application as we continue to evolve the technology knowing it has the capability to become an important part of an integrated omnichannel warehouse solution that services wholesale, retail and e-commerce channels with both case and each handling capacity. GreenBox recently signed their first logistics as a service customer and issued related order for a Symbotic System all within this quarter. So Symbotic will begin recognizing initial GreenBox revenue in fiscal Q3. GreenBox will automate and operate a brownfield warehouse for C&S Wholesale Grocers. Partnering with GreenBox allows C&S to accelerate its transition to an autonomous supply chain in a capital efficient way. I'm excited that the C&S team saw the benefits of outsourcing with GreenBox.
GreenBox team is currently evaluating locations across the U.S. for these sites. Finally, while SoftBank team members have been performing much of the operational work at GreenBox, the initial hiring for a GreenBox management team has started. We expect to be able to announce our first hires in the next several months. To wrap up, we will continue to innovate, execute and scale to deliver for our customers as we grow and drive increased profitability. I want to thank our entire team for their excellent work this quarter. Now Carol will discuss our financial results and outlook. Carol?
Carol Hibbard: Thank you, Rick. Second quarter revenue grew to $424 million, up 59% compared to the same quarter last year. The strong revenue growth was driven by significant progress across our 37 systems in the process of deployment. During the second quarter, we initiated three new system deployments and completed three systems, bringing us up to 18 fully operational systems. As indicated on our last call, system starts stabilized in the second quarter as the team focused on implementing the innovations that Rick just mentioned and enhanced system standardization for phased deployments. We expect quarterly system starts to accelerate during the rest of the year. For this quarter, our revenue numbers reflect that significant revenue growth can be driven by our ability to accelerate deployments in progress.
And just as important, reductions in system deployment time create capacity to support future customer demand. Our backlog of committed, contracted, orders of 22.8 billion declined due to the revenue recognized during the quarter. Our combined recurring revenue streams grew 85% sequentially and 145% year-on-year, reflecting the increase in the number of completed systems. Overall non-GAAP gross margin was down slightly from last quarter but still better than expected. The innovations we deployed during the second quarter weighed upon system gross margin, but were largely offset by effective cost management and solid project execution. System adjusted gross margin remains stable at 20% and generally in line with last quarter. As usual, our system gross margin also reflects the burden of pass-through costs and lower margin innovation projects that weigh on a reported gross margin.
Our combined recurring revenue streams contributed to positive, adjusted gross profit. This demonstrates the high leverage in our business model, showing that we can be profitable with a small number of active sites generating recurring revenue, while also being invested for the much larger number of systems still in deployment. As I said last quarter, we do not expect gross margin to improve every quarter, but we do expect gross margin to improve each year well into our future. We expect that as we scale over time, combined recurring gross margins can trend to over 60%. Operating leverage improved again sequentially as we achieved a 5.3% adjusted EBITDA rate compared to a 3.8% rate last quarter. This was driven by rapid revenue growth and gross margin expansion along with stable operating expense.
As Rick indicated, we completed restructuring related to outsourcing bot assembly and component inventory management, including standardizing SymBot as our go-forward platform. As a result, we recognized a non-GAAP restructuring charge of $34 million in the quarter. Our cash and equivalents, including marketable securities, grew $276 million sequentially to $951 million. Free cash flow, defined as cash flow from operating activities of $21 million, less capital expenditures of $3 million was $18 million and better than expected during the quarter. In addition, we raised $258 million from our February follow-on offering, which gives us the flexibility to maintain our aggressive pace of innovation in a variety of areas, including non-ambient systems development.
As expected, stock-based compensation was elevated due to the January vesting that occurs each year. In fact, Q2 will usually be the quarter with the highest stock-based comp every year. For the third quarter of fiscal 2024, we expect revenue of $450 million to $470 million and adjusted EBITDA between $27 million and $29 million. This represents revenue growth of over 47% and an adjusted EBITDA margin increase. We now welcome your questions. Operator, please begin the Q&A.
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