Symbotic Inc. (SYM) Earnings Call Transcript & Summary

Please welcome to the stage, Jeff Evanson, Vice President of Investor Relations.

All right. Thank you, everyone. I hope you enjoyed the tour that we had earlier today of the Brooksville Regional Distribution Center, the tour of the Symbotic system as well as the BreakPack system. Welcome, everyone, now to our presentation section -- session of our Investor Relations Day, and welcome to our webcast audience as well. We're glad that you could join us virtually and we look forward to taking you on a tour of one of our facilities sometime in the near future. I want to make the point that all of the materials that we're going to be presenting today, all of the slides, the videos as well as a replay of the webcast will all be available on our Investor Relations website at Symbotic.com. Just a few important disclaimers there. And then our agenda for today is we're going to have our CEO and Founder, Rick Cohen, talk about our vision at the company. Next up, we'll have our Senior Vice President of Sales and Marketing, Mike Dunn, discuss our growth strategies. Then we will have Bill Mines. Bill Mines is our Senior Vice President of Supply Chain. He'll talk about all the hard work he's been doing in the area of setting up outsourcing partnerships and the benefits associated with that. And then next up, we have a really exciting portion of our presentation, our innovation panel. Innovation is so important to Symbotic. It really is the heart of this company. And so we are having our Chief Strategy Officer, Bill Boyd host panel of some of our leading innovation people, our Chief Technology Officer; George Dramalis; our Senior Vice President of Hardware Engineering; Cristian Mori; as well as our Symbotic fellow, Ted Macdonald, discussing mobile automation. Then finally, many of you have already met Tom Ernst, our Chief Financial Officer. Tom will take us through finance presentation. And finally, we will conclude with a Q&A panel with everyone on stage. So without further ado, again, thank you for joining us. And I'd like to welcome Rick Cohen to the stage. Rick?

Thanks, Jeff. So thanks, everybody, for coming today. I have a chance to talk to a lot of you. And so I'm supposed to talk about our vision, but let me tell you why we do what we do and why I do what I do as a way of explaining the vision. So I joined my family business with my father and my brother in 1974, and that was a wholesale grocery business. It was a very small business, we did about $50 million a year. I just graduated from Wharton with a degree in accounting and computer science, which, in '74, computer science was a relatively new thing. I'm not sure they called it computer science. But I did do enough diligence on my family business and I found out that we actually weren't making any money. So in 1974 million, I started working with my father and my brother to kind of create a uniqueness to C&S. And eventually, we were -- we left Worcester where we had very expensive labor, and we moved that business to Brattleboro, Vermont. And we did about $100 million in sales that year. In 1989, we developed the first warehouse wireless management system at C&S. And if you think about '89, it was like 3 years before the Internet was invented or certainly took off. And so we were using wireless technology in a warehouse in 1989, which was unheard of. And it was probably the biggest failure of my life, in one sense, and the biggest success -- one of the biggest successes. Big success was we took our operating cost down 50%. In 1989, we did $900 million that year. And then we grew because our costs were so low, $1 billion a year for 25 straight years. So we had 17% compounded growth for 20-something years. It was crazy. And -- but what I realized was that, that wireless warehouse management system was probably worth more than the wholesale grocery business, and I hadn't taken advantage of that disruption. And it took 10 years or 20 years later for EXE, Manhattan and all those guys to actually come up with a warehouse management system that was capable of doing what we were doing. So that leads me to the vision of what Symbotic is. So after working through this process at C&S and realizing that we had kind of maxed out where we were because other people now had warehouse management systems and so they were telling people what to do, they were telling people where to put stuff. The next frontier was actually robotics. And so in the early '90s, I started working at robotics, made a couple of trips to Germany, bought a couple of robots, programmed them and nothing worked. In the year, I think '99, we bought a SCHAEFER system in a building that we had at C&S that was 1.5 million square feet, 100 feet tall, had 38 3,000-pound cranes, largest food warehouse, maybe in the world but certainly in the United States. And what I realized after building that was that the SCHAEFER system was terrible, and it was a good thing I owned the place or I would have got fired. I learned to hate cranes. And that bigger isn't always better unless you have a very flexible system. That led to the start of Symbotic in 2007. So I was looking for some ideas on what we could do basically at C&S. And so that started my original investment in Symbotic. And in that -- in the process of between 2007 and 2020, I invested $700 million of my kids' money in the business. And then in '20, we actually started to become relatively cash neutral. We had been working with Walmart for a while. And somebody asked me today, when did you realize you were going to be profitable? Probably in 2019, even though we haven't done it yet, but we will very soon. And so the vision for Symbotic is to be the best automation company in the world, number one; but number two is to move every box in the world. I can't think of any other vision that suits how big an opportunity this is. I think we -- in the Walmart world, 97% of the boxes that we move in the world of 2 feet by 2 feet by 2 feet. So excluding automobiles, but including auto parts, excluding refrigerators, but including refrigerator parts, is about 8 cubic feet moves about 97% of everything that moves in the world outside of big machinery. So let's say, consumer products and actually parts. We are, far and away, the best company, in my humble opinion, at moving boxes in the world. So why shouldn't we build a business that is capable being bigger and bigger and bigger? The magic of robotics, and you all, as investors, know this. The reason there's so much carnage in the robotics space is that everybody underestimates how difficult this is. So people say, well, 1 error per 1,000 is pretty good for a robot. What we're striving for is we are about 1 error per 10,000 in Symbotic. And within the next year, we will be 1 error per 1 million and maybe 1 error per 2 million. What does that mean? It means basically hardly any humans in the structure. And the big problem with robotics is that what you saw today, there's very few people on our side of the building that are actually working. There were some trainees and there were some -- you saw people on the dock, but saw very, very few people in our system. That's the goal. The vision is a lights-out warehouse that's capable of moving 97% of the boxes in the world. That's how big this business is. I was reading -- I love to read business books. If anybody's got some suggestions, text me or send me, but one of the great books was the Everything Store about Amazon; the One Device, which is the history of the iPhone. And recently, I was reading a book, and I saw this quote, it's pretty common. I've seen [indiscernible] report. It's the Amara Hype Cycle. Roy Amara is a futurist. And his quote is, we tend -- it's called Amara's law. "we tend to overestimate the effective technology in the short run and underestimate the effect in the long run." So in the short run, I think everybody's overestimated how much you can do with each picking and robotic cans. But in the long run, we are going to be able to move 97% of the boxes in the world. And that's really the big opportunity. And so my vision for Symbotic is really a long-term vision. This is not a build-and-flip business. That's not -- I'm a large shareholder. That's not what I want to do. What I want to do is have a great customer, a great company, with a huge potential, so we can run for a long time, have brightly happy employees because everything we're doing that you saw today in Walmart, I had a bunch of ideas. I think I'm one of the world's experts in distribution. A lot of these things came from Walmart said, could you do this for me? Could you do this for me? Could you do this for me? So the BreakPack solution that you saw today, we work with Walmart to develop. But that's exactly the same solution that Walgreens and CVS and everybody, a lot of food service, a lot of vendors put stuff in totes. That's a perfect solution for them. That business, by itself, if I was going to an investor conference or I was a startup and I presented BreakPack, that would be a business that could do its own IPO. That's how big that business is. But what Symbotic is trying to do is provide, what I like to say, with a bit of hyperbole, we want to be the iOS of this thing. And BreakPack is just an app. And the big bots are just an app. But what you saw today is that we can make any size bot, and the software is the same. So we're using NVIDIA chips. We're using cameras. We're using enough horsepower and compute power that's 1,000x bigger than the bot we replaced this year. So we could do big machines. We could do fork trucks. Right now, we have this huge backlog, so we're going to focus on making brightly happy customers. But we are going to continue to invest in R&D, and that goes to the third part of why I do what I do. So I ran -- and because of the cool people that I get to work with. So when I ran C&S, I was the third generation of Cohen to run that business. The business is 105 years old. I thought my job was to get the business to the next generation, and I thought the generation would have a last name like Cohen. Well, my oldest child, my progeny, not child. My old -- my son is -- who's 47, worked for me twice, and decided he didn't want to do it anymore, and he's doing wonderful things with nonprofits, and I'm very proud of all my progeny. They tell me they're not children. So they're progeny. So I decided -- so I went kind of through this period of depression thinking I was a failure. And then I said, well, I like young people. I'll just work with somebody else's kids. So I found the CEO to run Symbotic, C&S, terrific 40 -- Bob worked with me 30 years now. We have a 40-year old has been announced as a new upcoming CEO for C&S. And so I spend a tremendous amount of my time looking for all ages, but especially 30- and 40-year-olds, 20-year-olds, who are really interested in bleeding edge, AI, machine learning and kind of the stuff we're doing. And that is our competitive advantage. The advantage of C&S -- that Symbotic have is we never had a legacy product. So we didn't have to hang on to anything. We are an innovation lab, and we will continue to be an innovation lab. And it's just so much fun. It is a blast being around these young people who come to the old guy in the mountain and say, do you think this will work? I got this idea. Do you think this will work? And that's really my job is kind of coach and mentor. I understand warehouse distribution probably, I don't know, maybe there's 10 of us in the world that understand it this well because we've lived it our whole life. But the technology that's involved in automating this space is very, very difficult. And one of the reasons why it's so difficult is when you're automating a chip plant, first of all, the place is probably vacuum, pure oxygen. Every part of the environment is controlled. And when you're automating an auto plant, you have all your suppliers and everything is prescreened and pre-automated. When you go into one of these warehouses, the humidity flows between 30% and 90%. The temperature goes between 50 and 110. And the manufacturers that you're buying from oftentimes make crappy products. That's a very hard problem to solve. And it's really interesting to the team at Symbotic. The other thing that's very hard to solve, and this is where I think people don't fully appreciate like what's so different about your system. The fact that we're driving 250-pound self-driving vehicles is incredibly difficult. The reason it's so exciting to our team is, we're probably not going to kill anybody. You can actually write code and look at it at the same time. And we don't have the government looking over our back saying, no, you can't do that, you can't do that, you can't do that. So we're getting an increasingly number of people that we're working in the self-driving vision, AI space from companies like Cruise or Tesla saying, I don't know if my work ever be realized. And so they come in and work for us because here, you can go to Brooksville and watch 400 autonomous vehicles running around and doing incredible stuff. And what's magic about our system that will keep evolving that has given us the lead over our competition is the fact that we started working on this 3 or 4 years ago. And we are getting some of the very, very, very best talent in the country to do this stuff. And so the autonomous vehicles allow you to do stuff faster, more flexibly. You couldn't do our system in BreakPack if you didn't have autonomous vehicles. If you had dumb shuttle stuck in an aisle, you couldn't do what we do. And so we made the jump, and we're going to get better and better. And our bots are going to get faster and faster. They're going to get more accurate. They will have collision avoidance at some time. And some of this stuff, the other thing that's so exciting about where we are is it seems to me that every 15 years, there is a confluence of technology. So if you say '92 was the birth of the Internet or the blooming of the Internet, even though it was started way early in that. 15 years later, 2007 was the iPhone. 2022, I'm not saying we're it, but everybody is talking about the confluence of AI, machine learning and robotics. And we are absolutely on the leading, bleeding edge of that. The beauty of what we're doing is we're a well-funded start-up with a $12 billion backlog, and we're treating this like a well-funded start-up. That's kind of an oxymoron because some of the edge of a startup is you don't want to be well funded because you want to -- everything has to work. But because of me and because of my experience in warehousing, we're setting a very, very high bar on quality and reliability of the machines, which makes them truly, truly self-autonomous robots in many aspects as opposed to 1 error per 100 will not make it. That company will go out of business because you'll have a human standing right next to the robot. And at some point, you'll say, why do I need the robot? Even at 1 per 1,000, you'll say, why do I need that? So you've got to be stratospherically high numbers. It's really not that high. It's Six Sigma. It's 1 error per 1 million, or Seven Sigma, 1 error per 2 million. And the stuff that we're doing, we're using AI and machine learning and vision and all the stuff that's coming out of these great schools, plus we had great people to start with is what's really creating a huge moat between us and everybody else. The third thing that creates the moat is these are $100 million systems. You can't just sell $100 million system to somebody if it doesn't work. So you've got to figure out how to test it. And so you need a customer base that because of my relationship with some of these customers through the many years of C&S, there's a level of credibility that they'll actually let us test this stuff in some of their warehouses. And we also have enough deep pockets, though, that if it doesn't work, we figure out a solution. So it's about a huge business and an evolving business with lots of interesting applications. Brightly happy customers, and what I like to say is brightly happy employees. So one of the reasons we went public is because the folks -- the buzz at Symbotic is, I'm so happy that these people own stock. And I'm so happy that they think it's going to go up forever, and they're supposed to make it go up forever. But the fact that they are able to participate in the value creation is just -- for me, it's just spectacular having spent 105 years as a family with a very private business. It's a very special thing. So with that, I'll stop, and you've seen a lot of stuff, and I'll be available for questions at the end. And what's next, Jeff? Okay. Turn it back to Jeff.

All right. Thank you very much, Rick. Really appreciate all your insights and foresight. Next up, I welcome Mike Dunn to the stage. Mike is our Senior Vice President of Sales and Marketing. Mike?

Thanks, Jeff. I'll reiterate what Jeff and Rick both said, thanks for those of you that took the time to come visit us. I get the pleasure of representing this company and representing this product out in the market. And I can tell you that it's different if you get to see it in person. And you guys got to see it in person, those of you that are here today. So thanks for taking the time to do that. We think it's a big benefit to actually see the system working in person. What I want to talk to you about today is a little bit of our growth strategy and how we think about going to market. We've taken the time to build sort of bottoms-up what we think our strategically addressable markets look like. This is -- as Rick said, this is a huge market. If you read about spending and projected spending in warehousing technology, it's well over $1 trillion when you look at it over time. We've tried to take a very conservative view and do a bottoms-up build of what we think the market looks like for us. And really broken this down into 3 categories, we call Sym 1, Sym 2, Sym 3. And this is really about industries and geographies that we go after from a sales perspective. Sym 1 is really the industries that we're focused on today and where we've got success. That is around general merchandise, retail, food, both wholesale and retail, apparel and footwear space. That market, conservatively, we think, is close to $150 billion of opportunity for us. And then as you step in the Sym 2 -- and by the way, sorry, that's all U.S. based. As you step into Sym 2, which adds additional verticals that we think the product fits very well into verticals like automotive aftermarket, et cetera. You add north of $100 billion to that market. And then as we think about sort of taking the wraps off and looking at international opportunities in these same markets, so Canada, Mexico, Europe, et cetera, we're approaching $0.5 billion market conservatively that we're focused on. We review this and recast this on a regular basis. For those of you that have seen this view previously we're up about $40 billion in total and what we think the market looks like for us on a go-forward basis. So how do we execute on that strategy? So our primary focus today and our sales team is small. Rick likes to say we don't have a sales problem or a demand problem. We're continuing to grow the capacity of the business. We have a small sales team. You basically met us today. For those of you that are in the room, myself and Jason and Rick do pretty much all the selling today. But we're focused today on industry -- on customers that we have today. So that's Walmart, C&S, Wholesale Grocers and Albertsons. We have more customers than that, but those are where we see growth opportunities. And so we're focused on expanding our reach into those customers. At the same time, looking to expand into new customers in those industries, those Sym 1 industries that we're focused on. This would be grocery and general merchandise retail. You would have seen us announce here in the last couple of quarters, 2 new customer wins in this space, United Natural Foods, which is a large wholesale food customer; and Associated Food Stores, which is a co-op on the West Coast of the U.S. servicing their co-op stores. So we feel really good about our execution in driving the strategy. We're not trying to add dozens of customers. Tom likes to say we're trying to add 1 or 2 a year, and that's the pace that we'll continue at for the near term as we build capacity to support the current backlog demand and the demand that we have coming in. That said, we are beginning to think about adding to our sales team, expanding and beginning what I would call the outreach selling that we frankly don't do a lot of today. And so we are actively engaged in potential new customers across all of these areas on this slide. So in new verticals like third-party logistics, apparel, automotive, home improvement, we've got active engagements in all of those verticals. We have active engagements with potential customers in many new geographies around the country, Canada, Mexico, Europe, Asia Pacific. Again, all of that, we're very focused on when is the right time for us to engage with those customers and who are the right customers to engage with given that we don't have a sales problem. We're able to be selective about which companies that we want to work with in those space. So I want to spend a few minutes and sort of give you some additional perspective on what we hear in the sales process from our customers in terms of why we win, where the system creates value for them and then give you a couple of anecdotes in terms of what we're seeing from a sales cycle perspective. So our system has a dramatically positive impact on virtually every metric that a company would measure their supply chain and distribution performance. The most obvious one is labor. Again, hopefully, for those of you that had a chance to join us on the tour today, you saw a stark difference between the labor associated with the legacy operational side of the business and then the automated side and the number of people that it takes to do that job. Maurice, the General Manager, talked to you a little bit about the people and how exciting these jobs were and how turnover was so much lower in the space. That's a big part of the company's cost is the amount of churn that they see in these operational jobs in the warehouse. Really strong accuracy. I mentioned earlier today, damages and errors and miss picks that drive tremendous costs in the supply chain are virtually driven to 0 as we deploy the Symbotic technology. I had a chance to talk to a few of you today about the inventory impact of our system. So we have the opportunity to take tremendous amount of inventory out of a supply chain in a legacy traditional environment, what they call economic order quantity is typically a pallet because that's the unit of movement through a warehouse. And we changed the game there. You can now order at the case level or at the layer level, which effectively allows you to not overbuy, especially in your slow-moving items where a pallet may mean you're carrying 60 or 90 days of inventory. Now you can move to purchasing at a layer level or purchasing at a case level and carrying the right amount of inventory in your supply chain. We had a chance to look at and kind of hopefully give you a visual on the space impact of our system. We see pickups between 40% and 60% improvement in the footprint required to do the same amount of throughput, which for a company like Walmart, that's growing at 4% a year on such a large base, really just gives them more longevity. You heard Mike Walden today talk about the ability to do more throughput and not having to add any additional space as a big win for them. When we talk to customers that are potentially building new facilities, they're able to build much smaller new facilities to do the same throughput than what they would be able to do with either traditional methods or even other technology providers. One of the points here on this slide, which I want to make sure we highlight, is a really key differentiator for Symbotic, which is we don't need a new warehouse. So Rick talked about buying a SCHAEFER System and the technology he deployed with cranes and such. Because of the fundamentals of that technology, it really required him to build a new warehouse for that. And that's what we see from a lot of the competitors for Symbotic. And then stark contrast to that, Symbotic system can be started -- can be built very small. It can be built modularly. It can grow over time. In fact, virtually every system that we build is built in phases. And so you saw that today. Phase 1 was running. Phase 2 will be running soon. Phase 3 will be running in a few months, and there will be a Phase 4 and probably a Phase 5 in that building. So that's a huge benefit. Many of these companies already have warehouses exactly where they want them to be. They're big enough, and they're the right size. And so the ability to go into an existing building and retrofit with the technology is a big benefit. We saw some of the transportation impacts, which has downstream performance impacts, but also the opportunity to lower transportation costs. Transportation costs, depending on the business, would tend to be 40% to 60% of your total supply chain costs. So you can see companies over indexing like you saw at Walmart today, in the past where they really tried to optimize transportation at the expense of other things. And we allow the opportunity to actually optimize all of the above and drive down transportation costs. And then the last point I'll make here, there's a number of other benefits. Damages and waste. We see the operation you saw today at peak will ship 1 million cases. We'll have maybe 1 damage, maybe 0 in a week. That's drastically different than what they see as shrink and damage in an existing operation. And then upscaling talent. So again, we've talked about this. And the team at Walmart today kind of highlighted this point. But the amount of turnover that happens in these existing operations, the scarcity of labor and the ability to take some of that talent and teach them new skills, give them a career path, get them excited about their job, give the younger generation gamification and what they want to do as they come to work every day, really is game-changing. So let me close by sharing a little bit of perspective on what we're seeing in terms of sales cycle with new customers. Traditionally, in a space like this where you're selling hundreds of millions of dollar systems and sometimes you're doing $300 million and $400 million and $500 million or multibillion-dollar contracts, those would be 2- to 3-year sales cycle processes from beginning to actually inking a deal. We're living in crazy times right now through the pandemic, obviously, and with the situation that we see, especially in terms of labor, both cost and availability. Companies, we're seeing, are really accelerating their decision timelines and processes around this. So one of the recent customers that joined our customer list, what would have typically been a 2- to 3-year sales cycle was a 9-month sales cycle. So that is from the point at which we had really the initial conversations with them about the opportunity, the problems through scoping out the actual project, working with the customer to build a business case, getting through multiple rounds of Board-level approvals and ultimately to a contract for a commitment to deploy multiple sites of Symbotic was about a 9-month process. And that's pretty unheard of. And I think that's a testament to Board-level pressure in the business to solve these problems. So we're seeing all -- most C-level executives that we talked about and Board-level folks that we talk to are very concerned about the labor situation, are very concerned about not just the cost, but the availability, and they view these as sort of mission-critical future growth enablers for the business. So we're actually seeing pressure from Boards down into the business versus usually it goes the other direction to go solve this problem and solve it fast and solve it in a big way. So that's an exciting part for me from a sales perspective. Don't know how long that pace will last, but we're living in a good time from a sales go-to-market perspective. So with that, thanks for your time. Again, thanks for being here. I'll turn this back over to Jeff.

All right. Thank you very much, Mike. Next up, we have Bill Mines, our Senior Vice President of Supply Chain. You heard Mike say that sales and demand is not our constraint. In fact, it's getting systems deployed. And so Bill, come up on stage. Bill is going to walk us through the strategies he's been deploying to accelerate that pace and the reasons why we're doing so. Bill?

Thank you, Jeff, and good afternoon, everybody. As Rick and Mike have said, this is a very exciting time to be with Symbotic. I joined the company last July. Prior to that, I spent 8 years at Walmart, helping to run their supply chain and logistics organization. First met Rick back in 2016, and we could see the sort of potential of the system to solve a lot of problems in Walmart's supply chain and help improve it. Walmart, as a customer, you probably know this, very demanding and sets very high bars. We set the bar incredibly high, I think, in terms of what we were expecting Symbotic to achieve and deliver in terms of things like system uptime, throughput, accuracy. Pretty much every metric that Mike just put up there on the slide, we figured out what world class was and set the bar at that level. And it's really exciting now to see Symbotic consistently achieving and, in many cases, exceeding that bar. And I think sets us up for a huge opportunity in the future. Again, as Mike put up, there's a lot of other industry segments out there, a massive potential to the system that we're not yet tapping into. So very exciting time to be with the company, and I think a lot of runway ahead. I'm going to talk a little bit about what we're doing from a supply chain perspective. And in particular, if we were going to accomplish those objectives and achieve those goals, one of the things that we've got to do is -- and we're working on is building a network of partners out there that can help build the system, install it and commission it. So if you're on the tour -- sorry. If you're on the tour, you'll be able to appreciate that we tend to think of the implementation of the system in 3 phases. There's kind of the manufacturing and the build phase. Within that, I had identified probably 4 verticals. One is you've got the storage structure, which is a lot of steel. And we're working with a lot of the Tier 1 steel fabricators that are out there to get that delivered. And then a lot of the Tier 1 engineering companies in the U.S. to deliver the lifts, the inbound and outbound sales that are doing the depalletizing and palletizing, and then manufacture the bots. And we recently set up manufacturing down in Mexico with a Tier 1 engineering company down there who are up and running now and producing bots for us. So there's a build phase. There's in an installation phase where everything comes together on site, and we put it all together, whether that's the structure, directing the cells, and putting up the lifts. And then there's a commission phase. And to oversee all of that and manage that implementation, we've engaged a number of engineering and procurement contractors that help project manage each one of these site implementations. They're all Tier 1 companies, and we've been working with them now for 9 months, seeing a huge amount of success there. So all in all, so far, we're very pleased with the progress that we've made, setting up an initial network of partnerships, good cooperation, good collaboration from the partners, more to do to expand the network, and I'm going to talk a little bit more about that on the next slide. So 3 principal goals really that I'm focused on from an outsourcing perspective with these manufacturers and installers. There's capacity, capability and cost. So you've heard a lot about the sales side of the business. What we're trying to do on the outsourcing and partnership development side of the business is really stay out in front of the sales organization and create enough capacity so that when the sales come through, we've got the capacity there to manufacture staff, get it put up, get it running and deliver it to the customer. We want to be multi-sourced in every one of those areas that I just showed and every one of those verticals, so that we're not reliant on any one single partner or installer or manufacturer. And what we're finding out there at the moment is there's plenty of capacity. One of the great things about the Symbotic system that you could probably see this morning is, every time we implement one of these, we're not doing something different. I often characterize this as saying, one of the things that we're trying to do is implement one of these perfectly and then replicate that dozens of times, if not hundreds of times. And we're finding that as we implement more systems, we're getting better and better and better at the installation, shortening the timelines, compressing the cycle times and doing it a lot cheaper. From a capacity perspective, as we approach partners, we're finding a lot of interest in coming and working with Symbotic. There's a lot of capacity out there at the moment, which is great for us. It's a good time to be out there looking for partners. Some of that is being driven by the fact that Amazon last year cut back on a lot of their long-term plans for building distribution centers and cut back on orders with some of the engineering companies that we're now working with. So that's created an opportunity for us to step in there, leverage that capacity and really build our infrastructure partners. From a goal perspective, what we're looking to do in the very near term is to double our capacity so that we can then really start to scale up the number of systems that we could deliver each year. From a capability perspective, one of the great things that these external Tier 1 partners bring is they've got a lot of experience, and they can really help us think through how do we do this quicker and how do we do it simpler and how do we do it better. One of the things that we're finding and one of the big opportunities that there is for us is the ability to say, okay, once we stand up these manufacturers, they can do a lot more work upstream of the factory that we were trying to do on site, and it was complicating our installation process. So they can take on a lot of those activities upstream when they deliver product to site. It's ready to put together. It goes together very easily in a much shorter time frame, and that helps us compress the overall timeline of the implementation. A lot of these companies can also bring their experience to help us value engineer. What do we mean by that? They can look at the way we do things, how things are manufactured or put together and help us identify opportunities to take cost out while maintaining the same quality standards and the same end product. And we're also finding that as we replicate this and we do more of these and we use the same manufacturers, the same installers, the number of defects in the implementation process is reducing. So one of the things you probably heard us talk about in the past is we want to be a 0 defect organization. And that's particularly true when it comes to supply chain and construction and implementation. What you want to do is really eliminate the need for rework when these things are being put up on site. And we're finding that we're getting better and better and better at doing that. And finally, cost. Okay? Rick said this is a $100 million system. Part of my goal is to figure out, okay, how do we take that cost down. And as we bring more partners into each one of the areas, there's nothing like competition to create the opportunity to drive price down. So part of this is by having more partners in each one of the verticals, then we can get more aggressive when it comes to pricing and bidding and getting partners to really sharpen their pencils when it comes to driving the cost down. A couple of other areas where expanding the network and the base of partners is important to us. One is a lot of these Tier 1 companies have got a much more global reach when it comes to upstream component suppliers so they can reach out into networks internationally in, for example, Asia, and low-cost sourcing opportunities. So we're seeing opportunities to take cost out there. And they can also help us identify areas where we can be more competitive by leveraging our scale and the increase in volume to approach suppliers and say, okay, we want volume discounts now. We're sufficiently -- we've reached sufficient scale to be able to justify going to organizations and going to upstream vendors and saying, we want multiyear deals. We want discounts for the volume that we're bringing to the table. So to finalize, my job is to really build a strong network of partnerships that the organization can then lean into to scale up, deliver more and more systems and do that by developing capacity, capability and reducing cost. Jeff, back to you.

Next up, I'd like to welcome our innovation panel to the stage. Our strategy at Symbotic is innovation. And so no better person to present our innovation panel than our Chief Strategy Officer, Bill Boyd, along with Cristian Mori, our Senior Vice President of Hardware Engineering; George Dramalis, our Chief Technology Officer; and Ted Macdonald, our Symbotic fellow focused on mobile automation. Gentlemen?

Hello, everyone. We started this afternoon with Rick talking about his audacious goals for where we're going to go and what we're going to do here. I get the pleasure now of introducing you to some of the people who have helped us get here and are going to help us drive this out into the future. As Jeff said, innovation has been a cornerstone of this company since day 1. This has been about, as Rick would say, revolutionary rise in the supply chain, changing things, taking that blank sheet of paper to it. And in order to do that, you have to be creative, you have to have innovation, you have to be able to grow from learnings that come along the way and have great people who can help you do that. So I'm -- without further ado, I'd like to take a minute and just have -- look, I'm going to go backwards actually on this. I'd like to have you guys -- I'm going to have you introduce yourselves a little bit. George, you've been on this ride -- or you've known Rick for a very long time. You've been in warehousing at C&S and prior. You might be the second most knowledgeable person of overall warehouse operations in this company after Rick. What -- talk to us a little bit about your background and what led you to want to be the Chief Technology Officer of this company as we move it forward.

Yes. Thank you. Yes. So I have been with Rick, working for Rick over 12 years now, 13 years. I have -- prior to Symbotic, worked for C&S Wholesale Grocers, and I was the CIO for 10 years there. The interesting fact is C&S Wholesale Grocers were one of the few early adopters of the system. So I was fortunate enough on the customer side to deploy 2 Symbotic systems on the C&S side, one in 2014 and one in 2016, which is -- the latest is Beth IV. In fact, yesterday when we were talking with Cristian and Ted, I said, do you know that I still have the customer interfaces in my one note that I can just compared to what we have today. They're pretty the same, actually, a few more added. But so yes, so I work for Rick for 10 years. I've learned a lot with Rick. I've learned a lot about wholesale distribution, how the stores work, how warehouses work, how the warehouse management systems work, voice systems, you name it. So for me, it was a natural choice at a certain point when Rick offered me to join Symbotic. I said, that's exciting. Let's try it. And I joined Symbotic 3 years ago, I think it's May 15, 3 years ago.

Beautiful. And Cristian, you've been in a number of different environments as an engineer and looking at problems and how you're going to solve them. Can you give us a little bit about your background and how this -- you decided this was the place to start to continue to apply that and to continue through it.

Absolutely, Bill. I come from a background of heavy industrial equipment, a lot of automation come from Europe, build equipment over the world. Then I moved here in the States, worked for iRobot, Boston Dynamics, Rivian. And when I met Rick and he showed me the system, this is so unique. So full of unique problems that were so challenging to solve that were encompassing everything that I've done before. Because one thing is building a production line that always does the same thing. One thing is doing a simple equipment that you can simulate to its full extent having spot and moves and so forth. But the ability to handle every case, every situation and be able to do that flawlessly, that was mind blowing. So seeing where the company was and where I could have helped get there with the experience that I had, that was a no brainer.

Fantastic. And Ted, you're our panels roboticist. Pure and simple. You've also been through this journey for a while here. How have we kept your attention? Why do this here?

Yes, yes, so when I started with Symbotic, it was one of the -- that Symbotic was just starting to deploy one of those systems that George was talking about. And I mean you guys saw the system today. From a roboticist who wants to build and deploy robotic systems and have control over the design and have a lot of interesting challenges to work on, there's really no comparison anywhere else that you could go to have such a breadth and diversity of robotics challenges and the opportunity to actually develop it and see your work deployed running in a system like we saw today. And for a lot of engineers who start with our company, it's very quick from somebody starting having an idea, developing it, implementing it and then deploying it and seeing it running at that site in person is something that you can't really get anywhere else.

Absolutely. Okay. With that in mind, let's talk a little bit about what we are deploying. So George, maybe you can give us just a couple of minutes on -- I know many folks have seen it today. Others have been on site before. But give us an idea of how this system all works together and what we build off of when we innovate.

Yes. So I will start it a little bit on a few notes about the Symbotic system. And I know with some of you that I talked today, they ask me these questions, and I was wondering if I should talk about it, but now I know that I should. So some questions that they come into customers' mind when you decide to go with Symbotic system, besides the ROI, besides the cool factor to make warehouse with all the benefits that Mike and the rest of the team shared is, am I going to have good visibility of my inventory? How my people are going to be impacted? How difficult is to implement this? So a few notes on that front. So the Symbotic system is a little city within the warehouse, isolated with its own network and locally run hardware. The interfaces or the communication with the customer is pretty standard, 10 to 12 interfaces. I would say, in the grand scheme of things, this is the least of our worries every time we implement a Symbotic system. Customers can adopt this interface mechanism or these contracts, whatever you want to call them with any messaging system that they have and they can quickly get access to real-time inventory and real-time visibility of our system and our processes. So the system is built within the warehouse. I said because it's a little city. I'm sure as you observed today, the system -- think about a highway that goes in as the inbound, the highway that goes out as the outbound sales. The main straight of the city, the deck. The buffers and the charge station is the parking stations. And then, of course, the houses with the roads are across with all our aisles. So the warehouse for the Symbotic system has all the equipment in the data center. We usually have 2 to 3 racks depending -- racks of standard equipment. All software is proprietary, and we use our off-the-shelf OEM operating systems and databases. So I would call it a warehouse in a warehouse, and we used to call it warehouse in a warehouse because it is really self-hazard. Walmart does not have access to our system. From a cybersecurity perspective, some of you ask me today, we have a local network, even Symbotic system. They go and they log in through VPN and two-factor authentication. And as we communicate with Walmart or other customers, real time, our inventory count and inventory visibility, there is no -- I would not classify it as high risk system in the general scheme of things. So real-time communications, low cybersecurity risk, I would say. So if you think about the system that you saw today, it's system that has 12 to 16 industrial automations, and that is orchestrated with software that is tuning, 5 tuning continuously in seconds and sometimes in milliseconds, all inbound and outbound activity. Inbound activity will not run without outbound activity. And we don't want that to be. All tasks are coordinated. We want a board that goes into it and now to drop a case that from inbound, a picker case for an outbound. So it's orchestrated with custom software that we have full ownership and patent. So 99% of the volume that goes into a Symbotic system is fully automated. That means there is nobody touching that case. 99%. Many times, as you know, with other automations, that we reached a level of 85%, 90%, and they celebrate. We do not. So there is 1% of volume that doesn't go automated. And you've seen some of it, and this volume of cases is manifested as rejects, flaps open. Some of you observed how the cases were rejected in the [indiscernible] where you came with [indiscernible] when I was there. So damaged cases, open flaps and other issues that cause for us not to automate 1% less. Then we are working on that, and we'll speak to that a little bit on further improving that.

George, can I just track you from that for one second and try to push a little bit. So as a baseline for the system, obviously, this gives us a platform that we can grow off of. And maybe if we take a little pivot, maybe I can bring Ted in for just a second and we can come back to this. A system is probably -- this gives us the baseline to do it, but it's -- the question that came out today was how robust is this system? How do you really -- how are you using that? And as you innovate off of that, where are you going? So maybe talk a little bit about, Ted, the system, and how it works and then maybe move into Symbotic and we can come back to some of these? Is that good?

Absolutely. So one thing that's a little different about our system versus a lot of other robotics companies in this space is we're not doing a point solution where you have a bot that you drop into an existing warehouse and it helps move a few cases around. We're looking at the problem holistically and designing a complete autonomous system cohesively together to solve the problem fully end to end. And so what that lets us do is we don't design the bot in a vacuum. We look at the whole thing end-to-end. And then we have lots of different layers of automation that do all this orchestration that George was talking about. So we have the embedded level compute on the edge in the bot. That's doing a lot of the vision algorithms that we've talked about, trajectory planning. It's basically like a driverless car. But then we also build the roads, the city, the stop lights, the whole thing that makes the whole thing run. And so above that, we have layers of AI and algorithms that are figuring out how do you optimize the fleet performance when you have this demand to deliver cases in sequence all these different outbound cells at the same time. You have all this inbound [indiscernible] and you have these 400 bots to get the job done. We've spent years and years iterating and refining these algorithms that bring all this together. And that cohesive solution from the top-level fleet control swarm algorithms down to the embedded in a single company is very rare, and done only at Symbotic. And also that design, and Rick alluded to this a little bit, is that those same problems exist at different scales. And so you saw it today at BreakPack. So we take the basic concepts. You've got to localize a bot. You've got to generate trajectories. You got to do the fleet orchestration and planning and apply it to a smaller scale. And then you can apply it to larger scale or other problems. And it's a very generalizable, flexible way of approaching these problems. And that's what's great about the mobile robots compared with the other traditional automation that Mike talked about with conveyors and cranes. They are purpose built for one thing and pretty inflexible.

Well, that's great. And clearly, that platform has been working. It's allowed us to get to where we are today. And we had a question -- I had a question come up a couple of times today. Well, if it worked, why did you guys do this SymBot? Why did you need another bot? But maybe if you could -- I went backwards somehow there, maybe we could use that as a transition. If you could talk about what we put into SymBot. Cristian, maybe you can rip up of that, too, into what that allows us to do within the system as a whole. And George, tell us why we had to do -- why we did this, not had to, but why did we decide to do this? And how is this innovation important for us going forward?

Sure. So I'll start. So the challenge for us as an engineering department is not figuring out what to fix, but it's prioritizing like all the potential things we can do to make the system better and expand its capabilities. And at the part of the system is really the bot, right? It's the engine that's driving the cases through the warehouse. And Rick talked about the need for ultra reliability, so that was a huge piece of it. I talked a lot on the tours of how some of the limitations of the previous bot design with respect to the traction control performance or the case sailing capabilities. By unlocking some of those capabilities that let us move into new markets, and enable things like handling tapered totes, which is a prerequisite for BreakPack. So we couldn't have done BreakPack without the SymBot design. It's being able to do cold temperature systems where you need to have really good traction control and trajectory control. And then we also see it as a platform on which that we've really put a lot of thought into the design of the hardware, so that we're going to be able to continuously improve it over time through software deployments and take advantage of the ever-evolving capabilities with vision and AI. And so we really try to build it a platform is something that's going to be flexible and extensible for several years.

And so I call it sometimes looking around corners. But Cristian, as you guys were looking out to the future, maybe that's a better way to put it and looking at the hardware you're developing, give us a little bit on what Ted gave us some of where we can continue to innovate off of this, but tell us a little bit about the hardware and where that drives.

SymBot comes as an evolution of [ BotX ] from [ Bot-7 ] and so forth. So we had a huge learning curve from the early days to today. So what we wanted to do with SymBot is making a platform that is the perfect playground for Ted and everybody else that needs to write software for it because that with the traction control, with the active steering of the [ castoring ] front with the cameras and machine vision capabilities and the extra compute is the perfect platform to grow just with software evolution. Placing new hardware in a warehouse is expensive. You need to replace the whole family and so forth. So we build the extra oomph to be better in the future. So -- and Ted will talk about some of the improvement that we just released that made every software release better. So one example is the, pick-and-place. And we should have a video if you can play it. Ted?

Yes. So I talked a little bit about this on the tour. So as Cristian alluded to, initially, when we deployed the SymBot, we didn't have all the software in place to allow the parallelization of all this motion. But the way that we designed the bot, we made it so that we could perform a lot of more parallel operations to limit the amount of time that the robot actually has to be stopped at a shelf to perform a transaction. And this is just one of the ways that we're iterating on the design and improving it to drive fleet performance and reduced bot count. So there's a lot of ongoing development work that we're doing heavily in the software space is to continue to drive the performance of these bots so that we can need fewer bots to perform the same amount of work for the same systems and significantly reduce cost and since we're doing it through all software updates, all the fleets that we're deploying our systems today will benefit from that.

Beautiful. All right. So before we let George come back and talk to us, take this to the next logical end, which is the new product BreakPack. Cristian, I thought we could spend a little bit of time here talking about the algorithms -- or Ted you going to talk both to exactly Okay, George. Thank you. Sorry. Why don't we talk a little bit about that George before we get to the new product? And how does this -- this is another base building block. So tell us how this works.

So Ultimately, what is the product that Symbotic is producing is a perfectly built pallet that we want to send to the store and that pallet is -- should be sturdy, should be tall, so we can minimize transportation costs. It should be aisle friendly. And what do we mean by that? We want a pallet not to be decomposed in the backroom into different carts. That's what the stores that today. We want the pallet to be ready to go into an aisle and in sequence, the store employee to unbox the products and distribute them into the aisle. This is not as simple. Sometimes an aisle can be multiple departments, sometimes can be multiple aisles one department. So we have been working in a very close partnership with Walmart to enhance this algorithm and enhance our palletization -- optimization that takes into account aisle friendliness, which is the planogram of the store, heavy versus light boxes, product categories that we palletize, crushability of the cases, size of the cases and many other things that we need to take into account in order to produce the ultimate product that is going to go to the store and make the store employees happy and will result in cost savings. So lots of R&D work is happening. We are about, I would say, in a grand scheme of things, 90% there with Walmart. There is another 10% that we have to finish in the next 6 months. But this is one of the coolest and most valuable R&D activities that we have been pushed through in the last 1.5 years, and I think it's going to take another 6 months.

And so as you look at this overall, this is kind of the baseline building blocks of the system. These are the -- we've talked about a few of the pieces of software here. Cristian, by the way we've been going deep on distributed controls, maybe jump right to what it has allowed us. We've been innovating on that for a year. Maybe we jump to how it's actually allowing us to do different things with our -- as we continue to innovate from here.

As Bill was saying supply chain has been very interesting in the last couple of years. With distributor control, we solved a lot of the problems that generated. We allowed manufacturing to pretest every single equipment. Every single [ 461 ], the different conveyors, the different equipment are stand-alone electrically and controls wise, so they can be tested independently. And that makes the assembly and the commissioning short term. This is one of the strategy that we're using to gain time. As of this allow us to replace components on the fly from one time to another, depending on the supply chain availability. You don't have a drive, you have different aisle blocks. These allow to replace it very quickly. And also allow us to generate a full digital trend. And this is something that is so uncommon in the industry because you can see this level of details in the simulation, for example, in Boston Dynamics on a single machine. But you don't see that a full automotive plant emulated. We're able to digitize everything and pass new features and new capabilities in the virtual space before we deploy it because since our software works with every of our system, will be deploying it toll free to system of Walmart, for example, they want to able to test both positive and negative cases in simulation. And we are doing a lot of work with George and Ted to fully stimulate the entire system, including bots, including software. So we have to do an end-to-end testing.

Well, maybe you can help transition us then to the BreakPack conversation. I believe we did a lot of the same work when we were looking at developing break pack, which is allowing us to have to do some very different things there as well, right?

BreakPack was developed a fully offline because this -- as you guys have seen, it's the first proof of concept. So we have to develop all the software, all the interfaces tested, and we did it in digital [ tray ]. So we generated a digital several digital [ trays ] because we changed the layout several times. And we found one that was nailing all the requirements that we have. We tested that, we tested with the software, and that was amazing because when we went to deploy it, and we had very few problems. If you were to field where we actually has to [indiscernible] the software inside from scratch, we have been taking a lot longer.

Well, George, this is your baby. Can you give us an idea of what it means to have this all together in a minute or so.

Yes. So this is a pictorial view of what you visited today. We went at the back of this gray structure on the left which is the BreakPack system. The blue that you see it's the core system where SymBots travel, put away cases, remove cases to bring them into the BreakPack system. But this is how the integrated BreakPack fits into our Symbotic system. On the left and on the right, you have bots traveling bringing these cases. In this case, as we talked about 99% of the cases, we do not touch them. Until there, this case has not been touched by a human. It's all automated. The only places we touch the case is when the selector opens the case to remove vendor packs or each that places on the mini bots, that's the only place. Again, after that action, we take full out and we move them back into the core system with ultimately palletized them for the store for the outbound cells, which you can see on the right-hand side, the 3 outbound cells again, it's fully automated. The only time we touch the case for a BreakPack is whenever a selector opens the case to place each on the mini bot. So I think -- I thought it was a good high-level overview of how the 2 systems are integrated and working unit. In fact, later on, we will move and we will have more blue on the left side, and that will be the other system, the 3.0 system that is in construction, in commissioning right now. that's how the BreakPack will be between these 2 systems fully integrated.

And we can try to give this video really quickly, if we could, and then we're going to do a lightning round, so get prepared.

Yes. So this video, I think we saw it in our introduction. Nothing different than what we saw. I think we can skip that. I mean you can see the selector getting the case, opening the case, placing the [indiscernible] on the mini bots and pressing these green lights, green lights are lit whenever the bot comes, I'm ready to take the [ each ] and you can see the mini bots moving away from the selector. And at the end, you will see totes palletized. Another important thing, I know we talked about bots -- SymBots, one of the reasons that we developed SymBots, it was the need for us, a bot to carry a case, and it tote equally well. And right there, we have completed that. And I think we are 100% done with that. There's no doubt about that. Finally, even totes have been palletized with end-of-arm tools in the outbound cells, which is another innovation that came with the BreakPack.

That's also mix totes in case for the same pallet.

Yes. All right. Let's try to close with -- I mean we talk about having a culture of innovation at this place. Can we -- I'd love to lighting round with you guys 2 or 3 words about what innovation at Symbotic means to you and what we're doing for the future. Yes, you got pleasure starting with.

2 were 3 words. I would say rapid innovation.

I'll take it. Cristian.

There is a wealth of expertise, especially working with Rick. He has tons of ideas that makes us think and think and think, and we challenge each other. What if we do this? What if we do that, we spend countless hour debating and then we come with a solution, we go execution, which is amazing.

It's more than 3 words. But we'll give it to that's fantastic, George, that calls us out.

I think we have an organization that is based on trust. People trust each other, they trust each other to challenge each other. They trust each other to cover for the blind spots and from the CEO up to the individual developer open and honest communication and keeping each other accountable.

Great. Well, Jeff, we're going to turn it back to you, look forward to another chance to be here maybe in the future to talk about our next set of innovations. Thanks.