Symbotic Inc. (SYM) Earnings Call Transcript & Summary

Good morning, and thank you for standing by. Welcome to the GreenBox joint venture announcement. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Evanson, Vice President of Investor Relations. Please go ahead.

Thank you, Michelle. Hello, everyone, and welcome to our joint venture announcement. I'm Jeff Evanson, Symbotic's VP of Investor Relations. Our press release, presentation and discussion today all include forward-looking statements that are based on assumptions, that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements, including as a result of the factors described in cautionary statements and risk factors in Symbotic's release and regulatory filings with the SEC by which any forward-looking statements made during this call are qualified in their entirety. This morning, we are only discussing our news announcement about the joint venture and we will not be discussing any financial results or updating our financial outlook that we provided when we reported our second quarter results. On today's call, we are joined by Rick Cohen, Symbotic's Founder, Chairman and Chief Executive Officer; Bill Boyd, Symbotic's Chief Strategy Officer; and Tom Ernst, Symbotic's Chief Financial Officer. These executives will discuss our announcement this morning, followed by Q&A. Again, we ask that during the Q&A, you restrict your questions to the topics of only today's news. And now with that, I'll turn the call over to our CEO, Rick Cohen. Rick?

Thanks, Jeff. Good morning, everyone. I'm very excited to share with you something that we've been working on for a long time now, and it will totally transform the supply chain in our business. Today, we are announcing that we have formed a joint venture with SoftBank called GreenBox. GreenBox brings A1-enabled (sic) [ AI- enabled ] warehouse automation to the world. Certainly, medium- and smaller-sized companies will take advantage of GreenBox, but we think it also offers services for anyone that needs storage services or supply chain services anywhere around the world. GreenBox is a great way for Symbotic to do something that I've wanted to do for many years. And when I first started thinking about automating the supply chain, I wanted to be able to create an automated -- not just an automated warehouse, but an automated platform that had perfect inventory management, perfect accuracy and shipping, and could be so good that you could create a warehouse that was a multi-tenant warehouse with perfect accuracy that allowed anyone that had any storage needs at any time to be able to take advantage of this platform. I think that we've created that with Symbotic in the way to -- in GreenBox, and I look forward to partnering with SoftBank on this. We share the same view of going big and going fast. We think this service is a worldwide service and we're very excited about it. The way to think about this service is something that I thought about for a long time. It's basically cloud computing for the physical world. So if you think about what companies have embraced big, small and medium-sized companies of taking their data and storing it in the cloud, what we've now created and will create, a warehouse network and a supply chain network and an information platform that will allow people to create -- to store physical goods, their products in our warehouses, and that's why I call it the cloud computing of the physical world. So with that, we're very excited. We have a very large order from GreenBox. It's approximately $7.5 billion, plus a very nice recurring revenue stream. Our partnership with SoftBank is such that we will own 35% of GreenBox because we want to participate in the upside, and our technology and our expertise will greatly enable this company. So with that, I'd like to turn it over to Bill Boyd.

Hi, Everyone, this is Bill. As we switch to the next slide, Slide 5. We'll take you a little bit deeper into what we've actually created here. As Rick said, we're creating this joint venture with a 65% ownership of SoftBank and 35% ownership by Symbotic. We will be together contributing an initial $100 million in the investment, $35 million from Symbotic. After that initial investment, we expect the -- this entire investment from Symbotic to be self-funding. In addition, GreenBox has placed an order for approximately $7.5 billion of our systems, including recurring revenue, as Rick said, and what this will allow us to do is to bring 2 offerings to the market through our sales force. We'll be able to offer our traditional stand-alone sales, and we'll be able to offer this warehouse-as-a-service to our customers. Essentially, this allows us to have an additional, additive market stream to our existing backlog and existing business. GreenBox will have a separate management team. And the power of this, we believe, is that we're bringing together yet another company like Walmart that shares our vision for transforming the supply chain in SoftBank with a global vision and a desire to move our platform forward as quickly and as -- and to as many supply chain customers as possible. Now I've got the what, let's move to the why on the next slide. Why do this? Simply, it's because we believe this market is massive. As Rick said, we've been looking at this for a long time. It's -- This is the natural evolution to the next stage in our company. We believe that this new GreenBox opportunity is a $500 billion annual recurring revenue opportunity. That's obviously in addition to our massive SAM, which we've already put in as $432 billion. And we believe that this combination of the new TAM and the existing SAM makes us one of the largest addressable markets available. In the end, this has been a demand-led evolution. The more we've delved into our market and the more we've worked with our existing customers, and understood their customers and the market out there. The more we have been pushed toward offering our systems faster, making them available to more customers and moving this system into a use more broadly. So as we move to Slide 7, a quick summary before I hand it over to Tom, who will take you deeper into the financials. We believe that this JV structure allows us to rapidly capture market share in a very capital-efficient way. We believe we found the right partner to help us take this to global market. And we believe our contract with GreenBox will allow us to access this market with very strong gross margins and recurring revenue and our shareholders will benefit from that increased contract and a 35% ownership stake in what we believe is going to be a very valuable business going forward. So Tom, let me hand it over to you.

Thank you, Bill. I'm excited to walk us through some of the key contract terms and highlights of the financial benefits for Symbotic. GreenBox has committed to the purchase of approximately $7.5 billion worth of systems. When adding the initial commitment for recurring software, this venture will add approximately $11 billion in backlog. This adds to and extends our already large $12 billion backlog. Additionally, like some of our existing long-term customer contracts, the GreenBox commitment is non-cancelable and enables us to visibly plan for a ramped deployment. The contract also enables us to automatically capture increased economics as system performance increases over time. As we move forward with GreenBox, we are establishing higher margins, primarily from recurring revenue. We are able to capture these higher economics while also creating a more cost-efficient service for the end customer and strong expected returns for GreenBox shareholders. We are able to do so because our Symbotic powered-as-a-service offering is a transformational offering in the marketplace. Symbotic is contributing an initial $35 million to launch the venture. Another very attractive benefit of the venture structure is that following this initial investment, the contract is expected to be cash-flow-positive at all points throughout its duration. We expect GreenBox payments to Symbotic to exceed the sum of our cost payments to deliver the systems and our pro rata capital contributions to scale the growth of the venture. These cash flows are all concurrently planned such that the net cash flow to Symbotic is expected to be positive at all times in all growth scenarios, giving us very high visibility to plan our growth in Symbotic and is consistent with the cash flow visibility we already have in our existing $12 billion backlog. Let's turn to Slide 9 and discuss how these revenue streams will manifest over time. Revenue generation with GreenBox will behave much like that of our existing backlog with the added benefit of sharing in the economic profits of GreenBox through our ownership of the venture. As GreenBox order systems, the $11 billion in initially committed backlog will first translate into revenue after we receive the order and commenced deploying systems. We expect to establish new modestly higher gross margins on system revenue with GreenBox, and we expect to realize these higher structural margins immediately with the first systems deployed. A minority portion of system revenue starts shortly after identifying the project of certain deployment. And after approximately 1 year, when the physical installation of a system on-site commences, the strongest system revenue generation begins and is recognized in total when the system goes live. When each system goes live and begins its ramp into full production usage, then recurring revenue to Symbotic begins. As with our existing business, these recurring revenues include 3 components: first, annual software fees, which are required to use the system. We are also establishing new higher-margin recurring revenue with GreenBox. In addition to software, we will support GreenBox's independent operations with parts and supplementary operation services, including services such as consulting and training. Over time, and as GreenBox builds its global network, these revenue streams will layer it to provide growth in Symbotic's revenue. Ultimately, we expect over $500 billion in recurring revenue from GreenBox. As Rick mentioned, a key reason we chose the joint venture strategy it enable us to reach globally and go really fast. GreenBox will have a focus and invested capital to scale its business. Because Symbotic is taking a 35% ownership stake, Symbotic will gain the additional benefit of participating in the economic returns of GreenBox. We believe that GreenBox has the clear opportunity to generate strong cash flow and investment returns over time and are excited about the benefits that our participation will have in the net recurring subscription profits. Let's turn to Slide 10 and discuss the time line in a little more detail. Today, we are announcing GreenBox and the first steps are to staff an Independent Board of Directors and management team. We will work jointly with SoftBank to do this, and this is the first priority. Next, GreenBox will formulate and make available its as-a-service configurations and create its formal go-to-market plans. From there, we anticipate securing the first GreenBox customers in fiscal 2024. Our launch into the strategy was demand-led with what we believe to be attractive prospective customers. So while we are anxious to bring GreenBox to market, like Symbotic we intend to infuse the North Star of creating braggingly happy customers into the culture of GreenBox. Therefore, customer launch will not come before the business operations are ready sometime in 2024. We anticipate completing the first system in being live with customers fully in 2026, starting the first recurring revenue for Symbotic as well as the first subscription revenue for GreenBox. Finally, GreenBox is obligated to start all of its deployments in the $7.5 billion commitment within 6 years, and we have provisions whereby as the business executes, we may accelerate on that time line if GreenBox and Symbotic mutually agree. This gives us tremendous visibility and control as we think about expanding our growth trajectory beyond our existing backlog with this venture. Let's turn to Slide 12 (sic) [ Slide 11 ] and wrap up with a couple of concluding thoughts. Slide 13 (sic) [ Slide 11 ], please. In conclusion, we are excited about the transformational nature of this joint venture. It adds a $500 billion-plus TAM and it expands our backlog by approximately $11 billion, and we're excited to be sharing this with you today and look forward to taking your questions. Michelle, may we open up the Q&A, please?

[Operator Instructions] The first question comes from Jim Ricchiuti with Needham & Company.

Congratulations on this announcement. I was wondering if you can perhaps elaborate on what you mean about this being a first step in the potential long-term relationship with GreenBox. In terms of the solutions that are being brought to the market and the TAM, I guess what I'm wondering is, are there going to be some areas where this JV is going to need to develop adjacent automation solutions, either internally or via acquisitions?

Yes. Thanks, Jim. I'll take a first stab at that, and Bill or Rick can comment as well. So this initial -- we think of it as a first step, Jim, because although a $7.5 billion commitment and plans for growth over the next 6 years. It sounds like a big move. That represents a small portion of what we see as ultimately a $500 billion annual recurring opportunity for GreenBox. So we think it's the right mix of ambition and yet the first move we want to make in the marketplace.

Yes, I think the other way I would answer that, is that -- this is Rick, that what we're finding as we talk to more and more customers is, they're -- we're really a customer-focused company, and they're asking us for solutions. So right now, we know that lots of people are saying, "Well, I don't want to buy a whole big system. And -- but I'd love to store 10,000 box, 100,000 boxes in your system." -- and so that's -- and there's lots and lots of customers for that. We also have big customers that are saying, well, I just -- auto parts, airplane parts, all kinds of parts. So I think what we're saying is that this is the first step, and we will learn from our customers and as they ask us for different solutions. Where the automation is a part of it, but the warehouse management and the inventory management and the software platform is another platform. And so we'll continue to expand as our customers ask us to do new things.

And then just with respect to acquisitions being a part of this. Obviously, you guys provide solutions, some key solutions for the market. You've also talked about areas that you may look at from an acquisition standpoint. I'm just wondering how this JV plays into that?

So Jim, we think that this venture has launched with SoftBank, and Symbotic as the partners here is ready to penetrate the market. So no, we'll be an independently-led company. And so we see it as having large growth prospects. So who knows where the [ evolution ] takes it over time, but we're excited about it, formulated out of the gate.

The next question comes from Greg Palm with Craig-Hallum.

I'll also offer my congratulations on this. I guess just to start off, it'd be helpful if we could get a little bit of background. It sounds like this has been in talks for some time, but maybe a little bit of a background on how this evolved. And just in terms of the timing of the announcement. I'm curious, if at all, is a byproduct of how your own outsourcing strategy has progressed over the last year or so, maybe the comfort and how that's been going. So maybe you can address that. And then I've got a follow-up as well.

Rick, want to take the first one?

Yes. So as you know, I spent my whole life in the outsourcing business and in the 3PL business with C&S. So this -- the ability to run warehouses for people has always been on the plate. And when we initially engaged with SoftBank, they got it immediately and wanted us to go as fast as possible. We also had some great fortune in that we got this huge contract from Walmart. And so we said we're going to take care of our -- and Walmart is a large shareholders of Symbotic, we're going to take care of Walmart first and make sure that we can scale up for them. But over the last year, as we've talked out, especially in the last 6 months, our outsourcing with partners who can build bots for us and sells for us has gone very well. And probably about as well as we could have hoped. And so now we're beginning to look up and say, we can actually do more. We have to take care of our large backlog and our key customers that are already customers today -- but yes, we're now starting to say, I think we can do more. We have to be careful. We have to plan it. But this is the right time to announce that we want to go into this space.

Understood. Okay. That makes sense. And I just wanted to follow up on the capital contribution commentary. I forgot if it was Tom or Bill, Tom, maybe you mentioned self-funded post this initial contribution. But just given the size of this initial order. Maybe you just -- can walk us through the cash flow expectations as well because I would have thought that there maybe would have been a little bit of a timing difference in terms of capital contribution versus cash flow? And I guess does the self-funding part, does that depend on how much of this is more of a RAS model versus -- because I think you had mentioned that the customer can either own the system itself or it can be a RAS model. So I just want to make sure we're all clear about the capital contributions and cash flow expectations on this.

Thanks for that question, Greg. So you're right. I made the comments that we expect this to be self-funding to Symbotic -- and so what that means is in all growth scenarios as we think about the GreenBox operations. And remember the GreenBox is obligated to execute those starts of systems within a 6-year time frame. And jointly, we can agree to go faster if the business merits that. But in all growth scenarios, we have concurrently timed the payments of systems to Symbotic such that those payments of the systems and any capital contributions required from us to support those growth plans for GreenBox are more than offset by -- or excuse me, the payments to us more than offset the capital contributions we make plus the cash outflows we have in building the systems throughout the entirety of that contract. So that's a very nice structure to the contract for us. On the GreenBox side, there will be growth capital that's necessary, and this is one of the key things that SoftBank brings to the equation in addition to their share vision and their global reach as they bring the right level of capital such that -- to the extent we choose to go fast, Symbotic -- SoftBank brings capital to that equation to help us scale the GreenBox business. So on the GreenBox side, we do anticipate there being some capital necessary to grow that business. The GreenBox business model is expected to be a subscription-as-a-service business for the customer extensively, which is part of the value proposition of that flexible business model that helps those customers really gain access to this transformational technology. Does that answer your question, Greg?

Yes, it does. And just to be clear, any additional or further capital contributions, that's -- I assume going to be on the pro rata 65%-35%?

That's correct.

The next question comes from Chris Snyder with UBS.

Also congrats on getting the deal done. I guess my first question is, could you guys provide more color as to why you went to JV route? And then specifically, some of the positives or the advantages that SoftBank is bringing to the deal because, obviously, the tech is Symbotic's. It seems like the capital needs for the most part are pretty quite low. So just kind of color on why not go after the opportunity alone? Is it the ability to procure customers or even the willingness to operate the facility from the SoftBank side?

Chris, it's Bill. Thanks for the question. Great question. So to drive a little deeper into that. The answer is that we believe that SoftBank is a perfect partner to do this with. And we believe it's the right time to do it. As we -- I think Rick and I both said, we have the opportunity to move forward with a warehouse-as-a-service model, which allows us to deeper penetrate a number of different markets here, reach new customers, really fix some of that -- what we would call the dislocation and pain in the supply chain. When you think about a number of customers who are paying for inefficient supply chains who are smaller, who can't afford their own warehouse who can't do the -- This allows that customer group to have a more efficient supply chain as well as larger and allows us to go after it. The specific reason we did it today and with this partner is that SoftBank has the same shared vision, as Rick said, it's got a global mindset, it understands this market well and believes that the Symbotic's technology is the cornerstone to getting this done as we do. So we've got -- effectively, it's -- I guess, you would call it the right time, it's the right partner, and it allows us to go after it faster than as you noted, we could do it ourselves. When you think about the capital that's being deployed here, being able to do that with a partner who believes is that faster access to that opportunity than we would have had on our own.

I appreciate that. And then I wanted to ask a question. I think it was Slide 5. When we see -- it's kind of, I guess, it's the flow of the relationship, and it sounds like a lot of these customers will be multi-tenant which -- and I think makes sense. So I guess, just to be clear, will GreenBox be owning and operating the facility in any capacity in managing the -- like the commercial side of all these multi-tenants? Or is it just simply the warehouse-as-a-service piece or the system-as-a-service piece?

Sure, Chris. I think the beauty of this opportunity is that, it -- in honesty, it could be either. So the idea here is that GreenBox will be providing a service to customers who wish to have access to the systems in a different way. And so some of that could be -- it could be the GreenBox operates facility. It could be the GreenBox provides the systems to another operator, it's the opportunity to get into that market with multiple tenants in a different way than we currently are accessing it today.

In terms of the ownership, the actual physical site, GreenBox may almost, but we would expect that they'll likely rent making the real estate just part of the COGS of the service.

The next question comes from Matt Summerville with D.A. Davidson.

Can you maybe talk just a little bit more about the target customer base, the type of customer, the type of -- I mean, you mentioned auto parts, airplane parts, but a little more granularity on the type of customer you have in mind? Do you already have a launch -- or does GreenBox already have a launch customer teed up level of visibility is to go forward customers? Maybe just start there, and then I have a follow-up.

Yes. So let me talk about this business in general. So when you go into the warehouse-as-a-service business, there are key logistics hubs around the United States. There's Southern California; there's Northern California; there's Northern Texas; there's Northern Florida; there's Georgia, out Atlanta; there's Bethlehem, PA; there's Chicago. So there are about 10 or 12 logistics hubs that if you have a warehouse in those hubs, you can supply product to lots and lots of different warehouses. And so in many cases, there are small manufacturers in those areas and they're taking products and they're storing them somewhere. So those customers would be our target customers in those hubs. That's where we think we would start. But we're also getting a lot of interest, for instance, in -- there's a big company in Austin right now that has a need for storage parts. And we know that because we have a warehouse that we run with Walmart in New Braunfels, Texas and there's a huge labor shortage in that part of the world, perfect application for automation lots of new markets being available. So the reason that we're partnering with SoftBank is that -- we want to be able to take advantage for those markets when it comes about. And what's interesting is that many of those customers don't want their own warehouses because they don't have that much business. But they said, if you had a warehouse there, they would pay a pretty good fee to have the availability of a perfect inventory, perfect selection, perfect storage, and so those are the type of customers. Then you get into the ports, which is something that we work with SoftBank with, which is, we just came through COVID all those containers that backed up to the ports. What people don't quite understand is that they might even have been able to get the containers off the ships, they just couldn't get them unloaded. And so because they couldn't get them loaded, there was actually a shortage of containers, there was a shortage of the devices that they attach to trucks to put the containers on and so this is kind of a dark -- not a dark, but an underutilized market that people don't even know exist. And I think that's why I say it's like web services. When you create this market, these customers that are going to say, Oh, this is so much better than storing at my uncle Joe's warehouse and not knowing where my inventory is. So high-quality storage is going to do the same thing, the high-quality web storage did for the world. So we don't -- we have a lot of target customers but we also think that once we announce this, which is why we're doing this now, over the next couple of years, we will fill the backlog and we will figure out which markets we want to build warehouses in first.