Symbotic Inc.

Thank you for standing by and welcome to the Symbiotics First Quarter 2023 Financial Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star 11 on your touchtone telephone. As a reminder, this conference call is being recorded. I will now turn our conference over to your host, Mr. Jeff Evanson, Vice President of Investor Relations. Please go ahead.

Thank you, Valerie. Good afternoon, everyone. Welcome to Symbiotics first quarter 2023 results webcast. As Valerie mentioned, I'm Jeff Evanson, Symbiotics VP of Investor Relations. Our press release and discussion today will include forward-looking statements 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 factors described in the Cautionary Statements and Risk Factors in Symbiotics Financial Reliefs and Regulatory Filings with the SEC, by which any forward-looking statements made during this call are qualified in their entirety. In addition, during this call, we will discuss certain financial measures that are not recognized under U.S. generally accepted accounting principles, which the SEC refers to as non-GAAP measures. We believe these non-GAAP measures assist management in planning, forecasting, and evaluating our business and financial performance, including allocating resources. Reconciliations of these non-GAAP measures to their most comparable reporting GAAP measures are included in our financial press release, which is available in the investor relations section of our website and is on file with the SEC. These non-GAAP measures may not be comparable to measures used by other issuers. to be able to provide guidance for the second quarter, including revenue and adjusted EBITDA. We are not providing guidance for net loss today, which is the most comparable GAAP financial measure to adjusted EBITDA. We're not able to provide reconciliations of adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of our control and or cannot be reasonably predicted such as the provision for stock-based compensation. On today's call, we're joined by Rick Cohen, Symbiotics founder, chairman, and chief executive officer, and Tom Ernst, Symbiotics chief financial officer. These executives will discuss our first quarter 2023 results, our outlook, and then we'll follow up with Q&A. So with that, Valerie, oh, I'm sorry, Rick, go ahead.

Yeah, thanks, Jeff. 2023 is off to a great start, and we are excited about our outlook. Again, our results reflect strong execution of our growth opportunity. In our first quarter, the Symbiotic team delivered triple-digit revenue growth and improved both gross profit and adjusted operating margins. I thank our entire team for their hard work and excellent execution. Last quarter, we highlighted our plans to build on our existing base of outsourcing partners. During this quarter, we added additional Tier 1 suppliers to build capacity to meet our growing demand as well as to ensure supply chain and redundancy. These outsourcing partners now span our full deployment process from manufacturing of bots, cells, and lifts to construction and installation. We're excited about our partners' growing contributions as they help us accelerate delivery of systems while maintaining our extraordinary rate of growth. These partnerships will also help us to reduce system costs and streamline deployments. And reduced deployment time creates the capacity to satisfy the high demand of our solutions. In summary, our supply chain continues to improve, costs are moderating, and we continue to attract top talent. Demand for our solutions continues to grow, and our contracted backlog now stands at $12 billion. Now, Tom will discuss our financial performance and outlook. Tom? Thank you, Rick.

Our first quarter revenue of $206 million grew 168% over the prior year period. We initiated six new system deployments during the quarter and, as planned, advanced one system to fully functional production operations. We now have 22 active system deployments with multiple customers, up from 17 systems last quarter and nine systems in the first quarter of last year. Our extraordinary revenue growth was driven by both progress on deployments already underway and the six deployments started during the quarter. We are gaining efficiency in our deployments by standardizing our systems, streamlining our deployment processes, and realizing the benefits of outsourcing. Our cash and equivalents, including marketable securities, grew $94 million sequentially to $448 million due to favorable working capital performance. Looking forward, we believe last quarter's balance of $353 million will be a low watermark. We believe we have more than adequate resources on hand to achieve our strong growth plans and remain very well capitalized to execute our strategy. Recurring revenue grew 25% sequentially as deployments have begun to move to production operations. We now have eight systems operating at customer sites. In the near to midterm, we expect recurring revenue to be small relative to our rapidly growing systems revenue. Over time, as system completions waterfall, recurring revenue should grow to have a much higher gross margin than systems revenue, as well as become an increasing share of our revenue mix, TO PROVIDE POWERFUL OPERATING LEVERAGE TO OUR BUSINESS. OUR FIRST QUARTER GROSS MARGIN INCREASED 230 BASIS POINTS SEQUENTIALLY. THESE RESULTS STILL REFLECT SIGNIFICANT COSTS ASSOCIATED WITH RAPIDLY SCALING OUR OPERATIONS AND THE BURDEN OF ELEVATED PAST THREE STEAL COSTS. IN THE FIRST QUARTER, OPERATING EXPENSES, EXCLUDING STOCK-BASED COMP, DECLINED SEQUENTIALLY, DEMONSTRATING THE CRUSHING OF EXPENSES THAT WE HAD ANTICIPATED. Despite this, we still have ongoing redundant costs associated with ramping partners and ongoing investments in our innovation initiatives, such as Symbot and BreakPak. Operating leverage improved as we achieved a record 7.9% adjusted EBITDA loss rate compared to 27.6% in the first quarter a year ago, driven by our revenue growth and moderating operating expenses. Our backlog increased this quarter to $12 billion. Cost-adjusted pricing, the addition of UNFI as a customer, and an additional non-Walmart existing customer deployment start contributed to the 8% sequential increase. Turning to our outlook for the second quarter of fiscal 2023, we expect revenue of $205 to $230 million and an adjusted EBITDA loss of between $13 and $17 million. This represents 126% revenue growth year-over-year at the midpoint of our revenue guidance range. In closing, 2023 is off to a great start, and our team is energized. We are excited about the year ahead and our opportunity to transform the supply chain. We'll continue to scale our business and innovate rapidly to deliver against our $12 billion revenue backlog. We look forward to speaking with you again next quarter to provide an update on our progress. We now welcome your questions. Operator, will you please open the Q&A?

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11. Our first question comes from Matt Somerville of DA Davidson. Your line is open.

Thanks. A couple questions. First, on gross margin in OpEx, how should we be thinking about those items kind of scaling from here. You mentioned OpEx kind of cresting last quarter, so things seemingly moving in the right direction with more efficiencies to be gained. And then maybe put a finer point on gross margin, how we should think about that rolling forward from here and how much steel is still maybe diluting that margin. And then I have a follow-up.

Yeah, thank you for the question, Matt. So first on the OpEx side, we reported an adjusted OpEx of $52 million. That was lower than both of the prior quarters as we had fewer third-party expenses. So I think a way to think about that is some of that is structural as we're shifting to outsourcing partners, and some of it is just the quarterly variability of our engineering projects. You know, looking through to that, our head count is up about 9% quarter-on-quarter, so you can see we're still investing and hiring heads as we're able to make benefit of less dependency on third-party resources to grow and scale our business. Perhaps shifting over to the gross margin side, quarter-on-quarter system gross margin, which drives our overall gross margin, improves sequentially by 250 basis points. This really is an attenuation of some of the effects that we saw last quarter in terms of some of those scaling and project costs that have made their way into gross margin. We began to see some of those recede. And so generally, we expect that trend to continue as we look forward over the coming quarters, although quarterly progress on that can be stair steps. So I won't predict and give you guidance for exactly how we make progress against that. But the general trend over the coming quarters, you should expect us to see some of those costs that are in gross margin associated with scale in the business begin to attenuate along with steel costs begin to flow through as less of a headwind. A way to think about that steel as well, don't forget that we do lock in much of our steel pricing 12 months prior to the start of an installation. So if you look at the steel price indexes, the steel prices have really been lower for about five to six months. So we expect kind of the benefit of lower steel prices to wash in over the coming few quarters rather than right away.

Does that make sense? Thank you. Yeah, yeah, that does. And then just as a follow-up, from here forward, what are the key incremental steps Symbotic needs to take from an outsourcing standpoint to further accelerate system implementations? And when do you think the company will reach an optimal sort of implementation rate. Thank you.

Yes. So we spent this last quarter a lot of face-to-face time with suppliers. So we're pretty much locked in our suppliers. We have a couple of very good suppliers that are going to be ramping up in the second and third quarter. So we're pretty well set with our outsourcing supplier mix, and we're seeing as they learn to make the systems better and a little competition, we're seeing the pricing come down. We're also seeing efficiencies of rollout. And as we work with the suppliers and redesign small components of it, we're finding that the installs will happen faster. So I think the next three to six months, you should see a full benefit of the outsourcing of suppliers.

And then I'll add to that, Matt, is we just think about the long term. We see this as a continuous opportunity for us to, you know, where the system can be engineered for faster deployments. Our partners are going to gain efficiency. We're going to gain speed with it. So we think that in addition to Rick's Rick highlighted here, these next three to six months are huge for us. There's gains that we can have over the coming years to continue to speed deployments and get more efficient. Understood. Thank you both.

Thank you. One moment, please. Our next question comes from the line of Andrew Kaplowitz of Citi. Your line is open.

Good evening, Gus. Good evening. Good evening. Can you give us a little more color into the revenue ramp that you're seeing? I'm sure you want to be conservative, but at the bottom of your revenue guidance for Q2, you're predicting flat sequential revenue despite your system deployments and symbolic rapidly scaling its business. So is there something that could hold you back or just being conservative, given you never know if supply chain constraints come back, or is there any risk of customers slowing down deployments given macro concerns?

Yeah, thanks for the question, Andrew. So you're right. We're growing rapidly. Our number of systems under deployment, as you highlighted, you're now at 22. So that's up five net of the one that went into full production from last quarter. That translates into 126% year-on-year revenue growth, which we think is quite rapid. So we're planning to deliver and scale against that rapid growth. I think one of the things we talked about in our last earnings call was these first few systems, first wave of the few systems we delivered, did see somewhat of kind of a stacking of the key concentration of revenue delivered to those systems over really the prior quarter, a little bit into Q3 as well. As we begin to deliver more and more waves of systems, they're going to be more uniformly spaced, and we'll begin to see some of that quarterly variations in revenues smooth out a bit. But really what you're seeing as a function of our sequential growth is more just to do with the concentration of the stacking of some of the smaller number of systems actually in the meat of their deployment.

Got it. That's helpful. You mentioned backlog at $12 billion. Obviously, it continues to go up. I think you talked about a greater than $11 billion last quarter. So is this just more addendums to sort of existing contracts that you have? Or do you continue to work with new customers? Obviously, we know eventually revenue will begin to eat into that backlog given it's so big. But how are you thinking about backlog at this point? Should it begin to go down now as revenue ramps up or still more new awards to be had?

Yeah, thanks for the question, Andrew. So you're right. Backlog did increase net of the revenue out in the quarter by about $900 million in the quarter. So that really reflects a couple things. It reflects the new UNFI relationship that we announced on last quarter's earnings call that was signed during this quarter. It also reflects an additional existing customer new deployment we started in the quarter. And then finally, it reflects cost-adjusted pricing for the existing backlog in the quarter that we expect that you'll see once a year when we start each calendar year. So a little bit different average cost per system in the backlog. You know, how you should think about the backlog, our strategy hasn't shifted. We're thrilled with the $12 billion backlog. Our goal is really not to drive backlog growth so much, but really to drive our customers to being braggingly happy and to scale against the opportunity we have. We're looking to add new customers more by the one or two per year rather than add to the backlog is our primary strategy here in the near term. given that we do have such a strong demand for our systems that we can control as to backlog as we want them.

Appreciate the color.

Thank you.

Thank you. One moment, please. Our next question comes from the line of Mark Delaney of Goldman Sachs. Your line is open.

Yes, good afternoon. Thank you very much for taking the questions. Rick, I think your decision to retake the CEO role on, as I understood it, was to streamline the touch points that your customers have and hopefully create some more efficiencies in that sort of relationships. Could you elaborate if that's materializing as you expected?

Yeah, it's – I mean, I've been the CEO for most of the time except for really a short period of time. The interaction – so, yeah, it's playing out the way I saw it. Customers want to talk to me. They've been talking to me for a long time. I'm really the chief product development officer. And so when I talk to customers, one of the things they're asking is because of my deep distribution background, if they think some of the products that they're thinking about are viable. And so it just makes the logical, the sales cycle, the the proof of concept piece of selling these big pieces of equipment, and then the follow-through logical. So it's playing out pretty much exactly the way I thought it would.

That's very helpful. Thanks. And then my second question was around how to think about the cadence of systems going forward and maybe help us better understand what's contemplated in the guidance, perhaps in terms of the number of new installations that may be started, and if you think you'll move any other systems into full completion this coming quarter based on the guidance. Thanks.

Yeah, thanks for the question, Mark. So we do anticipate adding more systems each quarter. It's a little bit less predictable on a given quarterly basis exactly how many we'll add, but you should expect that as you look forward to our coming quarters, we continue to add more. systems and potentially in growing numbers as we look forward. Those systems that get added in the quarter don't add as much revenue as the systems that have already been on the books for a couple or a few quarters. I think you know that our value that we deliver and thus the revenue that we carry from those systems is recognized and reported on a percentage completion basis. But it's not linear. The revenue actually has a bit of a concentration to the middle part of the contract, the middle of the second half part of the contract when we're doing the meat of the installation and testing of the system. So those early systems do benefit quarterly revenue production, but not as strong as the systems that are well into the meat of installation. Thank you.

Thank you. One moment, please. Our next question comes from the line, Nicole DiBiase. Your line is open.

Yeah, thanks. Good afternoon. Maybe just on the outsourcing initiative, it sounds like from the opening remarks that you guys have made really good progress on that. So if we were to talk about it in baseball terms, I guess, what inning are you in with all of your projects on outsourcing?

Yeah, so in baseball terms, I would say we have – I would say we're probably in the fifth, sixth inning on outsourcing. We will – the partners are doing a good job, but we haven't finished the process yet. So I think we're bringing on some new – We haven't announced them yet. We've announced some of it internally. We're bringing on some new, very experienced manufacturing partners to help us work the outsourcing part of the business. So we feel really good about it. The game plan is probably going a little bit better than we thought, which is a nice thing to say. And no showstoppers. The world out there of our particular partners is interested in warehouse automation and in making EVs. And we right now have a lot of interest because of our big backlog in warehouse automation. So we're very happy with the attention we're getting from suppliers, quite frankly, all over the world. So that was not the case a year ago. So I guess fifth inning, sixth inning, maybe even seventh inning, we're pretty happy with where we are.

Got it. Thanks, Rick. That's helpful. And then one more question for you guys is just, I know you talked about OPEX cresting. Is that also the case for the subcomponent of R&D? Is that also expected to crest? Just trying to think about all of the innovation initiatives that you guys also have underway.

Thanks for the question, Nicole. So I would expect modest growth in our OpEx, particularly near term. Our OpEx we reported in this quarter was relatively light in terms of third-party expenses and kind of special projects. But if you take the last three quarters overall, that general comment about crested is generally right, maybe with moderate growth looking forward. In terms specifically with R&D, yes, it applies to R&D as well.

Thanks. I'll pass it on. Thank you. One moment, please. Our next question comes from the line of James Ritchie of Needham & Company. Your line is open.

Hi. Thank you. Good afternoon. I think you referenced an order from an existing customer. Was this one of your legacy customers?

Yeah, thanks for the question, James. It was, in fact, we disclosed in our proxy filing that that customer is CNS Wholesale Grocers.

Got it. And I'm wondering if you, as you talk about the supply chain and the contract manufacturing capability that you're bringing on and you expect to see ramp. Can you talk about the interest you're getting from new customers and your ability, your capacity to maybe take on newer business? And specifically, I'm wondering, most of your business has been in the U.S., North America. And is there the potential over the next couple of quarters for you to potentially take on uh, some business in, in Europe, for instance.

Yeah, we, we, we, um, it's, it's, uh, you know, it's a fairly long sales cycle, but we've had interest from Mexico. We've had interest from Europe. So we, um, and the numbers are pretty promising, uh, made a trip to, uh, to Japan to visit SoftBank. That's a very promising. These high-cost labor markets are interesting. So nothing to announce, nothing probably to announce for a while, but a lot of interest. And what we're doing with the supply chain partners, actually, some of the partners are in Europe, places like Italy, Germany. And so they're actually out there kind of help them sell for us, legitimizing our product. We do have a number of international customers coming to visit in the next three to six months to go visit sites. And one of the things that we're doing with the outsourcing partners is as we ramp them up, it allows us to complete sites faster. And if we can complete sites faster, we can do more sites. And also one of the things that we're looking at is outsourcing partners, in particular from Europe, that would be good partners in doing European installs.

And I'll just reiterate, James, that while we're working to create that additional capacity, our operating strategy is to add new customers slowly, kind of ones or twos per year.

And a final question for me, when would you anticipate completing the next fully functional system from your backlog, if you can say.

Sure. Thanks for the question, James. You know, it's hard to predict on a given quarterly basis, but as we look forward over the coming quarters, we do anticipate that you'll begin to see us get into a pattern of moving systems from deployment to fully functionally complete at the customer with increasing regularity.

Thanks a lot.

Thank you. One moment, please. Our next question comes from the line of Michael Lattimore of Northland Capital Markets. Your line is open.

Oh, great. Thank you. Yeah, great results here. Just in terms of the deployment timeframes, what are you seeing now? How long do you anticipate deployments to take given some of the added outsourcing capacity here?

Yeah, thanks for the question, Michael. So we continue to make progress on this front. We are definitely beginning to feel the benefits of having done it many times now, along with beginning to get support from our outsourcing partners that are helping us trend in the right direction. And, you know, as you would expect, Michael, our first waves of systems, you know, take longer than what we expect to happen. what we expect those next couple of waves to take, particularly in the light of having an extended supply chain where we got out in front and made sure that we started those systems early with an extended supply chain. So we are making progress. I think we're generally on track with our plans and where we thought it would be a year ago. And to the points of Rick's comments, just a minute or two ago, working with these outsourcing partners the next few months really helped us unlock the ability to move faster here over just the coming four, five, six quarters.

Right. And then as you think about backlog addition opportunities, would they be bigger in terms of new customers or would it be kind of expansions of current, current customers? So you think you, you know, grow backlog longer and is there one that clearly has a bigger contributor there?

I think you'll see a mix of both. Again, our strategy here is less to grow backlog and more to scale our operations against the existing backlog. But we do anticipate that over the coming handful of quarters, you'll see us add both new customers and new projects with existing customers.

Got it. And just last time, gross margin. I think you gave some color. I just want to be clear. Is it fair to say gross margin in the first quarter would be the trough for the year or low point for the year? How should we think about gross margin?

Yeah, I think we said pretty clearly last quarter we expected when we reported a 15% gross margin that that was a low watermark. So we emphatically feel that that's still very much a low watermark. Progress against the 18.7 we reported this quarter, we expect to see that happen. But the progress can be stair-step. So we'll talk about the progress as we make it each quarter.

Got it.

Great. Thank you. Thank you. One moment, please. Our next question comes from the line of Chris Snyder of UBS. Your line is open.

Thank you. I understand the outsourcing push is helping to accelerate the rate of system deployments, but is there any negative offset on the gross margin line? Because I believe in the past the company has spoken to or talked to a high 20% gross margin target versus kind of high teens today within systems. Is that target still achievable with a higher level of outsourcing?

Yeah, thanks for the question, Chris. In fact, we think that our gross margins are higher long-term under our outsourcing initiative. Now, we did talk last quarter about the aggressive ramp to bring on some of these outsourcing partners was definitely coming along with some increased short-term expenses to ramp these partners. As you can imagine, we have redundant resources, right, as we're ramping partners and and redundant supply chains and kind of a whole host of costs that not only flow through COGS, but also flow through OPEX. So we are still seeing some of those transitory costs associated with the outsourcing program that is a negative near-term impact growth margin. But we think that that very quickly flips to a positive and over the long term leads to not only higher gross margins, but just the ability to deliver these systems with less risk and the ability to do many, many more systems concurrently than we could do on our own.

Thank you. If I could just maybe follow up quickly on that. If I look from fiscal Q1 to fiscal Q2, the company is guiding revenue up mid-single digit, high single digit percent at the midpoint, but a roughly unchanged EBITDA loss. Is that just due to the ramping of the outsourced partners? And is that, like, effective margin down on the gross margin side or the OPEC side?

Well, I think... One of my comments I made in the prepared remarks was that we saw a relatively low amount of third-party and special projects in fiscal Q1. So those costs can be variable and a little bit less easy to predict on kind of a quarter-in-quarter-out basis. I think the implicit in my Q2 guidance is a little bit more of an average type of quarter in terms of third party and one-time cost relative to what we expect looking forward for the year. Does that help?

Thank you. Yeah, no, absolutely. Thanks. And if I could just follow up on something maybe more thematic. If you guys look at the backlog of projects or you're engaging with customers, is it more on the brownfield side, essentially, you know, upgrading or modernizing an existing facility, or is it more greenfields, just kind of new warehouse capacity coming to the market? Thank you.

Yeah, our existing backlog, Chris, is heavily concentrated to retrofits to brownfield. That being said, as we think about the market over the long term, we see a very, very large market opportunity with greenfield as well. I think, as you know, one of our key – one of the key benefits that we have as a business is there is no other – end-to-end automation technology that can really work effectively and efficiently in a brownfield environment. But shifting to the greenfield market, we're incredibly more economically efficient. We just bring a much, much stronger OI versus legacy generation and automation systems. So we do anticipate that you'll hear us over the coming years talk more and more about greenfield opportunities as well. Today, backlog is highly brownfield. Thank you. Thank you.

Thank you. Thank you. One moment, please. Our next question comes from the line of Rob Mason of Baird. Your line is open.

Yes, good afternoon. I just had a quick question, Tom. I think you mentioned that you expect cash to be at the low water mark. Obviously, you'll build, you know, inferring you'll build cash through the year. Just curious if you could speak to how the cash flow profile should play out this year. I'm just curious how lumpy the payments from your customers could be on a quarter-to-quarter basis, just how we should think about free cash flow generation through the year or cash generation through the year. And then secondarily, with the push on outsourcing that you've had, has there been any change in how you view CapEx or the capital intensity from maybe the plan when you first came public?

Yeah, thanks for the question, Rob. So you're correct. Our cash flow from the customer payment side is actually quite a bit lumpy. We tend to have large milestone payments from our customer that are far fewer, therefore lumpier than cash. our vendor payments, which are much smoother, as well as our revenue is quite a bit smoother. So the quarterly performance on the cash, you definitely could potentially see up and down sequential type of quarters. That being said, we feel confident enough to say that our starting cash position, which was up $353 million to start Q1, is our low watermark for the year. Shifting to your CapEx question, Now, you know, we anticipate that our CapEx will be relatively light. Our operating plans for this year, our CapEx is essentially associated with office equipment and a little bit of engineering test tools. You know, that being said, as we think about coming mid-long term, there's definitely the potential that we could have projects where we do use more CapEx, but in the near term, we expect to be pretty CapEx light.

Do the contracts for newer customers, maybe like the one that you just brought on, does the cash flow, the upfront cash flow, upfront payments, does that continue with new contracts as well?

Yeah, Rob, thank you. We don't like to speak to specific new customers, but if I generalize across our near-term pipeline, in general, yes, we anticipate that we have a strong working capital positive relationship across the lifecycle of our projects with our customers. That doesn't mean in the future that we won't support a customer that wants to pay more, perhaps, and have a a more even or even slightly negative cash flow. So we'll reserve that opportunity for later. But for now, our business is constructed with strong, positive working capital.

Very good. I'll get back in the queue. Thanks.

Thank you. One moment, please. Our next question comes from the line of Joe Giordano of Calwin. Your line is open.

Hey, guys. Thanks for taking my questions. Sure thing, Joe. Hello. Hey, so Tom, when I think about this quarter versus last quarter and your actual results versus what you guided, can you maybe contrast how you formulated the guides? And last quarter, obviously, was like a substantial, massive beat over the top end. This is still very strong over the top end, but the magnitude is very different. So how, when you formulated those initial estimates versus what came out, talk us through how those were different.

Yeah, maybe just one observation to give you a little context of how we think about it. We're beginning to benefit from having more systems add up. Therefore, the variability and volatility in what we predict is lessening, right? So less variability. We're able to get a little bit tighter range. I think you can see that implicit in the guidance, too, is our guidance ranges are narrowing a little bit as times move forward. So, you know, thinking back to Q3 and Q4 where you saw some pretty significant top-line beats, you know, I'll point back to the words we used at the time. As we were compressing schedules and we were kind of hitting key milestones a little bit more rapidly, that led to some pretty strong outperformance. Well, now we're getting a little bit more spread across these systems. It's just a bit more predictable.

Yeah, that makes sense. And so you guys have been adding an accelerating rate here. You know, you added three a couple quarters ago, then four, then five, and six. Like, is there, like, a target that you're trying to get up to? Is it 10? Like, how many can you guys theoretically even put into production in a quarter? And how many do you even, like, want to?

Right. So we're not looking to add an additional system each quarter, if that makes sense. But our goal is to enable the right ecosystem of outsourcing partners that manufacture everything we do, right? Symbots, cells, partners that install and run the projects for construction and installation, and then to be a fantastic manufacturer and designer of these systems that enable those partners to have this business scale so that we can do multiples of what we're doing today. Our focus is on scaling this business to really address the massive TAM that exists. So I won't predict how many that gets to, but we do believe it's many multiples of what we're doing today.

And then maybe last, Rick, when I speak to clients, after having the initial discussion about the technology itself and and the market you serve, it always comes back to the share structure and liquidity. And just curious for your comments on how you see that now and where you'd ideally like to see that potentially in the future, if it's different than it is today.

What's the question? The share structure?

Like liquidity is always, the liquidity of the shares is always like the first question I get asked from clients. And just curious if you have any comments on Where that is now, is it optimal? Are there things you can do to address that?

Yeah, no, I think it's fine where it is today. It's not optimal. I think at some point, the reason I say it's fine where it is today because we are just ramping. As we think to reflect on what Tom said, if we're going to grow at multiple times our sales and do multiple applications, we probably are going to want more shares out there. And so we don't have to do that. We're generating, we're in a very strong cash position and our contracts are structured to do that. But it is something that I think about. So I'm not hung up on owning between me and SoftBank and Walmart having just three people own such a large percentage of the shares. We'd like, when the time is right, to have large investors own more of the shares. And we think we will have very good uses for that liquidity.

One thing that we have seen a little bit of a benefit from, Joe, recently that you may have have seen is we have seen lockup triggers be released. So we now have 22% of the 555 million shares are now unlocked. To Rick's point, a significant portion of that is held by affiliated partners of ours, SoftBank and Walmart. but we are beginning to see the benefit of increased employee shares and all those shares being unlocked as well that might begin to alleviate a relatively less liquid stock out there.

It's all very helpful. Thanks, guys. Thank you.

Thank you. One moment, please. Our next question comes from the line of Derek Soderberg of Cancer. Your line is open.

Yeah, hi guys. Thanks for taking my questions. I wanted to start with software revenue. Tom, I guess I would have expected that software license revenue would have been a bit higher. Can you just help me understand how many of the eight live production modules are generating software license revenue today? And is that software fee sort of in the mid-single digits percentage annually? Is that correct?

Yeah, thank you for the question, Derek. So we have eight systems that are up and running in fully functional production mode, and all of those are receiving software and operations revenue. Now, don't forget that six of those were pre our generally available launch of new product. So those six generational technologies were sold effectively as prototypes, proof of concepts. and carry generally not only less software revenue than our go-forward business model, but much less profitable software revenue. The other thing to remember too is that these two systems that have come live since, one of them was late in the last quarter, the other one was late in the quarter prior to that. So those waterfall streams are just starting to trickle in. You should expect to see it build from here, but it will build slowly. And I think importantly as well, while we're growing our systems revenue rapidly, continue to represent a small portion of our overall revenue. So operations revenue and software revenue taken together for those systems in our backlog, the $12 billion backlog, represent a mid-single-digit percentage of revenue, not individually, each component, but taken together.

Got it. That's very helpful. And then my follow-up is on the backlog. I'm curious if part of the backlog growth with existing customers included BreakPak. I'm just curious if that's the case. And then within the $12 billion backlog, are there any agreements in there for non-ambient food or cold storage applications, or is it all ambient food and generalized merchandise? Yeah. Thanks, Derek.

So, no, you should read the backlog increase besides the two new systems, the UNFI system and the CNS system I referred to. The bulk of that is associated with cost-adjusted pricing across the existing backlog rather than a change in the mix of the systems.

Got it. And then within the backlog, are there applications in cold storage in there?

We haven't addressed that, and that's something that might be hard to address as we look forward. Our customers' strategies are often something they want to keep to themselves. So, no, we haven't addressed the mix of the specific technologies in our backlog. Great. Thanks, guys. Thank you.

Thank you. I'm sure no further questions this time. I'll turn the call back over to Jeff Evanson for any closing remarks.

Thank you, Valerie, and thank you, everyone, for joining our call tonight. We appreciate your interest in Symbiotic, and we look forward to seeing you at conferences, on our warehouse tours, or virtually when we talk over the next quarter. Have a great night. Bye-bye.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.