Symbotic Inc.

Good day, and thank you for standing by. Welcome to the Symbiotic Second Quarter 2024 Financial Results Conference Call.

At this time, all participants are on the listening mode. After this presentation, there will be a question and answer session.

To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Jeff Everson, Vice President of Investor Relations. Please go ahead.

Thank you, Lisa. As a reminder, some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking.

Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially.

Please refer to our forms 10K and 10Q, including the risk factors. We undertake no obligation to update any forward-looking statements. In addition, during this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings release, which is distributed and available to the public through our investor relations website located at On today's call, we are joined by Rick Cohen, Symbiotics Founder, Chairman, and Chief Executive Officer, and Carol Hibbard, Symbiotics Chief Financial Officer.

These executives will discuss our second quarter fiscal 24 results and our outlook, followed by a Q&A. Rick?

Thank you, Jeff. Good afternoon, and thank you for joining us to review our most recent results. Our second quarter reflects solid financial progress. At the same time, we accelerated the pace of innovation significantly during the quarter. We will discuss some of our recent innovations at our Investor Day on May 9th. You can sign up for the webcast on the IR page of our website. Key innovations this quarter include advancing our core technologies in artificial intelligence and automation, improving system performance and customer experience, enhancing safety, and accelerating deployment. I'd like to quickly highlight some important software improvements made this quarter.

First, we improved our time-space reservation routing algorithms. This allowed us to double transfer that capacity and boost but density which helps to increase throughput and system capacity. Second, we transitioned our code base to a microservices architecture for increased modularization.

This enables more efficient coding, evolution,

Finally, on the hardware side, with the addition of a new AI chip, we have increased the computational power of CIMBON. This higher compute power is the power of CIMBON. This higher compute power is the key to the power of CIMBON. This higher compute power is the key to the power of CIMBON.

This higher computing power is key to unlocking more of the value of artificial intelligence across the entire robotic system.

This quarter, we also wrapped up the restructuring and outsourcing of our manufacturing operations.

This summer we will begin the installation of our second brake pack solution with an undisclosed customer. We are excited about the potential of this application as we continue to evolve this

technology, knowing it has the capability to become an important part of an integrated omni-channel warehouse solution. that services wholesale, retail, and e-commerce channels with both case and each handling capacity. Greenbox recently signed their first logistics as a service company.

It issued a related order for a Symbiotic system all within this quarter, so Symbiotic will begin recognizing initial green box revenue in fiscal Q3. Greenbox will automate and operate a brownfield warehouse for CNS wholesale growth. Partnering with Greenbox allows CNS to accelerate its transition to an autonomous supply chain in a capitalization way. I'm excited that the CNS team saw the benefits of outsourcing Greenbox.

Greenbox team is currently evaluating locations across the US for these sites.

Finally, while SoftBank team members have been performing much of the operational work at Greenbox, the initial hiring for a green box management team has started. We expect to be able to announce our first hires in the next several months. To wrap up, we will continue to innovate, execute, and scale to deliver for our customers as we grow and drive increased profitability.

I want to thank our entire team for their excellent work this quarter. Now Carol will discuss our financial results And Outlook, Carol? Thank you, Rick. Second quarter revenue grew to $424 million, up 59%. compared to the same quarter last year. The strong revenue growth was driven by significant progress across our 37 systems in the process of deployment. During the second quarter, we initiated three new system deployments and completed three systems, bringing us up to 18 fully operational systems.

As indicated on our last call, systems start stabilized in the second quarter as the team focused on implementing the innovations that Rick just mentioned, and enhance system standardization for phase deployment. We expect quarterly system starts to accelerate during the rest of the year. So this quarter, our revenue numbers reflect that significant revenue growth can be driven by our ability to accelerate deployments in progress. And just as important, reductions in system deployment time create capacity to support future customer demand. Our backlog of committed contracted orders of 2020 due to the revenue recognized during the quarter. Our combined recurring revenue streams grew 85% sequentially and 145% year-on-year, reflecting the increase in the number of completed systems. Overall non-GAAP gross margin was down slightly from last quarter, but still better than expected. Innovations we deployed during the second quarter weighed upon system gross margin, but were largely offset by effective cost management and solid project execution. System-adjusted gross margin remained stable at 20% and generally in line with last quarter. As usual, our system gross margin also reflects burden of pass-through costs and lower margin in innovation projects that weigh on reported gross margins.

Our combined recurring revenue streams contributed to positive adjusted growth.

This demonstrates the high leverage in our business model, showing that we can be profitable with a small number of active sites generating recurring revenue, while also being invested for the much larger number of systems still in deployment. As I said last quarter, we do not expect gross margin to improve every quarter, but we do expect gross margin to improve each year well into our future. We expect that as we scale over time, combined recurring gross margin can trend to over 60%. Operating leverage improves again sequentially as we achieved a 5.3% adjusted EBITDA rate compared to a 3.8% rate last quarter. This was driven by rapid revenue growth and gross margin expansion along with stable operating expense. As Rick indicated, we completed restructuring related to sourcing bot assembly and component inventory management, including standardizing STEM bot as our go-forward platform. As a result, we recognized the non-GAAP restructuring charge of $34 million in the Our cash and equivalents, including marketable securities, grew $276 million sequentially to $951 million. Free cash flow, defined as cash flow from operating activities of $21 million, less capital expenditures of $3 million, was $18 million, and better than expected during the quarter. In addition, we raised $258 million from our February follow-on offering, which gives us flexibility to maintain our aggressive pace of innovation in a variety of areas, including non-ambient systems development.

As you know, the expected stock-based compensation was elevated due to the January vesting that occurs each year. In fact, Q2 will usually be the quarter with the highest stock-based comp every year.

For the third quarter of fiscal 2024, we expect revenue of $450 million to $470 million and adjusted EBITDA between $27 million and $29 million. This represents revenue growth of over 47% and an adjusted EBITDA margin.

We now welcome your questions. Operator, please begin the Q&A. Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. We also ask that you wait for your name and company to be announced before you proceed with your questions. One moment. One moment. One moment. moment for the first question.

The first question that we have is coming from Andy Copelwood of City. Your line is open. Good afternoon, everyone.

Hello, Andy.

Hi, Rick. I know you said in the release that you made significant advances in terms of innovation roadmaps. So, would you give a little more color into what that means?

I know you mentioned I'm sure you want to say much of this for the investors today, but did you, for instance, during your deployment time, it seems like Breakpack was Revenue could come fashion is that maybe you can elaborate a little bit more on what?

You what you did in the corner Sure, and so the we've been working on this for about three years now, but putting vision on our bots and that combined with that we're using allows us to recognize boxes that may be deformed but still recognize what the product is and so that makes our bots much more able to pick irregular cases and as you know we're

We're one of the only people, maybe the only one, that puts our boxes directly on shelves.

We don't put them on trays. That requires a lot of expertise and a lot of knowledge. And so we've been on this journey for a while. And now about

40% of our bots in our network are vision-enabled, and so there's a bunch of work for the AI to catch up with, recognizing 1,000 different pictures of a single box and saying, oh, that's XY's product, and the shape, I didn't recognize it, because we were just using sensors. But now with vision, we can actually recognize that. So that's one thing.

The other thing we did is that we changed the routing algorithms for our bots, and they will

also be vision-enabled, also be vision-enabled so that also be vision-enabled so that they're more reliable. so that if something happens, like a bot gets stuck on a broken case or something, that we can now run around it.

We could do that a little bit, but now we can do it much better. And then to be able to actually see the bot in front of us is also innovative.

The other thing we've done is we have started work on a perishable testing and so

So we think that's going to go fairly well because there's not a lot of new things we have to do on perishables, but we want to test what happens when a bot runs over yogurt. So things like that.

And then the next thing after that, we'll be testing bots. in a frozen environment.

So those are a couple of things we've been doing.

I was going to say I'll tackle the accelerated deployment time. So last quarter, we highlighted that we had achieved our first deployment in 20 months. So this quarter, out of the three systems that we deployed, We had several that also achieved a 20-month deployment time. So, we've definitely got some additional proof points. And as a reminder, some of the things that are enabling that faster deployment, we're seeing the benefit of continuous learning over multiple deployments from our supply chain as well as our own folks. We've got increased collaboration across ourselves and our customer.

And then we talked quite a bit last quarter about the quality and the standardization that we build on building instructions and our test procedures. And we're seeing the benefit of all of that. So going forward, we do some stragglers. One minute, so I'll call on that. Completely. for this year that might take a little bit longer than that 20 months. is not the same size or complexity, but we're still on time.

target for the future to have a number of opportunities that we see driving deployment time in less than 12 months.

Very helpful. And then, you know, another pretty big update on the green box side. So maybe you can talk about that. I mean, you've been expecting, you know, your first customer, I think, this year, but, you know, starting in Q3. So do you see an acceleration there from here to, Do you focus on this customer? Like, how does that work moving forward?

Yes. So we'll have our first deployment. At the moment, CNS is going to use green light to build a facility. to build a facility. For them, I think

When people will then reach out to us, they'll reach out to Greenbox or reach out to CNS and say, why did you make that decision? And it's everything that we've been saying. It's capital efficient. It allows people to get into automation quicker. And it allows CNS believes we'll have higher customer satisfaction using Greenbox than using a conventional platform.

warehouse system. And then we're looking at sites across the country right now to put up additional sites.

So we're feeling very bullish that if we build it, they'll come. And SoftBank's in line with that. We're excited about that.

Appreciate the color. Thank you for the next question. And our next question will be coming from Matt Somerville of DA Davidson. Your time is open. Thanks. Hey, Ricky, Carol, Jeff. I wanted to ask maybe a follow-up on Greenbox and CMS.

Is this a single location that's going to support CMS? And if so, how much?

of CMSs that actually support I guess I'm trying to get an idea for is CMS planning on standardizing their warehouse, if you will, on Greenbox? Or is this more of, I guess, more of a proof point that they want to see if this is the way they kind of want proof? I'm trying to understand their bigger picture strategy here and where this could evolve for you guys. So, I'll start. So, I'll start. I'll start. So, I'll start. I'll start. So, I'll start. I'll start. So, I'll start. I was looking for ways to accelerate its automation rollout. This is the first point I'll say as we continue to get multiple customers, multiple inbound related to Greenbox. see potential for additional customers and potentially additional opportunities across CNS. And then, With respect to the perishable side of things, what are maybe the two, three, or however many it makes sense to talk about, what are milestones we should be looking for we where this perishable soon you know in terms of when that gets green lighted you actually start rolling some of these I think those milestones are going to be pretty easy to achieve.

The value of our system for our customers is incredible reliability. So we're actually testing bots running in a structure in a perishable facility.

Now it's just a test site, but have a customer that's interested in doing that. And so we're running And basically what you do is you create disaster scenarios, scenarios, make sure that a 32-degree We're not really talking about frozen yet, but between 32 and 55, a lot of humidity, our bots will work. And we expect them to, but we're doing the testing. Sometime within the next year, we probably will announce that we have a perishable site somewhere. And I can't be too forward-looking, but that's actually always been in our project because it's not in the team we've talked about. The whole perishable world is a big world. And we think there's Special applications for... ...symbiotic because an ambient building is... 125 bucks a foot. And perishable is the probably 250 and frozen might be 350.

The fact that we can store products as densely as we can, we think there's a different algebra for why people will use perishable, but we want to make sure before we sell a system that we've tested all the edge cases. Long answer, short answer to your question is about a year from now you should look for something from us.

Great. Thanks, Rick. Thank you. One moment for the next question.

And our next question is coming from Mark Delaney of Goldman Sachs. Your line is open.

Yes. Good afternoon. Thanks very much for taking the questions. First one was trying to better understand the revenue process For system and installation, it went up a fair amount relative to the last quarter.

And, Carol, you mentioned the progress you've made as a company in accelerating the installation times.

I'm hoping to better understand how we should think about that ratio going forward, and is there opportunities to sustain or even build off of this level of revenue compared to the number of systems you have given off?

initiatives you have underway. Thanks for the question, Mark. So I think the number one thing driving what you're seeing on that ratio is where we're at in terms of deployment lifecycle. So if you think about, we've talked about our revenue new curve being the most revenue coming from those Systems that are in the middle of installing. Systems that are in the middle of installing. Systems that are in the middle of installing.

that are in the middle of install and so that are in the middle of install that are in the middle of install and so we'll have a varying degree of that every single quarter and so it's hard to predict the specific ratio because the other driving that is each system is not

same size or the same complexity, and so you'll continue to see that theory. But as we move forward, our revenue

curve will continue to grow, continue to see growth in that revenue, and that will, so that ratio in terms of what it contributes from a system will continue to have more than those 37 in deployment at any given time.

That's helpful.

I think to my next question, would it be better to understand what completing the restructuring in your shift to an outsourced model may mean?

only in terms of some of the financial implications, like profit margin, but could you also talk about capacity in terms of how many systems the company could have in place to the number of systems it could be working on at any one time relative to the 37 that you currently have in installation. Thanks. Yes, so this quarter we

Completing the outsourcing that we began last year and it was focused on

the complete restructure and focusing to move to our Symbot platform.

And so I don't necessarily see the connection of how that necessarily drives to the other than

We now have a standardized Symbot.

We're going to be able to continue to deploy innovations along that Symbot. But what we did in terms of restructure really shut down any additional infrastructure.

inventory costs associated with all our obsolete fonts. Thank you. Understood. Thank you. Thank you for your question. One moment for the next question. Our next question is coming from Nicole . Your line is open. Yeah, thanks. Good afternoon, guys. Hi, Nicole. Hello. I wanted to ask a couple on the financials. So the first is the systems gross margin felt below double digits. I think you guys talked about in the opening remarks how by all of this innovation that you're working on, I guess how quickly can that gross margin step up to, you know, a high team or better

level. Is that something you expect in the second half, or will these innovation headwinds continue?

Thanks for the question. We did better than expected on gross margin, but as you indicated, we were stable quarter over quarter. A couple of items that weigh on our gross margin, so I'll talk about the things that are weighing on those gross margins now and then what we see for the We talked last quarter about focusing on additional resources to ensure quality deployments for some of those sizable projects we have in flow. We have the benefit on many of our contracts that we have pass-through costs. So why we're able to pass that through with a profit that remains stable that weighs on our gross margin. And then lastly, what's weighing on our gross margin is we have several low margin projects in flow.

I would expect to start completing in the second half of this year. And so our 3Q guide reflects stable gross margins.

So, as I said, we've got several significant milestones coming up in the second half of the year on some of these big projects. And gross margin won't improve every quarter, but we expect improvement in the coming years.

And that will step up year over year.

And as I mentioned earlier, just in terms of the

Unlock for gross margin, the single biggest one being the time it takes. Unlock. for gross margin, the single biggest one being the time it takes to deploy our system.

And we continue to see steps in the right direction with each one that we're rolling out.

Got it. Thanks, Carol. That's clear. And then I guess on the operations services business, we saw a really big step change, like revenue almost doubled sequentially there this quarter. I guess what drove that, and is this new level of revenue in operations services sustainable? Thank you.

Yeah, so when you look at the step up, the single biggest driver is we now have 18 systems that went unoperational. We were at 15 last quarter. When you compare that to just a year ago, we were at nine, so a significant step up. You're going to continue to see that grow. I'll separate software and I'll separate the operations because I think you started with the operations piece of it. We expect operations revenue to continue to grow as we bring systems online. you will likely not see the same level that you saw this quarter. We had several one-time events in the quarter that contributed not only to revenue but to our gross profit in the operations area. So a few of those you will not see repeat.

But you should expect that revenue to continue to grow. Thank you. I'll pass it on. Thank you for your question. One moment for the next question, please. Our next question will be coming from Ken Newman of KeyBank Capital Markets. Your line is open. Hi, guys. Thanks for taking the questions. Can you hear me? Yes, we can hear you. Okay, sure. So, first question here. I'm just curious.

obviously you're talking about accelerating deployments or initiations here into the back half.

Is there any way to kind of size how you think about acceleration to the back half? You did three this past quarter, is it fair to assume that you kind of return to that, call it four or five types of projects in the back half and accelerate, you know, into 2025? We don't have a guide on system starts.

But I'll start with where we were this quarter at three. So we indicated last quarter that we would see stabilization of our system starts that allows the team to focus on all the innovations that Rick talked about and really implement system standardization for this deployment.

So that's what you saw this quarter.

And it is a team effort to make a decision to go ahead and implement a system So that's a complex decision between ourselves, our suppliers, and our customers. So our customers also need to manage their operations throughout all of our installation activities, including decommissioning, legacy systems, preparing the site.

So it's a combined effort. initiate.

But given our contracted backlog at $23 billion, you're going to see the system step up in the second half of the year.

Okay, that's helpful. I appreciate that.

And then for my second question, you know, I think you had positive free cash flow of just over $18 million this quarter.

Is there anything that would prevent you from

being free cash flow positive for the full year as it relates to some of the innovations that you're expecting for the rest of this year or any of the other restructuring actions you might be considering? As we look to the end of the

I don't cash it either, but you should expect to see positive working capital as we head to the back half of the year. Each quarter, there could be some lumpiness, I'll say, in that, because depending on what maturity level of the systems we have in deployment, just as I described the revenue curve, the cash curve also mirrors that. So we could have some quarters where we are really heavy in terms of the final installation that might be a driver on cash. As a reminder, we're very front-loaded in terms of when we sign projects.

So you could still see some lumpiness, but we are on a trajectory for positive working projects. Thank you. Thank you. One moment. For the next question. And our next question is coming from Greg Palm of Craig Killam. Yes. Live, open, live, live, live, open.

Yeah, thanks for taking the questions. I'm curious, you know, we've been talking about driving timelines down for some period, and you've been really successful at doing that. And I'm just curious, how much of that is, you know, in your hands, you know, versus at the, you know, maybe expense of some of your outsourcing partners? And do you think that...

So reducing the timelines at the expense of margins mean that as you continue to get better, that you might not need to be down on almost many books that are paid overtime or, you know, any of the other related costs to it, ensuring that you have happy customers that assist you at a short amount of time. Thanks for the question.

I'll start with the first part in terms of how much is in our hands versus all of our partners.

It is a joint effort.

We're there helping to ensure the management of the project. Symbiotic is also responsible for the planning up front. So you've got to start the system right and make sure you've got all the planning in place so that material shows up. And then all of our partners need to deliver. So we'd say combined effort across ourselves. And then our customers certainly have a play in that, too, just ensuring the readiness. A fair point in terms of the timelines we've achieved. So we have talked about wanting to make sure we're putting the resources on a certain project so that we can deploy on time and make sure we are deploying a very high-quality project. I'd say as you see us moving towards our, going through our learning curve, and we continue to learn at every single site installation, as do our suppliers, you're going to see that we'll continue to improve that timeline without needing the additional resources to ensure schedule.

Yep, okay, that makes sense. And as we think about, you know, sizing up that non- ambient opportunity.

I know you've talked about that, Tamara, you know, in the past, but

Just given your thoughts around maybe having some orders or some facilities, can you at least size up what type of share expansion is possible? Could you theoretically double the size of the opportunity with some of your current customers? Is it more? Is it significantly less? I'm not expecting an exact answer, but it would just be curious to know what that sort of wallet share expansion opportunity is, again, with your current customers, not necessarily with customers that you haven't won to date with something else.

So I'll start, and then Rick can share his thoughts.

So we have not put a number out there in terms of sizing things. for our existing customer base. But we've also indicated that our current backlog does not include that particular opportunity. And we know that each of our customers

has the opportunity to go ahead and expand to non-ambient.

And so we consider that a significant opportunity for symbiotic going forward. Yeah, I guess I think the TMI is very large.

I probably shouldn't be more specific than that right now. There are more ambient facilities than there are refrigerated facilities, so that's one thing.

But the economics of refrigerated are such that If you have a 200,000 square foot building and you want to expand it and maybe you can't expand it enough and you have to build a whole new building. is a very good solution for that. So, you know, if we have a $23 billion backlog on ambient, I would say perishable is probably not as big as our existing backlog, but it's very large.

Yeah, okay. I appreciate that. And if I could just sneak in one more clarification. Carol, I think you said expect growth in operations services revenue going forward.

Was that sequentially off of the $20 million in revenue that you were just talking about? put up in Q2? No, because there are... Put up... Put up in... Put up in... Put up in Q2. Q2. Q2. Q2. Q2. Q2. Q2. Q2. Q2. Q2. Q2. Q2.

No, it's because there are some one-time events that I refer to. So there's a percentage of this quarter's revenue that we put up for operations that won't be repeatable.

Got it. So growth on a year-over-year basis, not sequentially.

That's right. That's right.

Yep. Okay. All right. Thanks for that.

I will leave it there. Thanks. Thanks. Thank you. One moment for the next question.

And our next question will be coming from, excuse me, Mike Lattimore of North Capital Markets. Your line is open.

All right, great. Thanks. Yeah, congratulations. I'm sorry. Can you talk a little bit more about the process, you know, what interest levels are you seeing from current customers? Is it opening, you know, more? new logo discussions, and maybe just clarify, is it in a Walmart backpack or not at this point? So, I'll start. BreakPack is considered part of the Walmart backlog. So, Walmart considers BreakPack as one. So Walmart considers BrayPak as one of the elements I'd say from a break pack perspective, we indicated in our opening remarks that this will be our second break pack.

So we also indicated We are offering BreakPak for sale. We think there is a large market for BreakPak for all of our customers. And I think we've talked about how BreakPak is also a part of Greenbox. It could be part of all of the Greenbox customers that are coming in. Outside of that, I'm sure there's an additional market for break pack customers beyond who's in our current customer base.

Yeah, so the break pack in the Walmart application is for anything that goes into the store that's not a full case. But if you think of Walmart customers,

is every Walmart superstore has a pharmacy. And it has a clothing store. This is a product.

perfect application for any of the big drugstore companies. It also could be interesting for dollar stores. So, we think this is a very big market that we really haven't talked much about because our break-back solution is very different than anything on the market. And it takes And the reason it's different is because it uses a lot of the software, a lot of the vision, and a lot of the smarts that we have in our SimBot.

We now have a Minibot that does the same thing. It actually does something. the same thing. It actually does. And it does. And a miniature version that even better than in terms of handling small packages. So we think that's a big market, but we haven't been – I don't think a lot of people know about what this capability is yet, but they'll find out very soon. Got it. And then just the ability to do more system starts here. Does that require kind of continued? just, let's say, blocking and tackling or refinement of outsourcing, or are there other, will there be some other, you know, kind of step function requirements in terms of outsourcing efficiency?

function requirements in terms of outsourcing efficiency?

No. Our ability to start new systems is not dependent on outsourcing. We focused on outsourcing to scale and we believe we've achieved that. So we are outsourced and have the capability to continue to expand. I'd say the slowing that we saw for this quarter on new starts That's going to change in the back half of this year, and you'll see that number continue to grow. Just reflective of the $23 billion backlog we have, when you look at the timing of when we plan on deploying that, the system starts to pick up. Okay.

Great. Thank you. Thanks. Thank you. One moment for the next question. And the next question will be coming from Robert Mason of Beard. Your line is open.

Yes, good afternoon. Just a question around Greenbox. How do you think about their ability to quickly ramp up just given the current schedule of current customers you have. Just trying to think about how, if they were to add, whether it be CNS or if they add other customers, just how quickly you think that they could look at your incremental starts on top of the existing schedule.

As we talk about Greenbox and our first deployment next quarter, so we are identifying the management team. So we're picking the leaders to put in place. Greenbox will then go ahead and begin ramping up with the additional resources. And so they're in the process of growing that team. And we believe our ability to ramp green box will be over the course of the next several quarters.

You'll continue to see new additions to our green box deployments. And just to clarify what we've talked about, first revenue from this first green box is Okay. Okay, very good.

And just maybe a clarification question around BreakPack. It sounds like that you can market that system to customers who do not or would not necessarily be required to already own or have one of your current case handling systems. Am I understanding that correctly?

They would have a version that would have most of the people doing breakpack still have to store box. And at some point, box, you cut it open, and you dispense the hydrogen in the box. So they don't necessarily need a brake pack. They don't necessarily need a storage solution as large as some of the ones that we deployed, but they still have to store boxes. They'll still need the regular SIMBODs. and they'll still need something to probably be palletized to the totes when they come out. So it could be a smaller system. But it will still be part of our basic system. Make it work. Okay, very good. Thank you. Thank you.

Thank you for your question.

One moment for the next question. Our next question is coming from Joe Giordano of TD Cowan. Your line is open. Hi, everyone. Good evening.

I'll start, Rick, on the Symbot and some of the innovations you put in there now that you're standardized on it. Just curious, of the 18 sites that you're running, I assume that there's bots that have been deployed that are not the most vision-enabled using the current technology. What's your obligation to go back and kind of

integrate the newest and greatest into existing facilities? Yeah, so we were very disciplined a long time ago about what we sold

there was a period before this big growth spurt where we knew we were going to change the bot. So basically all of there are about four warehouses that have pre-SIM bots and part of the restructuring charge is cleaning up everything else. But all of our

So, and one of the reasons we're going to go past there is everything is there are four early sites, one of it is the CNN site, there's a couple of other sites that are early but going forward we made the decision we took the charge this is the way we want to run the business and so we don't want to have to So, all of the Walmart systems, for instance, have the same box. And everybody going forward for the last two years now has the same bond. So we've made that transition. And then on Greenbox with the CNS site, is this essentially like an outsourced single tenant site that you're like it's

where CNS is going to utilize the entire capacity.

I'm just curious, like, how do you see the balance of Greenbox, like, on leveraging existing customers for that sort of purpose versus multi-tenant Do you feel like there's still like soft

engineering capabilities that need to be, like software engineering capabilities that need to be developed to really handle like onboarding, offboarding smoothly.

Yeah, so this is primarily going to be a CNS only site, but not necessarily in the future.

So we have actual capacity We'll bring other customers. Greenbox will bring other customers. And one of the things that makes us special in this space is we have perfect requirements for customers. management. And by perfect, when we ship a million boxes in a week, we might have one mistake boxes in a week. We might have one mistake that we can't figure out. But it's six to seven.

And so there will be some onboarding of additional customers, but we have that pretty well figured out.

And so this first site could be 100% CNS or it could be 80% CNS and other customers if we have room. And so the model would be for like customers could look at CNS and say, oh, like customers Good luck at seeing us. oh, now I understand green box. If I want to take a building, oh, now I understand green box. If I want to take a building, and I could be an anchor tenant and say, I'll take 50% of the building. In Greenbox, you'll go sell the rest of the building. That's exactly what marketplace. So it could be an anchor customer or in some places it could be 100 customers and no customer is bigger than 10% of the capacity. So that's what we're going to begin selling out there now. The technology as it currently exists can support like it's a critical facility that's lots of different customers with no anchor and they're all really small. I would imagine that population changes fairly often. If businesses are moving and expanding or going away, the capability exists to bring on and bring off customers into a site like that that already exists?

Yeah, so we would have to build a management team to handle the customer relations. But in our structure, you could have 100 boxes in a row, and we would have perfect traceability.

It could be 100 different customers owning 100 boxes in an aisle. That part of the technology is already there. We have to build out the customer management piece. Yeah, that's what I figured. Okay. Thank you. Thanks. Thank you. Our next question is coming from. Yeah, thanks for taking my questions. Just piggybacking off of one of the last questions, with the new hardware and software, With the new hardware and software innovations, will all of those be pushed out to systems currently in operation? new systems, or is it more of an optional add-on for customers?

And then I'm wondering whether or not any of the new hardware or software innovations turn into either cash payments or upside to existing contract terms or anything like that? And then I've got a follow-up.

So I'll start and then Rick can add at the end. So it depends. And so the innovations that we have in flow, we typically focus on several things. We're innovating for looking at R&D and additional enhancements to our systems.

And so We do view those as potential opportunities in the future for additional revenue and additional sales. We also continue to innovate and look at R&D for how we're going to make the systems more efficient from an operational perspective and focus on reliability. So some of those enhancements are being rolled out to the systems flow today and will be part of what's in our contracted backlog.

And then the third we've talked quite a bit about is we're focused on innovations that will drive costs out of either system deployment or system operation. And so there's a mix in there. And so some of the innovation that we're working on absolutely is short-term to our current customer set, but others would be growth going forward.

Yeah. The other thing is that we've always contemplated that if we can make the bots go twice as fast, you need half as many bots. Who gets that income?

And so either we charge for reduced maintenance or if we take and we have the same number of bots that go twice as fast and the palletizing cells can do twice as much work, we would be entitled to

a recurring income stream for the additional work that we're doing. All of this is contemplated, but we're not there yet. Got it. And that was my question.

Just to clarify some of your commentary, Carol, I think you said there are some lower margin projects out there. Can you talk a bit about what's changing on the project front that would characterize a project as low margin at this point? And what kind of step up in gross margins might we see after, I guess, some of these low margin projects that we're working through this year?

I'm just looking for you to kind of clarify some of that. Thanks.

Yeah, so we've got projects and flows that were our earlier innovation projects, some of them fairly early systems.

That's our inclusion in there. off, you'll start to see our gross margin step up. I'm not going to tie a specific timeline to those because the schedules vary. You should expect into your gross margin to start stepping up. Got it. Really appreciate it. Thank you. And this does conclude the Q&A session for today. I would now like to turn the call back over to Jeffrey. closing remarks. Please go ahead. Thank you, Lisa, and thank you, everyone, for joining our call today. We appreciate your interest in Symbiotic, and we look forward to seeing you online for our investor day. Goodbye.

This does conclude today's conference call. Thank you for joining. You may all disconnect.