Symbotic Inc. (SYM) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Symbotic's Third Quarter Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Charlie Anderson, Vice President of Investor Relations. Please go ahead.

Hello. Welcome to Symbotic's Third Quarter of Fiscal Year 2026 Financial Results Webcast. I'm Charlie Anderson, Symbotic's Vice President of Investor Relations. 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 Form 10-K, 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 GAAP to non-GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at ir.symbotic.com. On today's call, we are joined by Rick Cohen, Symbotic's Founder, Chairman and Chief Executive Officer; and Izzy Martins, Symbotic's Chief Financial Officer. These executives will discuss our third quarter of fiscal year 2026 results and our outlook, followed by Q&A. With that, I'll turn it over to Rick to begin. Rick?

Thank you, Charlie. Good afternoon, and thank you for joining us to review our most recent results and business updates. We delivered strong third quarter results, highlighted by continued revenue growth and expanding margins, leading to continued GAAP profitability and adjusted EBITDA that more than doubled year-over-year. Thanks to another strong quarter, we remain well on track to achieve the objectives we laid out at the start of the year. As a reminder, our first objective was to leverage our growing product portfolio and capabilities to broaden our opportunities with customers. We are clearly seeing this play out as our BreakPack product to handle individual items or each's has now begun deployment at half of Walmart's regional distribution centers. In addition, we recently began installation of our first SymMicro system for e-commerce fulfillment at the back of a Walmart store, a significant step forward towards unlocking this exciting new category of our business. We are also continuing to drive additional value for our customers that have existing operational systems by providing higher levels of performance through software to further optimize their supply chains. A recent example is using our software to more intelligently layer pallets and dynamically optimize freight delivery, specifically for seasonal events like back-to-school. By doing so, we believe our customers can realize shorter delivery times and faster restocking during these critical periods. We believe customers are increasingly recognizing the impact our systems can have. And as a result, we are seeing additional opportunities to broaden the scope of our work with both existing and prospective customers. For example, in the third quarter, we signed an agreement with Southern Glazer's Wine and Spirits for a second site after the success of their first facility. Southern Glazer's is a leading total beverage distributor serving 47 U.S. markets in Canada. As we drive additional value to customers, it is allowing us to realize the second objective we laid out at the beginning of the year, which was to enhance our margins and profitability. Our forecast for the year implies full year adjusted EBITDA that is more than double that of last fiscal year. This continues to be a key focus area for us, and we see clear levers to continue enhancing our profitability driven by value creation for our customers and further operational efficiencies. The final objective we laid out was to continue to invest in our innovation engine to expand our capabilities and support future growth. The analogy I often use here is that our automation system is like an operating system, and we add apps to enhance its functionality for customers. For us, this is playing out both organically and inorganically. Organically, we are making several functionality upgrades to our SymBots to enhance the performance of our system. For example, we deployed over 1,000 larger bots into our operational system this calendar year to handle a wider variety of SKUs. With this new bot, we've also built new modularized software development tools to give us enhanced flexibility to create different bots for different tasks and payloads with our SymMicro bot being a perfect example. We're also in the process of rolling out LiDAR, enhanced camera systems, Nyobolt advanced batteries and other updates, all with the aim of driving enhanced efficiency and performance for our systems. Inorganically, we've made 2 tuck-in technology acquisitions that expand our capabilities. Fox Robotics for dock automation and most recently, ARMS Innovations for warehouse operations optimization. With ARMS, we have an opportunity to expand the reach of our software beyond our automation system to the entire warehouse operation, optimizing the movement of both equipment and people. In summary, we are focused on meeting our objectives and in turn, creating ravingly happy customers and expanding shareholder value. We also continue to have a solid balance sheet and backlog. As always, I want to thank our team for all their hard work, along with our customers and our investors for their continued support. I'll now turn it over to Izzy, who will discuss our financial results and outlook. Izzy?

Thanks, Rick. Fiscal third quarter revenue reached $721 million, near the high end of our forecasted range and was up 22% year-over-year and up 7% quarter-over-quarter. We also improved GAAP profitability with $55 million in net income. Adjusted EBITDA of $95 million was above our forecasted range due to expanding margins and operational efficiencies. Our revenue growth was driven by the continued expansion in the number of systems in deployment and the growth of operational systems that generate recurring revenue. We started 11 new system deployments in the third quarter, including the new Southern Glazer's site highlighted by Rick, bringing us to a total of 77 systems in deployment at the end of the quarter. This expansion in the number of deployments drove systems revenue growth of 20% year-over-year and 6% sequentially to $671 million. We also had 4 systems go operational during the quarter, bringing us to a total of 56 operational systems. As our base of operational systems continues to expand, software revenue grew 57% year-over-year to $13 million and operations services revenue of $37 million grew 49% year-over-year, both in the fiscal third quarter. Turning to margins in the fiscal third quarter. Gross margin expanded both sequentially and year-over-year due to strong project execution, cost discipline, benefits from scale and revenue mix. Operating expenses on a GAAP basis were $128 million in the fiscal third quarter. Combined adjusted R&D and SG&A expenses totaled $85 million, with SG&A down sequentially due to operational efficiencies. Net income for the fiscal third quarter was $55 million, an improvement from a net loss of $21 million in the third quarter of fiscal year 2025. This included an unrealized noncash gain on the fair value of our strategic investments of $19 million in the quarter, which was primarily driven by an increase in the value of our investment in Nyobolt, our next-generation battery supplier. GAAP net income improved both year-over-year and sequentially, reflecting this impact as well as expanding margins and operating leverage. As Rick highlighted, adjusted EBITDA of $95 million was more than double the $45 million in the third quarter of fiscal year 2025. Our backlog of $22.5 billion remains strong. The slight decrease from last quarter primarily reflects revenue recognized in the quarter, offset by final pricing adjustments on projects started in the quarter and the addition of the new Southern Glazer's site. We finished the quarter with cash and cash equivalents of $1.7 billion, down from $2 billion last quarter due primarily to timing of cash receipts related to project starts, along with the timing of cash usage related to project activity. Now turning to the outlook. For the fourth quarter of fiscal 2026, we expect revenue between $760 million and $780 million and adjusted EBITDA between $100 million and $105 million. With that, we now welcome your questions. Operator, please begin the Q&A.

Our first question comes from the line of Andy Kaplowitz of Citigroup.

So Rick, I know you said that you've now installed a SymMicro prototype into a Walmart store. So maybe you can give more color into where you are in that development process. I think you've said previously, you could see conversion on the $5 billion in Walmart backlog before this -- the end of the calendar year. Is that still the right time frame? And then as SymMicro has evolved, how have you thought about the ultimate opportunity even beyond the initial $5 billion? I think, for instance, you've been working on solving perishables with the smaller system. So maybe just an update would be helpful.

I think you've covered the whole waterfront there. SymMicro, we are installing, it will take I don't know, about 6 months into our first Walmart -- the new version of our system into the first Walmart store. We're running 19 of the old versions, but we've been working with Walmart to develop this. And so that will be come to life about 6 months from now. That should trigger expanded. We expect that will work very well. We have a second site that will follow shortly after that. And then that should trigger a bunch more sites once Walmart actually sees the system working. Your second question on perishables. We have a lot of interest in perishables. It seems like something clipped in the rest of the world. And so I think the realization that with the new structure that you can save so much money on the construction cost of these perishable buildings, and they're so expensive to start with. We've had a lot of interest. So we would expect within the next 6 months, I guess, I would say, to begin building our first prototypes and testing stuff.

Very helpful. And then, Izzy, maybe just revenue is beginning to accelerate now in Q4 as per your guidance. Given the new storage structure, it seems like it's allowing you to accelerate deployments. Ultimately, do we continue to see continued acceleration in FY '27 in revenue, at least how do we think about that if you don't want to give specific guidance?

Yes. I think, as Rick said, you covered it in your question. Obviously, as we unveiled the next-generation storage structure, we were expecting that inflection point. I think we're just starting that out. I think the sequential improvement quarter-over-quarter, including our guide is, call it, steady. I think though the real inflection point of the next-generation storage structure will really happen in the second half of next year as we proceed with the installation of that.

Our next call comes from the line of Matt Summerville of D.A. Davidson.

A couple of questions. Can you maybe provide an update on where you are with customer acquisition for Exol and maybe update where you're at with site launches? And then I'm also curious as to what initial inbound interest is with respect to that ARMS acquisition you referenced earlier.

So on Exol, our Atlanta site has gone live. We are receiving product there. Customer was asked not to be named yet, but that site is now live and receiving product. And then our Lathrop site, which the customer is C&S, that Symbotic system is now complete. And so that site will go live within the next 60 or 90 days, and that will be a nice revenue-producing site because right now, we have the system in there, but we're not getting any revenue as the cases go through Symbotic. So we're feeling good about these sites are coming online. It's been a journey to get these sites filled up, but the reality is we have to get the buildings built and show people. So -- and we have a lot of incoming. We have 5 buildings. And so the fact that we have 5 buildings, we're able to talk to bigger customers as well as smallest customers. But it's a process. But the answer to your first question is we are live in Atlanta and receiving product. And in Lathrop, California, we will start filling out about 100% of what we plan there within the next 60 to 90 days.

Give him the insights on ARMS.

And then on ARMS. ARMS we're doing the integration of ARMS software with the operating system from Symbotic. We have a site -- our first site that we're doing the integration will be the testing, and then we'll be able to show people how that will work. And we think that will be a very nice revenue -- software revenue business for us because we think it creates great value in improving the efficiencies of the maintenance whole system and process.

As a follow-up...

Yes, go ahead.

Go ahead.

No, that will actually be one of the best examples of integrating AI with a software system because that system will actually be able to tell an operator what's wrong, where the inventory is, which operator should go fix it. So that's going to be a very sweet little business for us.

Appreciate that color. Curious if Southern Glazer's is using that next-gen storage structure and maybe remind us what the site opportunity may ultimately look like with that customer.

So with Southern Glazer's specifically?

Yes.

Southern Glazer's is not -- their second site is not using the newest structure in part because the way that the liquor industry works, the cases are more standardized. And so I think the third and fourth sites probably will, but the second site was already started in design. And these are heavy -- these are liquor heavy bottles and the case sizes are pretty standard. So it's not -- the new structure is beneficial to them, but in more varied block sizes, it's even more beneficial. But the real answer is they would have used it, but we already started with the old structure when we designed it, and it's just too far down the road.

And then for the potential there, as Rick mentioned in his prepared remarks, we're starting the second one. And as you know, they serve in 47 U.S. markets, including in Canada.

Our next call comes from the line of Joe Giordano of TD Cowen.

Just a couple of clarifications. The Atlanta site for Exol, is that like a one customer site. I know you mentioned the customer doesn't want to be named. Is that customer planning on taking the whole...

No, that's a multi-customer site. We're just receiving the first customer, and we haven't determined how much space they're going to need, but they're building up pretty quickly. That will be a multisite.

And then on the micro fulfillment, I'm just curious as you said you're going to deliver -- you're building it out 6 months and then you'll do a second. What's the mechanism in the contract? I thought the contract was kind of once they accept it, it automatically triggers the $5 billion and the 400-store order. What is required to have that hit?

The way we've done things with Walmart in partnership is we build a prototype, we build them so that they work, but we also know that where you can tell from the prototype. We're building it into a store. I'm not sure I'm supposed to announce the store, but it will become obvious pretty soon. But we'll build it into the store and then we'll -- we overbuild it to make sure that it works. And then we redesign it to make sure that we've got the cost out, in this case, make it smaller, make it more efficient. Walmart may add items, they may delete items. And so -- and when we do the second version, that's usually what triggers, okay, we want 400 of these.

Got it. Okay.

The most important thing with these sites is there's the coordination of the hardware, but most of the time, what's happened with these micro fulfillment sites is that the software hasn't been flexible enough and the software and the automation haven't been coordinated enough. So we're going to overbuild this, but we probably won't build 400 of the version we're building now. But I think the one after this, we will.

Great. Izzy, just how should we think about the pacing of system adds maybe for next quarter and into the near future?

Yes. So as you noticed, right, we had a great 3 quarters in a row. I had originally mentioned a couple of quarters ago, maybe the fourth would be a little light. But actually, now as I'm seeing the trajectory, I think the fourth quarter will be in line with the third, maybe just a little short of the third. So great, great expectations where we've been in the last 3 quarters and where we're going to land for the year.

Our next question comes from the line of Ken Newman of KeyBanc Capital Markets.

Maybe for my first question, Izzy, maybe you can help us to think about -- I'll ask the new storage system or the revenue question on systems a little bit differently. As you think about the new storage system now being fully implemented, how should we think about the cadence of segment gross margins on that improvement, just given that you do expect that to maybe ramp, it sounds like maybe later in the back half of next year. But just trying to think about the opportunity for gross margin improvement there and the cadence of that in coming quarters.

Okay. So let me unpack your question a little bit. First with -- just let me repeat what Rick was saying on the micro fulfillment. So we're starting now the first prototype. We expect to get into, after that, or maybe in the middle of that, getting the second prototype. I really am not expecting just yet the micro fulfillment, call it, the store order that is mentioned in the contract probably until early 2028. So then when you think about margins, right, our whole journey of improving margins, right? This contract is more profitable from that perspective. So you just have to think of it as we continue the mix, right? The first step, as I've been talking about is probably closer to the second half of next year. We get the inflection point of really having the installation of the next-gen system, which will improve margins. Then you also then end up adding in the back of stores and that being also a big part of the mix, which gets us to in this journey, how our margins continue to improve. The one thing I will say about margins, we had a great quarter from a margin perspective. As I said last quarter, I was expecting stable margins. The quarter was really, really strong. I think the fourth quarter will behave very similar to our exit trend in the second (sic) [ third. ] So I hope that helps, [ Ken. ]

Third.

Third.

Yes. That's very helpful. I appreciate that. Maybe for the follow-on here, Rick, it was interesting to see a couple of bolt-on deals this quarter. You did a bolt-on last quarter as well. As you look at the forward innovation pipeline, is there any color you can give on just other types of deals that you're looking to maybe help you drive faster deployments? And I would also be curious just if there's anything you can kind of talk about on what you're spending on AI development in terms of token spend versus the hardware spend on R&D?

Yes. So -- we are looking at more bolt-ons. It's an interesting time. As you guys know, there's so much money chasing AI that a lot of the traditional automation companies are running into funding problems or -- and so we become a very good place for people to approach us as investors or acquirers. So we're -- that's why we've built up our balance sheet. We guessed right about that. We are right about that. I think we'll see continued opportunities there to acquire hardware. In the case of ARMS, it was a software. So -- and some companies we're looking at are a combination of interesting technology, both hardware and software in vision. The question you asked about AI is, so the way I would describe it is, I think we were doing AI 5 years ago before anybody called it AI. So we've been doing self-driving cars. We've been doing vision, we've been doing LiDAR. We generate, I think it's 1 trillion bits of data every day at every site. Maybe it's 100 billion. It's an incredible amount of data at every site. And so we're looking for -- to economically store it in the cloud. And then we are writing our own AI agent. So yes, we're using some AI to audit code. And that's helpful. But mostly, what we will do is we will develop our own AI agents that will actually be able to predict and tell us what's going to go wrong with our systems before they go wrong and then actually communicate to the robots, drive them out of the system, tell the maintenance people what's wrong with them and fix them. So that's not something that we're going to pay a lot of money for outside. That's something that we've been building here for a long time. And that's why I think most people consider us one of the leading companies in the world with physical AI. And I think there's a lot of misnomers about that, but we're actually doing it, and we've been doing it for a long time before we used to call it machine learning. They used to call it a whole bunch of other things. But now we're actually learning how to use AI, not just to generate reports, but actually to communicate directly with our robots and in some cases, fix them, in some cases, tell them what to do, in some cases, tell them where to go to the exit ramp and get fixed.

If you just -- if I could just clarify that last point, Rick. When I -- when you talk about scaling that infrastructure on the AI software side, does that require an incremental or scale up in tokens needed to operate that system? Or is that really just on the inference that you get to scale?

Yes. So that's a great question. We're using some tokens, but there's a lot of open source AI. There's a lot of AI that -- and we're also looking at different forms of AI. There's some AI that we can actually not have to go to the cloud. We can actually imbue that technology right into our bots because with the new NVIDIA chips, we have 4x as much storage, and we'll have more storage on our bots that we didn't have 2 years ago. So I don't think tokens, I don't think AI expense is going to be a major issue for us, and we're very focused on doing as much as we can internally ourselves. So we don't -- one of the things that we've learned is that about 80% of the AI that maybe we looked at using last year was a lot of formatting. It was not actually using the data that we needed. So one of the things we're focused on is because we generate so much data, because we've always mined our own data, we're actually looking at what's the most efficient way to use our data that's cost effective.

Our next question comes from the line of Mark Delaney of Goldman Sachs.

I think better margins was one of the key highlights from the quarter. I believe revenue was $11 million above the midpoint of your guidance, but EBITDA came in $12 million better. So can you share more on what led to the degree of margin improvement in 3Q and the upside relative to your expectation?

Sure. I'll take that. So just to unpack the margins, right? If you think about it just in the amount of revenue we had in the systems, those margins came in quite solid. Quarter-over-quarter, they actually came a little bit better than I was expecting originally. But those really come down to the project execution and the mix of business we had in the quarter. I think the other thing that came in nicely this quarter was the fact that op services, right, it continues to deliver profitability. Maybe it was a little bit better than I expected. But at the end of the day, I expect next quarter to be in line with this year -- with this quarter's revenue. And then last but not least, as you hit about on EBITDA margin, the operating leverage was really good because when you look at the non-GAAP OpEx year-over-year, it was only up 3%. So a combination of all those things, be it systems, operation services and really the scale that we're getting in our OpEx really allowed us to deliver a more profitable quarter.

Very helpful. My other question was on cash flow. Izzy, you talked about timing as the reason that the free cash flow was a headwind in the quarter. Help us understand how to think about free cash flow for the upcoming quarter, should some of those timing issues persist or maybe the better EBITDA will drive improved cash flow?