Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Symbotic's Third Quarter 2023 Financial Results Conference Call and Webcast. At this time all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. Please note that today’s conference is being recorded. I will now hand the conference over to your speaker host, Jeff Evanson, VP of Investor Relations. Please go ahead.

Good morning, everyone. Jeff Evanson here, and Olivia thank you for the introduction. Welcome to Symbotic's third quarter 2023 financial results webcast. 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 the factors described in cautionary statements and risk factors in Symbotic's financial release 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 our most comparable reported 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. Today, we will provide guidance for the fourth quarter, including revenue and adjusted EBITDA. We are not providing guidance for net loss today or profits, which is the most comparable GAAP financial measure to adjusted EBITDA. We are 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 cannot be reasonably predicted, such as the provision for stock-based compensation. On today's call, we are joined by Rick Cohen, Symbotic's Founder, Chairman, and Chief Executive Officer; and Tom Ernst, Symbotic's Chief Financial Officer. These executives will discuss our third quarter 2023 results, and our outlook followed by Q&A. And now with that, I'll turn it over to Rick for some opening remarks. Rick?

Thank you, Jeff. Good morning, everyone. Thank you for joining us to review our third quarter financial results. Since we last spoke, we have demonstrated our ability to effectively manage multiple priorities simultaneously. First, we achieved record quarterly results, and second, we launched the GreenBox joint venture. Our strong third quarter results can be attributed in part to our outsourcing strategy related to deployments. We are pleased with these partnerships, which are beginning to show positive results, and our supplier ecosystem continues to grow. Tom will provide more details on the quarterly results. Instead, I want to express our excitement about the GreenBox joint venture with SoftBank. GreenBox represents a vision I’ve held for many years to introduce AI-enabled automation to businesses of all sizes. We are thrilled about GreenBox because it adds more than $500 billion annually to our total addressable market by bringing automation to all customers. The warehouse costs for these customers are usually two to three times higher than those for larger customers. This allows GreenBox to present an attractive value proposition for small and medium-sized businesses while enabling us to capture more of the value generated by our technology. We have already attracted interest from potential customers. We plan to capture this value in three ways: first, through a large high-margin system contract backed by SoftBank; second, by securing three times the recurring revenue streams we currently generate; and third, we will own 35% of a highly profitable GreenBox business. We are fortunate to have SoftBank as a partner in GreenBox, providing the capital needed to support our Go Big Go Fast strategy. In fact, during the early years of C&S, if I had access to more capital, I could have expanded C&S beyond its current size. Thus, I decided early on to allocate more capital from GreenBox into the Symbotic network. Symbotic also sought higher pricing, increased recurring revenue, and a method to capture more of the value from our technology. SoftBank, in turn, wanted a larger stake in Symbotic. As negotiations progressed, I concluded we could reach an agreement by selling about 4% of my family's 78% ownership stake down to about 74%. We sold at approximately $28. I was comfortable with this decision because I am confident that GreenBox will create significantly more value for Symbotic than what I gave up, and I achieved this with no dilution for shareholders. The initiation of the GreenBox joint venture was driven by demand, indicating that these services will be appealing to potential customers. While we are eager to launch GreenBox, similar to Symbotic, we intend to instill the same philosophy of prioritizing customer satisfaction. Therefore, we will not launch our customer services until business operations are fully prepared, which we expect to be sometime in 2024 when we anticipate securing our first GreenBox customers. We will remain attentive to our existing customers who have supported our growth. We’ll continue to take care of all our large customers and scale up for Walmart and our other clients. I want to thank all these customers, as well as our associates, shareholders, partners, and suppliers who contributed to a successful quarter. Now, Tom will discuss our financial performance and outlook. Tom?

Thank you, Rick. We grew our third quarter revenue 78% compared to a year ago to $312 million. The strong growth was driven by solid execution on existing deployments and new deployment starts. We continue to see acceleration in the rapid pace of installation of deployments, with the help of our partnership initiatives, as well as through our ongoing efforts to standardize our platform and streamline our deployment processes. Our backlog at the end of the third quarter was about $12 billion. The GreenBox joint venture we completed last week adds approximately $11 billion to backlog, bringing our total backlog now to about $23 billion. $11 billion from GreenBox is backed by the capital of GreenBox’s investors led by SoftBank. We initiated six new system deployments during the quarter and advanced one system to full operation. As of the end of the third quarter, we have 10 fully operational systems and 33 systems in the process of deployment with multiple customers, an increase from 28 systems last quarter and 13 systems in the third quarter of last year. Our sales and deployment progress for platform purchases continues at a rapid pace. For example, progress with Walmart continues to plan, and we recently started deployment of the second of five warehouse facilities with UNFI. Recurring revenue continued to grow sequentially as deployments moved to production. We now have 10 systems operating at customer sites. As system completions increase, our recurring revenue should continue to grow and have a much higher gross margin than systems revenue. This quarter we posted a strong improvement in recurring gross margin, and over time, as recurring revenue becomes an increasing share of our revenue mix, it can provide powerful operating leverage to our business. Our third quarter adjusted gross margin was consistent with last quarter. These results still reflect significant costs associated with lower-margin innovation projects, the burden of elevated pass-through steel costs, and the costs associated with rapidly scaling our operations. Operating leverage improved again sequentially, as we achieved a 1% adjusted EBITDA loss rate compared to 4% last quarter and 12% last year. This was driven by rapid revenue growth and gross profit growth along with slower operating expense growth. Gross margin was consistent with last quarter, as we maintained our focus on rapidly scaling deployment capability. Our cash and equivalents, including marketable securities, and restricted cash grew $48 million sequentially to $513 million. Turning to our outlook for the fourth quarter of fiscal 2023, we expect revenue of $290 million to $310 million and to report our first profitable quarter with adjusted EBITDA of between zero and $3 million positive. Finally, I'd like to address some topics related to our GreenBox joint venture announcement. As Rick mentioned, the way we have structured the GreenBox joint venture allows us to rapidly transform a very large segment of the supply chain in a very capital-efficient way to harvest significant returns for shareholders. Symbotic has a non-cancelable committed contract with GreenBox for the purchase of $7.5 billion in Symbotic Systems. This contract allows for a visible deployment schedule and it's backed by the investment partnership of SoftBank and Symbotic. We believe GreenBox is a great opportunity for Symbotic shareholders and are very excited about its future. In all scenarios and at all times after our initial $35 million funding, Symbotic’s cash flow from GreenBox will be positive net of any incremental capital needed to support GreenBox growth. This means that Symbotic’s shareholders are protected such that even in the remote scenario where no systems are ordered, and a cash payment is due to Symbotic for approximately $2 billion backed by SoftBank. We're confident and excited about the launch of this joint venture as we're responding to market demand signals. In addition to the large committed order for systems, sales, and recurring revenues that follow it, we believe GreenBox can generate strong returns. Thus, we expect Symbotic’s 35% interest in GreenBox subscription business will yield a strong cash flow stream to Symbotic. In conclusion, we are continuing to scale our business and innovating rapidly to deliver for our customers. We look forward to speaking with you again next quarter to provide an update on our progress. We now welcome your questions. Operator, can you please open the Q&A?

Our first question is from Andy Kaplowitz with Citi. Your line is open.

Hey, good morning everyone.

Good morning Andy.

Tom, can you talk about your adjusted gross profit margin on what you'd expect moving forward as we go into FY 2024 and obviously remain relatively steady, as you said despite higher sales. So how do you look at gross margin from here and why didn't it inflect a bit more as I think you said last quarter that steel would be a tailwind, at least in Q4 and I think last quarter, you mentioned innovation related headwinds could diminish a bit?

Yeah, thanks for the question, Andy. So gross margin, we continue to expect that, particularly when you're watching us track over time, over an annual basis. We expect to see our gross margin expanding. On a given quarterly basis there can be some variability to that expansion. As we're seeing here in this Q4, where we're sequentially flat at 18.3%. It continues to be the same factors that we've been seeing, Andy, where we see that expansion coming as the impact of a handful of things albeit over time, particularly the redundant costs associated with just growing so fast. It's the rate of expansion of our business along with the rate of shift to our outsourcing partners where we have redundant costs. We continue to see those abating over time. As you mentioned, steel continues to be a headwind when we look relative to the 10-year average. We do think that we've seen a modest benefit in this quarter and last quarter, and continue to expect to see a modest benefit relative to where we were three and four quarters ago. However, the steel index has actually been going up over the recent few months and seems to be at a relatively high elevated level to the 10-year average. So we think that there's potentially a longer-term opportunity for that to abate over time. And then finally, recurring revenue margins are expanding. We had a significant expansion of recurring gross margins now at a 6% loss rate versus where we were a year ago in the 32% loss rate. However, we see a lot more power as we continue to waterfall recurring revenues on these gain scale in that business, to where we see long-term structural recurring gross margins from the recurring side, north of 60% over the long term. So again, as we look over an annual basis, you should expect to see expansion.

Very helpful. Tom, on the revenue side, revenues have clearly increased over the last few quarters. Looking at your guidance for Q4 and the expectations for FY 2024, I understand you might not want to provide extensive guidance. However, does your backlog and the development of your outsourcing strategy support the growth that the market is anticipating for FY 2024? Any initial thoughts would be appreciated.

Thank you, Andy. We are excited about the potential for rapid growth in 2024. As you mentioned, we are offering specific quarterly revenue guidance. The growth we expect next year will be supported by the increase in site developments and deployments we have in progress. We are optimistic about achieving solid growth as we move into next year. Regarding Q4, I want to mention that our Q3 performance significantly surpassed our expectations. We experienced some timing advantages due to the acceleration of our deployments, which might contribute to a more stable growth pattern in Q4 compared to Q3.

And Tom, just a quick follow-up there, like six systems initiated, you would continue to see that continue to rise from here, right, because it's been a little bit stable over the last few quarters?

You can see some lumpiness here as well and so it has been kind of consistent. I think over the long run, you'll see growth there, but it won't be surprising if we have quarters where we're actually down sequentially. Timing on those systems deployment starts depends on customer readiness as well. So there will be some quarterly variability but as we move forward, we should expect to see growth, not every quarter though.

Thank you. And our next question is coming from the line of Matt Summerville with D.A. Davidson. Your line is open.

Thanks. Just a couple of quick questions. Back to the gross margin kind of topic, Tom, can you maybe parse out some of the headwinds and tailwinds from a quantification standpoint and tailwinds from a quantification standpoint, whether or not you've seen any tangible benefit from the restructuring actions taken last quarter and what lies ahead in that regard, as we think about how to kind of model this?

Yeah, thanks for the question, Matt. We did see some benefits in the quarter. We continue to see, though, that our outsourcing initiatives leave a lot of opportunity for us to continue to see expansion over time. So we're only seeing the earliest of those benefits. We're continuing to invest significantly in our major innovation initiatives as well. So that continues to be something that we think has a significant payoff over time. Rick's mentioned that these on multiple occasions, but our major platform release of our autonomous bot SymBot, along with our BreakPack project, our two major innovation projects that we're investing in in the near term that cost us in the gross margin line that are going to have big payoffs. Finally, just the rate of speed at which we're growing has those redundant costs. I think you take those in kind of that order and that's the magnitude of expansion opportunity we see as we look forward over the coming couple of years to expand.

Got it? And I was wondering if you guys can maybe talk a little bit qualitatively with the GreenBox JV formally announced, what has inbound early potential customer feedback then? And then Tom, I wanted to make sure I understood, can you just go over the situation that would drive that $2 billion inbound payment to Symbotic with respect to GreenBox, I want to make sure I heard you correctly? Thank you guys.

Sure, Matt. So we have received from numerous channels interest in GreenBox. First, this has been demand-led and as Rick mentioned in his prepared remarks, his vision for the company has been to be able to provide warehousing as a service, as a huge opportunity to just provide much higher quality at lower cost services to end customers, and this vision hasn't been new. The interactions we've had with customers for quite some time have expressed interest in this business model. Since the announcement, although it's only a week old, we've received inbound expressions of interest in hearing what it's about. I'll remind you of what we said last week and what we expect today as well, that our first goal here is to get this business up and running and then stand up to go-to-market and management, and then we'll bring on new customers sometime in 2024. So we'll keep you updated on that and the progress. On the $2 billion question, so as we think about GreenBox, we have structured this business such that in all scenarios including the base growth scenarios, along with the more aggressive growth scenarios as we think about the execution of the business. We structured it not only such that we have control and visibility over that scheduling to make it efficient for our planning purposes and to incorporate the rest of our customers' capacity slots around GreenBox but to also be cash flow positive at every interaction we have with GreenBox. That means that the payments that are due to us perceive the payments that go out the door, including any capital requirements that are necessary in the faster growth scenarios of GreenBox where we're actually funding capital in support of our 35% ownership position. As we thought about every scenario that's possible, we thought about the extreme downside case that what if GreenBox for whatever reason had to cancel. In that case, we have a sizable payment that's due to us for all of the profits that would have been received on that entire $7.5 billion order plus our first recurring annual commitment. That nets to us over $2 billion. Just wanted to highlight the level of capital investment that our partners and we are taking on here and belief in the business.

Thanks Tom.

Thank you Matt.

Thank you. And our next question is coming from the line of Mike Latimore with Northland Capital. Your line is open.

Great, thanks. Impressive results there. I guess as you think about the fourth quarter, should we think about cash flow exceeding EBITDA again here that's been a trend the last couple of quarters?

Yes. Thanks for the question, Mike. We continue to expect to be cash flow positive for the year, and we can have cash flow variability. So I tend not to guide on the cash flow line. But generally, you should expect that our trend will be that the dynamic you're describing, where our working capital is a net production above and beyond our EBITDA will be the case. Cash flow can be a little bit lumpier than our revenue can because our revenue recognition is a percentage of completion and a little bit more atomically spread where sometimes the cash flow as customers can be just a couple or three invoices per system purchase, so they can concentrate a little bit.

Got it. And then Tom, in the past, you've given some general color on the number of deployments that are hitting kind of their biggest rev rec phase. How would you characterize that dynamic in the fourth quarter?

Mike, the dynamic continues as to what we've seen in the past, and that is that, while we are percent complete on a rev rec basis, those systems that have gotten about here into the deployment schedule where the most expensive part of the physical installation phase is occurring is where the strongest revenue generation is. So I think as you think about what we've disposed in the past about a number of systems and deployment, those systems that were in deployment in say by the end of Q2 and started in Q3, those 9 to 13 are the ones that are generating the strongest revenue contribution here in our fiscal fourth quarter.

Got it, thank you.

Thank you Mike.

Thank you. And our next question coming from the line of Nicole DeBlase with Deutsche Bank. Your line is open.

Greetings, good morning guys.

Hi Nicole.

Just on the backlog now being $23 billion, I guess, are you guys a little bit less focused on going after sales to new customers similar to what you announced with UNFI earlier this year or is that still a focus for management?

So our first focus has always been, in Rick's words, frankly the happy customers. So it's making sure that everything we're deploying in that, what was $11 billion or $12 billion and is now $23 billion results in really happy customers. In addition to that, we do intend to bring in new customers by the ones or twos per year here in the near term. And so we've already brought on two new customers this year and launched GreenBox. So it's a pretty big year for us. I think we're a little bit above that one or two. But I think as you look forward, you should expect to see us first and foremost focused on executing the backlog and then where it makes sense to have that right incremental customer or two.

Okay, got it. Thanks Tom. And then SG&A ticked down a bit Q-on-Q in this quarter, I guess, like is this level of SG&A sustainable or anything to highlight there?

Well, we do continue to see project and other variable activity at a pretty significant run rate basis in our fiscal Q3, as we saw in fiscal Q2, a slight downtick there. But I think as you look forward, we actually see some of that abate a little bit more. This is partially being offset by we have expanded our hiring a little bit. Our head count is up about 100 heads to about 1,300 people quarter-on-quarter. I think as you think about that moving forward, our expectation would be that you should expect moderate OPEX expansion looking forward, kind of consistent with what we've thought as we framed out the near-term future over this year but that's moderate headcount expansion against strong revenue growth. So we continue to see some strong operating leverage.

Thanks, I will pass it on.

Thank you, one moment for next question. And our next question coming from the line of Greg Palm with Craig-Hallum. Your line is open.

Yeah, thanks. Congrats on the continued progress. I guess just looking back in the quarter in terms of the upside, I think you mentioned speed of deployment. So what exactly is outperforming, I mean are you deploying more systems than maybe what you initially thought, are you deploying faster, meaning you're able to capture or recognize more revenue within the quarter, just a little bit more thoughts on the progress would be helpful?

What we're seeing, Greg, is that with each new system as it goes through phases, we're able to shave off some marginal time here or there. And the new systems we're starting, we're putting a slightly faster target time on. This is consistent with what our goals were, not what we needed to do to keep the business plan, but also still leaves a huge opportunity where we're still expecting the systems we started today are a little bit under two years from that launch of deployment. So we get that deployment completed and the customer begins to ramp of the full production use. Our goals over the long term are still to materially cut that time through both technology and process and partners where over the long run, we look to take that to six months if we can.

Got it. Okay. That makes sense. And then just a little bit more on gross margin. So if we look at it based on segment at least sequentially, you did see a bump in systems margin, but you saw a pretty significantly higher loss on software maintenance support and operation services. So I'm just kind of curious how you sort of view that looking forward in terms of the gross profit loss by segment?

I think if you look at it from a non-GAAP perspective, you'll notice more consistent expansion in the recurring line, while the system line appears to be a bit more stable. This shows that accounting treatment related to stock-based compensation has impacted the GAAP results.

Do you know off the top of your head, stock-based comp by segment in terms of the mix or proportion?

I think we have that in the reconciliation table in the release.

I can follow up with you off-line, too.

Yes, it is on the table in the release though.

Okay, sounds good. Thanks.

Alright, thank you.

Thank you. And our next question is coming from the line of Chris Snyder with UBS. Your line is open.

Thank you. Could you discuss the plan for managing the GreenBox joint venture facilities? Will SoftBank handle this? I'm asking because it seems that the operational demands for managing these multi-tenant facilities could be quite significant. Thank you.

Yes. So this is Rick. So Symbotic will run the systems as we do with many of our customers. The commercial relationship is being developed between SoftBank, Symbotic, and quite frankly, there are three PL operators today that would like to partner with us on some of the customer acquisition. So think of it this way, the Symbotic will sell assist in the GreenBox and GreenBox will be just another traditional customer for Symbotic. Then there's a management team that GreenBox will have to develop which is - we have increased now and so we're developing that management team as we speak, and it could be a combination of some of our partners who, for instance, a port operator could be a partner who has customers but would hire Symbotic to be the operator of the system. So there's a couple of relationships here. There's the commercial relationship which we're going to have to scale and build the sales force. But outside of that, we think we're not going to be in the construction business. We think we'll go into probably existing businesses or have real estate partners who have already built buildings. So it's not as complex on the outside as it might seem. SoftBank and Symbotic have been working on this for well over a year, talking to various different customers. But yes, we will have to develop a sales force and a commercial focus, and that will be on GreenBox. The reason we set up the structure the way we did is we did not want to burden Symbotic with that overhead. We want to keep Symbotic as a pure play and then GreenBox will be a commercial sales force-driven 3PL kind of operator finding the right partners, and they will simply buy the systems from Symbotic. Symbotic will run the systems but Symbotic will not be involved in getting the commercial customers.

Thank you, Rick. That's really helpful. Another important question regarding the deal is that, during the conference call last week, you mentioned that Symbotic will not need to provide any additional capital beyond the original 35. However, GreenBox will be seeking more capital, likely from SoftBank. Will this funding come to GreenBox as debt to SoftBank, or are we looking at incremental equity? What will they receive as they invest more capital to help grow GreenBox? Thank you.

Yes, thank you, Chris. We expect that GreenBox will need capital due to a strong growth outlook for the business. This capital will be offset against the cash flow owed to Symbotic for the system purchase. We anticipate that we will provide the necessary funding through our cash flow. SoftBank will also invest directly to support the growth. Over time, we expect to be able to take on debt as well. We foresee that when GreenBox's growth outpaces its ability to generate positive cash flow from its subscription customers, the debt capacity will help cover some of the capital expenses needed to sustain that growth.

I appreciate that. If I could just squeeze one last one in, it's another kind of common question. I think right now, there's 33 systems under deployment. GreenBox will start ordering next year. Where do you think, I guess, the capacity for units under deployment could be, say, 12 or 18 months from now, just trying to get a sense for kind of how that GreenBox growth can layer in? Thank you so much.

So Chris, we've been building our supplier network and our outsourcing partners and our operations to provide the scale to really open up the business model. I don't think we want to set a target on the time frame, but our goal is to really just to ensure that we build that whole supplier network to more than support the $23 billion we have in backlog, along with as I mentioned, we want to create additional capacity for us for our existing customers and for those potentially one to two new customers per year we're bringing on. We do believe that the outsourcing progress that we've made to date gives us the visibility to do that already today. What we're looking to do is harden and deepen that supply chain so that we can create more capacity beyond that.

Thank you. Appreciate it.

Thank you.

Thank you. Our next question coming from the line of Rob Mason with Baird. Your line is open.

Yes, good morning. This may be just a follow on to the last question. Just I am curious how far out you can secure that your partner resources for the deployment of these systems and also thinking about what steps you're taking to insulate, I guess, against stronger pull on industry resources if you look out two or three years the warehouse automation market is stronger than it is today, which there's been some step back by some of the larger players in the industry, if they were to come back, how do you insulate against pull on those resources?

Yes, this is Rick. I've dedicated considerable time to this over the last six months, and we're focusing on two key strategies. We are actively seeking new partners to help us develop systems, and we are on the lookout for suppliers who may have seen their backlogs significantly reduced. We're cultivating a different type of relationship with these suppliers, aiming for genuine partnerships similar to what I established in my previous role at C&S. These will be long-term collaborations, and we expect to become major customers for many suppliers, though we are not relying on any single source. We are sourcing suppliers globally, and we feel confident about maintaining our supply chains. The supplier community has observed that it is quite rare for them to have visibility into a five or six-year backlog, which is what we currently possess. This makes us very optimistic about our suppliers. Regarding your earlier question, as suppliers enhance the quality of their products, we see quicker installation times, allowing us to procure and install more systems. We are acutely aware of the disruptions that occurred in supply chains over the past couple of years, and we are intensely focused on ensuring that we avoid similar issues in the future.

Very good. And just a follow-up with respect to GreenBox, it sounds like they'll pursue or secure some customers early on before you launch your systems into them. But as you think about this going forward, would you expect that they would deploy systems on spec or would they need to have customers under contract before they would place an order with you?

I believe they will pursue both options. One of the reasons we entered into the deal with GreenBox was due to my visits to Japan and the extensive discussions I had with Masa. Vikas, who is on our Board from SoftBank, has been a strong supporter of this initiative. I think that by creating a network, we will take some risks with certain sites, which SoftBank is willing to take, and the potential returns should be substantial. However, I don't think Symbotic should have taken those risks as a public company that originally focused on warehouse automation, which is why we chose to partner with them. We anticipate constructing facilities that may not have immediate demand but will wait for the market to develop. Additionally, there will be other facilities built in response to current customer demands, as they express their needs to us. What makes GreenBox special is the difficulty that 3PL operators face in managing multiple tenants within a single facility. We repeatedly hear from them that they struggle with mis-picks and errors, making inventory control challenging. What we've observed over the past six months at Symbotic is that if a customer orders 1 million cases, we deliver exactly that — with potentially just one error, or none at all. Our inventory and shipping accuracy are nearly perfect, paving the way for a new framework for 3PL operations, which has us and SoftBank very excited. Even some potential 3PL partners interested in purchasing our systems share this excitement. We believe this represents a newly emerging market that many may not fully grasp, and it is a significantly large opportunity.

Very good, appreciate it.

Thank you. And our next question coming from the line of Jose Giordano with TD Cowen. Your line is open.

Hey, good morning guys. Just a lot of operational questions have been asked. Maybe I can kind of go through a couple of things that have been coming to us from clients over the last couple of days since GreenBox, because there definitely seems to be some confusion about kind of how this works. Rick, a company that comes out of the spec and does a JV that in a way, is kind of self-funding its own revenue to some extent. I think that's driving some confusion. Can you maybe talk to us about like, if Symbotic didn't go this route, if you were not going to do GreenBox, but you still want to accomplish what GreenBox is doing, you wanted to do this all organically what would you have had to do at Symbotic organically to stand up this organization? What would that have meant in terms of capital in terms of management bandwidth, if you were to do it yourself instead of through this mechanism?

Great question. I considered the option of doing it ourselves, but I realized that the backlog at Symbotic and the startup costs associated with GreenBox for outsourcing and building specifications were confusing for our investors. We decided to separate the two, and the pricing arrangement between Symbotic and GreenBox recognizes the significant value creation involved. We are retaining a large share of the profits, both from software and margins, while still ensuring attractive returns for SoftBank. From my experience with C&S, which I own entirely, I understood the value of retaining ownership. If I had sought external capital sooner, we might have made some major acquisitions that didn't happen because we wanted to time our funding perfectly without diluting our ownership. I believe this delayed Symbotic's growth and would have negatively impacted C&S in the long run. With GreenBox, we aim to build an entirely new infrastructure market, requiring early capital while ensuring that Symbotic remains a focused entity. We expect to receive substantial software license fees and higher margins from GreenBox, which were partly why SoftBank invested in Symbotic initially. Our 35% share of GreenBox's profits will be allocated back to Symbotic as a distribution. While this approach might not match the benefits of doing it independently, I believe it will prove to be more profitable in the initial years compared to waiting to launch this initiative, which could have taken five or six years and potentially led to confusion at Symbotic. That is the reasoning behind my decision to proceed in this manner. I hope this answers your question.

Thank you for the insightful information. One more question: there seems to be some misunderstanding regarding the timing of the shelf registration, with initial reactions indicating concerns about a liquidity event. Can you clarify the purpose of that registration and the current short-term capital requirements for legacy Symbotic? Considering your cash position, it appears that a primary share issuance may not be necessary at this point.

Yes. Thanks for that question, Joe. We did feel a shelf, as you saw in S3 registration. This was our first opportunity to do that. You have to anniversary your public listing per year, and then the subsequent month is when you can file that. We felt like it was good governance to have that shelf in place should we want that streamlined process to any future either debt or equity capital raise. You're right, as we look at our business, we are cash flow positive and have been for three quarters in a row and anticipate that for this year with expanding margins looking forward. That's the business before GreenBox, add GreenBox on top and we expect that actually will be margin-enhancing on a cash flow basis. So we don't really see a core general operational need for the business at this point. So as we look forward to our cash generation.

Perfect, thanks guys.

Thank you.

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

Yes, good morning. And thanks very much for taking my questions. First, I was hoping you could please provide an update on how BreakPack development is progressing and how feedback has been on that capability?

Yes, certainly. The BreakPack is making good progress. There have been challenges in launching an entirely new business and product line, but I'm dedicating a lot of my time to it, and the entire team is also focused on it. It's on track and shaping up to be a fantastic product. We are already collaborating with Walmart to apply insights from the first system to enhance the second system, making it better, faster, and more cost-effective. Overall, we're very pleased with BreakPack and believe it will be a strong offering for the market.

And I'll add to that, Mark, that we continue to expect that we'll likely do one more proof of concept before making it generally available, but just add that I agree with Rick that the feedback we get from our prospects and our existing customers is intense interest in this product.

That's all helpful color. I appreciate that. And my second question was on the systems gross margin. I believe the company has articulated the potential for that to eventually reach the high 20s, if not even 30% over time. So could you comment in more detail on what the key factors would be to get to that sort of gross margin relative to the current level? And then any rough sizing of how much the various factors could add to margins? Thanks.

Yes. Thanks for the question, Mark. We do continue to see that as we think about the backlog here pre-GreenBox, that we have a structural gross margin that over time, over the coming years, that we can begin to approach that high 20s to closer to 30% type of structural gross margin on a system basis. I'll emphasize as well that as you layer on recurring revenues, which have a higher structural gross margin over the long run, we think we can on that pre-existing backlog, take our blended gross margins higher than that. The factors really are unchanged as to where some of that margin power comes from. The biggest things are that we're investing a lot in innovation projects such as BreakPack, you asked about, and SymBot. Those are lower margin revenues as they flow through our income statement and the COGS line. Just the nature of we're delivering that as a product. The significant portion of the innovation costs actually flow through our COGS, along with the second biggest factor is just how fast we're moving and moving with outsourcing partners. We continue to have significant redundant costs, startup and shutdown costs, effectively startup costs with the outsource partner’s shutdown costs internally. Those are going to continue in the near term, but we anticipate that as quarters roll out, those redundant costs abate over time and help provide us lift and expansion.

Thank you.

Thank you. And our next question coming from the line of Derek Soderberg with Cantor Fitzgerald. Your line is open.

Yeah, hey guys. Thanks for taking my questions. I wanted to clarify some earlier remarks around the outsourcing model. Just looking at the backlog, very sizable for you guys to fulfill over the next five or six years or so. Can the existing outsourcing model supply that backlog today, do you need to continue to build that out? How much more work do you have left getting that outsourcing partner list to the point where you can fulfill that backlog or do you feel like you can deliver on that with your list of outsourcing partners today?

It can, Derek. Short answer is it can. We have stress tested this network as we have it today. Now we're continuing to work to get that network efficient and hardened expanded even further. But as we enter the GreenBox contract, we're confident that our outsourcing partners and our plan as we have it now is more than adequate.

Got it. That's great. And then as my follow-up and maybe this one is for Rick, just on GreenBox, I'm curious who wins with this business model? Is this better for smaller firms or large firms? Does this in any way change your priority selling to sort of the other big-box retailers sort of laid out in your growth strategy? Can you talk about sort of the size of the firms? Anything on that would be great? Thanks.

We're continuing to sell to major wholesalers, and UNFI recently announced that they're integrating our second system. We have many similar customers in the pipeline that will be announced once we finalize agreements with them. I was a bit surprised by the size of this market, as I initially thought we would only focus on automation for C&S ten years ago, but the demand for this product is significant. We still have opportunities with major retailers and are in discussions with existing clients about additional projects. To illustrate the GreenBox concept, it can range from a small supplier like Mama Brown's spaghetti sauce, which may sell online or at places like Whole Foods, to larger operations. A small customer could occupy 50,000 case positions in a facility that holds 1 million. There's potential for many smaller clients. We've been in conversations with SoftBank because we believe their partnerships with sovereign wealth funds, which own large port facilities, could be transformative. If we were to automate all ports globally, we could cater to the largest clients who traditionally manage their own operations. For example, large shoe companies that currently rely on a few massive warehouses might benefit from having 20 smaller, more efficient facilities instead. Our offering could let them store 200,000 boxes in more strategically located sites rather than 2 million in a single large warehouse. I liken our approach to the business model of Iron Mountain, which thrived on secure record storage before everything moved online. Additionally, the increase in storage facilities being built across the nation shows there’s ample opportunity, as many people were unaware of the market size two decades ago. We're providing both small and large customers with a new level of supply chain flexibility they've never experienced before.

Awesome, thanks guys.

Thank you Derek.

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

Alright. Thank you, everyone, for joining our call today. We appreciate all your interest in Symbotic and we look forward to seeing many of you at investor conferences, on facility tours, or when we talk again next quarter. Thanks again. Goodbye.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.