Earnings Call Transcript - SYM Q1 2025

Operator, Operator

Hello, and welcome to Symbotic's First Quarter 2025 Financial Results Conference Call. All participants are currently in listen-only mode. Following the presentations, there will be a question-and-answer session. I will now hand the conference over to Charlie Anderson, Vice President of Investor Relations. You may begin.

Charlie Anderson, Vice President of Investor Relations

Thank you. Hello. Welcome to Symbotic first quarter 2020 financial results webcast. I'm Charlie Anderson, Symbotic 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 Founder, Chairman and Chief Executive Officer; and Carol Hibbard, Symbotic Chief Financial Officer. These executives will discuss our first quarter fiscal 2020 results and our outlook followed by Q&A. With that, I'll turn it over to Rick to begin. Rick?

Rick Cohen, Founder, Chairman and CEO

Thank you, Charlie. Good afternoon, and thank you for joining us to review our most recent results. In the first quarter, we continued to deliver high growth while enhancing our technology position. Last quarter, I highlighted that our key objectives for our fiscal year 2025 were scaling for growth and investing in our innovation engine while delivering high-quality systems to our customers. And that by doing so, we would look forward to another year of strong top-line growth and expanding profitability. On the scaling front, we believe we have made good progress building out the team to support growth and deployments. Deployment execution is critical for our company, and we are seeing progress from the change we made last year bringing more of the deployment functions in-house. In addition, we continue to focus on project execution and schedule. In terms of investing in innovation, we recently onboarded a new CTO, James Kuffner. James brings a wealth of experience in robotics and software with relevant leadership experience at Toyota and Google. James and the team are working on several exciting initiatives, notably new simulation tools intended to allow us to deploy new features more rapidly. This capability was bolstered by our acquisition of Omni Labs during the quarter, which allowed us to add software assets and tools that accelerate our simulation efforts company-wide. Having a strong technology position is at the core of our acquisition of Walmart's Advanced systems and robotics business and the related commercial agreement to automate Walmart store-level accelerated pickup and delivery centers or APDs. As I noted a few weeks ago when we announced the deal, we see this acquisition as giving Symbotic arguably the industry's strongest collection of products, talent, and intellectual property for supply chain automation. Our goal is to help customers automate all the way from the manufacturing plant to the store and eventually to the consumer. We closed this transformative acquisition last week and have already begun our integration efforts. As a reminder, we will first be in a development phase, which will include the building of prototypes. This is a logical extension of our core technology, and Walmart is committed to deploying our technology in 400 stores over a multiyear period, representing over $5 billion of future backlog, provided we meet key performance criteria during this phase. Stepping back, we closed three acquisitions in the last seven months, which we believe sets us apart as a leader in this space. Further, Walmart's selection of us to automate their APDs is a strong acknowledgment of our capabilities. Our technical talent continues to grow, and we remain focused on expanding our profitability. I want to close my remarks by thanking our team for their hard work this quarter, our customers for their continued trust, and our investors for their support of our company. Now Carol will discuss our financial results and outlook. Carol?

Carol Hibbard, Chief Financial Officer

Thanks, Rick. First quarter revenue grew 35% year-over-year to $487 million, with revenue growth driven by solid progress across our 44 systems in the process of deployment along with over 80% year-over-year growth from our recurring revenue, which includes software and operation services. In the quarter, we began four new system deployments and completed four systems, bringing us up to a total of 29 in operations. As more systems go operational, we are seeing a more noticeable contribution from software. Our software revenue in the first quarter more than doubled year-over-year, and we delivered software margins over 65% for the first time in a quarter. In terms of backlog, our backlog of committed contracted orders of $22.4 billion remained consistent with last quarter as the addition of the Walmex contract plus final pricing on contracts was offset by revenue recognized during the quarter. System gross margin improved on a sequential basis as we continue to improve our execution. Gross margin on software maintenance and support also improved sequentially, continuing its trend toward typical industry software margins as we gain scale. In Operations Services, we posted a negative gross profit as we continue to support certain sites by investing in additional resources to ensure customer success. We would expect the impact of this increase in resources to moderate going forward and see no change to our long-term model of operation services as a beneficial contributor to overall margins. We see our focus on reliability and ease of use for our customers as enabling long-term benefits that we believe will far exceed any short-term expense associated with these efforts. Operating expenses were up sequentially as expected due to the investments we are making to support our growth. Overall, our net loss in the quarter was $19 million. Thanks to improving gross margins on systems and software, adjusted EBITDA in the quarter of $18 million came in above our forecast. We finished the quarter with cash and equivalents of $903 million, which increased from $727 million in the fourth quarter, primarily due to cash from operations of $205 million in the quarter, which was driven by the timing of cash received. Now turning to our outlook. For the second quarter of fiscal 2025, we expect revenue of $510 million to $530 million and adjusted EBITDA between $26 million and $30 million, reflecting another quarter of at least 30% year-over-year revenue growth and a sequential increase in overall gross margins while accommodating a sequential increase in operating expenses associated with recent acquisitions. We note that our guidance reflects only a modest contribution from the acquisition of the Walmart Advanced Systems and Robotics business, given the partial quarter and the fact that it is the early days of our development program. As a reminder, you should not expect our revenue for our development program to track Walmart's front-loaded payments, and we may end up deferring a portion of the revenue to the store deployment period. In summary, we look forward to another quarter of high growth with the continued recovery in our margins. With that, we now welcome your questions. Operator, please begin the Q&A.

Operator, Operator

Thank you. Our first question comes from Nicole DeBlase with Deutsche Bank. Nicole, your line is open.

Nicole DeBlase, Analyst

Yeah, thanks. Good afternoon, guys. So maybe just starting with the OpEx in 2Q. You mentioned that we should see another Q-on-Q increase. Can you talk a little bit about the magnitude of that OpEx increase expected? And at what point do you get to kind of run rate OpEx? Maybe you can split it between SG&A and R&D? Thank you.

Carol Hibbard, Chief Financial Officer

Thanks, Nicole. Yeah, so we saw a step-up in our OpEx this quarter, and we would expect second quarter OpEx to increase about $5 million to $10 million. And this is primarily driven by the investments we're making in the long term for the business, as well as what you're seeing from the acquisitions. So the step-up this quarter for one quarter that we're posting, you saw a step up in SG&A. Some of that was our overall infrastructure, getting ready for acquisitions and our scaling of our program. So as we moderate going forward, you should expect that OpEx to moderate between R&D and SG&A, similar to the levels you're going to see in the second quarter.

Nicole DeBlase, Analyst

Got it. Thank you. And then just maybe if we could dig into the operation services loss in the quarter a little bit more. I think you guys had expected that to return to maybe positive growth. So can you talk a little bit more about what happened? And then how should we think about gross profit for that business for the rest of the year? Thanks.

Carol Hibbard, Chief Financial Officer

When I consider operations services and its components, there's some variability in revenue from one quarter to the next. Different locations experience varying demands based on the training and resources we provide. This quarter, we supported several clients as they prepared to launch major systems. I anticipate this trend will continue in the short term, although not at the same intensity. This will depend on our long-term focus, which is to ensure reliability and support for our customers as they implement and activate our systems online.

Nicole DeBlase, Analyst

Thanks, I’ll pass along.

Carol Hibbard, Chief Financial Officer

Thanks.

Operator, Operator

Please stand by for our next question. Our next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is open.

Andrew Kaplowitz, Analyst

Good afternoon, good evening, everyone.

Carol Hibbard, Chief Financial Officer

Hi, Andy.

Andrew Kaplowitz, Analyst

Rick or Carol, you mentioned that your shift towards more in-sourcing is progressing as planned, and you're anticipating an improvement in your adjusted EBITDA margin again. It appears you're effectively reducing costs as you ramp up the number of systems deployed. Could you provide an update on your insourcing process and whether you feel optimistic about minimizing noise and improving margins moving forward?

Carol Hibbard, Chief Financial Officer

Thanks for your question, Andy. Regarding our engineering, procurement, and construction contract, we’re making good progress. As we mentioned, this will be a multi-quarter transition. Over the past few months, we have brought all that work in-house and have completed the sourcing from our contractors ahead of schedule. All of this work is now handled by Symbotic. We continue to scale, and we expect to have our first few systems, where Symbotic handled the EPC work, completed in the next quarter. This is certainly a key factor in managing our overall schedule. We recognize there’s work to do regarding our overall systems gross margin, and schedule is one of those elements. We are also focused on continuing to improve our costs.

Andrew Kaplowitz, Analyst

Okay, that's helpful. And then maybe related, I think you said you had four new system starts this quarter. You had nine last quarter. We know it's going to be a bit lumpy. Is the run rate still higher, though, overall? Or are you still expecting more over the next few quarters as you sort of stabilize as you just talked about in-sourcing and what have you? Like how do you think about sort of new starts while balancing execution as you've talked about?

Carol Hibbard, Chief Financial Officer

Yeah. So the four new starts this quarter were not unexpected given the fact that we were coming off of the last quarter at nine. And so we've also talked about every quarter's it's going to be lumpy. We'll have some quarters that are higher, some are lower, but we should expect that number to continue to increase throughout the year as we build out our $22 billion backlog.

Andrew Kaplowitz, Analyst

Appreciate it.

Carol Hibbard, Chief Financial Officer

Thanks, Andy.

Operator, Operator

Please stand by for our next question. Our next question comes from the line of Damian Karas with UBS. Your line is open.

Damian Karas, Analyst

Hey, good evening, everyone. Yeah, maybe just taking a step back from kind of your current deployments. I was wondering if you could just maybe give us a sense on any indications or discussions from the potential target pool of customers out there and how they're thinking about budget this year. Are you possibly seeing any changes in those discussions or from last year where there was a more tempered CapEx backdrop or kind of business as usual?

Rick Cohen, Founder, Chairman and CEO

This is Rick. It's been an interesting year. The investments we're making to improve the operational efficiency of our sites are starting to pay off. We've seen a significant increase across various categories towards the end of last year and heading into 2024, as people begin to consider their spending for 2025. We've received a number of additional orders from Walmart, and we've also noticed an increase in interest from manufacturers and suppliers, as well as more inquiries from international customers. It seems that people are now more concerned about the labor situation than they have been in the past. Those who have capital are keen to invest it now instead of waiting to see how our larger customers manage things. We're encouraged by the interest from new customers and the inquiries we're receiving.

Damian Karas, Analyst

Great. That's really helpful information. The topic of tariffs has been very relevant in the investment community lately. I know you mentioned previously that you don’t rely heavily on China, but could you provide some insight on your exposure to China, Mexico, and Canada?

Carol Hibbard, Chief Financial Officer

I can begin, and then Rick will add to this. We have a minimal impact from China. We are continuing to collaborate closely with our supply chain team since the situation is quite volatile right now. Our contracts vary by customer and project, but generally, such costs are passed through to us. We also have some assembly operations in Mexico, which we will monitor closely. However, as you mentioned, the specifics regarding the added value and the final tariffs are still quite unpredictable.

Rick Cohen, Founder, Chairman and CEO

Most of our products are made in the U.S., with some assembly done in Mexico. While many are focusing on tariffs, if immigration is slowed down due to tariffs and deportations increase, I anticipate that the demand for our products will continue to grow.

Damian Karas, Analyst

Yeah, that makes sense. And just thinking about your own supply chain though, hypothetically, if there is a Mexico tariff that gets tacked on would you lean towards making some price adjustments or kind of a shift in the footprint? Just any thoughts on where you have leaned.

Rick Cohen, Founder, Chairman and CEO

Yeah. Contractually, we contemplated tariffs. We have contemplated, I don't know, it's not necessarily force majeure, but government taxes and regulations, and all of our contracts allow us to pass that along.

Damian Karas, Analyst

Great. Thanks for the color.

Operator, Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Joe Giordano with TD Cowen. Your line is open.

Joe Giordano, Analyst

Hi, guys. Thanks for taking my questions. Carol, I was wondering if you can give us an update on the control procedures implemented related to the issues you guys found as part of the year-end audit and how that's kind of informing your guides and giving kind of changing confidence in what you're seeing and how it relates to planning, future planning.

Carol Hibbard, Chief Financial Officer

We have implemented all of our deficiency remediation controls, including additional compensating controls for good receipt and the recording of revenue related to non-billable cost growth. We have provided training and made enhancements to our ERP system, and all of these measures have been deployed successfully. The results from our testing have been promising, as we have not identified any deficiencies in that process. However, we expect that it will require several quarters of testing to fully remediate the issues, but we are optimistic about the progress being made.

Joe Giordano, Analyst

Great. If I could ask one more follow-up and then sneak in a question for Rick. I'm curious about the four systems you completed. How long did those generally take? How does that compare to the expected timeline for the four that you just started? Also, Rick, regarding the M&A side, you've pursued some interesting opportunistic deals. How do you balance the complexity of the organization at this early stage while trying to streamline operations and improve efficiency, versus taking advantage of opportunities that may expand the scope? Thanks.

Carol Hibbard, Chief Financial Officer

So in terms of our timeline, we started our remediation process immediately after the identification of our material weaknesses. So controls we put in place, and we tested them over the course of this quarter.

Rick Cohen, Founder, Chairman and CEO

On the acquisition front, the acquisitions have been relatively small. We were familiar with two of the companies, and one of them was providing consulting for us. These acquisitions are typically our first two outside of the Walmart robotics systems and involve 20-person companies. Therefore, they do not represent significant increases, and we have actually replaced some of our staff with the new technology and team members. Thus, there are no major changes in costs. Regarding the Walmart robotics and systems aspect, it has been about a week or two, and we are still assessing everything. There is some talent there, and we will determine the integration process. The building is just about 10 minutes away, so we anticipate the integration will go smoothly.

Joe Giordano, Analyst

Thanks, guys.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Ross Sparenblek with William Blair. Your line is open.

Ross Sparenblek, Analyst

Hey, good evening, guys.

Carol Hibbard, Chief Financial Officer

Hey, Ross.

Ross Sparenblek, Analyst

Hey, Carol, can you update us on what the lead times look like in the quarter? And just given the work on in-sourcing, how should we think about the internal expectations for driving that progress as we move through the year?

Carol Hibbard, Chief Financial Officer

We have shortened our lead times since the post-COVID period in 2024, and we have not seen significant changes in the last quarter or two. We are continuing to focus on upstream processes to further reduce lead times and simplify deployment when our materials arrive on site.

Ross Sparenblek, Analyst

Are we nearing the end of the 18-month timeline with a plan to reach 12 months? Is that the framework for the next 12 to 24 months, or is there more to consider?

Carol Hibbard, Chief Financial Officer

So the systems that we're deploying right now, we're still averaging 24 months, or in a couple of them. There have been large complex deployments, I'll call it, and they've been over, and we still see a path forward of how we streamline that improvement, but that's going to take some time.

Ross Sparenblek, Analyst

Okay. Can you provide insight into the mix in the backlog regarding fixed cost versus cost-plus? I've noticed some language changes in the recent filing and would like to understand how those contracts are negotiated and if there are any recent updates on that.

Carol Hibbard, Chief Financial Officer

The best way to think about this is that the type of contract varies by project, and we have the capability to negotiate elements of our backlog as we sign new projects. Some items are negotiated as pass-throughs and updates for things like escalation and changes to materials, particularly steel. For things that are fully in our control, such as schedule or project-related aspects, customer expectations are that we perform accordingly. If we do not meet those expectations, it will impact our gross margin. However, items like the tariffs that Rick mentioned are usually regarded as pass-throughs.

Ross Sparenblek, Analyst

Okay. But you don't get the sense you're seeing more pushback at this juncture. And if we hit a more rapid inflationary environment, you're going to start seeing more customers try to shift to a fixed-cost schedule?

Carol Hibbard, Chief Financial Officer

No, we're not seeing that. As you're aware, we've got long-term agreements in place for a good portion of our backlog. And so if you think about our backlog for both our Walmart customer and our GreenBox customer, those contracts are in place, and we're not looking at changing those.

Ross Sparenblek, Analyst

Okay, awesome. Thanks, guys.

Carol Hibbard, Chief Financial Officer

Thanks.

Operator, Operator

Please standby for our next question. Our next question comes from the line of Colin Rusch with Oppenheimer. Your line is open.

Colin Rusch, Analyst

Thanks so much, guys. How should we be thinking about the potential for labor price inflation and how you guys are managing that risk as part of COGS?

Carol Hibbard, Chief Financial Officer

So a significant portion of our buildup is supply based. And so we continue to work with our suppliers and put in place long-term agreements with them to buffer us for some of that. And then for the portion of the work that is Symbotic labor and EPC, it's certainly one of the things we'll continue to monitor. And we're always looking for opportunities across the rest of our cost base is to ensure that we'll be able to offset that.

Colin Rusch, Analyst

Thanks so much. And then there's a fair amount of money that's gone into investing in hardware innovation and around robotics. And certainly, with some of the kind of attention that's being brought to physical AI, we assume that there's going to be some pretty meaningful innovation happening on the component side. Could you guys talk a little bit about what you're seeing that you're excited about in terms of incremental components that can improve performance or drive costs lower, just in general across either the whole system?

Rick Cohen, Founder, Chairman and CEO

We've been at the forefront of this for a couple of years now. Our investment in NVIDIA chips and graphic interfaces began two or three years ago, and we've incurred some expenses related to that, most of which are now behind us. Establishing the physical architecture for our bots was a unique challenge since no one else is doing this in the same way; while others are applying similar technology in the auto industry, our bots are stationary. The moving bots that pick up boxes introduced their own complications, like dealing with vibration. That phase is complete, and we are now focusing on what we call tele-operating the bot. Essentially, our bots are becoming like drones, allowing us to physically move them and their arms. This process has been ongoing for the last six months and is aimed at increasing reliability. Our customer support team has been on-site a lot, which contributed to our expenses last quarter, but this has allowed the bots to learn as well. For instance, if a bot tries to pick up a box and the lid opens unexpectedly, it communicates that it cannot do so, while we tele-operate it to mimic the operator's actions and teach the bot. You can refer to this as AI, but the important part is that the bots learn and provide us feedback. We are also making progress towards creating a fully automated warehouse, and we are getting much closer to reducing manual interventions. The compute power has accelerated, and we are planning to utilize cloud technology for faster transactions and more simulations, leveraging AI to enhance our learning capabilities.

Colin Rusch, Analyst

Excellent. Thanks so much, guys.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Your line is open.

Mike Latimore, Analyst

All right. Great. Thanks so much. Maybe an update on GreenBox. Can you talk a little bit about the demand you're seeing there? Do you expect revenue out of your Atlanta facility this year? Do you expect more sites this year? Maybe just some color on that would be great.

Rick Cohen, Founder, Chairman and CEO

Atlanta is still under construction, so we don't expect much revenue from there this year, and that will likely carry over into next year. The situation in California is similar. However, we have received some interesting inquiries about GreenBox as people are beginning to explore the technology and its various applications. Over the past three to four months, our entire team has been focused on some new hires we can't announce yet, but we plan to introduce these key additions to our management team at GreenBox in the next quarter. They bring experience from both large and small manufacturers in sales and rollout development. This has been a major focus for us, and we've achieved a few significant breakthroughs that we will share in the next quarter.

Carol Hibbard, Chief Financial Officer

And then I'll just do one go back in terms of both Layoff and Atlanta. Their heavy implementation period will be later this year. And so that's when you really start seeing the revenue ramp up. But we're taking revenue for both of those now that you're probably seeing in our financials, but heavy ramp up towards the back half of this year.

Rick Cohen, Founder, Chairman and CEO

Yeah. So we anticipate revenue growth, but the GreenBox revenue will level off next year.

Mike Latimore, Analyst

Okay. So just to be clear, Symbotic will be seeing revenue later this year.

Carol Hibbard, Chief Financial Officer

Absolutely.

Mike Latimore, Analyst

Makes sense. On the cash flow from operations, we had a really strong quarter, generating $205 million. As you consider the rest of the year, should we expect cash flow from operations to be above or below what you produce in EBITDA?

Carol Hibbard, Chief Financial Officer

We do not provide guidance for full year free cash flow. The first quarter was positively impacted by the timing of the receipts we mentioned last quarter, as we had a significant accounts receivable balance. Therefore, the first quarter benefited greatly from that, but we expect our cash position to continue improving throughout the year.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Derek Soderberg with Cantor Fitzgerald. Your line is open.

Derek Soderberg, Analyst

Yeah. Thanks for taking the questions. Good evening, everyone. I wanted to ask on the software subscriptions and support. That was down quarter-over-quarter. Just curious what leads to the variability there on the downside, especially I think last quarter, you added nine systems. And you brought a few on to lag production. Just curious what leads to that to decline sequentially? And then what's the actual mix between software subscriptions in that and then the mix of support in that? And then I've got a follow-up.

Carol Hibbard, Chief Financial Officer

So our software revenue quarter-over-quarter, we did grow the number of sites, so we went from 25 sites live to 29 sites live. In 4Q, we had a one-time benefit in the software revenue line item for some features that we added. So yeah, if you normalize for that one-time benefit in the fourth quarter, you actually see a sequential increase in our overall revenue for software, and we expect that to continue to grow. So the overall operations of the services we're performing from the site show up in our operation services line. So our software line is software license and subscription related.

Derek Soderberg, Analyst

Got it. That's helpful. And then just a high-level question for Rick. The team has really executed against your growth strategy, expanding in domestic markets and then international with Walmex, now you've got an in-store solution. How do you see the business evolving from here in terms of other adjacent growth opportunities, maybe cold chain, automating returns, smaller packages. What else do you envision that Symbotic can do that you're not already doing today? Thanks.

Rick Cohen, Founder, Chairman and CEO

We are working on improving our ability to pick up products from Walmart's frozen and perishable sections. Our plan includes developing the entire process, which will lead us to operate dedicated perishable warehouses and handle items back at the store. We've started some tests on the perishable side, and managing temperatures around 38 degrees is not an issue for us. However, we still need to conduct further testing on frozen items, which remains part of our future plans. We believe we can excel at managing returns, but we've been too occupied to focus on that aspect at the moment.

Operator, Operator

Please standby for our next question. Our next question comes from the line of Greg Palm with Craig-Hallum. Your line is open.

Greg Palm, Analyst

Yes, good evening. Thanks for taking the questions. Going back to some of the cost overruns that sort of surfaced last quarter. I'm just curious if we could get kind of just a broader update, especially on kind of visibility levels and when you sort of see those moderating going away completely, at least given what we saw from some of the quarters in fiscal '24.

Carol Hibbard, Chief Financial Officer

Yeah. So this quarter, we saw a slight improvement in our systems gross margin. So a slight tick up. And as we go forward in 2Q, 3Q, and 4Q, we do have continued focus on making sure we're adhering to schedule, adhering to cost. But you're also going to see benefits in the back half of the year, as we will see several of our lower-margin, very complex systems go live. And so we're going to see the benefit of a higher gross margin mix as you head to the back half of the year. So focus on cost control and focus on deploying opportunities for all of those projects, but we're also going to see the benefit of those systems starting to go live and our mix will improve.

Greg Palm, Analyst

Okay, understood. And then the revenue, at least by our math, the revenue from non-Walmart customers, which had been growing pretty fast for the last year plus really moderated this quarter. It was just very, very slight growth. Was that just timing? Like how should we think about just the revenue profile of obviously, the Walmart business, but also the non-Walmart customers as well?

Carol Hibbard, Chief Financial Officer

Yeah. So clearly, by the backlog that we have and the percent that's contributed from Walmart, you're going to see a significant contribution from Walmart going forward. And as Rick talked about from a GreenBox perspective, once we get the management team in place, we're fielding inbound there, you're going to start seeing that grow at the back half of the year. We continue to focus on what are some other customers that we can bring in in-house. And maybe I'll turn it over to Rick to highlight some of the inbound discussions we're having.

Rick Cohen, Founder, Chairman and CEO

We have several manufacturers interested in utilizing our systems for mixing centers, which is leading to our first consumer packaged goods companies exploring this option as they realize the need to cater to smaller customers for sales growth. Additionally, we're observing interest in back-of-store systems that are more affordable than warehouse solutions, which could attract various retailers aside from Walmart, with some inquiries about customer pickup in those areas. We're actively working on these opportunities and have also begun exploring different sectors, including medical supplies, where we expect to see further interest.

Greg Palm, Analyst

Okay, thanks for the color.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Rob Mason with Baird. Your line is open.

Rob Mason, Analyst

Good evening. Thank you for taking my question. I would like to get an update on the deployment of break pack systems. I understand that there may have been a second one deployed last quarter, so I’m interested in how that is progressing. Additionally, Carol, you mentioned some complexities related to lower-margin projects. I am curious if this is connected to new features being introduced that we might not be familiar with, or if it's the nature of the installation that is causing these complexities.

Rick Cohen, Founder, Chairman and CEO

We have our second break pack being deployed, and there are several others that will follow soon, which we haven't announced yet. We've redesigned the original mini-bot and introduced some new design features that customers are really pleased with. It makes the product a bit smaller and lowers the price while actually increasing our margin. This is just one of the many products that have been in development for a while and are progressing well.

Carol Hibbard, Chief Financial Officer

And then in terms of my comment on the mix changing as we go forward. It's less about the new features that were on those projects, and there were projects that have just been with us for a long time that started out as lower margin. And as we burn those off, we're going to see that mix change. So it was less about the features of those particular developments. Some of them are bigger systems that have been in deployment for a while, and it would be good to get those moved off into system deployment.

Rob Mason, Analyst

Great. Thank you.

Carol Hibbard, Chief Financial Officer

Thanks, Rob.

Operator, Operator

Please standby for our next question. Our next question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is open.

Ken Newman, Analyst

Thanks, good evening, guys. Carol, you mentioned expectations for gross margins to expand from 1Q into 2Q. When I just think about that in the context of the midpoint of your guide, as well as some of the comments about mix kind of improving into the second half. Does that assume that the systems gross margin can break 20% here in the first half? Or is that still a bit too optimistic?

Carol Hibbard, Chief Financial Officer

I would say achieving 20% in the first half is optimistic. Since the first quarter is already behind us, I do not expect the second quarter to surpass 20% in the first half of the year.

Ken Newman, Analyst

And to be clear, would that mix step-up that you mentioned earlier in the call. Is that a potential step to kind of breaking that pathway?

Carol Hibbard, Chief Financial Officer

Yeah. And I think what you're going to see in the second quarter too is we're going to have growth in OpEx, which we talked about. And so that's what you're also seeing in our EBITDA guide. It reflects an increase in OpEx as well as a slight improvement in systems gross margin. Software margin, we're going to continue to see levels in the 60s. And as we talked about, ops gross margin will be a drag for the near term, but in the long term, we expect that to rebound.

Ken Newman, Analyst

I wanted to follow up on your earlier comment about AI. I've noticed many headlines discussing potentially cheaper methods for training AI models. Given that you have been a leader in this technology, do you think these cheaper training methods could act as a catalyst for your growth, or do you see them as potential competitive threats as other companies adopt this technology? How do you view this in relation to your system offerings?

Rick Cohen, Founder, Chairman and CEO

Yeah. That's a really good question. So we think we're very, very far ahead of everybody else. And the reason I say that is we've now hit billion transactions a year, and you can't train these models without data. Nobody has the amount of data that we have combined with the architecture and the software. So we think we'll just continue to distance ourselves from the product.

Operator, Operator

Thank you. Please standby for our next question. Our next question comes from the line of Will Bryant with Goldman Sachs. Your line is open.

Will Bryant, Analyst

Good evening. Thank you for taking my question. I'm here for Mark Delaney today. I have a quick question about the APD acquisition. I understand it's expected to enhance revenue margins and free cash flow, but could you provide more details on its financial impact for this year, considering that revenue won't start coming in for a few more quarters?

Carol Hibbard, Chief Financial Officer

Yeah. So our second quarter does have a modest amount of revenue associated with our acquisitions. So again, it's modest because we'll have a partial quarter, and we're just getting started from that development program. But you're going to see that growth throughout 2025 as we ramp up development. If you think about the cash that we got for the first year, I think our comment was, $230 million of cash from the quarter drives $200 million of revenue for this year. So it will be backloaded. But we do have revenue a modest amount already beginning in the second quarter, and we're excited to get the integration going forward and start development.

Will Bryant, Analyst

Thank you for the color. And just one more. I know Symbotic had commented that it plans to add more salespeople. So what are your expectations for potential new customers either with Symbotic?

Rick Cohen, Founder, Chairman and CEO

Yeah, that's what I meant. We're beginning to expand the GreenBox sales team, and some members will transition to Symbotic, with some selling the Surmodics system and others offering the GreenBox solution. We're currently in the process of hiring sales leaders, and we believe the positive feedback we’ve received about the leadership team's efforts to build up the sales force will lead to good results. We have already started bringing on two or three additional salespeople at Symbotic, who will concentrate on various verticals.

Will Bryant, Analyst

Thank you.

Operator, Operator

Please standby for our next question. Our next question comes from the line of Guy Hardwick with Freedom Capital Markets. Your line is open.

Guy Hardwick, Analyst

Hi, good evening. Most of my questions have been asked already, but I just wonder how you feel about the guidance you gave in the 2024 10-K that 10% of the $22.4 billion backlog would be delivered this year. And maybe you can give some puts and takes to that? Or does it depend on a certain number of deployments in progress?

Carol Hibbard, Chief Financial Officer

In our 10-Q that we posted this evening, we increased the remaining performance obligation we expect to deliver in the next 12 months to 11%. This should serve as a solid indicator of how our revenue will grow in the latter half of 2025. We are currently anticipating that the fourth quarter will be stronger than the third quarter.

Guy Hardwick, Analyst

Great. Thank you. And just as a follow-up, sorry if I missed it earlier, I was late on the call. I'm just wondering how discussions with non-grocery customers are progressing, say, general merchandise customers potential for new customers, I mean.

Rick Cohen, Founder, Chairman and CEO

A number of the customers we're talking to are non-grocery customers. And there are different verticals. So I mean, most retail is still food or general merchandise, but there's also medical supplies, and there's auto parts, and there's a bunch of other things, all of which we're in discussions with.

Robert Jamieson, Analyst

Yeah, thanks for taking my questions. Just I had a quick one on the Walmart Robotics acquisition. I know it's just closed, and it's only been a few weeks. But Rick, do you have a sense of where you think the majority of work will be directed to meet Walmart's requirements for these APD systems? Like is it more software-related? Is there anything you can use or repurpose or make better on the hardware or robotics front that was maybe developed by alert innovations in the system?

Rick Cohen, Founder, Chairman and CEO

Yeah. So the Walmart's robotics solution, at this point, we're still looking at it. But there's a bunch of our hardware and a bunch of our software that will be applicable to what Walmart already had, and that will accelerate the rollout of these sites. They had some good technology, but I think the combination of their technology and our technology is what really got Walmart excited and accelerated the rollout.

Robert Jamieson, Analyst

Okay. Thank you. And then just can we get an update on international? I mean, it doesn't sound like there's much of an update this time. But I mean how did conversations trend during the quarter? Did you see an increase in inbounds or queries? Anything that would suggest maybe the activity is getting a little bit better. The environment is improving over there?

Rick Cohen, Founder, Chairman and CEO

We had several tours and visits in Europe, and I spent a significant amount of time in Mexico focusing on Walmex to assess the potential there. It was quite insightful. Wages in Mexico are lower than in the U.S., and their supply chain is lagging behind ours in terms of inventory management and store delivery flow. I visited some Walmart supercenters, but there are numerous small stores in Mexico that benefit from the specialization in pallet delivery to those stores. This presents a substantial opportunity in Mexico, Central America, and South America.

Operator, Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Charlie for closing remarks.

Charlie Anderson, Vice President of Investor Relations

Yeah. Thank you, everybody, for joining our call tonight. We really appreciate your interest in Symbotic and look forward to seeing many of you during the quarter at the various investor conferences will be attending. Thank you, and goodbye.

Operator, Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.