Symbotic Inc. (NASDAQ:SYM) Q4 2022 Earnings Call Transcript

James Ricchiuti: Question I have — thank you. The question I have relates to the Q1 guidance, which was stronger than expected. And I’m wondering, how we might think about either the deployment of systems over the course of fiscal ’23 and the cadence of revenues, obviously the revenues are going to move around quarter-to-quarter, I think we are all aware of that, but I’m just wondering if you can give us anything we need to be mindful of in terms of how revenues progress over the course of fiscal ’23?

Richard Cohen: Yeah, thanks for the question, Jim. So just thinking about the growth. We’re pushing the business to grow on multiple fronts. And so, if you look at the quarter we just posted, we clearly had some very strong results across the board and those results are just driven by strength and our ability to install the systems quickly, about fast uptake with our supply-chain partners, new starts and an overall improving supply chain. So as we think about pushing the business on multiple fronts, it was clearly a quarter where things went in our favor. As we look-forward, we’re focused on growing really fast. Now I think as we’re deploying these systems through these first wave of systems, we can see some significant quarter-on-quarter variability just due to the number of systems in our overall growth, but you should think about the general trend that we’re trying to take those number of systems that we’re deploying and pushing that to fully functional live and grow it as fast as we can.

James Ricchiuti: Got it. And follow-up question is just on OpEx, pretty significant step-up in R&D and SG&A. How do you see these expense items scaling from the levels that were at in the current quarter? And perhaps as we think about the year as a whole, it sounds like you’re clearly still in a heavy investment mode, given the prospects of the business and now what looks to be more available talent out there?

Richard Cohen: We did see OpEx grow — growth moderated to about 7% quarter-on-quarter and that’s despite 167% year-on year growth in revenue. Yeah, I think as we look-forward and what’s implicit in our guidance would be another more moderate growth in OpEx. As we think about our growth overall kind of looking at the results for the full year and then thinking about looking forward, we see some very strong operating leverage. And so thinking about that operating leverage, this OpEx growth despite growing very fast, a significant portion, the majority of our OpEx is invested in new innovation along with expanding our capacity to grow the business. So we’re showing strong leverage, while still making these big investments to actually make the business grow faster and come out with new products. So it’s a great position to be in.

James Ricchiuti: Helpful. Thanks a lot. I’ll jump back in the queue.

Richard Cohen: Thanks Jim.

Operator: One moment for our next question. The next question from the line of Chris Snyder from UBS. Your line is open.

Chris Snyder: Thank you. Can you just kind of follow up on some of the gross margin challenge or headwinds in the quarter? I think you guys called out, if I heard right, several 100 basis-points from steel and then also some one-time costs around outsourcing, can you maybe just kind of recap what those were in the quarter? And then how should we expect the GM, our gross margin to trend going forward?

Richard Cohen: Yeah. Thanks for the question, Chris. So in the fourth quarter, we continued to see what we had seen all of fiscal ’22, which was, we are bearing some costs associated with just growing fast in the COGS line along with those steel pass-through costs so that’s been consistent throughout the course of fiscal ’22, that does represent several 100 basis-points of gross margin impact to where we see a more structural gross margin, mid to longer-term. And to your question, we did have some additional one-time costs including some costs associated with outsourcing in the fourth quarter. Examples of those costs are a couple fold, I’ll give you two. We consolidated our warehouse operations and enhanced some other material handling processes.

And so we absorbed some of those costs as one-time in-period costs to make that shift and this is — these are some key things that we wanted to do to really accelerate our ability to work with outsourcing partners. Another example is we have some major innovation initiatives underway, some of those costs in-part will flow into COGS not just in R&D and in the fourth quarter we made some significant headwind in some of those innovation projects that did come in as in-period costs. So I think as you think about that looking forward, we do see the fourth quarter as a low watermark and thinking about our fiscal ’22 gross margin overall, we see some very strong gross margin leverage as we look forward with our operations.

Chris Snyder: I appreciate that and if you just kind of look that like steel prices down pretty significantly off the high and that sounds like earlier the company is pretty confident in the ability to hold, if not, even grow price, so it sounds like there’s a pretty favorable price cost outlook here over the next 12 months, how should we think about maybe that lag? Obviously, you guys aren’t realizing some up stock commodities in real time. How long does it take that credit costs relief to flow through the business relative to kind of what we see in the stock market? Thank you.

Tom Ernst: Yeah, Thanks for the question. So thinking about all these effects in total too, ex times these one-time effects we saw in the fourth quarter, our gross margin would have been up quarter-on-quarter. So these one-time effects were actually significant in the fourth quarter. You are pointing out steel as well, it’s anywhere from six to up to a 12 month lag in terms of we lock in steel capacity for some items well in advance of installation, so as you’re watching steel industries, you should think about maybe on average of six-month lag in terms of weighted for us. Go ahead, Chris.

Chris Snyder: Thank you, Tom. If I can just squeeze in on one last one, so on more of the transitory gross margin headwinds like the outsourcing, the innovation, are those going away? Or are those going to stay with the business? I would imagine you guys will continue to outsource to kind of ramp if that is possible and I’m sure that innovation engine is not slowing either and that’s why my last one. Thank you.

Richard Cohen: Yeah. At the gross margin line, they are little bit more weighted towards the one-time. We are — we have been and we will continue to invest to support some redundant costs that are associated with ramping on these outsourcing partners in the near-term. We see those providing very significant mid and long-term revenue. In fact, as we think about the overall strategy here with outsourcing, we see it providing us first a path to be in a much bigger company. And that path to being a bigger company gives us a path to being more profitable, but not just because of the revenue, because we think it provides structural margins that are much higher, both at the gross and operating margin level as we think long term in the business.

Chris Snyder: Thank you.