onurdongel
Investment thesis
Given that there are quite a few articles that already gave a good background information and thesis on Symbotic (NASDAQ:SYM), which I mostly agree with, I am focusing on what happened in 1FQ23 earnings and my thoughts on SYM moving forward.
For 1Q23, I thought the report was positive, with results slightly above expectations and Q2 forecasts falling in line with expectations. Its non-GAAP EBITDA of ($16.3) million and revenue of $206 million for the 1FQ23 were both higher than the $194 million and ($22.6) million expected by consensus. In addition, management guided revenue between $205 and $230 million and adjusted EBITDA between ($13) and ($17) million for 2QFY23, whereas consensus estimates were for $220 million in revenue and ($16) million in EBITDA.
Revenue for 1QFY23 was up 168% year over year, and the company’s backlog increased to around $12 billion, both of which give me reason to be optimistic about the company’s future top-line growth. I think these numbers are representative of the long-term growth potential for warehouse automation due to the efficiencies it can bring to customers.
1FQ23 earnings review
Revenue of $206 million was reported by SYM for the 1FQ23, which was down 16% sequentially and up 168% year over year but was still above the high end of guidance of $170 million to $200 million and 6% above consensus estimate of $194 million. Management also reported an increase in the backlog to $12 billion due to rising demand for their solutions and the launch of six new system deployments.
Segments specifically, SYM reported:
- Systems revenue of $197.9 million, which was a sequential decline of 17% but an increase of 178% compared to last year
- Software Subscriptions revenue of $1.2 million, which was a sequential increase of 33% and annual growth of 27%
- Operation Services revenue of $7.2 million, which was a sequential increase of 24% and annual growth of 47%.
Profit wise, SYM reported non-GAAP EBITDA of ($16.3) million, which was better than consensus estimates. As for balance sheet, SYM ended the quarter with $448 million in cash.
Guidance
SYM guided revenue for 2FQ23 between $205 million and $230 million, which is 1% below the consensus at $220 million. SYM also guided a range of ($13 million) to ($17 million) for adjusted EBITDA for 2FQ23.
SYM’s dedication to expanding its network of outsourcing partners is something I appreciate. This is vital because it reduces SYM’s exposure to risk while allowing for increased system delivery rates through outsourcing. While the rapid increase in outsourcing will have a negative short-term impact on gross margins, it will have a positive long-term effect. That agrees with the management’s comments in the most recent earnings commentaries.
The income from software subscriptions is something else I keep an eye on. Given that the current run rate is less than $10 million, it makes sense that management would expect recurring revenue to be modest in comparison to systems revenue in the near to medium term. My prediction is that the company’s recurring revenue stream will expand over time and eventually outpace the gross margin of its systems revenue.
Key catalyst
Increased production of key components and speedy installation of SYM’s systems at customers could be a game-changer for the company’s business and stock performance. There are only a handful of SYM systems that have been fully installed, but the company has orders to install hundreds more. I expect this number to grow rapidly over the next few years. If SYM can produce and install these systems more quickly than expected, it could have a hugely positive effect on the company’s bottom line.
Key long-term secular driver
When looking at the big picture, I believe the expansion of online shopping will be the most important factor. It doesn’t take a rocket scientist to figure out that as eCommerce continues to expand, the volume and variety of products stored in warehouses will grow in complexity. When we factor in the industry’s ongoing labor shortages and rising cost of labor, I believe we have a compelling case for the need to automate warehouse processes, which bodes well for the future of warehouse automation.
SYM’s strong customer connections, particularly with Walmart (WMT) (which plans to install their system in its regional distribution centers), put them in a good position to take advantage of this development. The company also has partnerships with several other major logistics companies. In my opinion, SYM’s connections and backlog put it in a position to experience rapid expansion in the coming years. The collaboration between SYM and Walmart not only provides a solid basis for future revenue growth, but also solidifies SYM’s position as a market leader.
Though SYM has had success with clients apart from WMT, the heavy backlog and anticipated operational emphasis from WMT may limit their ability to expand with other customers in the short to medium term.
Valuation
Based on consensus estimates, which I believe is achievable given the strong backlog and growth runway, I believe the upside from here is around 31%.
Model walkthrough:
- Revenue is expected to continue growing at a high pace as SYM fulfils its backlog, from $593 million in FY22 to $1.5 billion in FY24
- Given that there are no signs of growth deceleration and everything (including FCF and OPEX management) seems fine, I don’t see any near-term risk to push down the valuation from where it is today (7.2x forward revenue)
Own estimates
Risk
Customer concentration
Since WMT accounts for the vast majority of SYM’s backlog, any adjustments to the rate at which buildouts are proceeding could have a major effect on SYM’s bottom line.
Conclusion
I believe that SYM has a promising future because of its innovative warehouse automation solution and because its management team has the necessary skills to rapidly scale the business and turn a profit.
