Symbotic (SYM) – Looking for a Confidence Signal
In the April 10th JaguarLive session, Symbotic (SYM) was brought up for the first time. Simply put, this is a warehouse automation company that develops and deploys technology solutions that improve supply chain operations.
The company highlights how they have completely re-designed and re-engineered the warehouse, “unencumbered by legacy thinking and the resulting narrowly targeted technologies aimed at reducing fragments of cost in the warehouses.” Its systems manage every aspect of warehouse logistics, from the time merchandise is off-loaded from a producer’s truck/container until that merchandise is ready to be delivered. “Our platform has an approximate useful life of 25 to 30 years and is so space efficient that it can be installed in phases in operating distribution centers with minimal impact to operations. The platform is composed of atomizing robotics, a buffering structure, autonomous mobile robots that handle product, robotic palletizing cells and software that coordinates and optimizes the movements of all these systems to maximize the throughput of goods while reducing cost of the system.”
Needham recently attended the ProMat Conference in Chicago, a manufacturing and supply chain event. It drew 50,924 attendees and over 1,000 exhibitors, with overall attendance up 12% from the last pre-pandemic show in 2019. Robotics and automation was a focal point of this year’s ProMat. Analyst James Ricchiuti was out saying that with estimates that nearly 75%-80% of warehouses are still lacking automation, third-party market research firms anticipate growth in the robotics and warehouse automation market to be in the high-teens to 20% through the end of the decade. Retailers, manufacturers, and third-party logistic companies (3PLs) are under pressure to drive greater efficiencies through their distribution centers even as they face increased wage pressures and labor shortages. The tone from companies they spoke with at ProMat was generally upbeat, with most expecting to show growth in 2023 despite increased macro concerns.
Regarding customers, Symbotic notes in its 10-K that they have a strong blue chip customer base that includes some of the world’s largest retailers and wholesale grocers, including Wal-Mart (WMT), Albertsons (ACI), Target (TGT), Giant Tiger, and C&S Wholesale Grocers. Since inception, customers have ordered approximately $12.1B of systems, and as of September 24th, 2022, they had orders of approximately $11.1B in backlog. They add that a substantial majority of the $11.1B in backlog relates to Wal-Mart.
Their 10-K mentions on how they have been working with Wal-Mart since 2015 and entered into the initial Walmart MAA in 2017 and restated and amended that agreement over the years, with the most recent being on May 20th, 2022, in which they amended and restated the agreement to further expand their commercial relationship with Wal-Mart and the scope of the Wal-Mart MAA to the implementation of 188 modules, 20 of which are contingent on the satisfaction of certain conditions described in the Walmart MAA, across all of Walmart’s 42 regional distribution centers.
Following Wal-Mart’s Investor Day earlier this month, Raymond James said that overall, the update fits their view/model and importantly illustrates that Wal-Mart sees Symbotic as a critical automation infrastructure provider with deliveries that appear to be tracking in-line with expectations. “This is also further evidence that SYM is well positioned to address some of the biggest challenges of today’s complex supply chain, such as inventory agility, transportation cost, and labor availability, where we see an inflection of demand for warehouse automation across all industries.”
Symbotic will be reporting their Q2 numbers on May 1st after the close and Cantor Fitzgerald was out with a note reminding clients that at their February Virtual NDR with CFO Tom Ernst, they left the meetings confident that Symbotic’s outsourcing model initiatives can support a greater capacity for system deployments. Analyst Derek Soderberg said that Symbotic has added multiple Tier 1 suppliers that now span the full deployment process (from manufacturing to installation), with plans to qualify an additional two Tier-1 suppliers in FY2Q23 and FY3Q23.
“Thus, we are looking at FY2Q23 reported concurrent deployments (earnings date TBD) as a confidence signal that deployment capacity is sufficient to support not only Walmart, but other large customers. We believe an incremental large agreement (multi-billion dollars) would help retire the ‘Wal-Mart-only’ thesis on the stock.”
Finally, later on in the month, the company will be hosting its Investor Day on May 18th down in Tampa, Florida. This event will include a facility tour of Symbotic’s live production system at Wal-Mart’s Brooksville distribution center. In addition to hearing an update on Symbotic’s strategy, growth opportunities, and financials, Cantor believes there is the potential that Symbotic will showcase a live production Break Pack system as it was under construction during their June 2022 Brooksville facility tour.
