Symbotic Stock: A SPAC That Might Make It – Maybe (NASDAQ:SYM)

Symbotic Inc. (NASDAQ:SYM) is a company that recently went public via a merger with SPAC company SVF Investment Corp. 3. It provides AI-enabled automation and robotics technology to improve the supply chain of wholesalers and retailers.

While the company has been growing revenue as it accelerates it business plan, it at the same time is increasing expenses, which will weigh on its performance until it starts to cut costs and/or lowers spending, the latter of which isn’t likely to happen anytime soon.

According to CEO Richard Cohen, over the last year Symbotic Inc. has signed contracts to bring its backlog to over $11 billion. That creates the problem of hyper-growth that isn’t easy to execute on.

How quickly the company can efficiently fulfill these contracts will be a key to its short-term growth momentum, and over the longer term the increase in its backlog will give a clearer look at its growth potential.

In this article we’ll look at its last earnings report, the challenges of balancing expenditures, and what the chances are it’ll be one of the few SPACs to not only survive but succeed.

Numbers from its last earnings call

Revenue in the fourth fiscal quarter of 2022 was $244.4 million, compared to $91.7 million in the fourth fiscal quarter of 2021, and $175 million in revenue from the prior quarter.

Revenue for full-year fiscal 2022 was $593 million, compared to $252 million for full-year 2021, and $92 million for full-year 2020.

Since the company hasn’t released its latest 10-Q at the time I’m writing, I did want to include costs and expenses from the prior quarter and first nine months of fiscal 2022, in order to give a picture of the company’s spending patterns. The full-year numbers are from its latest 10-K and up-to-date.

Total cost of revenue in the third fiscal quarter of 2022 was $144 million, compared to total cost of revenue of $131.8 million in the third fiscal quarter of 2021. Total cost of revenue in the first nine months of fiscal 2022 was $286 million, compared to the total cost of revenue of $158 million in the first nine months of fiscal 2021.

Cost of revenue for full-year fiscal 2022 was $494 million, compared to $241.5 million for full-year fiscal 2021, and $111 million for full-year 2020.

Operating expenses in the third fiscal quarter of 2022 came in at $64.6 million, compared to operating expenses of $37 million in the third fiscal quarter of 2021. Operating expenses in the first nine months of fiscal 2022 were $149 million, compared to operating expenses of $93 million in the first nine months of fiscal 2021.

Operating expenses for full-year fiscal 2022 were $240 million, compared to $132.8 million in operating expenses for full-year fiscal 2021, and operating expenses of $91 million for full-year 2020.

Operating loss in the third fiscal quarter of 2022 was $(33) million, compared to an operating loss of $(38) million in the third fiscal quarter of 2021. For the first nine months of fiscal 2022, operating losses were $(86) million, compared to operating losses of $(91) million in the first nine months of 2021.

Net loss in the third fiscal quarter of 2022 was $(32.875) million, compared to a net loss of $(37.8) million in the third fiscal quarter fiscal quarter of 2021.

Net loss attributed to common stockholders in the third fiscal quarter of 2022 was $(1.3) million. Legacy Warehouse unitholders absorbed $19.178 million of the total net losses, while noncontrolling interests absorbed the remaining $(12.4) million in total net losses.

Net loss for full-year fiscal 2022 was $139 million, compared to $122.3 million in full-year fiscal 2021, and $109.6 million in full-year fiscal 2020.

I wanted to share the details of the cost of revenue and expenses to show, first, that they are there and substantial, but also that over the last year it has made modest improvements in bringing operating expenses down, although on a full year basis both continue to climb.

At the end of the fourth fiscal quarter of 2022, the company had $353 million in cash on hand.

As for guidance, the company projects revenue to be in a range of $170 million to $200 million for the first fiscal quarter of 2023, down by $44 million on the high end of guidance and $74 million on the low end of revenue guidance from revenue in the fourth fiscal quarter of 2022, but 140 percent higher year-over-year.

Guidance for adjusted EBITDA loss is from a range of $(21) million to $(25) million. While that’s a 15-percentage point improvement year-over-year, it’s to be expected with the expected decline in revenue for the first fiscal quarter.

Backlog

The key to Symbotic Inc.’s performance going forward is how it executes on its $11 billion backlog.

Before getting into the steps Symbotic is taking to fulfill the backlog, it’s important to understand the significance of first fulfilling it on a cost basis. What I mean by that is once the initial work is complete, its business model includes a recurring revenue stream, which reflects a large portion of the lifetime value of the systems it puts in place. The recurring revenue, which is a monthly stream, comes from operation services, maintenance and software licenses.

In the early stages, recurring revenue is expected to be very moderate as its growing its systems revenue. After those are completed, the recurring revenue will represent a significantly higher gross margin than system revenue generates. And, as recurring revenue becomes a larger percentage of total revenue, it’s going to be one of the answers as to how the company will offset expenditures while it grows the business.

In order to meet its obligations concerning its large backlog, Symbotic Inc. is focusing on several things. The first has been to increase its internal manufacturing output, second to accelerate system deployments, and last to work on securing partner capacity the company can leverage to increase its pace of growth.

I think the last is by far the most important for the growth of the company, and Symbotic Inc. management said it has been working throughout 2020 on increasing the number of its outsourcing partners to align with its growth opportunities and plans over the next several years.

Part of its strategy is to partner with multiple suppliers and Tier 1 providers. Management said fulfilling existing customers and its large backlog is already a full-time job, but if the company and its outsourced partners and execute efficiently and quickly, it could allow the company to grow at even a faster pace.

Conclusion

Symbotic Inc. is competing in a market sector that is rapidly trending, and with its huge backlog and strong opportunities ahead of it, if it can execute on growth while finding ways to lower costs, the company could end up being one of the small number of SPACs that succeed.

It already has some visibility on improving margin with its recurring revenue model, which will take some time to have a meaningful impact on its top and bottom lines, but it’s already in place. If its churn is low, it should be a key catalyst to moving the company toward profitability.

As for risks, it’s in regard to cost of revenue and operating expenses. They have continued to increase, and I don’t think that’s going to change in the near future, although it should start to show signs of at least incrementally improving from quarter-to-quarter. I think this is a reason SVM is pressing on the pedal, so it can complete putting its systems in place so they can start a stream of recurring revenue that should turn into a low-margin revenue stream that will provide years of less expensive sales, which over time would result in growing both its top and bottom lines together.

As for its share price, Symbotic Inc. has been on a big run since it fell to its 52-week low of $8.75 on November 17, 2022, and soared since then to trade at approximately $14.00 per share as I write.

While acknowledging the share price could soar from here based upon its huge backlog and competing in the AI-automation sector, I think Symbotic Inc. stock is pricey at this time because of the significant amount of spending it’ll take to grow the company.

For a time, I expect Symbotic Inc. to operate at a loss, and until there’s confirmation it and its outsourcing partners are able to effectively meet the demand from its backlog, SYM is a risky stock to take a position in.

On the other hand, if SYM corrects to the $10.00 mark or lower, it may be worth taking a look at.

I simply have no idea if SYM stock is going to soar to take a huge dive. For that reason, now I’m passing on it, but Symbotic Inc. is a stock to follow if looking for potential asymmetrical gains, especially if investors can get in SYM at a favorable entry point.

Bear in mind that this is the type of stock that could attract a lot of speculators that could easily turn Symbotic Inc. into a meme stock. That’s another reason I would want to see it fall back before considering taking a position.