Berkshire Grey, Inc. (NASDAQ: BGRY) Second Quarter 2022 Earnings Conference Call August 11, 2022 10:00 a. m. m. ET
Participating companies
Sara Buddha – IR
Tom Wagner-CEO
Mark Fidler – Chief Financial Officer
Conference Call Participants
John Walsh – Credit Suisse
Greg Palm – Craig-Hallum Capital Group
Andrew Obin – Bank of America
Operator
Hello and welcome to the call from Berkshire Grey’s second quarter 2022 earnings convention. [Operator Instructions] Please note that today’s occasion is on record.
At this point, I would like to entrust the convention to Sara Buda, Vice President of Investor Relations. Continue.
sara buddha
Hello everyone and thank you for participating in the Berkshire Grey Quarter 2022 Earnings Convention call. Earlier in the day, we issued a press release announcing our monetary results. The press release is available on our online investor relations page at ir. berkshiregrey. COM.
Today’s discussion will be led by Berkshire Gray founder and CEO Tom Wagner; and our Chief Financial Officer, Mark Fidler. After the comments prepared by management, we will open the call for questions.
Before we begin, we would like to tell you that certain statements made in this call for conventions could constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. those expressed or implied in the forward-looking statements provided in this convention call due to various uncertainties and points of threat. Information related to those uncertainties and points of threat is contained in our filings with the SEC. The forward-looking statements included in this call are based on data we already have available and constitute the company’s existing opinion as of the date such statements are made. We do not adopt the updating of these statements.
As a reminder, we will refer to certain non-GAAP monetary measures in today’s call. A detailed reconciliation of GAAP and non-GAAP measures can be found in our press release on today’s results, which will be provided to the SEC and will now be available on our RI website. These non-GAAP measures are additional and do not update or exceed the monetary functionality measures listed in accordance with GAAP and are not considered an option for the measures of functionality derived under GAAP.
With that, I pass the word to Tom Wagner, our CEO.
Tomas Wagner
Thank you Sara. Hello everyone. Welcome to our 2022 quarter earnings call. Today, Mark and I will update you on our quarterly performance, operational execution, long-term strategic alignment with customers, and the favorable macroeconomic environment driving the need for automation.
Let’s communicate about the first quarter. In the current quarter, we generated revenue of more than $23 million, an expansion of nearly $19 million year-over-year and well above expectations. As of July, we have secured $23 million in new orders this year, of which approximately $20 million has been achieved since our last earnings call. We have made smart progress in winning new orders and expect more to arrive in the current part of the year, which is in line with what was previously shared.
As we develop our implementation activities and increase our order book, we are focusing on execution. During the current quarter, we actively implemented our responses to 8 consumers in 16 locations in the U. S. Implementations will continue to evolve in the current part of the year. We remain ourselves and our generation generates a tangible price for consumers. In fact, most of the orders won this year are follow-up orders with existing consumers.
Our implementation groups are up and running and our generation continues to exceed visitor expectations, which is vital for us to achieve our expansion goals. Still on the issue of execution, we are making progress on product margins. Mark will provide more colors soon. however, we have learned charging innovations for all our products, which will be learned for implementations in 2023. We, the bottom line is that we are well placed for a significant overall improvement in gross margin next year and beyond.
Now I would like to move on to the strategic factor of one of our key customers, FedEx. As many of you know, we have been deploying our RPSi solution on FedEx sites for a few years. The RPSi solution, which stands for Robotics, Product, Classification and Identification, supports small packages such as those produced through e-commerce. And with a single system, separate, scan, and write those articles, so they can make their way through the FedEx network. Our RPSi takes care of everything from padded envelopes and boxes to polyethylene tubes, envelopes and bags with 1 system.
Building on RPSi’s good fortune last year, we have also secured orders for other BG generation responses within other FedEx business units. Through our generation and execution, we have built a foundation of acceptance and partnership with FedEx. Last week, he announced a significant expansion of this vital relationship.
First, we obtained an order from FedEx to expand a new AI-based robot automation solution to enhance the power of its package processing operations globally. This order means that we will build on our generation platform and create a new incarnation of those technologies incorporated into a new formula. Most importantly, the new formula will address a vital need, as there is no other solution available today to automate this process.
Once the initial progression program is complete, we hope it will lead to more advertising requests. In addition, the solution can be sold to many others, as it solves a common challenge for stores and logistics companies. In fact, we estimate that there will be a multi-billion dollar global market just for this app.
So, by making these paints with FedEx, we are building our date and creating a new differentiated solution for them, while expanding our long-term market position opportunities. As this agreement is very strategic in nature, we have also signed an agreement. to give FedEx a mandate to acquire non-unusual shares of Berkshire Grey. Specifically, Berkshire Grey has given FedEx a mandate to acquire approximately 25 million shares of our non-unusual shares, which are being acquired gradually. The full acquisition of the 25 million shares requires position upon order or payment of at least $200 million of our products and by December 31, 2025. You can refer to our sec filings on August 2 for more details.
Finally, last week, we also announced that we and FedEx intend to finalize the important formula acquisition agreement this year, which will streamline and boost Berkshire Grey’s response procedure across all FedEx operating corporations worldwide. This implementation can speed up our order. follow-up procedure.
As evidence of the importance of our relationship with FedEx, John Smith, CEO of FedEx Ground, highlighted our announcement on LinkedIn indicating that FedEx has announced that it is expanding its strategic partnership with Berkshire Gray to expand extended robot automation responses to all stages of the global supply chain. We also said that I am excited to continue the work that first began at FedEx Ground, integrating robots into our operations to safely and successfully sort the growing number of small packages entering our networking through e-commerce. John’s comment highlights the price of Berkshire Gray within his organization, and we are thrilled with the strong relationship between our companies.
As we indicated in our last earnings call, one of our goals is to leverage our good fortune in repeat orders with consumers and lead our consumers into long-term strategic relationships. The fedEx deals have marked progress in achieving this goal, and we continue to paint over others.
I would now like to communicate our perspectives on the existing macroeconomic environment. As we’ve described, we’ve built AI-enabled robot systems to fulfill retail and ecommerce orders and manage ecommerce packages when they arrive at your door. We automate work – intensive responsibilities in satisfaction operations, adding selection, sorting, packaging, movement and organization.
Because of our proprietary differentiated hardware and software, we respectfully automate those responsibilities more than any other company in the industry. Our answers are to deliver upstreams and downstreams consistent with national efficiency, broad SKU coverage, maximum throughput and maximum accuracy. In fact, one visitor recently said they were able to more than triple their productivity consistent with the square foot by implementing BG and its distribution centers. We deliver the price and recover the investment that our consumers need. The follow-up orders we’ve won from consumers confirm this.
For macros, the environment continues to be favorable. Our customers continue to be under great pressure to meet customer expectations and maintain their competitive advantage. Just tap the cell phone in your pocket to perceive customer expectations. , fast and effective shipping and if we move to a retail store, we need to locate the parts we are looking for in the store. Now, when it comes to competitive merit for our customers, almost every ecommerce store and business competes for customers’ money.
At Berkshire Grey, we offer operational innovations and a competitive advantage.
At the same time, when it comes to staffing warehouse operations, it remains difficult to hire and retain staff. Our automation allows our consumers to redistribute existing workers to carry out higher value-added functions, additional operating costs, especially when inflationary pressures persist. In short, the favorable winds for our company remain strong. As such, our sales groups are busier than ever, collaborating with existing consumers and customers to find genuine answers to real problems.
In summary, we are pleased with our earnings expansion in the current quarter, recent orders, and our strategic agreements with FedEx. The macroeconomic environment remains strong and we continue our operational execution. We are well placed for expansion.
Let me now turn the floor over to Mark to give some main points about the quarter and our outlook for the year.
marc fidler
Thank you, Tom, and good morning, everyone. I’d like to start by talking about our current quarterly results. Revenue for the quarter was $23 million, a cumulative of more than 400% year-over-year and well ahead of consensus estimates. quarterly moment. And since we’ve become more effective with our implementation processes as we installed more systems, we were able to make a profit on some projects sooner than expected. we will talk in more detail shortly.
Placing orders. Since our last earnings call, we secured new orders of $20 million through July, adding the new FedEx order that Tom talked about, as well as orders from other customers. We expect to make a profit for this order in the next 12 months or so. Clearly, we are excited about the overall strategic relationship we have established with FedEx and the expansion opportunity it represents.
Our order book is approximately $100 million, adding up to the order we earned in July. So far this year, the maximum number of orders constitutes tracking orders from existing consumers. Our sales groups continue to be very busy actively interacting with existing consumers and new prospects, and we expect orders in the current part to be higher than in the first part, as announced in the past.
Transition to gross margin. We continue to implement the margin improvement projects described above. We see 3 positive trends with those efforts. First, our mature products, which already generated positive margins, are additional as we achieve efficiencies with each new implementation. We simply reduce deployment costs at each new site.
Second, we are making progress on all of our product fee relief initiatives.
Let me highlight 2 examples. As you may recall, one of our new products we announced late last year achieved negative margins, which affected overall gross margins last year and this year. We recently implemented several design tweaks and brought forward implementation times that will result in 10% relief in the overall charge of this product, so we also expect additional innovations this year, all of which will be in position for next year’s implementations.
Another example is our most recent product, which will be launched for the first time this year. We have already implemented design adjustments and, in particular, we are bringing forward the implementation time, which will cost more than 20% for those systems that will be implemented next year. We continue to make progress in reducing the load on all our products, and we are encouraged by our efforts to date.
Finally, we have higher costs for long-term orders for many of our products, which will also help margins. Therefore, we are pleased with the progress we are making to improve our margins in the long term. While overall gross margin is still expected to increase slightly negative for 2022, we expect to achieve positive overall gross margin in 2023 and beyond, and we remain confident in our ability to achieve our operating parameters of approximately 50% gross margin over the long term.
Let’s move on to operating expenses. Total operating expenses for the quarter were $28. 5 million, stock-based compensation. As we mature as a company, we have become more effective as an organization. In addition, we have recently taken other measures to decrease our inflow of money. of those projects to reduce our annualized cash inflow by about $20 million, and we’ll start to see this make a profit toward the end of the third quarter.
Adjusted EBITDA, which is explained as adjusted operating loss primarily for depreciation and amortization, stock redemption expenses and fair warrant price adjustments, negative through $30. 3 million in the current quarter, a slight improvement over the first quarter. the loss of adjusted EBITDA is included in our press release. On the balance sheet, we ended the quarter with more than $108 million in cash and no debt.
Looking ahead, we remain confident in our expansion trajectory. As discussed since our last call, we have secured $20 million in orders. And with the July orders, we have an order book of $100 million, which provides backlog includes the remaining deployment of a giant formula with Target, one of our strategic customers. We have been working with them for the past few months to expand the scope of our project, which has the prospect of developing our opportunities with them, only in this existing project, but also for new facilities.
As a result of those discussions, the existing schedule of the allocation has changed, which will have a short-term impact on this year’s earnings, but you have the possibility to develop our overall opportunity with them next year and in the future. . Therefore, we updated our profit forecast for 2022 between 70 and 80 million dollars. We are convinced of our prospect of expansion. Our sales groups are busier than ever. Our portfolio continues to grow and our recent business with FedEx and other strategic consumers further strengthens our prospects for expansion.
So, to reiterate a few key points, we remain in a strong position to execute. Our generation is shown in production and generates a tangible return on investment for Fortune hundred customers. We continue to expand our business relationships. Recent agreements with FedEx are an example of this.
Favorable macro winds continue to drive the need for automation. Inflationary pressures exacerbate the need for corporations to be more effective with their processes. And our order book, combined with our developing portfolio, gives us greater confidence in our long-term expansion prospects.
Now operator, we will deliver it for questions and answers.
Q&A session
Operator
[Operator Instructions] Today’s first comes from John Walsh of Credit Suisse.
John Walsh
I wonder if we can cope first, I guess, since he named this assignment with Target. Can you tell us a little bit more about what’s pushing this to the right?And then he communicates about the possibility of a bigger opportunity. I mean, could we see something similar to what you’ve announced with FedEx over time?Or can you extend what the opportunity could look like beyond 23?
Tomas Wagner
Of course. Let me answer some of that and so on. As far as Target is concerned, you know, they’ve implemented our generation. They present our cellular systems in one of their recent earnings calls. Another implementation of our generation is expected to get started this year at the time of part of the year.
We’re in talks with them about an update in scope, which means the implementation may be bigger in the long run, but it’s not expected to generate profits this year as planned. Overall, our work with them is exciting and appreciate their high-level commitment.
marc fidler
And I would add that, in the long run, Target has been a very strategic visitor to us. As we have talked about in previous calls, we are collaborating with all of our strategic clients and other clients to expand our relationships. The fact that we have already done projects with them, we have demonstrated to the generation with them. We have made the progress we have made. They saw our capabilities.
These are: We are entering into much deeper conversations with Target and others about what our opportunity might be with them in the long run. And the purpose is, as Tom pointed out in his remarks, to lead other people into long-term relationships. And now we’re right in the middle of that with Target and others.
John Walsh
Super. Et and then maybe some other question about growth. It’s wonderful to see that he has 14 partners here at Partners Alliance. Can you help us perceive what a lever for growth looks like, targeting more new logos through this partnership alliance?Is it also for existing consumers to grow more with them?
Tomas Wagner
Of course. The spouse program has a few other elements. With a view to expansion for some of our spouses, we have designated spouses, for example, such as Swisslog, they have their own marketing engine, their own visitor base with which they have established relationships. And for relationships like that with Swisslog, we’ll do a marketing exchange and we’ll go ahead and help consumers in combination as a joint venture.
And so it expands, so to speak, our market launch strength in our sales energy. -Effective way. And others are a technological alliance. We recently discussed that ABB is a representation of this. And we also have partnerships in the area of WMS and software.
There’s usually a marketing detail in a lot of them and an effective implementation detail in those relationships, and then it focuses on the technology as well as ABB.
John Walsh
No, it’s great. And then one last one for me, and then I’ll pass the baton. But you just highlighted some of the costs in your annual consumption of money. He has $108 million in money, debt-free.
An update or insight into capital needs or short-term business needs?I know we’ve been talking about this for the last two quarters.
marc fidler
Sí. La short answer is that there are no changes. We hope we still want to raise capital to fully execute our business plan, and we are confident that when the time comes to do so, we will be there to do so.
Operator
The next one comes from Greg Palm of Craig-Hallum Capital Group.
greg palm
Congratulations on the continued progress ici. Je assumes, starting with target news, I’m curious to know the update with scope. Do you perceive this to be an update on the duration of the task itself?Or is it an upgrade in the number of services they would possibly need to equip with automation?I know everything you can and can’t say, but can you give us a little more detail about what you’ve replaced?
marc fidler
That’s one kind of all of the above. Again, if I pass. . . if we go back to what I said before, which is that we implement systems with Target, you can see what our generation can do. They see the advantage. They see what our functions are when they take a look to see what their wishes are, not only in the existing facilities, in which we are recently implementing, but also with the next facilities, they see what we can do for them. And that, in turn, potentially adjusts the scope here, whether it’s in length and what we’re moving on to do to automate your facilities.
Those are all very positive discussions we’re having with Target. And by the way, it’s not just with Target that we’re doing this, we’re doing it with all of our consumers that we’ve worked with and that we’ve had repeated implementations with. As we implement, and we do very well with implementations, consumers see the benefits. They ask for more, as evidenced by all the orders we have had this year so far, almost all of them were repeated orders. And they are also now looking to find where we can, our generation benefits them through their networks.
greg palm
Entendu. Et, do you think that all long-term orders, deployments of those would be the subject of a type of long-term procurement or arrangement framework contract?Or are they just waiting a little bit until, I don’t know, you perceive things until you’re late?
marc fidler
We will continue to work towards, with all of our strategic consumers and other consumers towards this kind of long-term relationship, whether it’s framework purchase contracts or facility implementations, this is everyone’s goal. We have made progress with the FedEx announcement and also continue to paint with others. And we hope that, over time, we will succeed in this regard.
greg palm
they gave it to me Okay. And then move on to FedEx. I’m curious if you can give us more main points about the new product, the new solution you’re running with them. It doesn’t seem like it’s a product line or a solution. I’m doing it today.
So can you give us a concept of what exactly it is? I think Tom, you talked about a few billion dollars of TAM. It turns out that it’s not just about logistics, but possibly applicable to all your customers. correct?
Tomas Wagner
It’s true. Greg, the audience points out, we need to expand a new solution. Once it is implemented, we expect FedEx to consume it impatiently, as it will be marketable and accessible to everyone else, who is engaged in retail and e-commerce. The underlying challenge is a very common challenge. Other pieces we have shared publicly are the goal of executing the main formula of acquiring contracts and mandates, etc. , as well as the $200 million in goods and until December 31, 2025, in order to ignite them completely.
The main points of the new solution and what it automates, I must remain vigilant for the time being.
greg palm
It is ok. And to be clear, the $200 million, I mean, do you have an order for $200 million just for RPSi?millions can succeed at some other point over time?
marc fidler
Well, yes, of course, the number is: we expect to be much bigger in the long run with FedEx. Now, what we can say is that the existing products we sell to FedEx today will likely take the lion’s share at least in the next few years, because they still want to expand the formula as a component of this progression agreement.
So, at least for the next two years, it will be the existing products that will be credited for that, so to speak.
greg palm
It is ok. And then the last one. Can you quantify the progression cycle?I mean, are we talking about neighborhoods?
How do we have to wait for the new product?
marc fidler
As I mentioned, we expect to generate profits under this agreement in the next 12 months or so.
Operator
The next one comes from Andrew Obin of Bank of America.
Andre Obin
Just to go back to Target, just to make it clear. Investors have many concerns. We’ve heard a lot about the e-commerce revenues that are being driven across the industry. And, in fact, it turns out that given the nature of your relationships with your customers, it’s rarely very true, that everything you do, you do. Are you on the right track, is it rarely?I just need to verify that your expansion trajectory is, in fact, different from the rest of the industry given the nature of what you do.
Is it fair to say?
Tomas Wagner
Andrew, we haven’t heard our consumers pause their automation plans. The interest is great, the macros are still there. All customers are under this pressure, that is, they want to be more effective and reduce their operating costs. listen to our consumers stop.
Andre Obin
And simply, what do you think? We recently had dinner with one of their partners, I guess. And the prices of hard work are at their highest point in 40 years. At the same time, I think inertia is enough for those corporations to get those projects going. It turns out like more than 18 months — 18, 24 months to put something meaningful into effect.
He previously had supply chain issues for the industry. Can you give us more main points about how this kind of synonym for lack of a larger term develops in the industry, right?Labor prices have continued to succeed at the highest levels for several decades. probably: you want more automation, probably more product selection, but there’s this lag in how those organizations implement those responses at scale and replace the way they do business. And as I said, what if you can also load the source string?the?
marc fidler
If I understand your question, Andrew, I think so, the inflationary pressures, due to both labor and labor shortages, we’ve noticed what you’ve done in the back of a lot of those corporations in the industry. And that’s why they haven’t interrupted their automation plans. And while it takes them time to plan, especially on a large scale, the deployment of the generation based on what we’ve noticed, they still do.
And I think the evidence issues are the broad kind of superior conversations we’re having with Target around their projects. What we recently signed with FedEx and not just the products we sell to them now, but to address a real problem, a genuine desire for them. The repeated orders we receive from all our customers, adding the strategic ones. I think that’s the kind of evidence that they still feel the pressures that we’ve been talking about for a few years. even before COVID.
So that’s the kind of thing, and everyone is thinking big. Everyone thinks big and is there with them. And it takes time to plan those things, as we see in what we’re talking about with Target, but we haven’t noticed a pause, so we expect things to continue to improve over time.
Andre Obin
And then just the last consultation for me. The flow of money has an effect on this Target withdrawal, is there current capital related to a lower implementation of Target this year?Is that component of the $20 million in money savings?And then for next year, as the scope of the project, it turns out that there is a possibility that it will develop materially. Does that mean you want more current capital next year to take advantage of this wonderful opportunity?
marc fidler
So the short answer is no. We regularly have favorable payment terms from our customers, adding Target when we receive large payments upfront, in the diversity of 30% to 50% of the total task can be paid in advance. Therefore, we rarely notice or anticipate significant functioning. capital needs to execute allocations.
Operator
Currently, we no longer show interrogators in the queue. And that concludes our question-and-answer session. At this point, I would like to return the lecture to Tom Wagner for any final comments.
Tomas Wagner
Thank you all for spending time with us today. We will contact you soon.
Operator
The convention is over. Thank you for attending today’s presentation, you can now log out.