Serve Robotics Inc. /DE/ Q3 FY2024 earnings call

• Progress towards scaling: On track to deploy 2,000 robots by end of 2025 for $60M-$80M run rate. Third-gen robots: 75 deployed by end of 2024, 250 by Q1 2025 in LA, and set to enter first new market outside LA by end of Q2 2025. - Strategic moves: Acquired Vebu, Inc.; partnerships with Shake Shack, Wing Aviation, and Magna International. Third-gen robots rolling off assembly lines, performed well in testing. - Partnerships: Shake Shack partnership in LA, Wing Aviation for robot-drone deliveries, Magna collaboration moving to new software services phase.

Total revenue for the third quarter of 2024 was $222,000. Delivery and branding revenues contributed $183,000, with delivery revenue up 49% QoQ and 108% YoY due to improved fleet utilization. Software services revenue was $39,000 (a reduction from prior quarter). Cost of revenue was $377,000. Stock-based compensation for the third quarter was $2.2 million. Operating expenses were $8.3 million. Interest income was $449,000. Net loss for the third quarter was $8 million. Delivery and branding gross margins improved 84% YoY.

• Expected run rate of $60M-$80M annual revenue once robots are deployed and at full utilization. - Anticipate recognizing a few hundred thousand dollars in additional software services revenue from Magna in first half of 2025. - Vebu acquisition expected to add potential revenue and cash flow, with Autocado pilot at Chipotle.

• Uncertainties related to regulatory changes and tariffs. - Integration risks with acquisitions like Vebu. - Market competition challenges for sidewalk robot companies.

Q: By the end of 2025, do you expect to have 2,000 robots in total or 2,000 robots in addition to 2024 levels?

A: Yes, aiming to have a total of 2,000 robots by end of 2025, noting not all will be active at all times due to maintenance and R&D.

Q: Could you discuss the advantages of the third generation robot in more detail? Specifically, how much might revenue generation improve? And how was manufacturing cost halved, while functionality was increased?

A: Third-gen robots have 70% more battery, twice the speed, better sensors, five times more compute power, driving revenue increase. Manufacturing cost halved by making components in-house, optimizing design, scaling production, and leveraging trends like Moore's Law.

Q: How many stores are signed up to Serve’s robot delivery? And how does this compare quarter-over-quarter and year-over-year? What is a reasonable goal for the number of stores opting into Serve robots a year from now in your current regions and why?

A: Currently more than 400 restaurants in LA, up from prior quarter's 300. Next few weeks of LA expansion expected to double to ~750. No specific projections for next year but highlights growth rate.

Q: Do we anticipate any impacts to Serve from the recent election such as shifts in local regulation or any impact on possible tariffs?

A: Will track regulatory/policy changes and tariffs; team monitors pro-robot legislation, supply chain is global with most materials not from China.

Q: Can you share details on your plans to scale up? Beyond procurement of the robot, there’s also deployment and getting them into service. Can you talk about acceptance by restaurants and customers and everything necessary to maximize revenue per robot?

A: Expansion playbook includes selecting cities/neighborhoods via data, securing depots, field ops team, working with partners like Uber to onboard merchants/customers, low opt-out rates from both, and shipping robots to operating areas.

Q: On the Q2 call, Ali, you said we have more demand than supply, but then you also said you expect it could take up to a year to see full utilization of the 2,000 robots. How should we resolve these two comments?

A: There are steps between securing demand and addressing it, like setting up operations, familiarizing with geography, onboarding merchants, with learning curve leading to improved efficiency over time.

Q: You say the 2,000 robots could generate between $60 million to $80 million in revenue. Does that range include branding fees? And what happens – what needs to happen to get to the upper end of that range?

A: $60M-$80M includes delivery and branding. To hit upper end, focus on robot utilization and increasing ad conversions in branding campaigns.

Q: What are you seeing from a competitive standpoint from other sidewalk robot companies? Would you expect industry consolidation?

A: Seen different approaches, convergence in design/goto-market decisions. Expect convergence, keep eyes on consolidation, but no immediate acquisitions making sense. By end of 2025, expect to have one of largest AV fleets in NA.

Q: Can you explain how you expect the Vebu acquisition to play out? And what Serve’s relationship with Chipotle will be? And what next steps will be for the Autocado product moving past the pilot stage?

A: Autocado piloted by Chipotle; Vebu acquisition allows holistic solution for restaurants; hope to scale kitchen automation side similar to robot delivery once acquisition completed.