Reinventing the Supply Chain

Symbotic is Reinventing the Supply Chain

The global supply chain is in shambles.

Retailers are paying record fees for shipping. China is the ‘warehouse for the globe’ but its covid policies are crippling supply chains. Consumer spending habits fluctuate at a record pace as the pandemic impacts wants and needs.

The need for accuracy and speed in today’s marketplace has never been more evident. We have seen that play out in the recent round of earnings reports from retailers. Inventory issues are hampering bottom lines as companies are forced to sell excess inventory at lower promotional prices.

Retailers scramble to alleviate the issue. Yesterday, Target (TGT) announced an updated 2022 plan focused on Inventory Optimization. It will open five additional distribution centers to improve its supply chain. We expect to hear similar announcements from other retailers.

Robots Warehouse

Symbotic, Inc (SYM) presents an interesting opportunity for investors looking to profit from the increased spend.

The company uses high-speed robotics and intelligent software to organize and optimize inventory. The end-to-end software-enabled robotics platform plays a strategic role in supporting retailers’ goals of modernizing the supply chain network.

Its platform provides faster responsiveness to store orders, increased inventory accuracy, and higher capacity for receiving and shipping freight to stores.

Basically, Symbotic helps get products to customers quickly and seamlessly by changing how vendors receive and distribute products to stores. The technology’s ability to build palletized loads of department-sorted inventory enables products to get to shelves faster while also making material handling safer and simpler.

The company started trading under the symbol “SYM” after the completion of its business combination with SVF Investment Corp, a special purpose acquisition company sponsored by an affiliate of Softbank Investment Advisors.

SPACs have been an abysmal place to invest. Out of the 199 companies that went public in 2021, only 11% trade above their offering price. On average, SPACS have lost 43%. Symbotic’s business model, relationships, and balance sheet could differentiate it from the rest of the pack.

The Transaction

The transaction valued SYM at $4.8 billion which was approximately 4.8x the company’s forecasted 2023 revenues and a pro forma equity value of approximately $5.5 billion.

As of March 22, 33.4 million Class A ordinary shares and 8 million Class B ordinary shares were issued and outstanding.

SYM equity holders are expected to own 88% of the combined business, with Chairman Richard Cohen retaining 76% ownership, WMT retaining 9% and other holders retaining 3%. New investors will own 12%, with SPAC public shareholders owning 6%.

One of the primary concerns with SPACs is that it allows investors to sell shares immediately. There is no lock-up period like there is in an IPO. Importantly, the company’s CEO and CFO will be subject to a one-year lock-up period post-closing.

Revenue Growth

SYM posted Q2 revenue of $96.3 million and adjusted EBITDA of a loss of -$26.2 million and a quarterly net income loss of -$29.9 million for Q2. This compares to revenue of $23.2 million in the prior year, representing growth of 317%, and an adjusted EBITDA loss of -$26 million, and net loss of -$26.9 million.

The quarterly loss will raise a red flag in the current environment. We would note that the Q2 loss was basically flat from the prior year and included additional costs from the SPAC process.

The top-line growth is incredible. Symbotics relationship with a major vendor and its balance sheet should help assuage some of the worries around the loss.

walmart boxes

The Walmart Impact

Walmart (WMT) provided a $150 million PIPE to the company. SYM expects to receive an additional $174 million in cash from WMT by the end of the year to be used for general corporate purposes after WMT gross exercises warrants it holds in the company.

As a result of the transaction, the company received additional growth capital to supplement its existing $363 million of combined cash on the balance sheet. This will enable it to accelerate growth.

The two companies announced an expanded commercial agreement to implement Symbotic’s robotic and software automation platforms in all 42 of WMT’s regional distribution centers over the coming years. This is an expansion of WMT’s prior commitment to deploy the system in 25 stores.

The expanded relationship substantiates how the technology is reinventing the traditional warehouse and distribution across the supply chain.

Symbotic has $11+ billion in contracted orders.

The healthy balance sheet and immense backlog should differentiate SYM from some of the past SPACs that have burned investors. The company is at the forefront of an industry that projects to have a Total Addressable Market of approximately $350 billion.

Price Action

The price action yesterday suggests the name is on a lot of radars. Shares ripped from the $9 area to $20.77 just before the close of trade. The stock has pulled back to the $17 level in pre-market trading.

That is not the type of price action you want to see if you are an investor. We would prefer to allow this to settle before putting money to work in the name. A pullback to the $15 area would set up a good level to start building a position.

Traders should have this one on the radar for both long and short opportunities given the volatility.