Serve Robotics (SERV) Q1 2025 Earnings Call May 08, 2025 05:00 PM ET Speaker0 Thank you for standing by, and welcome to Serve Robotics First Quarter twenty twenty five Earnings Conference Call. Please be advised that today's conference call is being recorded. I would now like to hand the conference to your host, Head of Communication and Investor Relations, Aduk Thawel. Please go ahead. Speaker1 Thank you, operator, and good afternoon, everyone. Welcome to Serv Robotics' first quarter twenty twenty five ear ...

Financial Data and Key Metrics Changes - Q1 2025 revenue was $22.5 million, down $1.7 million from Q1 2024, primarily due to a decline in managed services and software products [22][21] - Q1 GAAP gross profit was $13.9 million, compared to $16.6 million in Q1 2024, resulting in a GAAP gross margin of 61.9%, down from 68.8% [25][26] - Non-GAAP net loss from continuing operations was $11.1 million, compared to $10.3 million in Q4 2024, reflecting lower non-GAAP gross profit [27][28] Business Line Data and Key Metrics Changes - Managed services revenue in Q1 2025 was $8 million, down $900,000, driven by declines in campaigns and slightly lower licensing [22] - Software products and services revenue saw a decline of $600,000 year over year, largely due to decreased consumption-based revenue [23] - Veritone Data Refinery (VDR) generated approximately $900,000 in revenue in Q1 2025, with expectations for substantial year-over-year growth [23][10] Market Data and Key Metrics Changes - The public sector pipeline now exceeds $110 million, indicating increasing demand for AI-based applications and services [20] - The global training data market is expected to grow from $2.4 billion in 2023 to over $17 billion by 2032, positioning Veritone strategically to capitalize on this demand [9] - The company anticipates public sector revenue growth of 100% to 150% year over year, driven by near-term deals across the Department of Defense [34] Company Strategy and Development Direction - Veritone is focused on expanding its reseller network, enhancing ATS integrations, and growing its Media Services solution to drive growth in Veritone Hire [12] - The company is leveraging its AI-driven solutions to address challenges in the media and entertainment industry, which is experiencing significant growth [6][11] - VDR is expected to generate significant revenue for the remainder of the year, with a near-term pipeline of over $10 million, up from $5 million [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth prospects for the public sector and VDR initiatives, despite some delays in larger public sector deals [21][44] - The company is optimistic about maintaining leadership in the AI space and delivering strong sustained growth in 2025 and beyond [11] - Management highlighted the importance of timing in revenue generation from public sector deals, indicating readiness to deploy once contracts are signed [54] Other Important Information - The company completed a registered direct offering, raising approximately $20.3 million, which will support its liquidity position [28] - As of Q1 2025, Veritone held cash and restricted cash of $16.4 million, down from $17.3 million at the end of 2024 [27] - The company is currently in discussions to further improve its cash position and balance sheet [28] Q&A Session Summary Question: What portion of the public pipeline is new customers versus expansions? - Management indicated that the majority is customer expansion, with executed revenue-based contracts for larger pipeline customers expected soon [42] Question: Can you provide more granularity on the second quarter and annual revenue guidance? - Management stated that the second half revenue is expected to be driven by VDR and public sector deals, with good visibility on the size and contribution of these deals [44] Question: When could public safety deals start generating revenue? - Management confirmed that some high-visibility contracts are ready to deploy and will begin generating revenue almost immediately after contract release [54] Question: What steps are being taken to address challenges in Veritone Hire? - Management outlined a three-pronged approach focusing on expanding the reseller network, enhancing media services, and optimizing algorithms for better ROI [58] Question: How will margins flow throughout the year? - Management expects margins to improve as public sector deals come in and VDR matures, with a gradual increase anticipated each quarter [66]

Financial Data and Key Metrics Changes - Net sales for Q1 2025 were reported at $1,850 million, a decrease of 2.3% compared to $1,900 million in Q1 2024 [7] - Gross profit as a percentage of net sales increased to 56.5% from 54.1% in the previous year [8] - Operating income increased by 5.1% to $569.7 million from $542 million in Q1 2024 [9] - Net income for Q1 2025 was $443 million, slightly up from $442 million in Q1 2024 [10] - Diluted earnings per share increased by 7.4% to $0.45 from $0.42 in the previous year [10] Business Line Data and Key Metrics Changes - Sales of Monster energy drinks increased by 8.7%, while Reign sales decreased by 9.9% [13] - The Alcohol Brands segment saw a significant decline, with net sales down 38.1% to $34.7 million compared to the previous year [32] Market Data and Key Metrics Changes - In the U.S., the energy drink category grew by 10% year-over-year [5] - In EMEA, the energy drink category grew approximately 13.7% on an FX neutral basis [6] - In APAC, the category grew by 13.6% on an FX neutral basis [6] - In Latin America, the energy drink category grew by 15.7% on an FX neutral basis [6] - Monster's market share in the U.S. convenience and gas channel decreased from 37.1% to 36.4% [14][15] Company Strategy and Development Direction - The company is focused on expanding its product offerings and optimizing supply chains to enhance gross profit [8][9] - Plans for further innovation in the Monster Brewing segment are underway, with new products being launched in various markets [33][34] - The company is optimistic about long-term prospects in China and India, particularly with the rollout of the Predator brand [30][36] Management's Comments on Operating Environment and Future Outlook - Management noted that consumer demand remains strong, with positive trends in retail takeaway [39][40] - The company is optimistic about the energy drink category's growth, citing increasing household penetration and per capita consumption [39] - Management acknowledged challenges from foreign currency exchange rates and adverse weather impacting sales [7][10] Other Important Information - The company has approximately $500 million remaining for stock repurchase under its authorized program [36] - The juice plant at the AFF facility in Ireland is expected to be operational by mid-year 2025 [41] Q&A Session Summary Question: Impact of supply chain optimization on Q1 numbers - Management explained that Q1 was impacted by bottler distributor ordering patterns and distribution center closures, but April showed robust sales [47][48] Question: Macro impact on the energy category - Management indicated that the energy category remains healthy, with positive trends in both the U.S. and international markets [52][54] Question: Future gross margin expectations - Management expects that the second quarter margin will not be as high as Q1 due to rising costs from the Midwest premium [62] Question: Innovation pipeline and shipment timing - More innovation was rolled out in Q1 compared to Q2, with continued acceleration in distribution expected [66] Question: Pricing dynamics and market share satisfaction - Management stated that pricing decisions are based on market opportunities and emphasized the importance of regaining market share [72][73]

Financial Data and Key Metrics Changes - In Q1 2025, revenue was impacted by delayed carrier promotions and FWA orders, but adjusted EBITDA exceeded expectations, indicating strong cost management despite softer hardware volumes [5][21] - Non-GAAP gross margin reached a record 47.5%, driven by a favorable revenue mix and sequential margin expansion in both product and services [22] - Adjusted EBITDA for Q1 2025 was $3.7 million, more than double the prior year quarter, with an adjusted EBITDA margin of 11.6% [23] Business Line Data and Key Metrics Changes - Mobile hotspot revenue grew over 16% year-over-year, while services revenue increased nearly 50% year-over-year, primarily due to the strength of the subscribed SaaS platform [21][22] - The company is focusing on expanding its FWA and MiFi business, with new product plans introduced to diversify its customer base [9][10] Market Data and Key Metrics Changes - The company is targeting large Tier one carriers and multiple system operators (MSOs) to expand its market presence, indicating a shift towards a broader customer base [9][10] - The competitive landscape remains challenging, but the company believes its American-based IP and improved operational efficiency position it well against competitors [39] Company Strategy and Development Direction - The company is transitioning from a hardware-centric model to a full solution provider, focusing on software-defined wireless networking solutions [8][14] - Key strategic initiatives include scaling the FWA and MiFi business and accelerating the software and services roadmap to enhance its solution offerings [8][14] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the business prospects for 2025, expecting sequential revenue growth starting in Q2, particularly in FWA revenue [26] - The company is actively managing its supply chain and operational efficiency to mitigate potential disruptions from the macroeconomic environment [12][39] Other Important Information - The company successfully reduced its total debt to $41 million after paying off $15 million in convertible notes [24] - The leadership team has been strengthened with new talent, including George Mulhern, former CEO of Cradlepoint, to support the company's transformation [17] Q&A Session Summary Question: Concerns about pipeline opportunities slipping into 2026 - Management does not see any movement of the pipeline from their customer base, particularly among large North American carriers [30] Question: Potential revenue upside from the T-Mobile Partner Plus program - The partnership with T-Mobile is expected to create pull on the channel program products through investment subsidies [31] Question: Free cash flow expectations for 2025 - Management targets positive free cash flow for the year, with expectations for improvement in the second half [32] Question: Update on channel strategy and potential large deals - Confidence in closing a large channel deal within the quarter, with ongoing investments in broadening the solution portfolio [35][36] Question: Competitive landscape and geopolitical impacts - The company believes its operational efficiency and American-based IP provide a competitive edge despite geopolitical challenges [39] Question: Long-term gross margin targets and operating expenses - Management has not provided a specific target model yet but anticipates gross margins in the high 30s, depending on the mix of software and product revenue [40][42]

Financial Data and Key Metrics Changes - In Q1 2025, operating expenses totaled $211 million, with R&D expenses at $153 million, including $871,000 in pilot revenue, which increased by 22% quarter-over-quarter and 54% year-over-year [33][34] - The company ended Q1 with nearly $1.2 billion in cash and short-term investments, including $68 million from the issuance of shares [35] - The expected quarterly cash use for the remainder of 2025 is between $175 million and $185 million, reflecting an increase in capital expenditures as the company prepares to scale [35][36] Business Line Data and Key Metrics Changes - The launch of the Aurora driver in April 2025 marked the beginning of recognizing revenue, which will be reflected in the Q2 results [34] - The Aurora driver has completed over 4,000 driverless miles, demonstrating its operational capabilities [17] Market Data and Key Metrics Changes - The Aurora driver is validated for driverless operations on a significant freight corridor, with plans to expand operations to additional routes, including Fort Worth to El Paso and Phoenix by the second half of 2025 [20][21] - The company aims to operate tens of trucks by the end of 2025, starting with a crawl, walk, run approach to ensure a seamless product experience [18] Company Strategy and Development Direction - The company focuses on proving the technology's promise, increasing product value for customers, and becoming an essential partner in the freight industry [10][19] - The strategy includes expanding commercial lanes and validating night driving and operations in adverse weather conditions [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the safety and performance of the Aurora driver, highlighting its ability to address challenges in the freight industry, such as driver shortages and high turnover [19] - The company anticipates raising $650 million to $850 million before achieving positive free cash flow, expected in 2028 [36] Other Important Information - The company published a driverless safety report detailing the operational safety of the Aurora driver, which includes risk management and cybersecurity measures [12] - The company has received strong support from state officials, indicating a favorable regulatory environment for autonomous trucking [14] Q&A Session Summary Question: How do competitors underestimate the complexity of bringing an autonomous solution to market? - Management noted that competitors may not appreciate the extensive ecosystem and multi-year engagements required to industrialize the technology, emphasizing their structural advantage in validation and safety [39][46] Question: Is the financial guidance from the Analyst Day still applicable? - Management confirmed that the financial ambitions discussed previously remain generally correct, with a slight delay in the launch timeline [48][50] Question: What feedback has been received from customers since the launch? - Management reported near-universal enthusiasm from partners and customers, indicating a significant increase in interest following the launch [53][55] Question: How will the company determine the next steps for expansion? - The company will focus on operational execution and feedback from the operational team to scale confidently [56][58] Question: What improvements in AI are expected moving forward? - Management indicated that advancements in AI are already integrated into the Aurora driver, with ongoing efforts to enhance capabilities in various conditions [75][78] Question: How critical is simulation technology for expanding routes? - Management emphasized that simulation is essential for validating the vehicle's performance in diverse conditions, allowing for faster route expansion [90][92] Question: How will pricing be approached in the future? - Management stated that pricing will be based on the substantial value delivered to customers, with potential for premium pricing as the technology proves its worth [94][97]

Financial Data and Key Metrics Changes - Company reported Q1 revenues of $124.9 million, a 5% increase year over year, exceeding expectations of flat performance [31][5] - Adjusted EBITDA margin was 7.2%, surpassing the target range of 5.5% to 6% [7][38] - Net loss for the quarter was $100,000, compared to a net income of $1.4 million in the previous year [38] Business Line Data and Key Metrics Changes - Scrub wear revenue increased by 5%, accounting for 80% of net revenues, while non-scrub wear grew by 4%, representing 20% of net revenues [32][34] - Average Order Value (AOV) reached a record high of $119, up 3% year over year, driven by a higher rate of full-price sales [31][32] Market Data and Key Metrics Changes - U.S. sales increased by 3% to $106 million, marking the best domestic performance in the past six quarters [34] - International sales grew by 16%, although this was a step down from the previous quarter due to a favorable duty reclassification in Q4 [34][74] Company Strategy and Development Direction - Company plans to expand internationally, with a focus on Japan and South Korea, where over 80% of global healthcare professionals are located [18][19] - The company aims to enhance its B2B business, which currently represents under 10% of total business, by targeting institutions and modern healthcare providers [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties and emphasized the importance of maintaining product quality [28][30] - The company remains cautious about future consumer demand and has adjusted its full-year revenue outlook to reflect potential challenges [46][40] Other Important Information - The company is actively working on mitigating tariff impacts through supply chain efficiencies and vendor negotiations [52][55] - The company has a strong balance sheet with $251.2 million in cash and equivalents, allowing for strategic investments despite uncertainties [38][39] Q&A Session Summary Question: Impact of tariffs on pricing strategy - Management acknowledged the potential for cost mitigation through supply chain efficiencies but emphasized that pricing adjustments would be a last resort [53][58] Question: Demand normalization and consumer behavior - Management reported strong underlying demand and positive growth entering Q2, with no notable shifts in consumer behavior except for some softening in Canada due to tariffs [60][62] Question: International performance and growth outlook - International business grew by 16% in Q1, with strong performance in Mexico, Europe, and the Middle East, although promotional shifts may impact growth in the second half [74][77]

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