Earnings Labs

Serve Robotics Inc. (SERV)

Q4 2024 Earnings Call· Thu, Mar 6, 2025

$9.43

-4.70%

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Transcript

Operator

Operator

Thank you for standing by. My name is Danielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2024 Resort Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Press star followed by the number one on your telephone keypad. Press star one again. Thank you. I would now like to turn the call over to Aduke Thelwell. Please go ahead.

Aduke Thelwell

Management

Thank you, operator, and good afternoon, everyone. Welcome to Serve Robotics Inc.'s fourth quarter and full year 2024 conference call. With me today are Serve's CEO and co-founder, Ali Kashani, and our CFO, Brian Read. During today's call, we may present both GAAP and non-GAAP financial measures. If needed, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release filed earlier today. Certain statements in this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual risks may differ materially from these forward-looking statements. And we do not undertake any obligation to update any forward-looking statements we make except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainties described in our most recent Form 10-K and in other filings made with the SEC. We published our quarterly financial press release and our updated corporate presentation to our investor website earlier this afternoon. We ask you to review those documents if you have not already. With that, let me hand it over to Ali.

Ali Kashani

Management

Thank you, Aduke. We have a lot to cover today. I'm going to start by giving you an update about the past quarter and put that in the context of our progress over the year 2024. And then we will talk about the year ahead. Give you some additional details about our plans to deploy 2,000 robots by the end of 2025, which remains on track. And then lastly, I want to talk a little bit about the recent progress in AI and how Serve fits into that. So before we dive into each one of them. First, Revenue. We wrapped up the year with $1.8 million in revenue, which is a 700% increase year over year. Second, our reach. We increased the number of restaurants we serve by 3x last year. And also increased the households we reached by over 2x just in the last four months. We did all this by expanding to new neighborhoods in LA and expanding to our first East Coast city, which is Miami. Third, the fleet. We are about to complete building 250 third-gen robots to add to our fleet. Fourth, an engineering update. We have designed further cost reductions into our third-generation robots effectively cutting the cost of building robots by two-thirds in just a year. And last but not least, our balance sheet. We massively improved our cash position, became debt-free, and increased our capital efficiency by saving $20 million in future capital costs, Brian will discuss later. Now let's dive in. As you can see, we have been growing fast on all fronts. Expanding into new neighborhoods and cities, onboarding more restaurants, scaling our fleet, In LA, we launched in downtown Sautel and Bestwood just in November. Instantly increasing our household reach by 50% and tripling the number of restaurants…

Aduke Thelwell

Management

Okay.

Ali Kashani

Management

With 2024 and 2025 plans out of the way, I want to spend a few minutes talking about the recent advances in AI and how that impacts Serve. AI is really advancing and it great next speed. Cheaper training, faster inference, open-source models like DeepCake, you name it. For us, this is all tailwind. Right now, everyone and their grandma is racing to build AI models and infrastructure, which naturally results in commoditization. Our view that a lot of the value from AI will accrue to the application layer. Where the same kind of race to the bottom is less common. Also, thanks to this proprietary data and domain expertise, that you have in the application layer, you can create more efficient modes. If as part of running your business, you accumulate unique data, you can train your AI to get better, which makes your products better, which helps you scale more, which means you get even more data. You can collect this data at lower and lower cost eventually even while making a profit. So this five-year really gets going and it becomes harder and harder for new entrants to compete with you. Serve is a great example of this. Our robots done application layer on top of AI. They are really AI embodied. They collect the terabytes of data each per day? And that data helps make our AI and autonomy better. Which leads to even better robots which leads to even more scale and therefore more data. So you see where this goes. This flywheel really gets going. I do not really see any evidence today of a plateau in AI progress, Box. I do expect that it's inevitable that at some point, we would follow the classic hype cycle, which is folks get ahead of their…

Brian Read

Management

Thanks, Ali, and good afternoon, everyone. 2024 was a defining year for Serve. Over the past twelve months, we strengthened our financial position, scaled our operations, set the stage for a transformational 2025. We are working hard to support the planned expansion of our business to 2,000 robots before the end of the year, while at the same time remaining disciplined with our cash to improve financial flexibility. Today, I'll walk you through the financial results and provide insight into the year ahead. As you know, our business is still in its early innings. Revenue for 2024 reached $1.8 million with Q4 contributing $176,000. This marks over 700% growth year over year demonstrating the increasing adoption of our technology and services. A significant driver of this growth was the addition of $1.2 million in software services booked in 2024. Alongside a 227% increase in annual delivery and branding revenue, which despite no new robots being deployed until the final days of the fourth quarter, grew $435,000 to reach $627,000 in 2024. On a sequential basis, when adjusting for 26, our quarter over quarter delivery and branding revenue grew by 12%. As Ali mentioned, last quarter's volume growth reflects higher utilization across our fleet and improved operational efficiencies. 2024 gross margin improved significantly from negative 700% in 2023 to negative 4% in 2024. Reflecting increased fleet efficiency and a more favorable revenue mix from the high margin nature of our software services. Within delivery and branding, gross margins expanded 76% year over year driven by fleet utilization improvements and ongoing progress in the unit economics per delivery. In terms of Q4 gross margin, cost of sales increased in Q4 as the fixed cost base expanded from the ramp-up of our 2,000 unit fleet. As fleet utilization and delivery hours improve, the…

Aduke Thelwell

Management

Thank you, Ali and Brian, for those detailed updates. We will now transition to the Q&A session. First, I'd like to express our gratitude to all the investors and analysts who submitted questions over email. We really appreciate your engagement. Our first question I think this might be appropriate for Ali. You mentioned that robot costs have been lowered. Does this mean you removed technology or made major component changes? How was this cost reduction achieved?

Ali Kashani

Management

That's a great question. No. We did not remove any technologies or chip capabilities or components. This was primarily done because of improvements to our supply chain, an area that we've been investing in a lot. Internally. There are, you know, benefits from scale. That we are now enjoying. There are, for example, suppliers tier two suppliers. They've now upgraded to tier one. They're getting better cost components. I can think of components that are 70% cheaper now than they used to be. So I generally expect to continue this process of making design improvements, improving our supply chain, and by, you know, increasing scale getting additional benefits from that to see the cost of the robots come down over time.

Aduke Thelwell

Management

Okay. Thanks. This next question was submitted via email. Can you say why you focused on the second half for the robot rollout?

Ali Kashani

Management

Yeah. Absolutely. We want to do the scale-up thoughtfully and in a measured way where we are cost-efficient. So this quarter, building 250 robots effectively means that we are tripling our fleet size. Again, in Q3, when we build another 700, another tripling of the fleet size. The point of this process is to do it gradually so we learn. We fix things along the way. We reduce costs, just as I mentioned, with the hardware, for example. So that we can, again, as we said at the beginning, do this in a cost-efficient and thoughtful way as we scale.

Aduke Thelwell

Management

Perfect. This next question we received from a number of people, but most notably Glenn Madison at Ladenburg. Can you comment on recent developments with NVIDIA? Ali, do you want to do that one?

Ali Kashani

Management

Yeah. Absolutely. What developments? We have really no, you know, ability to comment on NVIDIA's behalf. I want to be clear on that. But I do want to emphasize a couple of things. NVIDIA isn't really privy to any material confidential information about Serve. Or vice versa. They invested in Serve in 2021, 2022, 2023, and 2024 right before our IPO. And that's when we were a private company. And they exited that position when we became a public company. What's most important, what I can comment on, is that they remain a key partner for us on the technology side. That partnership has not changed. Our robots continue to use their technology. Even the robots we are building later this year are using those NVIDIA chips. So we are continuing to work together, and that hasn't changed.

Aduke Thelwell

Management

Okay. Thank you. Next question. In recent weeks, you've learned we've learned more about planned policy changes and tariff introduction. Do you anticipate any impact on your operations? Brian, do you want to take this one?

Brian Read

Management

Sure. Thanks for the question. So, obviously, we're monitoring developments on a daily basis to understand what the impact is going to be. The bottom line is right now, we don't anticipate any material impact on our operations. We have a, you know, global supply chain and hardware team who are working to diversify the supply chain. We have some exposure in China, but that's going to be an immaterial impact when we think about our country of origin and the parts that we're getting. And I think really importantly, like we talked about on the call, is we're seeing further cost reductions throughout this year for the remainder of the fleet. So hopefully, you know, should policy changes come in that that will impact us, we would be able to offset those with some of the additional reductions. And this year.

Aduke Thelwell

Management

Okay. Perfect. Next question comes from Mike Latimore at Northland. We've seen that there were recent wildfires in LA. Any impact on Serve? Will this slow usage or roll-up plans in new neighborhoods?

Ali Kashani

Management

Yeah. No. There wasn't any impact on our rollout plan. We had a few team members who had to unfortunately deal with evacuations. We experienced a few days of lower volume than usual, but compared to the impact on the broader LA community, the impact on us was very minimal and brief.

Aduke Thelwell

Management

Okay. Thank you. Next question is from Aaron Kessler at Seaport. Can you give an update on the Vivo acquisition?

Brian Read

Management

I can do that. Yes. We had some issues on the closing conditions right now. So the deal has been on somewhat of a pause until we work that out. The discussions continue. Hard to say where it would end up, but not a material transaction. But if any updates come up, we would share that with everyone.

Aduke Thelwell

Management

Okay. Thank you. Follow-up question, Ali. How are things going in Miami?

Ali Kashani

Management

Things are going great. Actually, we are seeing good utilization of the robots. We have 50 restaurants already onboarded. The growth is looking to be on the right track. We are excited to expand further there. In fact, in some of our key delivery metrics, we are ahead of schedule. So overall, I would say, we are very happy with what we're seeing, and we're going to continue to collect data there to improve our models and our operation overall. And as we do, we are going to scale the size of the robots further.

Aduke Thelwell

Management

Okay. Thank you. Our next question is from Mike Latimore at Northland. Can you provide any updates on the Gen 3 robot's performance? Are there any early insights available on how well the new hardware is working in the new market?

Ali Kashani

Management

Yes. I'm happy to do that. The robots are looking great compared to a similar time frame of the previous generation robots. They're performing much better. You know, we are obviously rolling them out in stages so that we can learn and detect any problems put them really through their paces before we scale even further. The most important achievement we needed in Gen 3 robots was the ability to scale them efficiently and quickly as the manufacturer scaled efficiently and quickly, and we're very happy with that manufacturing process. So the early results are positive. And we're going to keep, you know, learning and improving.

Aduke Thelwell

Management

Okay. And this is our final question. It comes from Mike Latimore in Northland. What are your expectations now for 2026 and beyond? Do you still think the market can absorb as many of your robots as you can produce and optimize?

Ali Kashani

Management

Absolutely. Yes. We do believe we see a strong demand for the robots both in the existing markets as well as in new cities and even new countries. Ultimately, we really believe that the significant cost reduction in last-mile delivery will keep up even accelerating the rate of growth that already exists in demand for last mile. And that means there's going to always be demand for this robot.

Aduke Thelwell

Management

Okay. That's all our questions for today. So thank you for participating, and I turn it back to the operator.

Operator

Operator

This concludes today's conference. You may now disconnect.