Serve Robotics Inc. (SERV) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to Serve Robotics, Inc. Second Quarter 2026 Financial Results and Conference Call. [Operator Instructions] I would now like to turn the call over to Steve Webb.

Thank you, Operator. Welcome to Serve Robotics' Second Quarter 2026 Earnings Call. With me today are Serve's co-founder and CEO, 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 and 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 results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, 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 uncertainty described in our most recent annual report on Form 10-K, as supplemented by our most recent quarterly report on Form 10-Q, and in our other reports and filings made with the SEC. We published our quarterly financial press release and our updated corporate presentation to our investor relations website earlier today, and we ask you to review those documents if you haven't already. With that, let me hand it over to Ali.

Thank you, Steve, and good afternoon, everyone. We have important updates to share with you today. First, I want to give you an update about our Uber partnership and then share our Q2 results and update our full year 2026 guidance. We will discuss what took place in Q2 that has led to the new guidance and also what we are investing in and some of the exciting updates that are coming down the pipe. Let's start with the Uber partnership. From the first quarter of 2022 through the first quarter of this year, delivery volume through Uber grew for 17 consecutive quarters. In Q2, that trend reversed for the first time. This was caused by lower than expected robot utilization. While customer and merchant demand has remained steady, and our fleet performance has been improving, we believe the reversal in Q2 was largely due to the changes in the operating model and the integration between the two companies. Our extensive discussions with Uber since the emergence of this trend in Q2 have clarified that we really have differing views about the operating model to scale our shared autonomous fleet. This includes things like fleet coordination or merchant integration. Our experience across partners shows that having alignment on integration and operating models can really produce better outcomes from the same underlying technology and fleet. Case in point, in the same timeframe, we saw deliveries with another food delivery partner grow nearly 50% in a single quarter. So based on the volume decline and some of these recent broader discussions with Uber, we don't currently expect that it would make sense to renew our agreements when it expires in early 2027. That's unless we can improve the operating model meaningfully. This assessment was formed very recently and we are sharing it with you promptly. We will continue to engage with Uber and we are open to finding a path to continue working together, but I do want to be transparent with you about the conclusion that we have reached, at least with the information that we have today. Ultimately, we need to focus our resources where we see the clearest path to high utilization and operational leverage so that we can unlock the most value for the communities that we serve. We believe that Serve will be in a stronger position because we'll be able to allocate our resources to stronger, more beneficial partnerships and activities that we think will generate better long-term returns and values for the company. I want to take a moment and say Uber has been a really important anchor partner for Serve. It's been a real privilege working with a company that has really reshaped urban transportation. Together we helped validate this category and build critical operating experience, and we've scaled our fleet to a level that matters. Working with Uber was a great way to bootstrap our platform, and we really value that partnership and what it enabled over the last 5 years. Now this brings me to the financial impact of what changed in Q2. We did not meet our expectations in Q2 given that the delivery volume had declined. As a result, we are materially reducing our full-year revenue guidance. Our Q2 revenue was $3.2 million. That's a 9% increase sequentially over Q1 and over 400% increase year over year. It is however below the level that we required to support our prior outlook. As such, we are lowering our full year 2026 revenue guidance from $26 million to a range of $9 to $10 million. And we are matching this revenue update with real cost discipline across the second half operating and capital expenses. Brian will dig into that with you in more detail shortly. The principal driver of this change is the removal of the delivery volume growth that we had assumed for the second half. The Q2 results no longer support that expected ramp, so we have removed it from our outlook. Even the Q2 results as well as our success in diversifying our revenue, Uber represented a limited share of our Q2 revenue. The magnitude of the guidance change, therefore, reflects the removal of a substantial expected future ramp not the loss of a large existing revenue stream. Let me explain why we view this as a disciplined portfolio decision and not something that changes our conviction in automating last-mile delivery. Our revenue base is already diversified across delivery, advertising and hospital robotics. As mentioned, our other delivery marketplace channel, DoorDash, grew nearly 50% sequentially last quarter. I'm also happy to share that we'll be announcing another major delivery marketplace partner in the coming weeks. Our advertising revenues accounted for nearly 50% of our robotic food delivery revenues last quarter. This is despite the headwinds of geopolitical macro pressure on advertising spending. And last but not least, our hospital robotics business continues to generate contracted recurring revenue at attractive margins. So far this year, we have signed 7 multi-year contract extensions with our hospital customers and 2 new hospitals, demonstrating continued customer demand for our health care automation platform. We are therefore making a disciplined portfolio decision. We are a platform now operating at meaningful scale. We are allocating fleet capacity, capital and operating attention toward opportunities with clearer demand signals, higher expected utilizations and attractive unit economics and stronger alignment of visions and incentives. We believe this is going to make us a stronger company in the long term. We already have several commercial and product initiatives underway that broaden our distribution, increase our merchant accessibility, expand our direct demand and improve the capabilities of our autonomy platform. These initiatives were in development long before Q2 as part of our plan diversification strategy, and now they're starting to bear fruit. On August 17, we plan to provide our 2026 summer announcement, which includes updates across 4 areas: a new delivery marketplace partnership, 2 new market launches, a merchant integration products and new technology advances. Based on our analysis of our markets, back of house integration requirements really constrain a significant portion of otherwise addressable restaurant order volume. Almost 2/3 of delivery orders in our operating areas can't benefit from robotic last-mile delivery due to back of house integration barriers. So our new product, Beacon, is a standalone countertop device that connects customers and restaurants with Serve Robotics directly. Because it has its own cellular connectivity, it requires nothing from the restaurant beyond a consistent source of power. That means we are not dependent on a restaurant's internet or existing point-of-sale system anymore, which has historically been a source of integration friction across the industry. With Beacon, our aim is to work with most restaurants regardless of the infrastructure, including merchants that aren't connected to third-party delivery platforms. This is really exciting. Later this fall, we also expect to introduce an additional product designed to expand direct customer demand and broaden the types of goods and use cases that our network can serve. We are reimagining how things move around cities, not just food from restaurants, but anything from anywhere to anyone. Beyond our solutions for merchants and customers, we are also in late stages of exciting new partnerships that we believe can support materially higher robot utilization. That means the same robots generating multiple times the value for our partners and customers. In recent months we are seeing inbound interest from major companies across a range of industries from food services to logistics and beyond. We are advancing a number of commercial programs designed around denser order allocation, simpler merchant integration and materially higher seed utilization. We will announce each program as it reaches the appropriate contractual and launch milestones. Of course, I can't really share a preview of announcements without talking about our technology. We also have an announcement coming later this year about our autonomy stack. We wanna highlight some major milestones we have achieved in creating new powerful AI models that are making our robots safer, faster, smarter and more reliable and more capable than ever before. So let me leave you with 4 points. First, our previous guidance assumed continuous growth in Uber delivery volume during the second half of the year. The ramp we expected did not materialize in Q2, and we have removed it from our outlook. This was primarily caused by changes in the operating model and integration of our fleet in this particular partnership and not because of any sudden decrease in customer demand or our delivery quality. Second, Uber has been a really important anchor partner in building Serve, but absent a meaningful change in the operating model, we do not currently believe that we will renew the agreement after it expires in early 2027. We'll continue working constructively with Uber, of course, and remain open to a new path. Third, our conviction in last-mile autonomy is higher than ever given the diverse traction we are realizing. The momentum we are seeing across multiple delivery channels really reinforces that distribution, merchant integration and fleet operating models are really central to utilization and economics. And finally, we now have 2,000 robots distributed across more than 40 cities nationwide, a diversified revenue base, more than $240 million in liquidity at the end of Q2 and multiple commercial and product initiatives already underway. This includes a new delivery marketplace partnership, a new product that help us reach more merchants, our continued momentum in hospital robotics, and much more. We are focusing our platform and our capital on opportunities with the clearest path to higher utilization, attractive unit economics and durable growth. With the partnerships and initiatives in the pipeline, we feel really good about the potential for revenue to scale, and we will update you in due course as we continue executing on our roadmap. We want to bring the value of last-mile autonomy to more customers and merchants faster and share more of that value with them with compelling economics for all involved. This is a more focused route to the same large ambition we've always had: building last-mile autonomy that redefines urban logistics. With that, let me hand it over to Brian.

Thank you, Ali. Good afternoon, everyone. This was a pivotal quarter for us, and I want to explain how it's reflected in the numbers and how we are running the business. I want to frame this as 2 things, a strategic update and the financial update. Strategically, we're positioning our offerings to pass more value directly to merchants and customers. That reduces our reliance on any single delivery channel, and it opens the door to other partnerships Ali described. Eventually, we're evaluating and updating our cost base to match, which I'll walk through in a moment. Together, these give us levers to run the business efficiently. Our priorities for the year have not changed: make each robot more productive, grow revenue per robot and per hour, grow the recurring part of our revenue and turn all of that into a stronger financial model. Total revenue for Q2 was $3.2 million compared to $3 million in Q1 and up 400% year over year. That total reflects 2 very different trends underneath it. Delivery revenue declined meaningfully in Q2 compared to Q1. That was a real in-quarter decline, not just a slower future ramp. At the same time, our other channels grew enough to more than offset it. Total revenue was still up sequentially, daily active robots were held steady and software revenue was once again nearly $1 million. All of this highlights the diversification we've built beyond food delivery. Recurring revenue was over 50% of total revenue this quarter. Our health care business continues to deliver contracted, multi-year revenue at strong margins, and that mix shift is the real contributor to where we see this business heading. Gross loss for the quarter was approximately $8.8 million, and gross margin was negative 271%. I'd point to one thing in particular. Fleet gross margin improved sequentially even as we absorbed the Uber decline Ali just walked through. That tells us this progress is coming from real cost discipline and operational efficiency, not from a clean gross quarter. I want to reinforce that this remains our focus. We believe the path to gross margin positivity is inevitable. More revenue per robot per operating hour, improved operational productivity and a growing mix of recurring software and platform revenues. GAAP operating expenses were $57.3 million in Q2, excluding stock-based compensation of $14.7 million and amortization of intangible assets and acquisition-related expenses of $2.2 million. Non-GAAP operating expenses were approximately $40.4 million. R&D remains our largest investment area, and that's by design. GAAP R&D expense was $20.3 million, or $14.9 million excluding stock-based compensation. This goes towards autonomy development, AI model training, fleet software, data infrastructure and integrating across our platform. G&A expense was $24.8 million, or $14.2 million non-GAAP, operations expense was $7.9 million, or about $7.4 million non-GAAP. Sales and marketing expense was $4.3 million or about $3.9 million non-GAAP. Our investment philosophy is anchored in ensuring that every dollar goes toward revenue quality, margin improvement and platform differentiation. GAAP net loss for the quarter was $64 million, or negative $0.80 per share. Non-GAAP net loss was $47.1 million, or negative $0.59 per share. Capital expenditures were approximately $1 million in the quarter before the benefit from approximately $3.6 million in tariff refunds received in the period. We ended the quarter with more than $240 million in cash and marketable securities. That's a real advantage and enables us to make the decisions we made this quarter from a position of strength. Turning to our outlook, we're revising our full year 2026 revenue guidance to approximately $9 million to $10 million, down from the $26 million we guided earlier this year. Even at this revised level, we expect annual revenues to grow nearly 3.5x year-over-year. Two things drove this update. First, the delivery decline wasn't just a future impact as our Q2 results already reflect the decline. Second, and larger, our prior guidance assumed a substantial increase in Uber delivery volume in the second half. That ramp is not materializing, and we've removed it from our outlook entirely. To be clear, our fleet size hasn't changed, and our robots can be deployed to direct merchant relationships, other verticals and the new delivery marketplace platform Ali mentioned, which we expect to have more to share on soon. Each of these channels represents an opportunity to reallocate that capacity toward better economics. Turning to advertising, even with the same macro pressure on ad budgets that Ali referenced, it accounted for nearly half of our robotic food delivery revenues this quarter and at an attractive margin. Our health care business continues to be durable, recurring revenue, with higher margin, high retention and longer-term contracts. We're taking action on cost and capital to match this revised plan. We've reduced planned 2026 capital expenditures from about $25 million down to approximately $15 million to $17 million. And we're lowering our 2026 non-GAAP operating expense outlook from $160 million to $170 million down to approximately from $140 million to $150 million. Reducing our OpEx guidance gives us the runway to execute our updated plan. You should expect this discipline to show up increasingly through the second half of the year. It's coming from a few places: headcount discipline, optimized deployment infrastructure spend and tighter discretionary spent. Overall, we're narrowing investment to what directly supports autonomy performance, utilization, recurring revenue and gross margin improvement. We're also working through the Diligent Robotics integration, looking for opportunities to consolidate overlapping G&A and shared services across the combined company. One thing we are deliberately investing in is core autonomy and software. These are the areas that most directly improve robot productivity, customer outcomes and long-term unit economics, which will remain our focus. This includes our next-generation autonomy platform, which we expect to meaningfully improve per-unit economics and expand the geography our fleet can serve. We are not stepping back from the core business. We're executing with tighter prioritization and a clear focus on operating leverage because we believe that's the right way to build the business and protect long-term shareholder value. Let me close here. The trend we saw in Q2 led us to make hard, clarifying decisions since the quarter closed. concentrating our capital where demand is the clearest and taking a hard look at low-margin, low-control channels to reduce the cost base to match. The near-term revenue number is lower because of that. Serve is building a robotics platform, not a single-use delivery fleet. Even with this update, we expect revenue to grow meaningfully this year, and the revenue base underneath that number is more diversified, higher quality and higher margin than it was a year ago. The investments we are making, anatomy, software and our proprietary data are the ones that compound and provide long-term enduring value. We believe that is what turns our early lead in physical AI into a durable operating and financial model. With that, we will open the lines for Q&A.

[Operator Instructions] Our first question comes from the line of Michael Latimore with Northland Capital Markets.

Ali, can you just elaborate on -- a little bit more on just like what happened in the second quarter? Why do you think utilization was not hitting goals? Was there some specific events that occurred? Maybe Uber stopped allocating resources to you for some reason? Was there any discussion or concern over rev share? Maybe a little more elaboration would be great.

Yes, Mike. Yes, it's a good question. I mean -- but needless to say, I want to be respectful of partner confidentiality and all that. But I think primarily -- I mean, first thing I would say, there are a lot of investments happening on both sides into the platform. So Uber is investing in theirs, we are investing in ours. And at the same time, a lot of decisions are being made about how do you allocate orders, how do you organize fleets? Who makes which decisions? Like there're a lot of very interesting problems to solve when you start introducing autonomous fleets and mixing them with human fleets. So these are, I think, part of the process that's now taking place because these things are real and they're on the streets and doing their jobs. And when it came to those kind of decisions, I think we were not perfectly aligned and the decline kind of highlighted that it brought those discussions to surface, so we decided we should be transparent with everybody that we don't believe that this would be kind of renewed. But of course, we are still engaged and we will continue talking. And if there are better paths, we would look for it.

And then in terms of just market reach going forward, I mean, you talked about DoorDash, sounds like there is another kind of overlay app you're going to be working with. I guess, which channel will be more important here? Will it be the DoorDash and this new company partnership,, or will it be direct to merchants? This direct to merchants, how do you kind of reach the end customer and market to them effectively?

Yes, look, we want to have -- as I said, we want to have control over our destiny, which means we don't want to be kind of in the wake turbulence of bigger partners all the time. And I think the use of, for example, Beacon, the product that I mentioned, to be able to really work with any restaurant is one of those pieces. It's an investment we've been making for a while, so we're going to bring that and highlight that soon. But it's a really exciting product. There are other things in the pipeline in that same order. But we're also working with partners. So I mentioned DoorDash. It's not just that we grew 50% with them in Q1, in fact, between June and July, we grew another 50%. So it's doing really well. We would keep investing there, but we would also want to have channels that allows us to work with anybody directly and honestly enable new types of use cases. It's something that I think if we are just working with platforms we won't be able to do. I think we are much more incentivized to want to innovate and try new things. We are more incentivized to want to pass a lot of the value to restaurants and customers directly. So I think it's really important that we really invest in that. And I think the decision we made this quarter is going to allow us to put energy into that.

And then just last one, so any guidance on software revenue in the second half? And also, is Diligent still on track for about $7 million this year?

Yes, Mike. So obviously you would have seen the updated outlook for revenue at the $9 million to $10 million number. We saw strength in Q2 for the software continuing. I think in the back half of the year, right, we're going to see the continued headwinds that we observe in the back half of Q2. So from a software standpoint, it will be a little softer in the back half, but the strength of Diligent, as you mentioned, will continue. So we're not going to get into the split between Diligent, but they're definitely helping the positive mix, right, in the margin story from a top line perspective. So happy to provide some more clarity there, but I think software will be little softer as we get throughout the back half of the year.

Our next question comes from the line of Colin Rusch with Oppenheimer & Company.

Can you talk a little bit about the KPIs that you're looking at for the efficiency of the autonomy and how we should think about the cadence of learning that you guys have been able to engage in here in the first half?

Yes. Great question. I think that's one of the areas that we really want to share more in the next couple months, hopefully. We talked about our new generation autonomy. You all know about the acquisition we made in that space. Ultimately, the most important KPI is are the robots getting better, are getting -- they're getting faster, they're safer than anything else out there, they are more reliable and they get the delivery done in such a way that it allows us to grow our revenue and also improve margins. So that's the top line. Once we share more about the new generation autonomy, we would have more color on what we are tracking and how do we measure progress. But there's a lot of areas of investment I'm really excited about. This new type of autonomy architecture with end-to-end models where you have a lot less Lossiness in the information where the models are making a lot smarter decisions, intuitive decisions. I think it's a pretty exciting area that we are going to talk about more. And we are already seeing the improvements in the fleet as a result. So we'll kind of share how we are looking at it again soon.

And then with the hospital robots and Diligent, can you talk a little bit about the potential for accelerating deployments and potential optimization of the design of those bots in kind of a timeframe on how we should think about both of those dynamics?

Yes, so in a way, and I think I've mentioned this in the past, it felt to us that Diligent was basically a [ clutch ] behind we were at Serve in terms of being ready for scale. So you make the robots work, you prove the model, you prove it with real customers, then you want to cost it down, make the hardware reliable, so that you can scale rapidly. And that's kind of when we got to our 2,000 robots, only after we made those investments. That's exactly what Diligent is doing right now with the new hardware that they're working on. So again, we are going to have a lot more to say about this very soon, but that's the kind of investment that has taken place in the last year, effectively, to position us to really push that growth in the following years.

Next question comes from the line of Jeffrey Cohen with Leidenberg Thalmann.

I guess firstly, could you talk about the advertising business and advertising revenue a little bit and drill into that as far as are you wrapping the robots and some of the customers, are they more local or more national? And any pricing on that associated with the robots and any kind of forward-looking statements as far as what you would expect for the back half of the year?

Yes, I'll let Brian chime in on some parts of the questions. I think on the advertising, we're seeing pretty good traction. I mentioned earlier in the year, after the war began, we noticed some softness in advertising spending, but we really worked hard to make up for it. That's why something like 50% of our sidewalk revenue came from advertising and it's looking really good. We are very kind of satisfied with what we're seeing. To answer your question, we see both local and national campaigns right now. So -- and again, this is something that I think you're going to hear about a lot soon. And Brian can take the rest of the question.

Yes, Jeff. So I think with pricing, right, our teams have been doing a great job with the expanded fleet of looking at how we can do multi-city campaigns or multi-market, multi-neighborhood campaigns as well. So the opportunity continues to grow, and I think that's excellent from a top-line perspective for margin and the product mix that we're seeing as we move forward. To answer your direct question, right, they're mostly wraps. We're also seeing some growth within the experiential side of the business and a lot of inbound interest from clients that are interested in having the robots for various experiences. For a split on the revenue, not something we get into for guiding to advertising versus deliveries, but we'll anchor back to the updated guidance talked about in the script.

Okay. That's helpful. And then as a follow-up, I know you had some news out last month on NoScrubs and some introductions of non-food. So any update there that you could talk about at this point in time as far as any non-food updates, perhaps stuff to think about and geographies to think about? I appreciate it.

Yes, so one of them that we announced recently was NoScrubs. This is laundry. It's kind of an obvious application. The product that I mentioned earlier, Beacon, it really allows us to work with any merchant. Any place that wants to work with robots would be to do that without any backend integration barriers the way we've had to deal with so far. I think that's one of the pieces of the puzzle that we've been working on to be able to really open the kind of use cases that we can do. Because ultimately we are not building robots to just deliver burritos. This is last-mile infrastructure for cities. And part of why we want to be able to put our resources beyond things like just food marketplaces is to open up those opportunities. I mentioned there's another product as well that we'll be announcing that actually allows customers to also reach out to us directly. So you can -- if you have direct integration ability with merchants and with customers, I think that those are the building blocks to open a lot of interesting other use cases. Now, I would say I think those things take time because food is something you eat 3 times a day. There's a lot of habits and demands for it that's already formed. We have to make these investments to open up these new use cases and opportunities. And that's what exactly we are doing. We want to kind of make the investments so that over time these things become a part of our, in a way, portfolio mix.

[Operator Instructions] There are no more further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.