RICHTECH ROBOTICS INC. (RR) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in
conjunction with our consolidated financial statements and the related notes contained elsewhere in this Report and in our other Securities
and Exchange Commission filings. The following discussion may contain predictions, estimates, and other forward-looking statements that
involve a number of risks and uncertainties, including those discussed under “Risk Factors” and elsewhere in this Report.
These risks could cause our actual results to differ materially from any future performance suggested below.
Overview
Richtech Robotics, Inc. is
a leading innovator and provider of advanced robotics solutions designed to address the growing need for automation in the service industry.
We develop, manufacture, and deploy cutting-edge robots that streamline operations, enhance efficiency, and alleviate labor shortages
across a diverse range of sectors, including restaurants, hotels, casinos, senior living facilities, and retail centers. Our commitment
to technological advancement and customer-centric solutions has positioned us as a key player in the rapidly evolving robotics landscape.
Key Business Highlights for Fiscal Year 2024
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Strategic Transition to Robotics-as-a-Service: The Company has embarked on a strategic transition from a traditional product sales model to a RaaS model. This shift is aimed at generating a more predictable and recurring revenue stream over the long term, enhancing customer accessibility to our advanced technologies, and aligning with prevailing industry trends. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Significant RaaS Contracts Secured: As of September 30, 2024, the Company has secured significant RaaS contracts, including a notable agreement for the deployment of 25 ADAM units, representing a total contract value of $5,250,000.00, to be recognized over a 60-month period. These contracts, totaling $5,862,765.00, will contribute to revenue generation incrementally over lease terms ranging from 36 to 72 months. |
43
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Continued Investment in Research and Development: Richtech Robotics remains dedicated to innovation and technological advancement, as evidenced by the increase in research and development expenses during fiscal year 2024. These investments are focused on expanding our product portfolio, enhancing existing offerings, and maintaining our competitive edge in the dynamic robotics market. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Expansion of Sales and Marketing Efforts: To support the RaaS model and drive customer acquisition, the Company has significantly increased its investment in sales and marketing initiatives. These efforts are crucial for educating potential customers about the benefits of leasing robotics solutions, building brand awareness, and cultivating new customer relationships. |
Factors and Trends Affecting Our Business and
Results of Operations
The following trends and
uncertainties either affected our financial performance historically or are likely to impact our results of operations in the future:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | As our robotic products market potential is seen by others, more competitors enter the market, which will lead to price competition and a decline in profit margins; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | A recession will lead to a decline in customer demand in our robotic products and services; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Some of the products are currently assembled by suppliers in China, which may delay the supply if they are affected by international shipping, epidemic, geopolitical conflicts and other factors; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | We anticipate that our general and administrative expenses will continue to increase in the future as a result of increased costs associated with being a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys, and accountants, and personnel-related stock-based compensation costs, among other expenses, and, in the case of public company-related expenses, services associated with strengthening our internal control over financial reporting, maintaining compliance with Nasdaq listing and SEC reporting requirements, director and officer liability insurance costs, and investor and public relations costs, among other expenses. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Inflationary pressures are also a concern as it is difficult to make reliable projections for the cost of components. This means profit margins could be affected, and our pricing would need to re-evaluated on a regular basis. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | The rising interest rate will lead to a higher borrowing cost. It will increase our cost for any potential future borrowing and financing activities. Higher interest rates reduce consumer spending and business investment, causing the economy to contract, which will impact our business and will reduce our customers’ purchasing power. |
Results of Operations
Comparison of the fiscal years ended September
30, 2024 and 2023
The following table summarizes our results of operations (in thousands)
for the fiscal years ended September 30, 2024 and 2023, together with the dollar change in those items from period to period:
| Year ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||
| Revenue, net | $ | 4,240 | $ | 8,759 | $ | (4,519 | ) | |||||
| Cost of revenue, net | 1,520 | 2,744 | (1,224 | ) | ||||||||
| Gross profit | 2,720 | 6,015 | (3,295 | ) | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 2,021 | 1,979 | 42 | |||||||||
| Sales and marketing | 1,315 | 238 | 1,077 | |||||||||
| General and administrative | 6,457 | 3,509 | 2,948 | |||||||||
| Total operating expenses | 9,793 | 5,726 | 4,067 | |||||||||
| Gain/(loss) from operations | (7,073 | ) | 289 | (7,362 | ) | |||||||
| Non-operating income(expense): | ||||||||||||
| Investment Income | 13 | - | 13 | |||||||||
| Interest expenses, net | (762 | ) | (734 | ) | (28 | ) | ||||||
| Total other expenses | (749 | ) | (734 | ) | (15 | ) | ||||||
| Loss before income tax expense | (7,822 | ) | (445 | ) | (7,377 | ) | ||||||
| Income tax benefit/(expense) | (318 | ) | 106 | (424 | ) | |||||||
| Net loss | $ | (8,140 | ) | $ | (339 | ) | $ | (7,801 | ) |
44
Revenue
The total revenue
for the fiscal year ended September 30, 2024 and 2023, was $4,240 thousand and $8,759 thousand, respectively. The $4,519 thousand decrease,
or 51%, for fiscal year 2024 is primarily attributed to the strategic transition to the RaaS model, which impacts the timing of revenue
recognition. While this transition may initially reduce revenue, it is expected to generate a more predictable and recurring revenue stream
over the long term.
| Year ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||
| Robotics | ||||||||||||
| Product revenue | $ | 1,251 | $ | 5,665 | $ | (4,414 | ) | |||||
| Service revenue | 1,830 | 2,602 | (772 | ) | ||||||||
| Leasing revenue | 786 | 197 | 589 | |||||||||
| Total Robotics revenue | 3,867 | 8,464 | (4,597 | ) | ||||||||
| Smart hardware | 16 | 7 | 9 | |||||||||
| Interactive system | 101 | 198 | (97 | ) | ||||||||
| Cloutea* | 256 | 90 | 166 | |||||||||
| Total | $ | 4,240 | $ | 8,759 | $ | (4,519 | ) |
| Column 1 | Column 2 |
|---|---|
| * | Cloutea is the revenue generated from our boba tea store opened in May, 2023. We opened this store as a model to further develop the concept of an interactive robot barista utilizing our ADAM robot. Cloutea has been rebranded “Clouffee and Tea,” which will open in a new location in Las Vegas in January 2025. |
In 2024, the Company generated
$4.2 million in total revenue, a decrease from $8.8 million in 2023. This decrease was primarily driven by a decline in product revenue
within our Robotics category, partially offset by an increase in leasing revenue. The shift towards service and leasing reflects the ongoing
transition to our Robot-as-a-Service model, which is expected to generate more predictable and recurring revenue streams in the long term.
The following table summarizes the RaaS sales numbers (in thousand):
| Current Sales | (RaaS adjusted to sale model) | ||||||
|---|---|---|---|---|---|---|---|
| FY24 | FY24 | ||||||
| Sales | |||||||
| Product revenue | $ | 1,235 | $ | 7,208 | |||
| Service revenue | 1,830 | 1,830 | |||||
| Leasing revenue | 786 | 742 | |||||
| Others | 389 | 389 | |||||
| Total | $ | 4,240 | $ | 10,168 |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| * | If the RaaS revenue is treated as product sales, the gross revenue for fiscal year 2024 would be $10,210. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| * | This transition aligns with the Company’s long-term growth strategy, aiming to create a more stable and recurring revenue stream while reducing the upfront financial burden for our customers. We believe the RaaS model enhances customer retention and positions the Company competitively in an evolving market. |
45
Cost of Revenue
Our gross profit decreased
significantly in 2024, declining by 55% from $6.0 million in 2023 to $2.7 million in 2024, our gross margin remained relatively stable.
Our gross margin was 64% in 2024, compared to 69% in the prior year. This slight decrease in gross margin is primarily attributed to adjustments
and write-offs related to our inventory. During the year, we conducted a thorough review of our inventory and identified certain obsolete
and slow-moving items that required adjustments and write-offs. These adjustments impacted on our cost of goods sold and, consequently,
our gross margin. We have implemented measures to improve our inventory management practices and minimize the risk of future inventory
obsolescence.
Despite this slight margin compression, we are pleased with the overall stability of our
gross margin, which reflects the inherent profitability of our business model. We believe that our strategic shift towards an RaaS model,
with its higher-margin recurring revenue streams, will further enhance our profitability in the long term.
Gross Profit
Despite the decrease in revenue, our gross profit remained relatively
stable, decreasing from $6.0 million in 2023 to $2.7 million in 2024. This resulted in a gross margin of 64% in 2024, compared to 69%
in the prior year. This slight decrease in gross margin is primarily attributed to a shift in our revenue mix. As we transition towards
a Robot-as-a-Service (RaaS) model, a higher proportion of our revenue is now generated from service and leasing arrangements. These arrangements
generally have lower gross margins compared to product sales, as they involve ongoing service costs and the amortization of the robot’s
cost over the contract term. However, we believe this strategic shift towards RaaS will benefit us in the long run by creating more predictable
recurring revenue streams and fostering stronger customer relationships.
Research and Development Expenses
We remain committed to investing
in research and development to drive innovation and maintain our competitive edge. R&D expenses increased from $1.9 million in 2023
to $2.0 million in 2024 was due primarily to our increased expenditure in developing new products.
Sales and Marketing Expenses
Our sales and marketing expenses
increased significantly, from $238,000 in 2023 to $1.3 million in 2024. This increase is directly related to our strategic initiatives
to expand our market reach and promote our RaaS (Robot-as-a-Service) offerings.
General and Administrative Expenses
As a newly public company,
we incurred higher general and administrative expenses, which increased from $3.5 million in 2023 to $6.4 million in 2024. This increase
is primarily due to an increase in professional service fees associated with operating as a public company.
Other Income (Expense)
Our total other expenses
increased in 2024, rising from $734,000 in 2023 to $749,000 in 2024. This increase is mainly attributed to higher interest expenses incurred
on outstanding debt. As we scaled our operations and invested in working capital to support our growth, our interest expense increased.
However, we made a strategic decision to prioritize debt reduction and paid off a significant portion of our outstanding loans in the
middle of 2024. This proactive approach to debt management will reduce our interest burden going forward, improve our overall financial
position, and provide us with greater financial flexibility to pursue future growth opportunities
Income Tax Benefit/(Expense)
We recorded an income tax
expense of $318 thousand in 2024. This is primarily driven by the removal of deferred tax benefits. Management determined that it is more
likely than not that the Company will be unable to realize the benefits of these deductible temporary differences in the future.
Liquidity and Capital Resources
Our primary sources of liquidity
are cash and cash equivalents, which consist of cash on hand and short-term investments that are readily convertible to cash. As of September
30, 2024, our cash and cash equivalents totaled $14.6 million. This represents a significant increase from $433,000 at the end of the
prior fiscal year. The substantial increase in our cash position is primarily attributable to the net proceeds of $40.2 million received
from our initial public offering completed in November 2023 and subsequent financing as described in “ITEM 1. Business – Recent
Developments – Registered Offering.” These proceeds significantly strengthened our balance sheet and provided us with the
financial flexibility to invest in our growth initiatives, including the expanding our R&D team, purchase of property and equipment
to support our expanding operations. This increase was partially offset by cash used in operating activities, primarily due to our net
loss and investments in working capital.
46
Comparison of the years ended September 30,
2024 and 2023
The following table
summarizes our cash flow information (in thousands) for the years ended September 30, 2024 and 2023, together with the dollar change
in those items from period to period:
| Year ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||
| Net Cash provided by (used in): | ||||||||||||
| Operating activities | $ | (5,061 | ) | $ | (2,896 | ) | (2,165 | ) | ||||
| Investing activities | (22,731 | ) | (26 | ) | (22,705 | ) | ||||||
| Financing Activities | 41,925 | 3,028 | 38,897 | |||||||||
| Net increase (decrease) in cash | $ | 14,133 | $ | 106 | 14,027 |
Operating Activities
Net
cash used in operating activities for the year ended September 30, 2024 was $5,061 thousand, primarily due to a net loss of $8,140 thousand
an increase of $3,079 thousand in net operating assets and liabilities. The cash flow impact from changes in net operating assets and
liabilities was primarily driven by decrease in accounts receivable of $4,217 thousand, deferred tax asset of $518 thousand and operating
lease liabilities of $404 thousand, partially offset by decreases in accounts payable of $976 thousand, tax payable of $456 thousand,
right-of-use asset of $405 thousand and increase in inventory of $326 thousand respectively.
Net cash used in operating
activities for the year ended September 30, 2023 was $2,896 thousand, primarily due to a net loss of $339 thousand and a decrease of $2,557
thousand in net operating assets and liabilities. The cash flow impact from changes in net operating assets and liabilities was primarily
driven by increases in accounts receivable of $3,919 thousand, deferred tax asset of $518 thousand and current operating lease liabilities
of $108 thousand, partially offset by decreases in inventory of $551 thousand, right-of-use asset of $67 thousand and increase in accounts
payable and tax payable of $951thousand and $344 thousand, respectively. For the increase in accounts receivable of $3,919 thousand, we
have collected majority of this amount as of the report date.
Investing Activities
Net cash used for investing
activities was $22,731 thousand net cash used for investing activities for year ended September 30, 2024, primarily driven by $15,940
thousand on purchase of short-term investments, $5,470 thousand on purchase of intangible assets, $730 thousand on purchase of long-term
investments and $725 thousand on purchase of equipment.
Net cash used for investing
activities was $26 thousand net cash used for investing activities for year ended September 30, 2023, primarily consisted of cash used
for lending to related parties, and cash collected from loan to related parties
Financing Activities
Net cash provided by financing
activities totaled $41,925 thousand for the year ended September 30, 2024. We received $33,566 thousand from issuance of common stock,
raised approximately $9,286 thousand from issuance of ordinary shares, received loans with a net balance of $3,102 from third parties,
offset by $238 thousand payment of related party debt.
Net cash provided by financing
activities totaled $3,028 thousand for the year ended September 30, 2023. We raised $2,230 thousand from issuance of ordinary shares,
received proceeds of $200 thousand from related party debt, and obtained loans with a net balance of $845 from third parties as of September
30, 2023, offset by $247 thousand payment of related party debt.
Contractual Obligations
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Trend Information
Other than as disclosed elsewhere
in this registration statement, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely
to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that
would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
47
Seasonality
Seasonality does not materially
affect our business or the results of our operations.
Off-Balance Sheet Arrangements
We do not have off-balance
sheet arrangements.
Recent Accounting Pronouncements Not Yet Adopted
See Note 2 to our audited
financial statements included elsewhere in this Form 10-K for more information.
Critical Accounting Policies and Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Management
bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable.
See Note 2 to our audited financial statements included elsewhere in this Form 10-K for more information.
JOBS Act
Section 107 of the JOBS
Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can
delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected
to avail ourselves of this extended transition period.
For as long as we remain
an “emerging growth company” under the recently enacted JOBS Act, we will, among other things:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal controls over financial reporting; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. |
Although we are still evaluating
the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available
to us so long as we qualify as an “emerging growth company,” including the extension of time to comply with new or revised
financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent
registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over
financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in
our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect
not to provide you with certain information, including certain financial information and certain information regarding compensation of
our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more
difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the market
price of our common stock may be materially and adversely affected.