Realbotix Corp. (XBOTF) Earnings Call Transcript

Hello, and welcome to Realbotix Financial Update Call. My name is Nicholas Armand, and I'm a member of the finance team. Today, we are joined by CEO of Realbotix, Andrew Kiguel; President of Intima, Sue Ennis; and CFO, Scott Meyers. [Operator Instructions] I'll now turn it over to Andrew.

Thanks, Nick, and welcome, everybody, to our Q3 call. I'll start and I'll run this call the way I normally do, which is more of a conversation. I think people can dig in or send in specific questions around the numbers. But I'll highlight things that I want to talk about. We'll give an update on Realbotix LLC. Sue will provide an update on Intima. We'll talk about a few other notes in terms of questions that have come in, and then we'll open it up to a general Q&A. So the first thing is that I want to start is just to explain to everybody, Realbotix Corp. is a holding company with two independently operated subsidiaries, one is called Realbotix LLC and the other one is called Intima. While both groups leverage AI and embody AI, they operate separately. We market to different end users. We have our own payrolls, our own manufacturing and our own operations. Certainly, right now, they're under the same ownership banner, but that over time is going to be separated, and we'll talk a little bit more about the ONCO: NASDAQ RTO transaction as well. In terms of some other stuff, I think this has been one of our best quarters for transparency. We've upgraded our accounting team. The new accounting team is far superior to the previous one, which means we're able to provide more timely and detailed information. So kudos to the new accounting team, several of which are on the phone. And I wanted to talk a little bit about it. I've seen sort of some press saying, well, revenues are lower. And I wanted to sort of talk to you sort of mention why they're lower. So at a very high level, number one, we've obviously -- this year to last year, we've got rid of the crypto staking business. We said we are going to go into a pure play into the AI robotics space. The crypto assets were really just confusing and taking some risk there with respect to the price of the crypto and how do we budget around prices that move up and down. I think fortunately, we were able to get out at prices that are far higher than where crypto is trading today. So that is a plus. In terms of revenue recognition, and I think people need to understand this. When we get an order for a product, we do not record it as revenue until that product is shipped out. So we could receive, for example, $100 million in orders today, but if those are not shipped out until next year, we do not show that in the revenue box. So what does that have to do with our revenue year-over-year? In sort of coming in and taking over the business a couple of years ago, there was a backlog of orders that span a few -- a couple of years back. And what needed to be done was as we sort of moved in and brought in a new management team and improved operations was really to get rid of that backlog. So what ended up happening is that we caught up on that stuff last year, and it artificially made it look like the revenues were higher. But what we're really doing is processing orders that were going back like two or three years. It was really just condensing a whole bunch of stuff. We got everything caught up to date. We recorded that revenue. Now we're sort of into a more normal cycle of what revenues would look like. But on a comparative basis year-over-year, it's going to look lower this year simply because we don't have any of that backlog anymore. So with that, I think the rest of the stuff with respect to the accounting is there. If somebody has specific questions you can ask later, Scott's on. We did have a benefit of recording from the sale of the Tokens.com domain name. We still have some capital that is owed to us on that. It was staggered, but I believe there's about another $640,000 owed to us, including another payment coming in at the end of this month. And that will be completed by the end of January 2027. I want to talk a little bit now about specifically Realbotix LLC. And so for people that don't understand the difference, Sue will talk a little bit about her business, but Realbotix LLC is the division, the subsidiary that's focused on health care, education, hospitality. This is things such as greeters. And that is a relatively new business. I always want to make clear to this that pretty much every single person that works at Realbotix LLC has been hired in the last 24 months, and most have been hired in the last 12 months. So it's a relatively new business that's focused on the AI and robotics space. It's not that it's been around for a long time. And when you look at the revenues, and I think we put it in here, we broke it out for people is that the revenues at Realbotix LLC as part of the overall business are low. And the expenses there are higher, and that's because when you're building an engineering team, an AI team, all these things and you're moving towards scaling, these things obviously cost money. That's where we've been investing is to try to build this business, which we think ultimately has a $1 trillion market at the end of it that we're trying to get to. In terms of Realbotix LLC, we've had a great year. We've announced a couple of Ericsson announcements, the retirement home, the TV show and obviously, the school deployment. One thing I want to make clear is, don't listen to the media. We did actively try to combat some of the false media that's out there. The school project is still going. We are working on some privacy issues really just to demonstrate to the school and the district that there are no privacy concerns to be concerned of. That is delaying things by, what I would say, in the weeks, not in the months, and we're still moving ahead. Obviously, we were disappointed by the level of type of press that we received on that. But I think for people that are involved and know what's going on, there are some positives here, which include us potentially being the first here to get a robot into a school, AI into schools. The team still heavily believes in what we're doing that we're doing a good thing here that's going to benefit and enrich teachers and students. We're not looking to replace teachers. And as I think I've said in the past, the calculator didn't end up with a bunch of math teachers being laid off or replaced. It's a tool that enhances the learning. It makes things easier in growing class sizes with test scores going down. This is just something that is a tool to use in classrooms. It's not a replacement. In terms of us getting to commercialization, we are now building the DNA to start to scale. We did that in our move. We completed the move really between both businesses, everything and out of the old location has been completed at the end of July. And we're really excited. On the Realbotix LLC side, I mean, this is a professional place for us to manufacture. These are static proof floors. These are different places for the AI team, the engineering team to really brainstorm, build and develop some new things. And I'm going to give you guys a teaser a little bit later about what we're exactly showing there. What I would say is that the reported revenues to date at Realbotix LLC don't really capture the progress that we've made. Again, we've been doing these deployments with like the Ericsson, the schools. There's a few more that we're talking to, some significant, some not. But what we really need to do is prove out the model. And I think we're getting that, and we needed to prove it before getting to where we are today. I'll note that so far, we've never invested in marketing or advertising. Everything that's come in has been inbound and I think has been pretty significant in terms of some of the names and the things that we're doing, whether it's the conferences or some of our clients. But we needed to test the waters before engaging in a revenue and sales plan, and I think we're almost there. While we don't give guidance or sales forecast because it's really hard to estimate the growth of a new market, we do have a plan in terms of internally what we think we're going to be able to do. Again, I ask and encourage people to recall that like 18 months ago, this market didn't even exist. As of today, we are still the only people providing this highly realistic human-like robot in America. I've said it in my quote, which is in the press release, which is that we are at a pivotal juncture. We spent the last two years really demonstrating the products. We've successfully deployed them. What we're moving to, and I'll tease a little about this is now that we've relocated and we have the capacity, we're going to be launching a new robotic line at some point this fall. I'm aiming to have that out maybe in September. What is going to be very different here, and I'll explain why, is that we're going to be moving into a direct-to-consumer type sales, online sales. We're going to streamline the process of ordering the robots. We're lowering the price of the robots. What we realize is that people don't necessarily need all the bells and whistles, but pricing is more important here for us to get these very realistic robots out there. I think that is where we're going to put some marketing dollars behind and make this line more affordable, easier to manufacture with a view of moving into producing at scale in 2027. In addition, and I put this in the press release, we plan to launch a line of situational AI avatars towards the end of this year that would be for sale on their own. And so again, we're positioning ourselves as a specific situational AI company as well as hardware. And by the way, these all integrate together. So if you were a school, a hotel or anywhere else, you can start through the integration of an avatar, which is a far more cost-effective way to start. And then that eventually you can build on by integrating in hardware through the robots. And we think that's actually super unique to us as our -- I think most of the things that we're doing are super unique to us. With that, I'm going to turn it over to Sue and ask her just to give an update on the Intima side of things.

Hi guys. Sue, the President of Intima. And for all those of you who don't know, we renamed to Intima and Intima is the parent company of our direct-to-consumer brand of RealDoll. So I think what I really want investors to understand is that the opportunity here at RealDoll is significant. And importantly, we are not starting from 0. This is a 30-year-old brand that has served over 50,000 customers and built a highly engaged audience, including more than 120,000 newsletter subscribers. This is not an idea on the back of the napkin. There is a real brand equity, real customer demand and a substantial installed base already here. This past quarter and next quarter are about building the foundations for scale. We're cleaning up and professionalizing the business, strengthening our operational processes, our systems and go-to-market infrastructure, so that as demand grows, the business is equipped to support that growth efficiently. The work I'm doing today is about ensuring that we're not simply driving more revenue, but building the infrastructure required to scale it sustainably. Now, that being said, this category may not resonate with anyone -- with everyone, and that's okay. We are absolutely not trying to be everything to everyone. RealDoll has spent 30 years building a real customer base with proven demand. Our job here is to serve that customer exceptionally well, deepen that relationship and thoughtfully expand the addressable market from a position of strength. But why now? Why is RealDoll positioned at a really interesting time? What makes this moment particularly compelling for our company is that we believe we are at an inflection point. More than 680 million people globally are using AI companions monthly, including 35 million in the U.S. with 28% of users reporting having had an intimate relationship with their AI companion. This tells us this is no longer fringe behavior. This is becoming a meaningful consumer category. As these digital relationships become more sophisticated, we believe that the next frontier is embodiment. Tactile experiences, which will create the bridge between digital relationships and experiences in the physical world. This is the next stage of the AI story and the AI stack. RealDoll already has many of the rails required to build this bridge, 30 years of manufacturing expertise, established customer base, proprietary hardware, API software built to interact with physical interfaces and decades of experience in creating products specifically designed around intimacy, interaction and companionship. So NVIDIA, for example, didn't build every AI application itself. It built critical infrastructure that enabled an entire ecosystem of AI companies, developers and cloud providers to build on top of it. Our ambition at RealDoll is to play a similar role enabling AI embodiment. Rather than trying to build every AI companion around every conversational experience, we found this past quarter that our real edge is in providing the physical infrastructure and integration layer that allows these AI companion platforms and chatbots to extend their relationships into the physical world. So really, our opportunity is bigger than any single Avatar Apple product that already exists in the intimacy space. We are effectively building towards becoming the NVIDIA of AI embodiment, providing the rails that allow anyone with an AI companion, again, 35 million in the U.S., 680 million globally to have an embodied physical AI experience. We believe our 30-year history, manufacturing capabilities and existing customer base plus the APIs we've already built give us a highly differentiated foundation from which to pursue this opportunity. And finally, I think I do personally bring a different perspective to this category at an important moment in its development. AI and intimacy is still extremely nascent technology. And our focus is on helping to establish the rules where really there are no rules yet, establish parameters for responsible innovation where parameters are still effectively being defined. This means thinking beyond what we can build to what we should build, how we approach safety, guardrails, privacy and responsible product design in real time as we build. Thinking about things like how do we ensure that an embodied AI doesn't perpetuate the issues we are already beginning to see emerge with AI companions and double down on the stuff that is working and that is working right now in the AI companion space. Having diverse perspectives at the table as this category develops is incredibly important. And for me, this opportunity isn't simply to commercialize a new technology, it's to also really help shape an emerging category thoughtfully, responsibly while still pushing the boundaries of what this technology can become. And Andrew, with that, I'll hand it back to you.

Great. Thanks, Sue. That was really good. I want to talk a little bit about the market and the reason why I don't normally talk about the market, but there was something significant that happened in the market several weeks ago that perhaps some of our audience would think is negative, but we actually view it as highly positive. And that is that a Chinese-based company called UBTECH, which was primarily known for producing industrial robots and more novelty type robots, launched a product that, on the one hand, at the very least was inspired by us. And at the very most, they may have copied us. They spent a lot of hours at our booth over the last few years at CES, touching and taking pictures. But nonetheless, UBTECH launched -- I think they took a big risk and they launched a life-like robot line about five, six weeks ago. Now why is this interesting to us? The entire humanoid robot market last year was 13,000 robots, and most of that came out of China. I think 80%, 90% of those humanoids all came out of China. This company, UBTECH, by essentially copying us in 10 days sold over 13,000 robots through a presale system. So essentially, by copying us, they doubled the size of the market. I estimate that's over $1 billion of revenue in 10 days. Why I like this is a couple of reasons. Number one, this validates what I've been saying for a long time and what our company stands behind, which is that there's a massive market for life-like robots out there that don't need to walk or do physical labor that can engage in other sort of social service work, can provide people companies. This is retirement homes, hospitals, schools, health care type environments. So they validated this for us. So I like that. Here's the second piece that I find, and this was a question that came in is, well, how are you going to compete with them? Well, I don't have to compete with them. Number one, I still believe our product is better. But number two, the administration in America about two weeks ago banned all Chinese-made humanoid robots from coming into the country. And so where things stand today is, we are the only game in town for this type of product. And we were already in the midst of launching a new line. But maybe, Nick, can you just play that quick click? We just want to give the audience a quick tease for people who are on Zoom so they can see sort of what we're working on. But we're relaunching the entire line. Here's the quick video. People can watch. So that was just very quick. And what we're essentially doing is we're going to have four characters. Two will be existing characters that people are familiar with, which is Aria and Dave. We're introducing two new characters. We've created a lower cost line, which is going to be a tabletop and a standing robot. And we're planning once we're ready to mass market that, we're getting all of our sort of marketing documents and everything ready, website. And the idea is really just to do what UBTECH did. We're going to sort of tease the market. We have our products ready, ask for a $200, $250 deposit to reserve your spot on line. I think depending on the demand, there's going to be a limited amount that we can manufacture within 12 months, and they'll be for delivery in 2027. Now why is this a bit of a change for us? We've been really focused in the last few years, as I said, on these sort of one-off projects, whether it's Ericsson or a school or a retirement home. And those are really great for establishing and validating what we do and that there's these use cases. But they've always been done through this sort of handholding consultation process. What we're moving to with the new website, which will be launched again in September is going to be the ability for you just to click, pay your $250 and then your name is in line. It's a much easier process, more efficient for purchasing. So we're really excited about that. And I think people really like it when they see this new line and that we're eliminating a whole bunch of the selection process and things, but we're giving different characters where you'll just order your character and you'll put your spine line and hopefully have that delivered next year. I'm going to talk a little bit about Onco here. Some questions are always coming in. There's always a lot of confusion around this deal. I talked about it in -- or it's spoken to in the press release, which is what we are essentially doing is we are taking Realbotix LLC, and we are moving the ownership from holding it as a fully wholly owned subsidiary now, and we will instead own shares in the NASDAQ vehicle, and we will control 90% of it. Why this -- and it comes with some capital. Now why is this a benefit to us? Number one, being on the NASDAQ opens up the market. That's where we're going to get the best valuation, better access to investors, retail institutional and the ability to raise capital. I think there's $2 billion businesses here being Intima and Realbotix LLC, but each business needs to be able to finance itself and grow. And right now, because Realbotix LLC is building this AI engineering team, there's going to be more capital that's going to be devoted there. And what we're trying to do is move the fundraising for that to this NASDAQ vehicle. I'll remind everybody that, that deal is being done and it values Realbotix LLC at $125 million. The math is very simple. There's a vehicle, $12.5 million, and we are vending 10% of that business to their shareholders, we're retaining 90%. It's an all-share deal. We will take back stock. I've talked to some people about it. There's a six-month hold on those shares, and we will see and provide -- we're going to keep flexibility and optionality with what we do with those shares, but the eventual goal would be over time to distribute those to the XBOT shareholders so that everybody benefits. Again, there's nothing that needs to be done. We don't know any ratios or anything like that right now. The first step is to get the deal done. We are filing the S-4, which is the merger document with the SEC this month. I'm told within two weeks. Once that's done, we wait for the SEC approval. There's Q&A that goes back and forth. And I'm told that is sort of a two- to four-month process. I can't put a pin on that right now, but that is the next key milestone to getting that portion done. The last piece that I want to talk about here before we turn over to Q&A is just media. And I think although myself and businesses I've been involved with have always attracted media, I think things have moved to the worst with a lot of the media. And I saw that very recently with the school deal. I've never seen such a gross amount of false reporting, reporters taking liberties on things and just really skewing nonsense and untrue things. That saying fake news really came to bear here, and it got to the point where really we were getting all these inquiries and it didn't matter what was said. And you sort of come to realize that with a lot of the media they're just looking for clicks, whether they can create rage-bait or clicks or put something salacious in the heading, the truth doesn't really matter, and we saw that a lot. We did hire legal counsel. We got some of the bad articles taken down. Other people are just unfortunately unwilling to change things that were untrue even though we demonstrated it. And the one thing that came through here was really that we need to push forward on this Onco transaction, the NASDAQ vehicle because people will always try to conflate Intima with Realbotix LLC. And obviously, under the same parent ownership, you can see why people would come to that conclusion, even though they're both two very separate businesses. But like I said, I lost a lot of respect for media through this process. I would encourage -- I get e-mails from concerned investors saying, Oh, I can't believe this happened. I can't believe this happened. What I would say is, if you read it somewhere, it does not mean that it's true. We are obligated to report anything material back to the market. The school transaction has not been canceled. We are proceeding. We are going through some of the privacy issues. We continue to put out press around that. And obviously, we will report to the market if anything changes there. But what I would say is, again, don't believe the media. Their agenda is not to necessarily to provide the truth, unfortunately, but to get to clicks and rate. So with that last message, I will open it up to Q&A.

My first question is, will we be able to compete price-wise with Chinese competition, the UBTECH Pro one? So number one, we have protection because they're actually not allowed to sell their product in America. Number two, yes, the new product line, the tabletop is being reduced. We've got some new procurement and ability to produce and we start produce scale, the new tabletop version, which is what you saw in that video is going to be $12,000 and will only require $250 deposit. And number two, the full-size robot, the new version is going to be somewhere in the $55,000 range. Again, that is actually lower than where UBTECH is selling. Some of their robots at the top end, which are like in the $150,000 range has some extra features. But based on our market studies and talking to people, people prefer a lower price point and the realism is really what's capturing them and the ability to have robots with personality. And like I said, each of our four robots coming out will have different personalities, but also each buyer will be able to configure what it is that they're looking for within each robot, including using different AI platforms. Gary's question is, why has the merger been pushed off to the end of Q4 versus Q3? It hasn't been pushed off. The drop dead date or the end date in the agreements has always been the end of November. Nothing has changed. I think what has happened is, Gary, you got to understand the process. And the process is that you need audited financial statements. We need to put together pro formas. We need to put together a whole bunch of things on their vehicle, they need to do some share consolidations. They need to get their stuff in order. And really, it's just a function of blocking and tackling. There's just a lot of work that goes into completing a transaction like this. It's taken a few weeks longer than I thought. I had hoped to have the S-4 filed in July. So we're about four weeks behind on that. But the initial thought and in the initial press release, if you go back to that, it always said that the transaction was expected to close on or before the end of October. We might be a couple of weeks off that, but we're still on that time line. Somebody said, if you're spending $3 million per quarter and generate $18,000 revenue, you justify yourself as a leader in humanoid AI robotics, your revenues don't justify that terminology at all. So I disagree with that highly. And here's why. Take a look at the revenues for all these other robotic companies. If you go to Silicon Valley or Europe, I can tell you this, none of those companies really have much revenue. In fact, I'm not sure that even Tesla's Optimus program has sold anything. So there's 0 revenue there. I'd say of the maybe 20 robotics companies in the world, other than maybe Agility that's done some stuff, and I think Figure AI is doing some trials, none of them have any real revenue. What you're building for here is the future. I think we can all recognize that robots and AI are going to be a dominant part of our lives, but it's not happening overnight. I mean if you look at the early days of Facebook or any technology company, the revenues are never there. You have to build the technology. You have to go out and commercialize it. I would say our valuation right now is far lower than any other robot company. If you look around, you can see some robot companies in Silicon Valley and other places really just come up with an idea and slap a $1 billion pre-money market cap on it. We're not doing that. I think if you look at our moat, which is there's nobody else in North America that's building robots that look like ours, the technology that we have with modular robots where the parts can be replaced, the faces can be swapped and the robots can be packed is unique to us. Robots that have a battery but can also plug in the wall is unique to us. Open AI stack, meaning they can run any AI is also ours. We have a vision system on the robot, which I've yet to see any of these other companies adequately demonstrate where we had it running all day at CES in this forthcoming CES, all of our robots will have vision, and we have that patented. And so I don't think -- if you can point to me to maybe the two big Chinese companies that are primarily making money through novelty robots, these are the robots that are about 3 to 4 feet high. They're the ones that you see kicking kids in the gut and round housing them in the face. There's a ton of sales for that. That's not the type of robot we're building. We're trying to change industries, whether that's hospitality, health care, education. There's no robots being sold in that area. And so it's the technology that I talk to you and say that where we are leading. We are leading in terms of progress, like can you name me another robot company that's landed and been able to land a deployment inside a school or a retirement home or on a TV show or clients like Ericsson, like you have to look at it that way. It's not a revenue story today. Next question is, how much of the team involved in the configuration -- how much is the team involved? If I understand this question, I think it's asking can everything be done online by the customer alone, can customers check with they're getting ability to avoid unhappy customers. So the way the new robot line is being unveiled is the drawings, the manufacturing, all that's been finalized, and we're going to order a prelaunch at some point in the fall where people can place a spot in line to order the robot. We're going to put some marketing behind that. The way that the robots work is that there is a configuration app that is used on the robot, and that allows you to select the personality, the AI, the voice. It's really what allows you to monitor it. Once that stuff is selected, the robot will really just be acting autonomously. In terms of avoiding unhappy customers, well, I think we've vastly improved our staffing. So we've brought in and professionalized. This is part of moving to the new facility. As I said, almost every single person working on the LLC side has been hired in the last 12 months. On Sue side, it's a bit of a different story. She's working with an established brand and a lot of the people there have been around for a long time. The technologies are different at this point. Obviously, the Realbotix LLC line was inspired by the idea of using robots that look like humans, but really, we're building different products. Somebody asks, is the expected robot price for the upcoming direct-to-consumer sales, will it be fixed or with ongoing maintenance or upgrade fees? Will there be a subscription or a lease a robot option? The simple answer to this is, the price will be fixed. There's going to be one upgrade option available, and that's the vision system. The vision system requires some expensive chips that go in it. And so you'll be able to choose your robot, tabletop or full body and then do you want the vision? That will be your selection process. Then the configuration app will be a subscription that will be required. And that is really, again, you open it up and you say, I want to run ChatGPT through it today. I want the robot to speak French today or Spanish, whatever it is. It configures the use of the robot. And that will be a subscription fee. In terms of the lease robot, we will not be leasing it ourselves, but we will initiate some conversations with some groups that will provide financing for people. So let's just say you buy the $12,000 tabletop, they will pay us and you create a deal with them. And the reason why is, look, we're too small to become a finance company right now. Maybe down the road, that's a possibility. But at this point, we're too small to do that. I think that is all the questions for now. I don't have any other closing remarks. I thank everybody for their patience. I know the share price hasn't really performed. As one of the largest shareholders, I'm acutely aware of that. We're doing our best to see if we get attention. I really believe we're working on something unique with high demand. I'm hoping that when we complete the Onco transaction, launch the new robot line and continue to sort of hit and bring new things to market that people will start to recognize the value that we're building here. So maybe with that, thank you. As always, feel free to check out our website and send us questions if you have anything on the contact e-mail, we always respond to everybody. Thanks.