Hello and thank you for standing by. My name is Demi and I'll be your conference operator today. At this time, I would like to welcome everyone to Serve Robotics Inc. 3rd Quarter 2026 Financial Results and Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to Steve Webb. You may begin.

Thank you, Operator. Welcome to CERV Robotics' third quarter 2026 earnings call. With me today are CERV'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 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 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 other reports and filings made with 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. And with that, let me hand it over to Ali.

Thank you, Steve, and good afternoon, everyone. We delivered third quarter revenue of $2.8 million ahead of our expectations and up over 300% year over year. We are also raising our full year 2026 revenue guidance to $12 million, which is from the previous guidance of $9 to $10 million. That is an almost 30% increase. We are really encouraged by how the team is executing. We've been focused on broadening our demand for our robots and also improving our economics for the business. And this quarter, the results show that our efforts are paying off. Our goal is to use physical AI to make local delivery more affordable for merchants and consumers. And we are working towards that by making our network easier to access and also expanding into new markets and geographies while also lowering our cost of operating the robots and generating more revenue from each robot. So let's start with our newer and many other platform partners where we are seeing a lot of delivery growth from DoorDash and Grubhub. Daily deliveries with them has more than tripled from the end of Q2 to the end of Q3, and the share of all deliveries has more than doubled in the same quarter. Also, the number of merchants from the new platforms grew over two and a half times over the same period, and it continues to scale. give us multiple paths to delivery growth. We really focus on turning that broader merchant base into more work for our robots. The growth that we are seeing in the delivery side is actually underpinned by the continuous improvements we are making to our technology. Currently, our robots are 13% faster than they were in Q2. That is a 13% speed up in just a few months. The robots now travel 7% more miles per delivery, meaning that they can cover more distance to perform a timely drop-off. Our reliability is another key to unlocking this growth. Our delivery completion rate was 99.9% in Q3, as it was in Q2. That means that of every thousand deliveries we pick up, 999 are delivered to the consumer successfully, and no tip needed. Advances in our level four autonomy are helping our robots move faster, and they're also reducing the staffing costs needed to support them. So stay tuned because we have some big announcements about our autonomy in the coming weeks. Now, alongside these technical advancements, we've also been reducing our day-to-day operating costs for the fleet. We delivered results on a slate of cost reduction programs in the quarter that benefited our cost per delivery. and in aggregate they saved us about a million dollars in the quarter. Let me give you a couple of examples. First one is the improvements we made to our procurement and maintenance programs to drive significant efficiencies when it comes to robot repairs and replacement parts. The second is how we streamlined the way we deploy robots every day. We made them faster and less expensive. And this cuts the external cost of deployments by 75%. Taken together, these efforts improved fleet margin by over 100 percentage points from Q2 to Q3. Now, in order to build on our growth momentum, we are making our delivery network easier to access. Our relationship with Wonder and Grubhub has added another channel for demand in markets such as Washington DC metro area. We are also working directly with merchants through Beacon, which is what we announced last quarter, Beacon allows us to integrate seamlessly with more merchants, and we are seeing great progress with the initiative. We recently launched our first Beacon-enabled locations in San Antonio, Texas. The easier we make it for others to use our network, the more potential there is for them to bring their own ideas and their own customers. We know our fleet can support users and use cases beyond what we have developed ourselves. So we'll have more to share as some of these opportunities open up. Another important foundation for our growth is our geographic reach. To enable rapid growth, we have to have really robust playbooks for deploying to new markets. We have to have mature AI and autonomy models that can easily adopt to new cities and countries. And we have to have regulatory and policy support to unlock new geos. So we have developed these robust playbooks now for expansion and policy and have matured our AI models after scaling to more than 20 cities in the US. So we are now taking these learnings into new international markets and we are able to get operational in new cities with less friction. Last week we announced our launch in Gold Coast, Australia, a market that we are really excited about. Gold Coast is our first international market expansion. and is in an exclusive partnership with DoorDash. Customers can order through the same DoorDash app that they already use, just like they do in the US. Griffith University hosts our local operations teams. This is really exciting. It's the first university to host our operations. Beyond Australia, We are also considering other international destinations. You may remember Vancouver, Canada as one of the examples where earlier this year, the city council approved our pilot proposal. We are now working with the province for what could be our first Canadian city. As we continue to expand, we are learning how to reduce the cost and time it takes to get to new markets and get them up and running. And that actually brings me to an update about micro depots. Microdepots give us a small footprint local base for charging and staging and maintaining robots so that they can be very close to where they work. These are our most efficient deployment formats. In our early deployments using this strategy, we are expecting to launch cities with one-fifth the cost and in a fraction of the time required compared to our legacy deployment formats. We are pretty excited about the results so far and continue to invest heavily into this. Lower costs are one part of the evolution of our fleet economics. Another way to make local delivery logistics more affordable is by increasing robot monetization beyond delivery fees. You've heard me discuss this before, but this actually helps us diversify our revenues. And one really good example for this is branding. Branding gives us another source of revenue from robots that are already working out there in the community. Our fleet now includes 2,000 robots in 40 cities and 27 hospitals. That presence gives both national and local brands a unique way to directly reach people. Our branding revenue grew nearly 80% from Q2 to Q3, and major campaigns are returning now. we have a strong pipeline of upcoming opportunities as well. For example, the underdog sports campaign ran for six weeks across Dallas, Atlanta, Miami, and Los Angeles. 455 robots generated 144 million impressions and they traveled nearly 100,000 miles. That's an amazing amount of progress in our sidewalk business in Q3. We are reaching more merchants reducing the cost of operating, expanding our operational footprint, and also generating revenue beyond just deliveries. All of this is putting us in a better position to make local delivery more affordable for merchants and for consumers. But beyond Sidewalk, another way we use physical AI to serve people is with our Moxi robots in hospitals. They move supplies and materials to help nurses focus more of their time on patients. Our healthcare sector continues to deliver solid revenue in Q3 in line with our expectations. And importantly, year-to-date, we have signed multi-year contract extensions with 12 existing hospital clients. Two of the hospital clients have actually expanded robots in their fleet. Overall, we are now serving 27 hospitals across the U.S., following the addition of four new hospitals in 2026 through the end of Q3. Hospitals and sidewalks are very different and unpredictable environments, but both of them force us to solve these practical problems of robots operating among people in diverse and challenging environments. They help us train better models from a vast and diverse proprietary data set to teach robots how to coexist with people. Our years of work on hardware and AI and autonomous fleet software have also generated data and operating experience that other companies are asking us to use. Inbound inquiries about our foundation model data are increasing and we are beginning to serve our first customers. Our robots experience real-world edge cases and gather insights every day across a range of environments and scenarios that we believe makes us quite unique in the marketplace. It's early, but we see this as a tipping point for building another path for the work our robots already do to generate value, which is to help accelerate the physical AI revolution by teaching foundation models about the real world. This interest we are seeing extends beyond just data. It also extends to our technologies that power our robots. We are building one of the industry's strongest physical AI stacks. and we want our technology to reach more people beyond sidewalks and hospitals. I've always said delivery is just a starting point for us, but we are really building robots that can navigate human spaces. But we can't go and make every robot form factor ourselves. New robot forms are being developed across many industries and we want to help them come to commercial scale faster. That's why we are not just stopping with CERV and MOXIE robots. Any company building a new kind of robot should be able to leverage our proven technology and instead focus their efforts on the unique problems that their robots is meant to solve. As Jeff Bezos says, they should focus on what makes their beer taste better. We see an opportunity to become a supplier to those companies, drawing on what we've built for ourselves. So earlier today, we had a very exciting announcement about our physical AI services. We think the Amazon AWS moment for robotics is here. Just like Amazon's technology, which was first developed to power its own retail website, has become the foundation for millions of companies to build their web products, the technology that we have developed to power our sidewalk and hospital robots can help accelerate new robot makers to bring their products to market faster and cheaper. At the start, Our initial offering brings together three services, a high-performance data link that connects fleets to off-board intelligence in real time, a catalog of real-world foundation model data, and a data curation infrastructure for the fleet-scale AI learning. Our technology is already powering some of the largest robotic fleets in public spaces in the world. Now we get to bring the benefits of it to more people. So, our serve link, for example, is one of these three initial services. It helps connect robots in the field to the computing infrastructure beyond their onboard intelligence. It helps keep the operational data flowing reliably as conditions change so that robotic teams can really focus on advancing their autonomy. Among our launch customers for this is Bedrock Robotics, which builds autonomous systems for construction. Bedrock uses ServLink for network connectivity across LTE, 5G, and satellites. Another service we are announcing is the data curation product. It has helped us train our robots to navigate some of the wildest sources of edge cases imaginable in the streets of LA and now across the country, while also providing us a safe and near perfect track record of completing deliveries once we receive the goods. We developed, at times acquired, and have advanced these technologies along with many others to run our own sidewalk and hospital fleets. Physical AI services gives us a way to build a new business from that same investment we've made across a broader physical AI market that is accelerating. So I covered a lot of ground today. To sum up, we delivered Q3 revenue ahead of expectations. We are raising our full year outlook from nine to 10 million to $12 million and we are advancing our technology making our robots faster and more reliable than ever. We are reaching more merchants and expanding domestically and internationally while at the same time also lowering the cost of operating our robots and improving gross margins. We will keep strengthening the core business while continuing to develop our diverse base of emerging business opportunities to fully take advantage of this historic moment that we are living through. With that, let me hand it to Brian.

Thank you, Ali. I'll walk through the quarter's results, the improvement in our cost base, and assumptions supporting our updated FY26 outlook. Total revenue during Q3 was $2.8 million, up from roughly 700K last year, an increase of over 300% year-over-year. Compared to prior quarter, fleet services revenue grew about 0.3 million, even as Uber volume declined as we told you it would in August. Meanwhile, software services revenue declined following a completed customer contract during Q2. We are still in the early stages of development for our software services and anticipate quarter-to-quarter volatility. Recurring revenue growth continues to outpace non-recurring revenue, and in Q3, recurring revenue accounted for 69% of total revenues supported by ServLink connectivity growth of 23%. Branding revenue was significantly higher in the quarter, growing nearly 80% sequentially. A portion of that was a six-week campaign that does not repeat. Gross loss for the quarter was $7.6 million and gross margin was negative 266%. This was our third consecutive quarter of margin improvement. Our fleet margin improved by over 100 percentage points sequentially as we implemented the fleet cost reduction programs that Ali mentioned. Three actions drove the result. Autonomy improvements, which lowered remote operations cost per delivery, nearly $1 million of procurement, repair, and maintenance savings, and a deployment redesign that cut daily external deployment costs by 75%. Last quarter, I said we believe the path to gross margin positive is inevitable. Our focus on driving revenue per robot and operating hour, better operational productivity, and a growing mix of recurring software and platform revenue should enable our gross margin improvement trend to continue. GAAP operating expenses were 53.6 million, an improvement of 7% from Q2, excluding stock-based compensation of 12.5 million and amortization of intangible assets and acquisition-related expenses of 1.9 million. Non-GAAP operating expenses were 39.2 million, down 1.2 million from Q2, are first sequential declines this year. In August, I named a few areas of cost focus. Here's where those stand. First, discretionary spend and consultants. We terminated several consultant engagements and cut non-essential spend. That program removed nearly $8 million from the second half spending versus our prior plan. Second, deployment infrastructure. That shows up in the cost of revenues, not operating expense, and we covered that a moment ago. Daily external deployment cost was down 75%, and total cost of revenues were down 14%. Third, headcount remained flat throughout Q3. We prioritized engineering hires for Autonomy and MOXIE 2.0. Other functions were flat or down in the quarter, which we anticipate to continue through Q4. R&D was 22.6 million, or 16.7 million non-GAAP, up from 14.9 million. It is the one line item that increased and the area I said in August we would continue investing in to support core autonomy, our next generation platform for physical AI services, and Moxie 2.0 development and engineering compute resources. Gap G&A expense was $20.2 million in Q3, which is down 19% from Q2. On a non-gap basis, G&A expense was $12.4 million. Operations expense was $7.3 million or $6.8 million non-gap, both down 8% quarter over quarter. Sales and marketing expense was $3.5 million, or about $3.3 million non-GAAP, down 18% and 16% respectively. Our investment philosophy remains anchored in ensuring that every dollar goes towards revenue quality, margin improvement, and platform differentiation. GAAP net loss for the quarter was $59.2 million, or negative 68 cents per share. Non-GAAP net loss was 44.6 million or negative 51 cents per share. This came entirely from gross loss improvement of 1.2 million in operating expense discipline. Capital expenditures were approximately 5.3 million in the quarter before the benefit from an additional $1 million in tariff refunds received during the period. We ended the quarter with more than $198 million in cash and marketable securities. That is a real advantage and enables us to make the decisions we made this quarter from a position of strength. We are raising full year 2026 revenue guidance to $12 million, up from the previous guidance of $9 to $10 million. This implies a fourth quarter revenue of approximately $3 million. In August, we said we expected to grow revenue by three and a half times, and we are now on track for four and a half times our prior year revenue. We expect full year non-GAAP operating expenses of approximately $150 million, which is $20 million below our expectations at the start of the year. We expect full year capital expenditures in line with our prior $15 to $17 million. Stock-based compensation should remain approximately $50 million. Ali just discussed our physical AI services offerings, each built on connectivity, tooling, and data that we already use to power our fleet. That revenue sits in two existing lines today, data contracts within fleet revenue and serve link within software services. Our physical AI services require no new robot builds, so no new incremental capital expenditures, and it consumes no fleet supply hours, so it does not have to compete with delivery or healthcare for capacity. Let me close against August. Q3 performance was ahead of expectations from August, with the commercial progress moving toward a stronger financial model resulting in our increased 2026 outlook. I said margin improvement would come from cost discipline. Fleet margins improved over 100 points on a 14% reduction in cost of revenues. I said we would manage spending against the runway and keep investing in autonomy and software. Non-GAAP operating expenses declined for the first time this year with R&D investments remaining focused. and we ended the quarter with 198 million in liquidity. CERV is building a robotics platform, not a single use delivery fleet. With that, operator, we can open the line for questions.

Thank you. We will now begin the question and answer session. To ask the question, press star then the number one on your telephone keypad. To withdraw your question, press star one again. We do request for today's session that you please limit to one question and one follow-up and recue for any additional questions. Thank you. Our first question comes from the line of Connor Rush with Oppenheimer. Your line is open. Please go ahead.

Thanks so much, guys. You know, Ali, can you talk about the breadth and depth of initial customer interest on the physical AI services? You know, clearly there's a need for some of these elements here, but just want to get a sense of how mature the sales process is.

Yeah, absolutely, Colin. I can take that. We've been working on this for some time. We just are finally discussing it publicly. We have customers ranging from, you know, we mentioned Bedrock Robotics, which is in construction, but also between the customers and pipeline, we have anything from mining to even defense. There's a very wide range, which is pretty much what we expect because, as I mentioned, people are building new form factors of robots. There's kind of the moment for physical AI right now. And we saw enough of evidence and traction to decide to make this a new business line that we're pretty excited about.

Excellent. And then from a cash management perspective, As you think about optimizing the spend, how should we think about this as you get into 2027 and other areas where you may be able to optimize and save a little bit of cash?

Yeah, I guess I'll start and Brian can add to it. We've been very... I think responsible with cash, as you can see, we've been making savings along the way every quarter. Part of this is as we are improving our technology, you're getting better at operation. When robots get faster, when we build more demand, all of that actually helps with both the overall financials and the unit economics. So this is something we are working on on an ongoing basis. and then of course, you know, when it comes to things like hiring, we've been very disciplined and we're going to continue to look at that, you know, that kind of spending the same way, especially in the kind, you know, conditions. Brian, if you have anything to add.

Yeah, I mean, I think Colin, in our prepared remarks, you know, we talked about quarter over quarter trends, how we're remaining disciplined all the way from the margin at the top to our OpEx throughout the P&L. So that Mindset is not going to change right now. And in fact, we're going to keep paying more attention to it as we get into 2027. Thanks so much, guys.

Thank you.

Next question comes from the line of Taylor Manley with Guggenheim. Your line is open. Please go ahead.

Hey, thanks for taking the question. Congrats on the strong results. First, on Australia, obviously that's in connection with the university. How should we think about the opportunity as it relates to college campuses? And is the TAM too small in the U.S. for that to be worthwhile? Yeah, good question, Tyler. We've always been focused on urban density. So college hasn't been something we've just looked at exclusively as a market. And I don't think that's changing right now. This just was a You know, the right partnership in the right environment, but it's not really changing our strategy about the college campuses.

Helpful.

And then second, maybe one for Brian, on Diligent, it seems like some strong traction there. Any thoughts on kind of like top-line growth trajectory once we lap kind of the initial acquisition contribution?

Yeah. Hey, Taylor. Thanks for listening in. So we will reiterate what we said two quarters ago and last quarter with respect to $7 million undiligent. Really strong performance throughout the year. We talked about the new customer acquisitions even just this quarter, and the hospital's now up to 27. So we're looking at ways to enable that growth into 2027, which is supported by the CapEx numbers and the investment that we've talked about the last couple quarters. Awesome. Thank you and congrats again. Thank you.

Next question comes from the line of Alex Lattimore with Northland Capital Markets. Your line is open. Please go ahead.

Hi, Lee and Brian. This is exciting news here with the physical AI services launch. Thanks for taking my questions. I had one about daily active robots. Is there a way to think about how many you might have exiting the year? You added over 100 this quarter, so maybe 1,000 plus?

Hey, Alex. Yeah, you know, I wasn't anticipating this, so I don't have a number to share with you right now. I guess what I would just say is we talked about being cost-conscious and disciplined So we are reacting to what we see. When we have demands, we add robots. When we have opportunities like Australia and there are some other cities and countries we are looking at, we would expand. But we are not going to force this. We are not doing irrational things. We want to be very cost-cautious. So that's why the number is just growing organically as it makes sense.

Understood. And then on the physical AI services, how do you price those services? Are they usage-based or on a recurring fee per system? And then what are the gross margins?

Yeah, so things like ServLink, it's been recurring revenue per, you know, usually device per seat. That's the model. And really good gross margin, this is software. So, you know, what you would expect with software, it's helped our overall gross margin as well. And then, of course, this is just the initial set of products and we expect that we would have more pieces of our technology that we can offer. And, you know, there could be different pricing models as this matures, but a lot of it right now is the kind of software service model.

Cool. One final question. I saw that DoorDash recently acquired Instacart. Does this open up the door for Serve to do grocery deliveries over time?

You know, we've done groceries in the past with, you know, directly with merchants in Los Angeles, for example. And yeah, it's definitely a market we've been paying attention to. And as you know, we have a relationship with DoorDash. So yeah, I believe this is going to take them about a year to close, if I recall the process. So it might be a while, but we'll be very excited to speak to them and see if the opportunity is there.

Awesome. Thanks, Ali. I'll turn it over. Thank you.

Next question comes from the line of Jeffrey Cohen with Ladenburg. Your line is open. Please go ahead.

Hi, Brian. Thanks for taking the questions. Could you talk a bit about Beacon and some early experience as far as the rollouts there thus far in San Antonio and maybe talk about some of the providers and what you're finding as far as optimization and how we may see that expand?

Yes. Yeah, happy to take that, Jeff. So we have our first merchants now using Beacon. This is just for folks who may not remember. We talked about it more at length in the last earnings. It's a small tablet that enables merchants to get notifications when a robot is doing their deliveries. It solves a pretty big bottleneck when we are trying to integrate with more restaurants, especially when they are using point-of-sale systems and we want to try to have a direct relationship with them. So it's still early days for that, but it's a pretty important missing piece of the puzzle that we've now brought to the table. So I expect we would see more adoption over time.

Okay, thanks. And then secondly, as follow-up, could you talk about MOXIE a little bit and the 2.0 development and maybe give us a flavor of commercial and sales channels that are existing in new hospitals as far as POs and your sales organization?

Yeah, so the 2026 was really an investment year for Moxie. So we did the acquisition at the beginning of the year. We invested and helped build a new Moxie 2.0 hardware. With that now rolling out, we are hoping to kind of switch into both getting the client fleet upgraded, but also getting them into new hospitals. And there are definitely conversations with partners and distributors about What 2027 and 2028 is going to look like. So I'm hoping to have more to say about that in the coming months.

Thanks Jeff.

Next question comes from the line of Andres Shepherd with Cantor Fitzgerald. Your line is open. Please go ahead.

Hi everyone. This is Peter on for Andres.

Congrats on the quarter and thank you for taking our questions. So first, we were hoping you could expand a little bit more on the Uber relationship. Do you think there's maybe an opportunity to resume this partnership in the future?

Hey, Peter. You know, I don't have much new here. The relationship continues right now. We still are doing our contract, which goes, I believe, through part of Q1 next year, and You know, I don't have anything that has changed. We'll kind of continue to evaluate that as time goes by. But I guess, you know, just worth mentioning where we are seeing a lot of growth and momentum, like with Grubhub, our daily delivery grew something like 60-70% just in the last month. And I mentioned DoorDash as well, something like tripled in daily volume. So it's a really good growth with our newer partners. and then we'll see how things go with Uber, but I think we've been fairly transparent about what we're thinking as of last quarter.

Got it. Thank you. Very helpful. And then maybe when we're heading into 2027, can you talk a little bit more about some of the operational goals? Will you be targeting more increased utilization of your existing fleet or looking to scale up the number of robots deployed?

Yeah, so I think we are always pushing three things at the same time here. So first one is just improving the technology. So I mentioned that we have increased the speed of robots just since Q2 by something like 13%, which is really phenomenal progress there. Also, there's going to be some big announcement we have coming up about autonomy. So we're going to keep pushing the technology, and that has downstream impacts on the operation as well. On the scale, as we're building demand, especially with new partners, I mentioned how we have more than doubled the number of merchants with Grubhub and Merchant in the last quarter. So we are going to see opportunities perhaps for more robots or new neighborhoods, new cities. And then the third pillar here is always the cost down. So just getting better at operation and bringing the cost of operation down. And you can see again in this quarter we made good progress there too.

Got it. Very helpful. Thank you. We'll pass it on. Thank you.

And that's all the questions we have. Ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.