Third Quarter Miso Robotics Company Update

The Latest from our CEO

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Dear Miso Shareholders:

As I pass the one-year mark of my time at Miso, I want to provide you with an update on the company. To say that this has been a pivotal and busy year would be an understatement, and I’m pleased with the hard work and results that our team has delivered in the short time I’ve been here. 

Hopefully, you previously signed-up for Miso’s email list (which you can always do here), and are enjoying the bite-sized updates that we communicate regularly. Our hope is to provide less detailed announcements through those emails for anyone who prefers that approach, along with more detailed information through webinars and in-depth shareholder updates like this one for those who prefer to learn more. And, as always, you can see the company’s audited and unaudited financial information in the public SEC filings it makes twice per year, which are available to anyone on the SEC’s EDGAR website.

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Summary

As you may recall, my first six months at the company were largely focused on creating a plan to grow shareholder value as fast as possible, and then executing the first three initiatives of that plan, which were:

1. Creating cost disciplines (including reducing the company’s cash burn);

2. Installing scalable systems to support growth (such as tech support, inventory management, cost approvals, and investor relations);

3. Adding new leadership with proven experience in scaling products and companies. 

Then, in my second six months, we focused on designing and delivering a new generation of Flippy that would leverage Miso’s proprietary learnings and evolve Flippy into a more sophisticated product that could create the confidence needed for restaurants to move from experimentation to full-scale deployment across numerous locations. We did this using three parallel workstreams: 1) engaging existing and potential restaurant partners in the design conversation in new ways; 2) leaning into strategic partnerships that can give us an unfair advantage over our competitors; and 3) leveraging the experience of our new team to build upon the early-stage spirit of Flippy’s original creators. 

The result has been a huge evolution of the Flippy product, which, with its initial launch this month, is now half the size, twice as fast, 70% quicker to install, and far more reliable than its predecessor. It would take most companies years to do what we’ve done in only 12 months—all of which we believe create the right conditions for Miso’s next phase in early 2025 that will be focused on scaling Flippy’s installations and sales. More details on each of these are below.

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Market

The current turmoil in the restaurant industry appears to be affecting the quick serve restaurant sector more than any other, and is most heavily related to an inability to hire enough people to work in kitchens. And for the workers restaurants can hire, the costs continue to climb, which has caused chaos in a traditionally-thin margin business. 

As you likely know, the state of California increased the minimum wage for restaurant workers in April to $20 per hour, and it appears that there will be an additional increase in 2025. Twenty-five other states have also raised their minimum wages just this year. The resulting menu price increases have caused consumers to turn away and revenues to decline. Already, a whopping seventeen restaurant chains and large operators have declared bankruptcy in 2024 alone.

All of these events have created unique market tailwinds for Miso. We'll never replace humans in restaurants, nor would we want to. But if the industry doesn't find solutions quickly to better situate its workforce, restaurant closures will accelerate, and countless jobs may continue to be lost in turn. By automating the least desirable, most dangerous jobs in a restaurant kitchen, Miso is seeking to help save an entire industry through a once-in-a-lifetime, healthy disruption opportunity. 

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Product

When Miso’s board and its new investors at Ecolab (NYSE: ECL) asked me to take this role, they specifically charged me with creating the pillars necessary to scale the company and its revenue. The founders and early team had surely created a revolutionary Flippy product from scratch (an extraordinary feat in any industry), but as the company neared its next stage, they believed that a growth perspective was required. One of the most critical elements of that new perspective involved optimizing Miso’s product strategy.

Over the past year, the team has refocused 85% of its work on the company’s signature product—its AI-powered Flippy Fry Station robot. My product philosophy involves first focusing on knocking it out of the park on the most impactful product (in this case, one with a $4 billion revenue opportunity), and then using that success to earn the right to focus on other efforts. For us, the proprietary, first-mover data and experience that the company had gained over several years from the Flippy units currently deployed in live commercial kitchens was the secret sauce that empowered us to build the next generation Flippy product this year. The goal was to evolve Flippy’s prototype product into a true industrial robot that could be commercialized reliably at scale. 

After completing every stage-gate of the new Flippy’s development process on-time and on-budget, the initial units of the next generation version successfully rolled off the assembly line last month, and we previewed some of the first test photos and videos with you exclusively through our emails. If you missed them, please visit our newly relaunched website. 

The new Flippy, which was developed through detailed collaboration with our partners at many of the most well-known quick serve restaurant brands on the planet, is half the size, twice as fast, requires 70% less installation time, and, most importantly, is far more reliable. It was designed and built by a new team of highly experienced engineers who collaborated with many of the company’s prior engineers—a group that continues to represent the original ethos of Miso. The intersection of these two groups of engineering stakeholders is really where the magic happens at our company.

 As we focused on building the new generation of Flippy, in parallel, we also deployed a small team which spent considerable effort to improve the operations of our existing fleet of Flippys working in live kitchens. This has resulted in better performance of our current units, which we believe has earned us new trust from our clients like Jack in the Box and White Castle. We view our partnerships with these customers as collaborative, and we're grateful for the insights, ideas, and learnings that they choose to provide to us—and to no one else in our industry.

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Initial Sales & Customer/Miso Unit Economics

To meet demand before the upcoming holiday rush—a period when restaurants don’t generally install any new equipment—we’re quickly manufacturing the first seven units of the new Flippy in Los Angeles. I'm pleased to report that those units sold out within a week of us opening them to the market. As we identify the installation timing for these initial units, we will provide more details in sync with our restaurant brand partners through our regular email updates and press announcements.

‍For our customers: We believe that the new Flippy will never cost more than the equivalent full-time humans, while also providing up to $10,000-20,000 of positive margin impact per location per month from a combination of cost reductions or reallocations in labor, oil usage, labor turnover, and food waste, as well as an increase in revenue from faster speed of service, marketing benefit, and data-driven efficiency. We’ll share more information about these numbers in an upcoming analysis. We also now allow our customers to pay for Flippy via lease, capital lease, and purchase models, all of which create recurring monthly revenue for Miso, including for support, preventative maintenance, software upgrades, and insights packages.

‍For Miso: This new version of Flippy, combined with the commoditization of robot arms and other technology, is what we believe will drive profitable unit economics from each unit. And the new industry tailwinds resulting from both the labor shortage and labor costs in the restaurant industry create an urgency for us to bring this new generation product to the market as fast as possible. To that end, our team is now working through the details of contract manufacturing, which will allow us to produce the volume needed at scale, and we will have more information about this in the future.

Team

We have worked extremely diligently over the past year to improve the output from our teams by hiring new, experienced talent, and identifying and promoting high-performers from our legacy team. We recently underwent the largest set of promotions at one time in the company's history, which helps us retain high-performers by demonstrating to them that there is a clear path for their careers to grow at Miso. Today, we have a team of about 100 employees and contractors, which is a considerable reduction from the amount the company had just prior to my tenure. We are doing more with less by creating a culture of winning that rewards our best performers at every level.

We've also invested considerable effort in providing new resources and tools for our teams’ growth, such as by hosting volunteer monthly speakers at our robot lab in Los Angeles. We've had Oscar-winners, New York Times best-selling authors, NFL players, sports agents, business leaders, nonprofit advocates, and others share their journeys to help drive inspiration and new ideas from our teams.

All of these efforts have resulted in Miso recently receiving, for the first time ever, Newsweek's Most Loved Workplace honors, which is a distinction granted solely through confidential employee interviews and feedback. We believe that a happier, more motivated workforce that knows it will be rewarded for over-achievement is a powerful way to drive company growth and shareholder value. It also makes Miso a great place to work.

Costs

As you may recall, in the second half of last year, we reduced the company's monthly cash burn by over 40%. We've maintained that discipline in 2024, and are currently tracking under budget for our operating expenses year-to-date. This puts us on pace to end 2024 with almost 60% fewer expenses than in 2022, the last full year before I arrived. Moving into 2025, we will look to maintain our current cost discipline, as well as secure debt financing, which will allow us to more efficiently purchase the parts and inventory needed to satisfy future purchase orders. This can further reduce our cash usage. 

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Strategic Partners 

Building strategic and preferred partner relationships is one of the things that we hope will allow Miso to punch above its weight going-forward. These relationships involve earning credibility and trust over time, and they don’t happen overnight. But when a major public company chooses a private, innovation-oriented team like Miso for a collaboration, it provides a mark of confidence that makes other large players and customers pay attention. 

Over the past months, we’ve grown our strategic partnership with our investor, Ecolab, through establishing a dedicated sales team for Flippy within Ecolab’s massive sales operation (in addition to Miso’s own sales team), working on product development collaborations, and creating other upcoming initiatives. We’ve also announced collaborations with NVIDIA (NASDAQ: NVDA) and Amazon (NASDAQ: AMZN), and we’ve leaned into our relationship with Yaskawa (OTCPK: YASKY), a $9+ billion market cap Japanese company that has proven its robotic arms over decades of use in auto factories. 

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Patents

Our products are protected by over 25 patents in various phases, which we view as a critical part of what we do. Recently, the U.S. government granted us a new patent, and we’re currently filing six new ones, which will be the first new patents filed by the company in the last two years. As the world's financial markets become stronger, we’re seeing more and more indications which make us believe that patent portfolios will continue to grow in value, and can provide a certain downside protection for shareholders. Accordingly, we’re taking great care to identify, articulate, and file new patents as we create new innovations, especially in the area of AI. Protecting the work we do for our investors is very important to us, and we've redoubled these efforts since I've been here.

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Miso Innovation Lab

We created the Miso Innovation Lab as a place to conduct our experiments. Prior to my arrival, the company had experimented with several new products, including Chippy for tortilla chips, Sippy for fountain beverages, and Drippy for coffee. In the case of Chippy, for example, that experiment led to some critical learnings that are benefiting us today. Some of those were related to cleaning, and those cleaning-related learnings from Chippy are now architected into the new generation of Flippy. The company also learned that it didn't make financial sense to carry the expense of having Chippy as a separate product, when, in fact, it really should just be a Flippy with a one- or two-fryer configuration.

Our primary Innovation Lab effort this year has been centered around our CaliExpress by Flippy summer pop-up restaurant and innovation showroom. Here, Flippy is the star of the show at the fry station and cooks a majority of the menu, but there are also other robots which cook burgers, run food to the tables, and much more. This collaboration with CaliBurger, which is open to the public in beautiful downtown Pasadena, CA, has been an opportunity for us, at very little cost, to prove to the market that a semi-autonomous kitchen of the future strategy can work. The industry has talked about it for years, but has done very little to make it happen. We actually did it, and we proved, especially to potential customers, that it can work with great success. 

This effort received a lot of national and international press attention that we also believe elevated the value of Miso’s brand as the leader in kitchen AI and automation, and, now that we’ve successfully accomplished our mission with this effort, we will consider over the coming months whether to continue it after summer ends. We've also greatly enjoyed interacting with so many of you who have visited the facility in person, and that has been an added benefit for us, and, hopefully, for you as well. 

As our engineering teams free up bandwidth after the new Flippy development, we expect to have some future announcements about new happenings in our Innovation Lab, so please stay tuned.

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Looking Ahead

With the evolutions and preparations we’ve made over the past 12 months now largely complete, 2025 will be centered on growing Flippy’s installations and the related recurring revenue. We’ll also be doing the work to consider a new product for our portfolio that can plant the seeds of longer-term revenue growth beyond Flippy. This might be a prior project like Sippy, a completely new project, or even someone else’s project that we can bring into our platform opportunistically to improve and scale. In any case, we expect to collaborate with a restaurant brand partner to minimize the costs to Miso.

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Wrap-Up

Early- and growth-stage companies are messy, and if they were easy, everyone would do them. The promise of equity crowdfunding has always been, despite that messiness, to give everyone the opportunity to participate in companies that just might become the next household name. Today, Miso has an experienced management team that has created a strong plan, and we're executing against that plan. We often face difficult challenges and that's to be expected from a first-mover in any space, but over the past year, we've succeeded far more than we've failed. I believe that that’s the result of our considerable effort to build a great team, which includes supportive shareholders like you. Whether it be a $70 billion public company like Ecolab making a multi-million dollar investment last year or an individual investor making a $1,000 investment today, our shareholders provide Miso the opportunity to save a restaurant industry that’s losing jobs, losing revenue, closing stores, and desperate for a solution to a dire labor crisis. We think that’s a big mission and a big opportunity.

As we come into the final phase of our current fundraise, I recognize the privilege that we have every day to work for our shareholders, and we’re grateful for your support. I can’t promise that our days ahead will always be easy, but our goal is to drive the revenues and shareholder value that lead to a substantial exit, and make you proud to say that you were part of this journey.

As a reminder, a benefit that we receive from having such a large and engaged investor base is that some of our best ideas and introductions come from you, so please feel free to share them with us at invest@MisoRobotics.com.

Thank you again for your support of our mission.

Rich