Bright Machines to Become Publicly Traded Company

Bright Machines has announced its intention to enter the public market through a merger with a Special Purpose Acquisition Company (SPAC), SCVX. This strategic move is expected to generate $435 million in gross cash proceeds for the company.

Valuation and Market Implications

Upon completion of the merger, Bright Machines is projected to have an equity valuation of $1.6 billion. This development suggests a potential thaw in the recent cooling of the SPAC market.

The Bright Machines deal, alongside the earlier Desktop Metal SPAC transaction, demonstrates that opportunities for hardware startups to access liquidity through SPACs still exist. This could potentially open up further late-stage funding avenues for emerging hardware companies.

Understanding Bright Machines

This article will first detail the core business of Bright Machines. Following this, we will examine the financial specifics disclosed alongside the public offering announcement.

Bright Machines focuses on intelligent automation solutions. They aim to transform how manufacturers build and deploy automation.

The company’s approach centers around a software-defined automation platform. This platform is designed to simplify the complexities traditionally associated with factory automation.

Financial Details of the Transaction

The merger with SCVX is structured to provide Bright Machines with significant capital. The $435 million in gross proceeds will be used to accelerate growth and expand its market reach.

Investors are clearly signaling confidence in the company’s potential. The anticipated $1.6 billion valuation reflects expectations for future performance and innovation within the automation sector.

This transaction could serve as a catalyst for other hardware startups. It highlights the viability of SPACs as a fundraising option in a competitive landscape.

Understanding Bright Machines

Bright Machines is focused on tackling a significant challenge within the realm of industrial automation: the development of microfactories. This undertaking necessitates the integration of sophisticated hardware, advanced software, and cutting-edge artificial intelligence. Despite the presence of robotics since the 1970s, true intelligence has largely been absent from these systems.

The company was founded in 2018, securing $179 million in Series A funding – a substantial investment for a nascent company. This considerable capital reflects the ambitious scope of their vision, which aims to fundamentally reshape manufacturing processes through the application of machine learning.

Concurrent with the initial funding round, Amar Hanspal, formerly co-CEO of Autodesk, was appointed as CEO. Additionally, Carl Bass, Autodesk’s founder and former CEO, joined the Bright Machines board of directors. Autodesk has actively pursued the transformation of design and manufacturing, making these appointments a strategically sound decision.

The core concept driving the startup is to move beyond traditionally “unintelligent” robots. They aim to incorporate computer vision and a comprehensive network of sensors, enabling a data-driven automation strategy on the factory floor. Following the Series A round in 2019, the company unveiled its first product: a software-defined microfactory.

As CEO Hanspal detailed to TechCrunch, this involves a complete re-evaluation of the factory technology stack, allowing for the creation of microfactories tailored to specific needs. Developing such a system requires significant financial resources, which this special-purpose acquisition company (SPAC) provides.

Currently, the company’s revenue is relatively low and it operates at a loss. However, like many companies utilizing the SPAC route to go public, Bright Machines and its investors anticipate substantial growth and a promising future for the business.

Analyzing Bright Machines’ Financial Data

A recent examination by TechCrunch of Bright Machines’ investor presentation provides insight into the company’s operations. Details of the deck can be followed through this link.

The company’s operations are fundamentally divided into two key areas: the production of hardware and the provision of associated software and services. The company designates the former as “assembly automation” and the latter as “additional software and services.”

In the year 2020, Bright Machines recorded $9 million in revenue from hardware sales and $26 million from its software and services offerings. This combined total of $35 million in revenue was offset by a negative EBITDA of $40 million. More detailed loss figures were not disclosed, leaving us with adjusted data.

Despite these initial figures appearing unfavorable, it’s important to consider the early stage of the company and the potential impact of the pandemic. Onsite selling and installation, crucial for this type of solution, were likely hindered during that period.

Projections for 2021 indicate a further decline in profitability. Moving from an adjusted profit margin of -115% in 2020, Bright Machines anticipates a loss equivalent to 118% of its revenue, adjusted for certain factors. However, forecasts suggest that adjusted losses will decrease as a percentage of revenue from 2021 onward. (The company’s EBITDA loss, in absolute terms, is projected to increase in 2022, albeit at a reduced margin.)

This situation may have influenced the decision to pursue a Special Purpose Acquisition Company (SPAC) merger. Bright Machines possesses a substantial vision, but realizing it will necessitate investor patience.

The anticipated path toward adjusted breakeven relies on significant revenue growth in the coming years. This aspect is inherently speculative, aligning with the characteristics of SPAC transactions; it’s important to note increased scrutiny from the SEC regarding forecasts made by companies going public through blank-check combinations.

Two key factors underpin Bright Machines’ projected future growth. Firstly, its software business is expected to generate “standalone” revenue starting in 2022. Secondly, revenue from its hardware – specifically, its “microfactory” products – will increase rapidly, though substantial positive gross margins aren’t anticipated until 2023.

The company aims to establish a standardized approach to manufacturing. Ideally, the cost of creating these microfactories will decrease over time, and profitability will improve as the number of deployed units increases.

Consequently, standalone software will contribute to gross profits in 2022, and the microfactory business is projected to yield gross margins exceeding 10% in 2023. The following chart illustrates these projections:

By 2023, the company forecasts $158 million in combined revenue from microfactories and standalone software, generating $47 million in gross profit. The deck further indicates an expected total revenue of $164 million for that year (a 92% increase from 2022 projections), with total operating expenses of $106 million, resulting in an EBITDA loss of $57 million. The potential for growth is becoming apparent with these figures.

A considerable amount of forecasting is required to arrive at a 2023 result that remains significantly unprofitable. However, this is precisely where SPACs can be advantageous; Bright Machines is poised to secure substantial funding through its public debut. This capital is essential for scaling its operations. With this new funding, the company can focus on expansion and development without needing to seek further investment.

The performance of the stock in the short term is uncertain. However, being fully funded through to breakeven, or near it, is comparable to achieving free cash flow neutrality. This provides a company with a less conventional business model than typical venture-backed companies the time needed to grow and mature.

There are valid reasons why a company might choose to pursue a SPAC. These include the ability to become publicly traded more quickly and raise more capital than might be possible through private investment in a single round. This is particularly beneficial for companies with significant potential, some technical or market risk, and the capacity to leverage a large cash infusion to realize their vision over several years.

This accurately describes Bright Machines. Beyond this, we have no independent assessment of its core technology or market position. That is a matter for investors to evaluate. However, the company appears to be a suitable candidate for a SPAC transaction.