AutoStore Holdings Ltd. (AUTO) Earnings Call Transcript

Second Quarter 2025 presentation. My name is Hiva Flaskjer, and I'm the Investor Relations Officer at AutoStore. Our CEO, Mats Hovland Vikse; and our CFO, Paul Harrison, are standing ready to talk to you about this quarter and subsequently answer any questions you have. I'll be moderating today's session. As usual, we would like to remind you of the disclaimer in regards to forward-looking statements. It can be read here at your own convenience. Moving on to our agenda. Mats will begin with an overview of the operational performance and strategic progress. Paul will then follow-up with presenting the financial results in more detail. We'll follow-up with a live Q&A session, and you can submit your written questions in the webcast player or raise your hand in the Microsoft Teams to ask questions directly. The link to the Microsoft Teams meeting is available on our website, and an invitation that we published a couple of weeks ago. After the Q&A, Mats will round off with some final remarks. And as a reminder, all our figures are stated in U.S. dollars. So, let's get started. Mats, over to you.

Thank you, Hiva, and good morning. When I last spoke with you, we were at the peak of market uncertainty. Q1 had been volatile, and that uncertainty also continued into Q2. But as the quarter progressed, we were able to identify and utilize some pockets of resilience. First, we doubled down on the opportunity that lies within our customer base, which accounted for around 60% of our revenues in the quarter. Secondly, Europe continued to be strong, representing 70% of revenue. Thirdly, we also see early positive signs with regards to demand in North America, reflected in order intake, but not fully in revenue. As we've talked about before, we strive to be closer to deals and customers, and the development in second quarter shows that this is producing positive results. Q2 revenue was $134 million, which is up 56% sequentially, marking a recovery from the unusually soft Q1. However, compared to the same period last year, revenue was down 13%. And this shows that caution and hesitation still exist, which is fully understandable given the uncertain and volatile market backdrop. But in this market and with the actions that we've taken, order intake was $150 million in the quarter. This represents a 6% increase both sequentially and year-over-year. And adjusting for the currency tailwinds, the development is roughly flat. What we're seeing so far in the third quarter are similar market dynamics in general, but I'm happy to see how we're able to stay even closer to our customers and the opportunities that are out there. So, moving to profitability. Our gross margin was 69% and included in this number is the $8.5 million write-down tied to the B1 Robot. If we exclude for that, the gross margin was 75%. For adjusted EBITDA margin, we report 48%, which is back to our historical levels, and Paul will come more back to this later. So, if we move on to key developments in our business, we will see that during the quarter, we signed another contract with our AutoStore-as-a-Service model and this time with the European 3PL. And while still early days, this model is coming up in more and more conversations. And as we've talked about before, it's a model that resonates particularly well in the 3PL market. So far in 2025, we've shipped products to secure $34 million future as-a-service revenue. Looking ahead, we're preparing for our fall product release, which will include both software and hardware updates, and it will be an exciting step forward. So, stay tuned for more details soon. So, looking at it, these results reflect not only our operational execution, but also us making progress on our strategy, which I'll now walk you through. And our foundation is strong. We've built this platform with a large customer base across a wide variety of end markets and system types with a high degree of repeat purchases. Our technology is leading, and our solution is highly competitive with a strong ROI. And with changing market dynamics, we have taken action and we've realized $10 million of annualized cost savings, and we've reallocated investments towards high-growth initiatives. Looking further out, we're focused around 3 themes. Firstly, we have a product strategy that sees us continuing to optimize and expand our core, increasing our addressable market for adding new capabilities and further developing the AutoStore software platform. Against this, we're making good progress. In under 12 months, we've launched 10 new products and features, and we can now do thousands of robots in a site versus hundreds a few years ago. And we're also seeing strong adoption of our Essential Software Package, which offers the complete suite of software with smart routing, real-time analytics and intelligent reporting. And with another major release planned in October, we're continuing to improve our offering and increase our market opportunity. Secondly, under our new commercial strategy, we have sharpened our go-to-market focus and reallocated resources towards high potential areas. And this shift is already paying off. Since our Capital Markets Day in September of '24, we've added around 100 new logos, including several strategic accounts with long-term potential fueling our land and expand strategy. At the same time, deeper engagement across that installed base is supporting higher account penetration and reinforcing a customer-first approach, which is leading now to 60% of orders this quarter coming from existing customers. And then enabled by these 2 growth engines, we're broadening our recurring revenue streams for both software as well as these new flexible solutions such as PO, and more recently, AutoStore-as-a-Service. And we see these solutions appealing to customers we would otherwise not plan, and they also create more visibility and stronger customer intimacy. But now let's take a step back. And this familiar slide is a good visualization of that strong foundation that I just talked about, and it highlights our strong value proposition to customers, our long-term competitive strength and our superior financial profile. It summarizes the strength of our platform and why we're so uniquely positioned to lead. We have now delivered 1,750 systems with 79,500 robots in 60 countries. We have a total of 1,200 unique customers. And within the cubic storage space, we're the only player with such a significant installed base, providing us with great advantages. And not only does this speak to the strength of our solutions, it also represents a substantial base for our land and expand strategy. And this is a slide that you're also familiar with. And here, you can see a small selection of our over 1,200 customers. And as you can see, we have a broad customer portfolio across a diverse set of end markets. Around half of our revenues come from existing customers, and this growing customer base represents a massive opportunity. It is also worth noting that Europe remains our largest region, representing over 2/3 of our business. And then during the last few quarters, we've seen B2B segments like industrials and health care stay strong, but we've also seen leading indicators improve across e-com and retail segments. And I always like to give the last words to our customers. You've heard me talk about evolving how we work with strategic accounts and 3PLs. And today, we're highlighting Rhenus, a global logistics service provider operating in over 70 countries with 1,330 sites. And Rhenus runs a high throughput site with AutoSore in Germany. And as you will hear, AutoStore is a key part of their future strategy, thanks to the flexible and standardized approach we can offer. So, before Paul takes us through the financials of this quarter, please have a look at this. [ Presentation ]

Thank you, Mats, for that, and good morning. Okay. Let's move on to the financial highlights on the next slide. As Mats shared earlier, this quarter reflects clear strategic progress. This slide summarizes our Q2 financial performance. Revenue came in at $134 million. Our gross margin was 69%, which while still strong, reflects the write-down of inventory related to the B1 business line. Excluding this, gross margin would be 75%. Our adjusted EBITDA margin came in at 48%. Order intake came in at $150 million, taking the order backlog to $529 million. So, on the next slides, I'll go through -- go into more detail on these key financials. As I just mentioned, order intake totaled $150 million, including favorable currency effects of $22 million quarter-on-quarter and $23 million year-over-year. So, when we adjust for the currency tailwind, the development is broadly flat quarter-over-quarter and year-over-year. Over 60% of this quarter's order intake came from existing customers and over 50% came from Europe. We ended the quarter with a backlog of $529 million, up sequentially 3%. Although, both orders and revenue remain lumpy due to the project-based nature of our business, we view the overall market as having stabilized somewhat following the peak tariff-related uncertainties we saw at the end of Q1 and the beginning of Q2. As I mentioned, we delivered sequential revenue growth of 56% to $134 million in quarter 2, with this growth reflecting the unusually weak Q1. As you can see, growth came substantially in Europe, mainly within the standard segment. So that's an example of those pockets of resilience that Mats referenced earlier. In this quarter, we shipped another AutoStore-as-a-Service deal, and we're very happy to see customers and projects that we otherwise would not be able to access finding this offer interesting. This contract is not reflected in our revenue figures for the quarter, neither are the Q1s from Q1. Revenues will start to be recognized, when these sites go live and will continue over the length of the contracts, with the potential to increase as customers increase the size of their installations. Okay. Let's move on to margins. With the significant enhancements we've introduced at both the software and robot level, the B1 solution is no longer an optimal solution for customers. Therefore, in Q2, we decided to phase out the B1 business line. This led to an $8.5 million write-down of inventory in the quarter. And as I mentioned, excluding the write-down, gross margin was 75%, which reflects our strong operational discipline. Further down the P&L, adjusted EBITDA came in at 48%. This shows that the actions we have taken to restructure the business have started to have an impact in the second half of this quarter. And these will generate annualized cost savings of approximately $10 million, whilst we continue to invest in long-term growth. If I then move on to cash flow and net debt, I would note that, $40 million of EBITDA on the slide and our final settlement payment leads to closing cash at the end of June of $300 million or net debt of $150 million. Furthermore, I'm pleased to report today that we have secured a fully underwritten $500 million 5-year bank facilities. So, with that, I'll now pass back to Hiva, who's going to open up for the Q&A.

Thank you, Paul. Mats, do you want to join me? So, I'll welcome the questions from the Teams audience first. And the first one with -- who's raised his hand is Luke. So, Luke, if you could please go ahead and unmute yourself? Luke, can you hear us? It seems like we might have some technical issues, bear with us. Luke, can you please try to unmute yourself, again? While we are dealing with some technical --

This is Eirik from DNB Carnegie. Can you hear me? I think you are on mute.

I can hear you now. Eirik, can you hear us?

I can. May I go ahead with my questions, please?

Please do, Eirik. Please.

Okay. I got a couple -- you might consider one-by-one, couple of order intake. If you strip out the FX impact on still down 10% sequentially. Are we positively surprised by the Q2 development given the duration and all the uncertainty there? I was also wondering, are there kind of 1, 2 or 3 big orders that really helped the order intake in the quarter? How should we kind of think about that?

You're right. As we were kind of reporting first quarter, we were at the peak of market uncertainty. And that's also what we were hearing from customers that they were trying to maneuver in an uncertain world. But look, as the quarter progressed, we did identify these pockets of opportunities that I'm very glad to see we were able to go out and utilize. So, I'm very happy to see that our performance in last quarter is producing the results that we report here today. And look, personally, I've also spent that quarter traveling around, speaking to customers across all regions, across a wide variety of end markets. And what has met me is, yes, a set of customers that is trying to maneuver in an uncertain world, but that's also a set of customers that is very high conviction in their investments plans around automation, because the challenges that they're faced with and those challenges that we solve with automation is as relevant as ever.

I think if I can add, Eirik, to your point about are there -- is it characterized by large deals in the quarter? Actually, one of those pockets of resilience was Europe. And that particular strength in Europe still lies in the standard segment actually. So if anything, it's the volume of smaller deals in Europe that has really driven that performance.

That's great color. And would you say that's more company specific in terms of kind of your resilience, your end customer base, you being closer to the customers? Or are you seeing kind of a general, a bit maybe of a step down from the very peak of uncertainty that we saw in end Q1, early Q2 kind of as a general like how much is market, how much is company specific?

I think it's a combination. What we have seen is that the markets have stabilized somewhat from that peak level of uncertainty. But of course, as we talked about these kind of pockets that we've been able to utilize, we are selling a lot to our existing customers and our installed base and customer base is the strongest in this market. And we are selling a lot in Europe, which is that stronghold that we've built. So, I think in reality, it's a combination.

That's very clear. And a follow-up kind of on orders and also on revenue. If you look at kind of last quarter order book to this quarter revenue, the conversion took a big step up from Q1, but it's still below historical levels. Could you help us understand kind of how that's driven by as-a-Service, how it's postponements, longer projects time maybe for high throughput, and also how we should think about that order book to revenue conversion and how that should evolve in the second half of this year?

Maybe I'll start and you can add, Paul. But look, as we've talked about since the Capital Markets Day, we've had a big focus on getting even closer to the deals, even closer to those customers setting up a good deal room and being very, very focused on driving conversion. And we've seen that create some results also as it comes to backlog conversion trends, right. So, I think we're seeing some positivity there. But then, of course, we have the AutoStore-as-a-Service, et cetera.

Yes. And on that, Eirik, we've now got the quarter 1, quarter 2, about $34 million of revenue that has, if you like, gone into backlog, as a result of AutoStore-as-a-Service. And these deals are typically ranging from sort of 3 to 8 years. So, you are right, they will sit and be relatively slowly released literally on a monthly basis into backlog. So that is another effect. But the fundamental point is the one Mats makes there.

That's very clear. And since you mentioned it, just a final one for me. Of the $34 million in Q1 and Q2 for as-a-Service, has any of this been recognized in Q2 already? Or is that something for Q3 and beyond?

Indeed, it is for Q3 and beyond. So, we start to recognize revenues under those deals and when the installation goes live, and they have not gone live as of Q2. So, no revenue in Q2 for AutoStore-as-a-Service, and that will start in subsequent quarters.

Thank you, Eirik. Shall we try Luke? Again, can you unmute yourself?

Hopefully, this works. Can you hear me?

Yes.

Hopefully, you can hear me?

Yes, we can.

And my question was -- yes, was -- sorry, I missed the last question. So hopefully, I'm not repeating in changing my device. But what we saw in Q2 was obviously a rebound in Europe, but North America and Asia Pacific still very weak. I'm just trying to understand what the trajectory for those 2 segments looks like into Q3 and when we can start to see more of a cyclical recovery there? And then the second question, just you called out the AutoStore-as-a-Service, which is clearly having some traction, but mainly centered on the 3PL base. And I think on your customer slide, you pointed that was about 14% of group revenue. So, I'm just trying to understand here what the overall customer target market is just to get a flavor of where that long-term mix could be? And then just the final question would just be on the kind of the Big Beautiful Bill in the U.S. on the R&D expense side. Is there any impact for you at all as a result of that?

North America?

Yes. So, on North America and APAC to start there. What we've seen in North America, which is one of the markets where we see the highest potential going forward, we haven't seen that materialize into revenue yet. But if I look at order intake and other leading metrics, we're seeing good developments in North America, particularly then after there's been more clarity on the tariff side. So going forward, we're seeing improvements in those leading indicators. APAC has been kind of roughly flattish for a while. And we are focusing our resources in those key markets where we see that there is opportunity. But again, going forward, we see North America being a large growth opportunity and then Europe continues to be very, very strong.

AutoStore-as-a-Service, your observation is a good one. 14% of our revenue has been in the 3PL space. And certainly, that model is resonating in terms of conversation in the 3PL space given their particular business model. We don't think it's necessarily confined to that space, but certainly, we think over time, it will be a particular interest there. As to the R&D aspects of the U.S. administration, I think it's really too early to point to an impact at this stage, Luke.

Understood. And just to be clear, you're saying that in Q3, it sounds like the revenue trajectory so far hasn't substantially recovered in North America to Q2. That's the right way to read your comments?

I think for Q3, it's still too early to be specific on revenues. But what we can say is that in Q2, we saw that order intake and other leading indicators track positively for North America.

Thank you, Luke. Moving on, Tore.

One question. I hope you can hear me all right. Just one question on the AutoStore-as-a-Service here. So, on the $6.9 million that you've booked, 2 questions on this. Is this now in absolute terms more than what it would have been, if you sold it over your normal approach of selling solutions? Or does this -- basically the question, does this include over these recurring revenues and overall sum of all revenues over the lifespan of the contract that is just larger than your usual sales? And could you give us a bit more detail of which time horizon should we expect? Will it start in like 2 or 3 quarters? And then is this expected to run over 7, 8 years, just more details here

Yes. Let me try and Mats may well add. So, look, one thing to step back and talk about the first half order AutoStore-as-a-Service deals. The economics for us are quite attractive. We're seeing those deals move into the black in sort of early to the mid-stage of the contract term versus the equivalent CapEx sale of those same solutions. And its early days, and -- but the economics, as I say, have been strong for that reason. And of course, that ignores the potential for customers to increase the size of their installation and or extend over time. And I think your point is well made. We shipped the solution under these deals. Therefore, as you can imagine, the customer is looking at sort of 2 to 3 quarters before they go live. They wouldn't naturally want it to receive the product any earlier than that.

And then to the last part of your question, the numbers of the $7 million represents the revenues that is to be booked over that contract period, and that contract period is ranging from everything from 3 to 8 years.

Okay. Just to clarify, when you speak about your thinking moving into the black numbers towards the middle of the overall contract span, should we understand this in the way of the profitability level is basically the breakeven? Or should we understand this that the total revenue number that you would have received is already reached basically halfway?

It's a revenue observation.

Okay. So basically, with this AutoStore-as-a-Service, you're doubling your revenues over the contract span?

As I said, the point is compared to the profitability that we would normally make in an upfront sale was -- that was what the comment was linked to.

Thank you, Tore. Tim, you are next.

Can you hear me?

We can.

So, I have 3 questions. So, the first question is a bit more follow-up on your North American market. So as Mats, you just mentioned there's some positive indicator in the order intake or the order indicators. So, can you please also give us a little bit sense about what was the mix of North America in your order intake in the second quarter? And what's the growth that you are mentioning? And what would be the end markets that you see to be having a good indication or momentum in the North American market? That would be the first question.

Yes. So, what we're seeing is on a relative basis, also growth and then hence also taking a larger share of the total order intake versus what it's been in the past. If I look at this from an end market perspective, I think there's 2 things to note. One is that some of those traditional more or less cyclical segments such as industrials, health care, et cetera, continues to be strong also in that market. But on top of that, we're also seeing some positive trends within the broader retail markets, including e-commerce. So, as I look at kind of the customer opportunity in North America, we're having good conversations across all those segments.

Okay. And the second question is about the order intake again. So, the FX impact in the second quarter is around $22 million. That talk about roughly 16% year-on-year positive impact on the order intake. If you look at the U.S. dollar depreciation, I think this is the main part of the FX impact, right? And the depreciation of the U.S. dollar was roughly 10% on a year-on-year basis, and it's mainly for our Europe business, which is around 70% of the total business, right? And so, it seems like the FX impact is a bit bigger than what we think from the U.S. dollar depreciation. So, what would be the missing parts that I may have in terms of my calculation?