AutoStore Holdings Ltd. (AUTO) Earnings Call Transcript

Good morning, and welcome to AutoStore's Q2 2026 update. My name is Hiva Flaskjer, and I'm the Investor Relations Officer at AutoStore. I'll be moderating today's meeting. And I'm joined by our CEO, Mats Hovland Vikse, and our CFO, Paul Harrison. They're standing ready to walk you through this quarter and answer your questions. As usual, we would like to remind you of our 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 our operational performance and strategic progress. Paul will then present the financial results in detail. We will follow with a live Q&A session, and you can submit your written questions via the webcast player or ask your questions directly via Teams. The link and information are available on our website. After the Q&A session, Mats will round off with some closing remarks. And as a reminder, all financial figures are stated in U.S. dollars. With that, let's get started. Mats, over to you.

Thanks, Hiva, and good morning, and thank you for joining our Q2 update. We've delivered a very strong quarter here with revenues of $192 million and order intake of $218 million. This is a performance that reflects the significant strategic progress that we've made across the business. In addition to that, we've also continued to see positive market trends. Customers are showing more confidence, and we also see a greater focus on building resilient and flexible supply chain, which is just getting more and more relevant in this current environment. And we're no exception to this ourselves, and you see the benefits of our own strength in supply chain in our continued strong gross margin of 72%. Adjusted EBITDA margin was also very strong at 45%. And then against this backdrop and with improved visibility into our backlog and expected conversion, combined with the fact that we're further into the year, we have today provided full year revenue guidance of around $700 million. This momentum supports further investment in our commercial, product and technology capabilities. And while these investments are expected to slightly moderate margins in the second half of the year, we remain well positioned to deliver strong profitability while investing for the future. Overnight, we've also announced our agreement with Amazon. This is an agreement that establishes a global framework for supplying to Amazon. And whilst there are no purchasing commitments at this time, we're very pleased to continue to develop deeper relationships with our strategic customers. Also, we announced a share buyback program today, just reflecting the confidence we have in our business, our strategy and our long-term opportunities. And Paul will share more details on this in a moment. So let me now walk you through some of the key developments that underpin our confidence in the business and also the opportunity ahead. So 1 year ago, we outlined 3 key priorities. One is to strengthen our product offering. We wanted to deepen engagement with our key customers and building a larger recurring revenue business. We've made progress against all 3 of these commitments. Looking at product and innovation, we have significantly reduced time to market, launching 14 new products and features over the past 12 months. These innovations have expanded our addressable market through solutions such as AutoCase, while also increasing the value we deliver through software and AI. With close to 100,000 robots deployed across 2,000 installations worldwide, we have access to just billions of data points from live operations. And this proprietary data set is one of our strongest competitive advantages. This is what provides the foundation for an increasingly intelligent software and AI capability that's just compounding with every robot that we deploy and then enabling us to deliver better insights, better optimization and greater value to customers over time. We've also strengthened customer engagement across the installed base, and we're seeing increasing traction from our land and expand strategy. At the same time, we continue to leverage our partner network to scale efficiently, and we've now sold into 68 different countries. And lastly, we continue to broaden recurring revenue streams with software embedded in every system sold and AutoStore-as-a-Service now providing additional flexibility for our customers. But I think what is particularly encouraging is that this progress is now increasingly reflected in our key operating metrics. You look at this page, we now have 2,000 sites globally. Order intake was up 36% in the first half and revenues grew 63% in the same period. And importantly, we have achieved this while continuing to invest in future growth. Our total operating expenses have increased as planned as we invest in innovation, our commercial capabilities and in expanding our product portfolio, just further strengthening the platform and our position. And while we're pleased with the progress that we've made, we still believe that we're in the early stages of capturing the opportunity in front of us, and we just continue to see that these strategic priorities are the right focus areas. Then looking ahead, we see a clear path to sustained profitable growth and long-term value creation. And behind this confidence lie several key pillars. First, we operate in a large and still significantly underpenetrated market. The majority of warehouses globally remain unautomated, and we continue to believe that automation adoption will increase over time. Second, within this attractive market, we believe AutoStore holds a unique competitive position. We have a market-leading technology platform with the largest installed base and a customer value proposition that's characterized by rapid payback. Third, our go-to-market model allows us to combine this scale with customer intimacy. We continue to deepen engagement with customers directly whilst also leveraging our partners to expand our reach and support our land and expand strategy. And finally, we continue to invest in innovation. We have now expanded our offering through new products, AI software capabilities and solving adjacent use cases, just increasing the number of opportunities where AutoStore can create value for customers, and we won't stand still. But importantly, all of this is then underpinned by attractive profitability, strong cash generation and disciplined capital allocation. And taken together, we believe this provides a clear path to long-term value creation. And one of the strengths of AutoStore is the diversification of our business. We serve customers across several end markets with no single vertical representing a significant share of revenue. We're also fortunate to work with many leading global companies, just demonstrating the relevance of our solution across a wide range of industries and use cases. And while we've already built a highly diversified business, we still see significant opportunity to deepen our presence across these end markets and expand with both new and existing customers. And it's always nice to end with a nice customer story. QLS is a good example of how our innovation efforts are translating into customer value. The installation that you're about to see utilizes newer capabilities such as the FlexBins, which is enabling the system to accommodate a wider range of inventory and customer requirements. So before handing it over to Paul, please have a look at this video. [Presentation]

Paul?

Thank you, Mats, and good morning, everyone. There's a couple of things to take away from this video. First, the importance of introducing new products that serve a greater variety of customer needs; and second, how in turn, that supports our land and expand strategy. As Mats has said, Q2 was a very strong quarter for AutoStore with record revenue of $192 million and record order intake of $218 million. Profitability remains strong with a gross margin of 72% and an adjusted EBITDA margin of 45%, while cash conversion was 84%, demonstrating the cash-generative nature of our business. We also ended the quarter with an order backlog of $596 million, providing good visibility into future revenues. Overall, we are pleased with the quarter 2 financial performance. And while the project nature of our business means that quarterly progress will not necessarily be linear, the direction of travel and upward trajectory is clear. Let me now take you through the financial performance in more detail. Looking firstly at order intake, we reached $218 million in the second quarter, a strong number following several strong quarters. I'm happy to report that retail, 3PL and industrial segments all continued to contribute positively and in line with our strategic focus. Turning to revenue. As I mentioned, we delivered a record revenue of $192 million in the quarter, up 43% year-over-year and 16% sequentially. Looking at the regions, Europe delivered a very strong quarter. North America is slightly down this quarter. However, we are experiencing strong demand in a region where we see significant growth opportunities. Asia Pacific saw stable performance during the quarter. The standard segment delivered steady growth, and we also benefited from a meaningful contribution from high throughput projects in both Europe and North America. As Mats mentioned a few minutes ago, we're now 6 months behind us this year, and we have stronger visibility into the balance of the year, notwithstanding the project nature of our business. And this has led us today to provide full year revenue guidance of around $700 million. Let me now turn to profitability. Our gross margin slightly moderated from Q1, and that's consistent with our prior communication, but it remains strong at 72%. This reflects continued operational excellence and the resilience of our business model. As I've said before, we're not immune to input cost movements. However, I would say that we are significantly better positioned today than in previous cycles; a more diversified supplier base, improved sourcing and our standardized product platform provide greater flexibility to help manage raw material cost volatility. Adjusted EBITDA margin was 45%, up sequentially from 44% in quarter 1. This continues to demonstrate the scalability of the AutoStore business model where revenue growth translates into attractive profitability and cash generation. At the same time, we're now accelerating investments behind future growth opportunities, particularly within product innovation, software and AI as well as commercial capabilities. While this is expected to slightly moderate margins in the second half, we're confident in our ability to balance disciplined investments while continuing to deliver strong profitability. So overall, we believe the quarter demonstrates both the resilience of our business model and our ability to invest for future growth from a position of financial strength. Turning to the balance sheet and cash flow now. The strong profitability and cash-generative nature of our business model continues to be reflected in our balance sheet. Cash conversion was 84%, supporting both continued investments in the business and the further strengthening of our financial position. Net debt was reduced by $46 million during the quarter, ending at $90 million, corresponding -- which corresponds to a net debt ratio of 0.3x. At the same time, liquidity remains strong with $104 million in cash and a fully available revolving credit facility of $350 million, providing total liquidity of $454 million. This financial strength gives us significant flexibility. Finally, on capital allocation. At our 2024 Capital Markets Day, we outlined 3 priorities for the deployment of capital, and these priorities remain unchanged today. Our primary focus is to reinvest organically in the business where we see substantial opportunity for growth in what is still a large and underpenetrated market. Second, we continuously evaluate strategic inorganic opportunities, and we'll flexibly invest in those that can accelerate our expansion into adjacent markets and create value for shareholders. And then finally, any surplus capital will be returned to shareholders. This approach to capital allocation is underpinned and enabled by our strong balance sheet and leverage profile, which we will maintain. So consistent with this framework, today, we've announced a share buyback program of up to $75 million, which we plan to complete over the course of this year. The program reflects our confidence in AutoStore's long-term prospects and cash-generative business model while preserving substantial financial flexibility to continue investing in the business and pursuing our strategic priorities. So with that, I'll pass back to Hiva, who will manage the Q&A. Thank you.

Thank you, Paul. Please join me, Paul and Mats. Let's see. Let's start with questions from the Teams. [Operator Instructions] Okay. [ Tim ], I believe you are first in line.

So my first question is on the agreement with Amazon. Can you please provide a little bit more details on the agreement? For example, is that the partnership will be only for the new projects for Amazon or it's also with the existing projects? What would the product or solutions be for, the time frame of the projects or the agreements and any minimum purchase amount, for example? Any more color would be helpful.

Yes. Thank you. So this agreement provides a framework in which Amazon can purchase our products and solutions on a global basis. It does not contain any purchasing commitments as such. And beyond that, we can't comment on the details of the agreement as such, and we don't have a practice of commenting on the individual customers.

All right. Understood. No worries. And then my second question is on the guidance. So the full year guidance for revenue is around USD 700 million. And for the first half of the year, we have around $358 million. So that means the second half revenue could be likely flattish compared to the first half. But we have order intake to be growing in the past 2 quarters. Book-to-bill has been above 1. So does that imply the new orders for these 2 quarters, there will be more high throughput projects, which may last for a longer period of time? Can you please provide a little more color on that?

Yes. Thanks, Tim. I'll comment on that. Look, first of all, we are pleased to provide guidance today. That guidance is given following a very strong first half as we reported today. And keep in mind always that this is a project-based business. And in that regard, we still got 5 months of the year to go. So we've got a good part of the year still to go. So as you would expect us to do, our guidance is set on a prudent basis in light of those characteristics.

Understood, very helpful. And then on the margin side, I think the comment is also like there will be more investment in the second half, so margins could probably slightly moderate in the second half versus the first half. Any quantification you can give on how this margin would evolve, that would be great.

Again, I'll cover a couple of points. I mean, first of all, I think these results demonstrate that we apply a very disciplined approach to investment in our business, and we're seeing the clear benefits of that investment, as we talked about in the presentation. And we've consistently said that we will continue to invest where we see opportunities to accelerate growth. So that's the framework with which we think about investment. That said, we're very proud of the margins that our business delivers and will sustain high margins. So as I say, the words moderate slightly reflect the opportunity to invest further in the business, but you can continue to expect to see strong margins in the second half.

Understood. That's clear. And my final question will be on the current trading status. Can you give a little bit more color on how the order momentum will be into the third quarter? Any change in terms of customer behavior, let's say, in terms of the macro environment?

Yes. Thanks, Tim. So look, as we talked about, we've had significant strategic progress also leading to the results that we've had today and first half has been incredibly strong. On the market overall, we see customers coming in with more confidence. And combining with that, this need to create resilience in a world that is highly volatile is also giving us some good tailwinds from the market. We continue to have very constructive dialogue with both existing and new customers and feel very good about where we are today.

I think, [ Lasse ], you are the next one.

Just a quick follow-up on your outlook for the rest of the year. I mean the kind of the phasing for a weaker H2 kind of goes against your typical seasonality, at least historically. So I'm just wondering if you can give some more detail on whether was there anything in the second quarter that contributed to the very strong growth that should suggest that the next 2 quarters are somewhat weaker? Or are there any kind of special effects that you saw in Q2?

I think the observation about Q2 and H1 generally is it was a very strong period for the business with a number of projects secured in terms of revenue in the period. So as you might expect, with still quite some way to go in 2026 and in light of that very strong performance, of course, we're going to be prudent at this stage in giving our guidance of around $700 million. But one thing to keep in mind, I think, if I may, on the $700 million, that still implies -- that number would still imply 30% growth year-over-year. So it is very much consistent with the comments we've made today. It would reflect a very strong year, we believe.

Okay. Understood. And then just a second question on gross margins. I think in Q2 -- sorry, in Q1, you mentioned we should expect that to sort of start with the 7 for the full year. Q2 was really robust again on margins. So just wondering if you have any updated thoughts there for us in light of aluminum prices still reasonably high. I know you mentioned you're better set up there than you were in the past, but any updated thoughts on the gross margin would be great.

Yes. You're absolutely right to remember what we said at Q1, we expected gross margins to moderate somewhat over the balance of the year, and you've seen that in Q2. But look, based on what we see looking out and given the operational strength that I referred to in the presentation around the management of our cost of sales, then I still expect the gross margin to start with a 7 this year.

Okay. And that's for the full year, right, not just for H2 or?

I expect it to start with the 7 for the full year and H2.

And was there anything from as-a-service in Q2?

Yes. We had a couple of deals in Europe, around about $8 million of total contract value. So that tells you this continues to play an important role in our armory, generating interest from customers, some of which ends up translating to traditional sort of CapEx-based business. But yes, 2 deals in Europe this quarter.

[ Eirik ], you're the next one up.

If I can push you a bit more on the Amazon deal. Could you kind of help us understand if Amazon should be viewed kind of not only as a customer, but also as a kind of partner of sorts? And if so, are they a partner that will only do own integrations? Or will they have the opportunity to offer AutoStore solutions also outside its own kind of usage?

So as I said, the agreement provides a framework that describes how Amazon purchases our products and solutions, but we're not disclosing any details in how that is set up.

Okay. That's fair. But if I could maybe frame it in another way, do any other of your customers have a similar agreement or a similar contract?

So we do have similar agreements out there. And of course, we have announced this because of its significance. Look, if you look at how some of the customer relationships that we've had has developed, we see more and more customers actually taking good ownership of their automation, figuring out how to best utilize it simply because it's becoming so strategically important. And that's a trend that we see across a wide variety of customers out there.

That's great. Also on a different note, Europe continues to be the key driver on revenue. Could you give us any indication of what the geographical mix looks like in the order backlog as of now or the order intake in the quarter? And is that kind of similar to reported revenue in the quarter? Or is the tilt the difference?

I think I made -- I go back to the comment I made in the presentation in that regard, Eirik. I commented that actually we've seen a slight contraction in U.S. revenues, in North American revenues in quarter 2. But my comment was that we still continue to see strong demand from that region. So you can conclude from that, that North America continues to more than pull its weight when it comes to the order intake.

That's very clear. And just one last one. Great to see that you're launching a buyback. Could you share some thoughts on your thinking around kind of both the absolute level of max $75 million? And also if this is something that you potentially see as kind of a stable for your use of cash over the coming years?

Well, delighted to announce that buyback today. And it is, of course, as you know, the first buyback AutoStore has conducted since its IPO. So we've set a goal of up to $75 million for 2026. And of course, as the rest of this year progresses, we look forward to a number of discussions now with shareholders to understand their reaction to that, and that's something we'll share with our Board as we continue to debate the topic. But great to launch this today, Eirik.

[ Tintin ]?

First, on Amazon, another attempt. Can you talk about maybe what you've done with them so far? And then are there specific developments or features that are bespoke to Amazon in sort of kind of your development pipeline? And then shall I do it one at a time or do it all?

Give us both, Tintin.

Yes, I'll go for it. And then in terms of -- somebody already asked the AutoStore-as-a-Service. But just generally, Paul, could you update us where recurring revenues are at now in the business?

So why don't I start? We have already previously many times talked about the fact that there is a relationship and that there is usage of AutoStore. But I'm also afraid that beyond that, I need to reiterate my comment that we do not comment on the terms of the agreement nor on individual customers as such, as is our practice.

And Tintin, on recurring revenues, it's, again, I think, a strong message. And that is that even in a quarter where we've seen very strong revenues, led, as you might expect, by traditional sort of CapEx-based business. Even in that context, we continue to see recurring revenue. Sorry, Tintin. Look, I was making the point there, I don't know when you lost me. But look, even in a quarter where we've seen very strong business, and of course, much of it, as you'd expect, traditional CapEx-based business, it's great to see that recurring revenues are still a double-digit proportion of our revenue base. So a strong and important contribution from recurring revenues, which include AutoStore-as-a-Service and software, of course.