AutoStore Holdings Ltd

OSE:AUTO

Earnings Call Analysis

Revenue Growth Amid Market Fluctuations

In Q2 2024, AutoStore saw a 12% sequential revenue increase to $154 million, highlighting strong performance in North America. Despite a 12% year-over-year revenue contraction, the company achieved a robust 73% gross margin and a 300 basis point rise in adjusted EBITDA margin to 49%. Order intake grew by 8% year-over-year to $324 million, though it dipped 23% from the previous quarter. AutoStore's backlog remained solid at $479 million with no cancellations. The firm anticipates sequential revenue growth into H2, particularly Q4, driven by long-term investments in sales and R&D.

Navigating a Challenging Market Landscape

In the second quarter of 2024, AutoStore faced a challenging market environment, which resulted in a notable year-over-year revenue decline of 12%. Despite this setback, the company reported a sequential improvement in revenues, reaching $154 million, driven by stronger demand in the EMEA region and North America. The overall order intake for the quarter stood at $141 million, growing 3% compared to the same period last year, and demonstrated an 8% increase in order intake for the first half of 2024 compared to the prior year.

Profitability Remains Strong

One of the encouraging highlights for AutoStore was its impressive gross margin of 73%, marking the eighth consecutive quarter of improvement. This solidity in margins contributed to maintaining an adjusted EBITDA margin of 49%, which reflects strong cost control and a favorable product mix. The continuous growth in gross margin is a direct benefit of effective investments in cost-saving measures and strategic market positioning, suggesting that even amid challenges, profitability remains a robust aspect of AutoStore’s operations.

Solid Backlog and Strong Cash Position

As of June 30, 2024, AutoStore's order backlog was robust at $479 million, with no cancellations reported. This signals sustained demand for their warehouse automation solutions. The company also maintains a healthy cash position with $269 million, allowing it to invest strategically in growth initiatives such as research and development and marketing, driving their long-term objectives forward.

Strategic Investments for Growth

AutoStore’s management highlighted a commitment to invest 20% in operating expenses even amidst declining revenues, indicating a focus on long-term growth strategy over short-term fluctuations. The investments are being funneled into expanding market-facing activities, which had shown promising returns. The goal is to enhance their sales force and increase market outreach, particularly targeting high throughput customers whose project demands are growing significantly.

Market Dynamics and Future Outlook

Despite the current cooling in warehouse automation orders due to elongated project evaluation cycles, the company remains optimistic about future growth. The market for warehouse automation is recognized as still being in its infancy, with only 20% penetration currently. Management indicated that while the pace of order conversions is slower, the total value of the sales pipeline has reached its highest level, signifying opportunities for future engagements. They expect a sequential improvement in revenues as they move into the second half of the year, particularly projecting more significant revenues in Q4.

Customer Retention and Expansion Strategy

In Q2, more than half of AutoStore's revenue was generated from existing customers, which speaks volumes about customer satisfaction and the effectiveness of their 'land and expand' strategy. The company has welcomed approximately 500 new customers in the past two years, indicating broadened market acceptance of their solutions. Continued efforts to strengthen customer relationships and enhance service will likely support client retention and future revenue growth.

Conclusion: A Company Positioned for Future Success

In summary, while AutoStore faces temporary challenges reflected in revenue declines and elongated order cycles, its strong gross margins, solid cash reserves, and a growing order backlog indicate resilience. The company's strategic investments in market activities coupled with a focus on high-margin projects suggest a solid pathway toward recovery and sustained future growth. With ongoing demand in the warehouse automation sector and a substantial market opportunity ahead, AutoStore appears well-positioned to navigate the complexities of the current market environment.

Earnings Call Transcript 2024-Q2

[Hiva Flaskjer, executive]

Good morning, and welcome to AutoStore's Second Quarter 2024 Presentation. My name is Hiva Flaskjer, and I will be moderating this webcast. As usual, I'm joined by 2 members of our executive management team, Mats Hovland Vikse, AutoStore's CEO; and Paul Harrison, AutoStore's CFO.

We would like to remind you of the disclaimer with regards to forward-looking statements. It can be read here at your own convenience. Moving on to the agenda. Mats and Paul will present the quarter's operational and financial development. And as usual, all financials are stated in U.S. dollars. We will host a Q&A session right after the prepared presentation. [Operator Instructions]

Similar to the previous quarter, you're also provided with an opportunity to log on the webcast via the Team's link and ask your questions verbally directly to the management by using the Raise hand feature in the Teams. The Teams link is available on our IR website and in the invitation distributed as a stock exchange release a week ago. After the Q&A, Mats will round off with some final remarks. And with that, I will hand over the words to Mats.

[Mats Hovland Vikse, executive]

Thank you, Hiva. So looking at the highlights of this quarter, we report 12% sequential improvement in revenue with $154 million, driven by EMEA and North America, which was as planned and communicated in the previous quarter. Our order intake was $141 million, representing an increase of 3.4% compared to last year and a decrease of 23% compared to the strong first quarter of this year.

As we've talked about several times in the past, there will be variations from quarter-to-quarter. The current challenging market environment also has an effect on the numbers. But more fundamentally, looking at the first half year development, and eliminating the quarterly fluctuations, order intake grew by 8% year-over-year to $324 million.

Moving then to the profitability of the business. The Q2 gross margin was above 73%, which represents the eighth consecutive quarter of gross margin improvement. And Paul will provide more details to this later in the presentation.

We maintained our adjusted EBITDA margin of 49%, which is on par with the same period last year and an increase of 300 basis points versus the first quarter of this year. On our side, we continue to invest into the right areas of the business, such as sales and R&D.

Moving then to the operational highlights. We recently announced that we have strengthened our leadership team, and I'm thrilled to say that Parth Joshi has joined our team as the new CPO. He brings extensive global experience from high-tech and high-growth companies such as Cisco and Eaton and I'm very excited to have him as part of the team.

In addition to that, we announced the transition of Carlos Fernandez, who's been with AutoStore for over 13 years to the newly created role of Chief Solutions Officer. This will see him build out the solutions teams that will support our partners and customers more robustly, especially as we see an increasing demand for high throughput solutions, where integration with other technologies is even more important.

Now I also want to spend some time sharing what we're seeing in the market today and share some of my reflections around that. Fundamentally, the potential of warehouse automation market remains huge with the secular growth drivers remaining intact. In addition to that, the particular tailwind that drives the need for high-density rapid retrieval solutions like ours is especially compelling.

So what are we observing at present? Warehouse automation penetration continues to grow, albeit at a slower pace compared to 2 years ago. If you look at market studies such as interact analysis, you will see that the annual global automated storage revenues declined in 2023 from the 2022 peak levels and that those same studies now indicate that this trend continues into 2024.

This is also consistent with what we've been experiencing in the market where the situation has been largely the same as we experienced throughout 2023. A particular feature we observed are longer evaluation cycles. And to elaborate on that, we see that this slowdown comes from the combination of one, more opportunities remain open, which means that customers are just spending more time getting to a conclusion; and two, customers defer automation and remain manual for now.

In addition to that, our product mix is deliberately shifting more towards the large and attractive high throughput segment projects, which on average just takes longer time to convert versus the standard projects. The natural effect of this is that the backlog conversion takes longer.

And what I shared with you now is consistent with the many conversations I have, both with small and large customers across all of our main regions and industries. Without exception, they all emphasize their continued commitment to automation of the warehouse solutions, so that has not changed, neither has our ability to compete.

Our win rate remains unchanged at a high level despite an expected increase in competition. Numbers wise, the value of the pipeline is at its highest level ever and the pitch proportion of that pipeline has increased 90% over the past 2 years. This tells me that we're tracking in the right direction and that we are investing in the right areas.

But let's be very clear. Whilst I've explained what is happening in the market, we are not satisfied with the current growth levels. Short term, we are working even more closely with our partners and using our commercial toolbox to speed up conversion types.

For example, we're intensifying our engagement with partners, both strategically and on a project-by-project basis. In addition to that, we continue to invest in our market-facing activities such as business development and marketing, which had demonstrated strong ROI.

At the same time, our strategy is long-term oriented, and we're investing into the business and taking actions to advance our position, both when it comes to our product offering and go-to-market model. And we will talk much more about that in our upcoming Capital Markets Day.

So moving on, this well known slide very efficiently summarizes our strong position and why the business is so attractive. We've now delivered roughly 1,550 systems with 70,000 robots in 57 countries. We just added the Philippines, Paraguay and Puerto Rico. We have about 1,100 unique customers compared to 900 customers a year ago. And within the cubic storage space, we are the only player with such a significant installed base, providing us with great advantages. Not only is sort of real proof of strength of our solutions, but it also represents a big base of satisfied customers to expand our relationship with.

And let me also reiterate that our research shows that only around 20% of the market for warehouse automation is currently penetrated. That's a tremendous opportunity. And we are positioned for strong growth in the future. First of all, the market opportunity is massive. And we have a solution that can address all end markets and all system types with very attractive economics for the end customers.

To deliver on this, we have a highly efficient go-to-market model with a strong network of 23 integration partners around the world, which then are complemented by our business development and global account teams. And it is this efficient go-to-market model, together with our highly standardized and scalable solution, which is the foundation for the attractive and stable financial profile that you see on these slides.

At the same time, we focus relentlessly on our customer-led product road map with around 300 colleagues in R&D, driving continuous improvement, leveraging all data and insights from the large installed base that we have. So this is also a slide that you're familiar with. Here, you can see a small selection of our over 1,000 customers, and you can see we have a wide customer portfolio.

In Q2, more than half of our revenues came from existing customers, this is a very strong reflection of customer satisfaction and our land and expand strategy. This year is particularly important when you consider that we've added around 500 new customers over the last 2 years. And looking at our data that tells us that typically over a 2-, 3-year period, customers will return and invest further both in existing and new sites.

And as you know, we like to give you a real example of how we help our customers solve problems and improve their operations. This time, we're highlighting a U.S.-based apparel customer, Cutter & Buck, which sells activewear. They particularly look to improve their picking process and delivery time to customers. With the AutoStore system, they are now able to offer same-day delivery to their customers, and you'll hear picking is no longer a bottleneck. So before Paul takes us through the financials of the quarter, please have a look at this.

[Presentation]

[Paul Harrison, executive]

Thank you, Mats, and good morning. Okay, let's move on to the financial highlights on the next slide. As you can see, there are some strong numbers on this slide, but at the same time, there are clearly some areas where we're doubling down to drive improvements as Mats has discussed. In quarter 2, we reported order intake of $141 million, representing an increase of 3% compared to last year and an increase of 8% for the first half of '24 versus the same period last year.

Looking at our revenues of $154 million. We see an improvement compared to the first quarter of this year, whilst they contracted 12% year-over-year. Our margins are very strong in the quarter, particularly driven by our high gross margin of 73%. Our adjusted EBITDA margin remained at 49% on par with the same period last year.

So on the next slide, I'll go into more details on the key financials. Looking at our Q2 revenues. As expected, we saw a sequential improvement this quarter with a higher level of high throughput business coming through compared to quarter 1. On a year-over-year basis, revenues declined by 12%, reflecting the longer conversion from backlog to revenues that Mats has discussed.

As we can see from the right-hand side of the slide, which shows the geographical split, I'm pleased to highlight the strong sequential growth in North America, an important strategic market to us. As you've already seen, order intake was $140 million for quarter 2, representing a 3% increase from quarter 2 '23 and that sequential decline of 12%. Mats has talked already about some of the factors driving order intake. One additional observation I would share to underline Mats' point is to remind you that AutoStore is often just one part of the overall warehouse automation project.

It is often combined with other technologies, including the construction of new warehouse facilities or the repurposing of brownfield sites. So these projects, even for large global names can be significant. However, an understandable caution to commit in this environment should not be confused with high conviction in our product. We're continuing to see strong demand from high throughput customers with these projects more than doubling compared to a year ago. These are larger projects.

In addition, we saw a particularly strong performance in the industrial sector this quarter, which talks to the diversified range of end markets we serve. And at 30th of June '24, our order backlog remains solid with no cancellations at $479 million. Looking at gross profit and adjusted EBITDA. On the upper panel of this slide, you see that Q2 gross profit ended at $113 million, which was an increase in absolute terms from the same quarter in 2023.

In quarter 2, 2022, this corresponds to a gross margin of 73% compared to 68% in quarter 1 of '23. So you'll note that the gross margin for the quarter is once again at the highest level we've seen for some time. The quarter's margins were supported by product mix and, in particular, favorable raw materials costs.

Our adjusted EBITDA margin was strong at 49%, sequentially up 300 basis points from 46%, driven by improved gross margin that I mentioned and also by strong cost control. Now we've talked today about the actions we are taking to drive growth in our business. As a reminder, Mats talked about investing in our market-facing activities such as business development and marketing. We're leveraging this strong and improved gross margin to fund this investment, which enables us to continue to deliver high adjusted EBITDA margins.

Okay. Now let's spend a couple of minutes highlighting our strong cash position. In the quarter, we had cash flow from operations of $16 million after making settlement payments of $32 million. Operating cash flow was negatively affected by increased receivables contributing to higher working capital. Now this was expected due to shipments late in the quarter. But as a reminder, we have a 30- to 60-day standard payment terms with all of our partners.

If I look at simplified cash flow conversion, which is calculated as adjusted EBITDA, less CapEx investments, it's somewhat down year-on-year at 77%, with CapEx growing year-on-year and lower adjusted EBITDA, but clearly still strong.

To conclude, we end the quarter with a solid cash position of $269 million, while we continue to invest in our future growth. So pulling everything you've heard this morning together, this slide summarizes our priorities and our expectations. We will continue to focus on product and technology development. And during 2024, we plan a strong series of product launches and improved functionalities, look out for some interesting announcements this fall and also those that we'll be sharing with you at our forthcoming Capital Markets Day.

And with an eye on short- and long-term performance, we will invest in our market-facing activities. We will fund this by utilizing the improvements in gross margin, enabling us to maintain a high adjusted EBITDA margin. And as we've made clear, we expect these actions to drive growth and continue to gain market share. So with that, I would like to pass back to Hiva, who is going to lead the Q&A.

[Hiva Flaskjer, executive]

Thank you, Paul. Thank you, Mats. Let's move on to the Q&A. And let's start with questions from the Team's audience.

[Operator Instructions]

The first question comes from Emilie.

[Emilie Engen, analyst]

My first question is about the backlog duration and how we should think about that in Q2 versus year-end 2023? I think the backlog is up around $30 million. And is this representative for what we should expect as an increase in the second half? Or how should we think about growth in the second half of this year?

[Paul Harrison, executive]

Okay. So I'll perhaps start off with the answer there. The backlog duration is extended for the reasons we've talked about. Customers taking longer to make that final purchase commitment and indeed, customers entering into multiyear commitments with us. I can think of an example recently in Asia, where our customer has entered into a multiyear commitment with us where around about 30% of that revenue will come out in the first year.

So we are seeing customers commit for longer to the business, which is clearly a good thing. As to the second half of the year, what I would point to is the initiatives that Mats has talked about that I reiterated in my presentation that we're taking to drive revenue growth, and we do, therefore, expect to see sequential improvement in revenues as we go into the second half of the year.

Now we said that back in the quarter when we talked about the revenues being skewed to the second half of the year. The comment that I'll add now with the benefit of the passage of time is we do expect to see that most notably in quarter 4 of this year.

[Emilie Engen, analyst]

Okay. That's helpful. And then just a follow-up on gross margins. I'm just curious whether the step-up you've seen in this quarter as well as last quarter, what you expect for them as the remainder of the year?

[Paul Harrison, executive]

At the start of the year, I talked about gross margins in the late 60s and there was some caution in that statement resulting from the risk around geopolitical factors impacting commodity prices. But you've seen now for 2 quarters a strong gross margin in the early 70s.

So I think it is reasonable at this stage in the year to expect the gross margin for the full year to start with a 7 and be in the low 7s as well. And as I mentioned, it's that increase in gross margin, which we're very pleased with, that is going to fund the initiatives we've talked about to drive revenue growth.

[Hiva Flaskjer, executive]

Moving on, [ Tobia ], would you like to ask your question?

[Unknown Analyst]

[ Tobia ] From Bank of America. Only one from my side. Could you maybe explain to what extent and how are you, from your side, can improve the delivery on the backlog that you have? Or do you feel like you're on this part more like fully in the hand of your customers and their decision of when they really want to commit to the project?

[Mats Hovland Vikse, executive]

So as we mentioned during the presentation, we have several initiatives in place not only on the high level strategic stuff, but also on a project-by-project basis. So we have, to a larger extent now our people involved hand-in-hand with the partners on a project level, which gives us more insights and more opportunities to impact.

However, as we've talked about in the past as well, this is a market that's going to be attractive for many, many years to come. So our top priority is to sit together with our customers and support their timing so that we end up having good customer relationship and end up being partners with them for many, many years to come.

[Unknown Analyst]

Okay. And maybe then as a follow-up, what gives you the conviction into the more, let's say, H2 weighted number like a Q4 weighted pickup then? Do you already have like good commitments from your customers and like feedback that they will really commit to the projects in Q4?

[Mats Hovland Vikse, executive]

So as I said, we are close to the projects that we have in our backlog. And with the timing that has been indicated for us and with the visibility we have, we do feel good about the second half and particularly Q4, as Paul mentioned.

[Hiva Flaskjer, executive]

Next one up is Petter.

[Petter Nystrøm, analyst]

I had a question on the gross margin, but I think that was answered. So just going back to Q1 actually, my understanding was that the start of Q2 had been fairly similar to what you saw in Q1, but clearly, the order intake weakened. Did I misunderstand basically your message in Q1 or did order somewhat softer later in the second quarter?

[Mats Hovland Vikse, executive]

So look, as we've talked about for a while, we've seen similar dynamics for several quarters now. And you're right, at the end of -- or in Q1 when we presented that when we saw similar developments. However, with the dynamics that we are experiencing in the market now, combined with the fact that underlying we're a project-based business, we will see these types of fluctuations. And with the market environment we're in, these fluctuations can be quite large. .

But as we've done quite consistently for several years now, is saying that on a quarter-over-quarter basis, there will be lumpiness. But if you look at the longer lines, for instance, year-to-date, we're up 8%. So you need to look at this in a larger time service than only individual quarters because we're impacted by these types of dynamics that we're seeing now.

[Petter Nystrøm, analyst]

Perfect. And then just a final question. You mentioned a sequential revenue improvement in H2 with more effect in Q4, how good visibility do you have on that? Could it be a scenario that when you enter Q4 that suddenly some of the customers are saying that we need to postpone this until the first half of '25? That was the final.

[Paul Harrison, executive]

Yes. Look, I think as Mats has said, we're able to talk to our partners on a project-by-project basis and update on expectations. And that's what informed the comment that the likely dates that customers are going to commit to the delivery of projects. But as we've tried to say today, this to your question, is an uncertain market. Is it possible some of those customers will defer? Yes, it is possible that we -- we are looking at this on a highly granular basis and taking actions as noted, to stimulate that quarter 3 and 4 growth.

[Hiva Flaskjer, executive]

Moving on, Kristian, can you please mute yourself and ask your question?

[Kristian Spetalen, analyst]

Yes. So how should we think about the postponements you cited last year when you took down the revenue guidance in, I think, was the third quarter? And which projects were you cited some delays from H2 '23 to '24? Are these being delivered on now? Or are we still waiting -- are these customers still waiting per se?

[Mats Hovland Vikse, executive]

So the average age within the backlog has obviously increased. However, the projects that we were intended to ship last year has, to a large extent, either has been shipped or in the process of shipping. But there is a shift and a dynamic backlog.

But of course, the underlying dynamic remains largely the same this year as we also saw last year. But as I've talked about, as Paul just talked about, we're deeply involved in these projects. So we have a granular view on a project-by-project basis.

[Paul Harrison, executive]

And just to emphasize, if I may, whilst timing, as we have discussed quite a bit this morning is hard to predict. What we're not seeing are cancelations of orders.

[Kristian Spetalen, analyst]

Okay. Okay. So I guess that most the kind of disappointment now is you said 4 months ago that you would grow on a full year basis and that 80% of the order intake is set for delivery for '24. So I guess that those orders in Q1 are kind of where we see most delays and maybe from Q4 last year?

[Paul Harrison, executive]

Look, that's fair. And as you've also seen, and we referred to in the presentation, we've also seen sort of external market studies such as Interact, downgrade their view on 2024 as well. So the experience we're sharing with you is consistent with those studies with 2024 taking on much more of the characteristics of the tough 2023.

[Kristian Spetalen, analyst]

Okay. I see. And then you're investing quite heavily with 20% OpEx growth with revenues down? Will you preserve margins going forward? Or are you kind of thinking longer term here?

[Paul Harrison, executive]

Well, we always think longer term, that's quite right. But at the same time, as we've tried to stress today, we are also thinking about taking actions to drive short-term performance as well. Now what we benefit from here is that strong improvement in our gross margin. And it's that improvement that we're investing into these initiatives to drive growth. Therefore, I expect to continue to report those high adjusted EBITDA margins.

[Kristian Spetalen, analyst]

And then last one for me.

[Mats Hovland Vikse, executive]

Let me just add some color based on your past couple of questions. So look, the investments that we've been doing into especially the market-facing activities has been showing good results. And this is a market that's still just in the early innings of disruption. And when you look at the pipeline growth, the customer access that we have and the proportion of that pipeline that has been pitched, we're seeing very strong underlying demand growth, which is what we can influence within the 4 walls of the company.

What we are seeing though is that the conversion of those orders are going down for the reasons that I talked about during the presentation. But in a medium- to long-term view, the results that we're getting in, being closer to the customer, increasing the pipeline, getting more deals in front of those customers are showing very, very good signs. But short term, backlog conversion timing is more challenging to predict than what it's been in the past.

[Kristian Spetalen, analyst]

Thank you for that clarification. And then last question, a bit unrelated to this, but on the Capital Markets Day in September, should we expect any financial targets to be presented? Or will it be mostly product and company centric?

[Paul Harrison, executive]

Well, there'll be a lot of content on that. But yes, you can expect me to talk about the financial envelope within which we think you should think about and model the business over the medium term.

[Hiva Flaskjer, executive]

Timothy. I think you're up next.

[Timothy Lee, analyst]

So I just want to understand a bit more about the order intake momentum in the second quarter. How is the run rate or like a development booked second quarter? And how is the momentum going into the third quarter?

[Mats Hovland Vikse, executive]

Sorry, I missed the very start of your question, Timothy. I beg your pardon.

[Timothy Lee, analyst]

Sorry, I'm just trying to understand about the dynamics of the order intake in the second quarter. And how is the run rate when we exit the second quarter? And how's the momentum development into the third quarter?

[Paul Harrison, executive]

Okay. Thank you. Look, I think I'm going to sort of repeat a comment Mats made a few moments ago. The -- to describe it is a run rate -- to characterize it as a run rate at the minute would be to belie the lumpiness that we have talked about in securing orders.

And that's why whilst we saw that promising start to quarter 2, clearly, over the balance of the quarter, we didn't see a stronger performance. So I don't think at the moment, it would be fair to characterize an order intake as having a very clear run rate.

[Timothy Lee, analyst]

Understood. Another small question on my side. It's a fairly small number, but in terms of the revenue from the rendering of services in the quarter is negative $0.2 million. So it's more, but I just want to understand a bit about why it is a negative number?

[Paul Harrison, executive]

On the service revenues in the quarter, did you say?

[Timothy Lee, analyst]

Yes, correct.

[Paul Harrison, executive]

I would need to come back to you on that one actually. It is, as you say, a relatively small number. Let me double check that and come back to you, please.

[Hiva Flaskjer, executive]

Toby, I think you're up next.

[Toby Ogg, analyst]

A couple for me. Maybe just firstly, just on the CapEx. It looks like that's been trending around 10% of sales year-to-date. Is this the new sort of run rate we should be thinking about going forward on the CapEx? And where is that CapEx being spent? And then just secondly, just on the competition, Mats, I think you made a reference to more competition, could you just give a bit more detail around where that competition is coming from, what it looks like and how intense it is?

[Paul Harrison, executive]

Toby, I'll go first on the CapEx. And you're right, it's a little bit higher this quarter at the 10% level. I continue to think that you should consider a more normal number, 8% against a normal revenue context. It spiked up a little bit this quarter because we've seen the completion in the quarter of the facility and Thailand and indeed a new facility in the U.S. So that's created a little bit of a spike. But actually, when you look at the R&D element of our CapEx, it's actually at a very steady proportion quarter -- sequentially quarter-over-quarter. So no, I think longer term, continue to think about it as slightly below those levels.

[Toby Ogg, analyst]

And on the competition side, we've seen new entrants come in over the past few years. There is nothing now that has changed that situation. But obviously, it's more players operating now than what it was a few years ago. However, our competitive strength has remained the same throughout that period and continues to be very, very strong, which is then evidence against buyer high win rates and also through the performance on gross margin.

So if you look at it, our largest competitor remains manual handling with still only around 20% of warehouses being automated. That's the key conversation we're having with customers. How do you move from a manual operation into an automated operation?

[Mats Hovland Vikse, executive]

Great. Thanks a lot. [Technical Difficulty]

[Hiva Flaskjer, executive]

Moving on to Luke.

[Lucas Ferhani, analyst]

I just also wanted to come back on the investments. I'm trying to understand how you can really drive growth with the additional investments. As you said, the value proposition is strong. The customer feedback is good. And so it does seem like it's more of a waiting game for kind of maybe the macro interest rates to improve.

And obviously, you're kind of investing a lot more as your top line is more challenged. Obviously, the gross margin is still high, so you're able to do that. But I'm just wondering whether you're really going to be able to drive both if, let's say, the macro interest rate environment doesn't change.

[Mats Hovland Vikse, executive]

Good question, Lucas, but look, when you look at it, the investments that we've made has enabled us to grow our pipeline and increase the pitch proportion of that pipeline. For us, the growth formula is a lot about seeing more of the market and getting access to more and more customers. As I've talked about several times now, it's an early-stage market. And for us, if we're able to gain market access, and get access to more and more customers whilst maintaining those high win rates, that will equal growth also in an environment where customers are more cautious. But most importantly, it's about gaining market access.

[Lucas Ferhani, analyst]

Perfect. And just on, again, the debate on revenues this year. I mean, is there a change at all in the view you had in Q1 after having seen kind of H1? Does that change a bit what you see for the full year on achievable revenues or, let's say, the weight of H2 versus H1 is just as you saw before and the past 3 years was about 50%. If you look at 2020, it was closer to 44%. So there could still be something that's coming by. I'm just wondering if maybe H1 makes you doubt slightly a bit more maybe what you can deliver on the full year now?

[Paul Harrison, executive]

I think the comment we made at Q1 about a skew to H2 this year remains too. The update really for you today, having done the deep dive into backlog is that we expect to see that much more biased towards quarter 4. But clearly, as we have said, just stepping back and as external competition as I said as well, this is proving to be, once again, a tough year whereas a few months ago, there was a stronger sense of optimism about 2024. So it is proving to be a tougher year than I think was expected 6 months ago.

[Hiva Flaskjer, executive]

Now let's try with Luke from Morgan Stanley. Maybe Luke, we'll take your question later on. Moving on to Eirik.

[Eirik Rafdal, analyst]

I've got 2, one for Mats and one for Paul. If I can start with the one to Mats. You talked about the win rate that remains roughly the same. Could you share some color on the different win rates between high throughput and standard warehouses? And it sounds as if you're gaining traction, and you've done over time in high throughput, does kind of overall flat win rate imply that you're winning less in standard warehouse or how should we think about both focus there and relative competitiveness?

[Mats Hovland Vikse, executive]

We are seeing growth in the high throughput segment. And I think the installed base that we're developing in that market verifies our position to also compete there. Again, the growth formula within high throughput is to gain access to those projects. So to a large extent, we're winning the projects that we're starting to see, but the efforts is more around seeing more and more projects, and that's what we're focusing on.

So look, it's still early days for us. We're winning share in that market. And I think as we gain access and apply those win rates there, we will see growth. But for us, it's more about seeing that market because historically, we've been mainly viewed as a winner within the standard segment. So we need to create ourselves that access and high throughput as well.

[Eirik Rafdal, analyst]

That's very clear. Thanks, Mats. And one for you as well, Paul. Again, given where the stock is trading and also your cash position, you talked about in the presentation, what are your thoughts on potential buybacks?

[Paul Harrison, executive]

Good question, Eirik. Very fair question. I think firstly, the priorities for use of cash are: one, obviously, always start with organic investment into the business; two, we have talked in the past and continue to consider inorganic opportunities. And then you are quite right to say that none of those -- neither of those are necessarily mutually exclusive with considering some form of return of cash. And for those of you who have known me for a while, you know that in previous companies that is something I've actively pursued. So no decision has been made by the Board at this stage. But rest assured, your question is on our agenda, Eirik, and we'll say more in due course.

[Hiva Flaskjer, executive]

Then moving on to Samir.

[Unknown Analyst]

Just want to check on the pipeline, which I think is still growing. Just wanted to understand at what point do you consider it as part of your pipeline? Is it presales or early discussions? And let's say if discussions have stalled for months, you take it out of your pipeline? Or still -- it is still there?

[Mats Hovland Vikse, executive]

So we include a project within our pipeline when there is a concrete project being talked about, i.e., a concrete warehouse that either is to be retrofitted or is to be built. If the decision of the customer is that they're going to stay manual for a while, we take it out of the pipeline. So if you look at the longer time horizon, we have any examples of situations where we've taken a customer out of pipeline, and they've come back a couple of years later when they're ready to invest in automation.

[Hiva Flaskjer, executive]

Let me check if there are any more hands raised. Luke, do you want to try a third time?

[Luke Holbrook, analyst]

Can you hear me now?

[Hiva Flaskjer, executive]

Yes, Luke, we can.

[Luke Holbrook, analyst]

My question is just on your adjusted EBITDA margin, which remains quite high. I'm just wondering how we should think about the future investment in your engineer base because it does remain quite lead, particularly against one of your competitors. They're doing things like automating and picking, more automating on the outbound. I'm just wondering how comfortable we should be at or whether you believe there should be an investment over the medium term in that engineered base?

[Mats Hovland Vikse, executive]

So first of all, through the partner model that we operate, we have a broad engineering team that looks at these adjacencies and that enables us to integrate both inbound and outbound processes with the best-of-breed technologies that exist in the market. But of course, we've also said that we have an active look on the adjacencies that exist out there and do continuous make by partner evaluations. So it's definitely on our agenda.

[Luke Holbrook, analyst]

Okay. So just following up from the previous question that talked on share buyback. I'm just wondering how we should think about capital allocation going forward, where your priorities are in terms of investment in the core technology versus distribution back to shareholders in the share buyback form?

[Paul Harrison, executive]

Yes. So our priorities, as I said, do remain, first and foremost, organic cash flow supporting the development of the business for the long term. There is an inorganic potential as well. But as I said, not neither of those necessarily sit at our mutual exclusive to returns of cash. We just haven't reached a firm conclusion on that as a Board that I can share with you at this stage.

[Hiva Flaskjer, executive]

I do believe that, that concludes the questions from the Team's audience, unless Samir have another question. If so, please unmute yourself.

[Unknown Analyst]

No. Yes. No question.

[Hiva Flaskjer, executive]

Fantastic. Then I think actually that then concludes the Team's questions. We have received certain questions. Most of them have been answered already. But I do think there is one from Hanil Patel. Could you talk about the relative strength of the demand between high throughput systems versus smaller systems where price may not -- may be more of a factor. Have there been any changes in the competitive dynamics there?

[Mats Hovland Vikse, executive]

So as I mentioned, we have seen a lot of increase in demand on a pipeline basis, on a pitch basis in the high throughput segment. But of course, standard segment has remained our strength. We've also ourselves released new products that help us compete even more effectively on the smaller systems with the Pio system that we have.

[Hiva Flaskjer, executive]

There is a question from Øyvind Mossige. Do you still have orders received in 2022 and 2021 in your backlog, if yes, how much in percentage?

[Paul Harrison, executive]

I'm not aware of any significant orders dating that far back.

[Hiva Flaskjer, executive]

And I think that is actually the questions that we didn't answer previously. So that concludes the Q&A session for Q2 2024. And I'll hand over the word to Mats for some final remarks.

[Mats Hovland Vikse, executive]

Thanks a lot, Hiva. So First of all, I want to say thank you for spending time with us today. And there are some key takeaways that I want you to take home. So let me summarize some of those points. First of all, we are the pioneer and global leader in Cubic storage, and we operate in a market that's still in its early stages of development.

Even though more and more warehouses are automated, still only around 20% of warehouses globally are automated today, leaving plenty of space for growth. Within this market, we have a leading technology and a proven growth strategy with an efficient and scalable go-to-market form. And last, all of this has enabled a long track record of delivering strong revenue and growth at high margins. So we are very excited and optimistic about our future and remain confident in our ability to continue delivering strong, profitable growth.

And before we end, I would like to take this opportunity to warmly welcome you to our 2024 Capital Markets Day, which will take place on 18th September in Manchester, U.K. There, you will get a chance to get a campus tour of the largest multi-tenant AutoStore facility, which picks more than 65 million units per year. You will also be able to hear from THG's COO, John Gallemore . And in addition to THG, you will also have the opportunity to hear from Mark Irvin, who's Chief Supply Chain Officer at Best Buy and learn more about how the investments in AutoStore help to revolutionize their supply chain network. Finally, you'll also, of course, hear from our management team, who will take you through a range of important topics to help you form a medium-term view of our business. We do hope you will join us. Thank you.