AutoStore Holdings Ltd
OSE:AUTO
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Earnings Call Analysis
Q4-2023 Analysis
AutoStore Holdings Ltd
AutoStore has demonstrated a strong performance in the fourth quarter of 2023, especially notable against a backdrop of declining warehouse automation market trends. Whilst the broader market faced headwinds, AutoStore accelerated its revenue growth by about 20%, with Q4 revenue reaching $176 million. This achievement slightly exceeded their previously issued guidance in November, with an annual revenue growth of 11% leading to a total of $646 million for 2023. Gross margins stood out at 69% in Q4, showing an 8-point increase from the previous year's quarter, signaling the company's ability to maintain high profitability.
AutoStore's business model has proven to be efficient and scalable, achieving an impressive EBITDA margin of 48%. New customers accounted for approximately two-thirds of Q4 revenue, reflecting the company's successful market penetration and its growing appeal across various sectors. With the company's expansion into two new countries—New Zealand and the Dominican Republic—AutoStore's reach now spans 54 nations, showcasing its robust global presence. The consistent customer mix in the backlog highlights the balanced growth stemming from both new and existing partnerships.
Continued investment in innovation and capacity expansion has been a hallmark of AutoStore's strategy. With a 3% net price increase successfully absorbed by the market, and no substantial pull-forward effect seen, the company remains competitive in pricing. Additionally, the production capacity has been ramped up by the Poland team, and a new facility in Thailand set to be fully operational in the second quarter of 2024. These developments ensure that AutoStore can support significant forthcoming growth without the need for material additional investments.
AutoStore has translated its profitability into tangible returns, with a free cash flow conversion rate at a strong 83%. This financial stability is buttressed by a strategic focus on innovation, market reach, and internal process efficiencies. The R5 Pro Robot and AutoStore router software updates launched in 2023 exemplify the company's commitment to improving the performance of its cube storage solutions.
Despite macroeconomic uncertainty, AutoStore is poised for future growth. The company's strong pipeline, robust order intake, and backlog set the stage for sustained progress. While the timing of project conversions may be affected by the external economic environment, the interest in and appeal of AutoStore's solutions remain unaffected. The company is optimistic about its ability to continue delivering profitable growth and is a pioneer in the cubic storage market, which is still in early development stages with only 20% of warehouses automated globally, indicating vast growth potential.
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Good morning, and welcome to AutoStore's fourth quarter 2023 presentation. My name is Jo Christian Lund-Steigedal, and I'm glad to be here serving as an Investor Relation Officer at AutoStore while Hiva Flaskjer is on maternity leave.As usual, I'm joined by the 2 members of our executive team, Mats Hovland Vikse, the CEO, and Paul Harrison, the CFO. As usual, we would like to remind you our disclaimer with regards to forward-looking statements. It can be read here at your convenience.Moving on to our agenda, Mats and Paul will provide you with an update on the business and discuss the fourth quarter results. As a quick reminder, all the financials in the presentation are stated in U.S. dollars. The presentation will be followed by Q&A session with participants joining via the earnings call and the webcast. And for those of you who are participating on the webcast and ask questions there, you can submit your questions through the webcast player at any time. We will conclude the session today with some final remarks by the CEO. And with that, Mats, the word is yours.
Thank you, Christian. And as you can see on this page, our performance was strong in fourth quarter. This is especially true when you consider that the broader market drop -- market backdrop remains challenging. For 2023 as a whole, we grew our revenue by 11%, whereas the warehouse automation market in total declined. In the fourth quarter of '23 we achieved revenue of $176 million, an accelerated growth of around 20% compared to the same period in 2022. This was slightly better than our guidance in November when we estimated full year revenue of around $640 million, implying $171 million for Q4.While accelerating revenue growth, we continue to deliver high gross margins with 69% in Q4, up 8 percentage points compared to Q4 of '22. This means that the full year gross margin was 67.8%, which is a high and, we believe, sustainable level. And Paul will return to this shortly. Similarly, we have an efficient and scalable business model leading to strong EBITDA margin of 48%. Order intake has continued to develop positively and was in Q4 $164 million, up 8% sequentially and up 7% since Q4 of last year. This brought our backlog to $447 million and around 2/3 of the order intake in Q4 was from new customers. However, existing customers still make up 45% of our total backlog, which is in line with the historical mix. While standard solutions remains our most significant source of revenue, I am particularly pleased to see strong growth in high throughput solutions where we continue the positive trend in Q4.Moving to the operational highlights. And as I mentioned in the Q3 presentation, we introduced a new price increase of net 3% in December. This was the result of us removing the grid surcharge completely and replacing it with a fixed general price increase. This price increase has been well absorbed. And at the same time we did not see it generate any significant pull-forward effect. I would also like to highlight the fact that our Poland team has successfully ramped up production capacity. At the same time, our new facility in Thailand will be fully operational in Q2 of this year. And all in all, this means that we will have production capacity that can support significant growth for many years to come without having to do any material additional investments.So moving on, this slide here summarizes our strong position and why the business is so attractive. We have now delivered 1,400 systems with almost 65,000 robots in 54 countries. And the observant viewer will notice that we've entered 2 new countries since last quarter, New Zealand and the Dominican Republic. And these are significant numbers. But remember that still only 20% of the market for warehouse automation is currently penetrated. And that is a tremendous opportunity.And we are positioned for strong growth in the future. We have a solution for virtually all end-markets and all system types with very attractive economics for our end-customers. Additionally, we have developed a strong network of 23 integration partners around the world, which are complemented by our business development and global account teams. And all in all, this is the foundation for the attractive financial profile that you see. We ended 2023 with revenues of $646 million.We are back to historical high margin levels with profitability readily converting to cash. In 2023, free cash flow conversion was strong 83%. And this attractive financial profile is sustainable given our standardized solutions and highly scalable business model.At the same time, we focus relentlessly on our customer-led product roadmap with some 300 colleagues in R&D, driving continuous performance improvement. So we believe passionately in the strength of our position in this market. But don't just take my word for it. I think you will be interesting to see that we commissioned a Forrester study where Forrester has characterized a typical AutoStore customer as a composite of 5 different real customer who they interviewed. And this study can be downloaded on our website. It describes all the different inputs like cost drivers and draws a clear conclusion, which is that a typical order store system with an investment of around $5 million provide a 79% ROI.So let's now reflect on our customer portfolio. We today count roughly 1,000 unique customers globally. And we have included a small selection of them here on this page. And the key message looking at this picture is that we are very well-diversified across a wide range of end-markets. We support the e-commerce and omnichannel fulfillment across different end-markets. And in addition, we serve markets like industrial, automotive and healthcare. And there are a few warehouse automation projects that would not be well-served by the addition of an AutoStore system.And as usual, we would love to show you an example of a successful implementation of AutoStore. And this time we highlight the industrial equipment distributor, SMC, who was reaching their capacity ceiling using legacy storage solutions, but was able to double their throughput in their new facility with an auto store solution provided by our partner, Bastian. And on a higher level, I think this is a good example as to how we can serve a very broad range, if not all end-markets. Automation of warehouses in the industrial space is also a segment that is proven more resilient throughout the recent quarters when we've seen that some e-commerce players has eased off their investments. So before Paul takes us through the financials of the quarters, please have a look at the SMC facility in Indiana, U.S.A.[Presentation]
Thank you, Mats. Good morning. It's only my second quarter report for AutoStores. I joined the business in October '23. Since I joined, I've spent time getting to know the company. I've met a number of our clients and not least our partners. And it's been a great experience. It's done nothing but support my initial conviction about the strength of AutoStore's proposition, the significant market potential, and our strong and sustainable financial profile. So with that said, let's look at the financial highlights on the next slide.As Mats already stated, the quarter was strong despite challenging market conditions. We're reporting revenue of $176 million, a 68.5% gross margin, and a 48% adjusted EBITDA margin. We're once again demonstrating the significant operating leverage with high margins and very strong cash conversion. On the next slides, I'll go into more details on the key financials.Let's start by looking at the order intake and backlog. As I observe, whilst the market remained challenging in '23, we are consistently outperforming it. It is also good to see that we steadily improved sequential order intake over the last 2 quarters, ending in quarter 4 at $164 million. Whilst we live in an environment of high interest rates and elevated concerns, levels of uncertainty, we expect to see a cautious approach on the part of customers to CapEx investment. However, at the same time, we note the interest in our solution is very strong. Our pipeline is at an all-time high at $6.5 billion, which is 10% higher than at the end of 2022.Looking at the order intake, the standard segment remains by far the most important, but the high throughput is growing strongly as Mats noted earlier. In quarter 4 EMEA saw a strong uptick in order uptake -- intake and North America remains strong. If I look at the industry segments, apparel and sports equipment picked up in the quarter after several weaker quarters, industrials and 3PL remained firm. We closed 2023 with an order backlog of $447 million. We expect a high proportion of this together with our first quarter order intake to convert to revenue in 2024. Parts of subsequent quarter's order intakes will also convert to revenue in '24, albeit at a declining rate as we progress through the year. This combined with the stable to positive development in order intake we've seen over several recent quarters provides a good foundation for continued growth in 2024.Now, with that said, and reflecting on our learning in the business, I'd like to add that when it comes to the distribution of absolute revenues between the quarters, it's important to bear in mind that we're a project-based business and our business model implies some variability quarter-on-quarter in revenues and shipments. Something to bear in mind.Okay, just staying with quarter 4 then, as expected and actually slightly above the recent guidance, revenues accelerated. We reached $176 million, which is 20% higher than quarter 4 last year. This brought our total revenue for 2023 to $646 million, up 11% year-over-year. This is a strong achievement given the market backdrop that Mats has discussed.We saw once again that 2/3 of revenue this quarter came from new customers. Revenue is particularly boosted by high throughput installations within the apparel and sports sectors across Europe and the U.S. The right-hand chart of the slide shows the geographical split. We see that EMEA came back strongly in quarter 4, with North America also continuing to perform well.Moving on from revenues to gross profit and adjusted EBITDA on the upper panel of this slide, you see that quarter 4 gross profit ended at $121 million, up from $80 million (sic) [ $90 million ] in the same quarter in 2022. This corresponds to a gross margin of 69% in the fourth quarter compared to 61% in the fourth quarter of 2022. In line with our comments in previous quarters, our gross margin gradually improved to a sustainable and high level. Adjusted EBITDA on the lower pane on the left side remains similarly very strong.Now I'm conscious that we use this word sustainable to refer to gross margin often. But why is this? I think it's worth reflecting on the following characteristics of our business when we think about this word sustainable. First, our standardized product set with a very limited number of modules whilst the customer can increase the size of its installation and benefit from that ability to scale, the products they buy are highly standardized, namely the grid and the robots. We don't create bespoke solutions, and we sell them on standard consistent terms. Secondly, we sell through our partner channel. It's that channel that enables us to reach all key markets, allowing us to keep our direct sales and marketing resources in check. Third, as you know, we've invested significantly in broadening our supply and manufacturing bases. We have no single point dependencies in our production chain.And then fourthly, finally, we remain disciplined operators. We're focused on adding resources that truly drive customer value in areas such as R&D and in field sales presence. As you note on the slide, adjusted EBITDA was $84 million in the fourth quarter, representing an EBITDA margin of 48%. This represents a margin improvement of 8 percentage points versus the corresponding period last year.Okay. Let's turn now to our strong cash flow conversion. In the quarter, we had cash flow from operations of $80 million, as you can see in the yellow pillar on the waterfall. Operating cash flows reported was $12.6 million. This was positive despite settlement payments of $31 million, which we'll feature for another 6 quarters, tax payments of $90 million and working capital charges of $17 million, driven by the fact that a large part of our shipments were made late in the quarter. Our CapEx investments of $10 million were at a normal level, and we've had interest payments of around $11 million, leading to a very strong closing cash balance of $253 million.Since we've now started our new fiscal year, let me highlight some of our priorities. The key elements for us continue to be to deliver strong growth through focus on innovation, market outreach and efficiency, both for our customers and in our internal processes. During 2023, we've made significant progress in terms of product launches and new technologies, most of which increase throughput, reduce costs or otherwise enhances the efficiency of the cube and the environment around it. The R5 Pro Robot has, for example, significantly increased throughput for large warehouses with multiple shifts. The same goes for the AutoStore router software updates we delivered during the year. In 2024, our key focus continues to be the enhancement of the performance of the cube. We will also further support our partner network in 2023. We increased our business development management team, seeing great results. In 2024, we will further build on the success of BDMs, having also established a team of global account managers tasked with working even closer and on a strategic level with a selection of large global customers.And then thirdly, we'll continue to drive operating efficiency. In 2023, we established industry-leading margin levels by leveraging those characteristics of our business that we've discussed this morning.So with that, I'd like to pass back to Jo Christian, who is going to lead the Q&A.
Thank you very much, Mats and Paul. And for all of you on the webcast, please continue to submit questions in the webcast player. But for now, we will open for questions from the phone line. So please, operator, I'll hand it over to you.
[Operator Instructions] The first question will be from the line of Martin Wilkie from Citi.
It's Martin Wilkie from Citi. The main question I had was around the pipeline and how we should think about that in terms of the outlook for 2024. So I appreciate you've not given detailed guidance for this year. But just if you could explain, when you talk about the improving pipeline, just some numbers around how long it might have taken, say, 2 or 3 years ago to convert to firm orders, how you're seeing that now. Is it really driven by interest rates? Is it something else? Just a bit of understanding as to how we could think about that pipeline converting into an order inflection.
I'll start with a couple of comments and Mats might add. We noted the overall pipeline [indiscernible] and I will observe that a higher proportion of the [indiscernible]. Now we talked in 2023 about -- and I've referenced it today, about customers taking a cautious approach to making CapEx commitments. In this environment, in this macro environment, we don't expect that this will change for the time being. But nonetheless, when we look at the pipe and we look at the projects that are in the pipe, we feel very good about the quality of it and its implications for 2024.
[Indiscernible] in terms of what would trigger the conversion of the pipeline. I mean, obviously we hear another industry that had major [indiscernible], for example. I suspect that's perhaps overly simplistic here. But do you sense there is something that could be a trigger or is it more just a gradual improvement of the macro outlook? I mean internally, when you think about what drives that conversion, what factors do you think would accelerate that?
There's no question that in a tougher macro environment where there are CapEx constraints, the decision-making around CapEx commitments has escalated, elevated up to Broad of Director level, and that reflects the times we live in. If we do move to a more normalized macro, then one can establish regular -- one can imagine more regular and further sort of delegated approvals happening, and that should speed up the decision-making processes. But I think it's really important to note that there are no signs whatsoever that our strong proposition does not resonate well in this market across a wide variety of industries.
So what the pipeline developments is really telling us is that we've seen that the interest level of AutoStore and the attractiveness of AutoStore has continued to increase also in 2023 both through the pipeline growth we've seen but also the progress of projects that sits within that pipeline. So as Paul mentioned, what we need to see is that confidence gradually returning to the market, which then will lead to conversion of that pipeline.
The next question will be from the line of Timothy Lee from Barclays.
My first question will be about the [indiscernible] you are not giving full year guidance for 2024 but can you give us a little bit more color on the direction. How do you see the [indiscernible] will go in 2024, given we have some improvement in terms of the order intake in the past 2 quarters? And will you be giving us the guidance for full year sometime in the year, say in the first quarter or the first half itself? And secondly, about the order momentum. As highlighted, we have seen sequential improvement again in the fourth quarter. How do you see the overall order momentum in the market right now? Is it further expanding [indiscernible].
Well, thank you for your question. Let me take the first one about guidance and then -- and pass to Mats for your second question. Look, I think to my comments in the presentation today, we've provided, I think, a full sort of explanation of the building blocks with which one can model AutoStore in 2024. I mentioned the strong backlog. And together with the quarter 1 order intake, strong conversion to revenue in 2024. That typically falls in the 75% to 85% range of that conversion. And then, as I mentioned, it reduces for as the quarters go on in the year. And we've also talked about the sustainability of gross margins and EBITDA margins. So I think it seems clear to me how one would approach the modeling of this business and evident from the consensus as I look at it, that is something the analyst community does well. So that's why we haven't put an explicit guidance out there. And of course, we will work, as we always do with analysts, on a one-to-one basis to have any discussions around the models that -- your models that you may like.
And to address the second part of your question, we have seen the positive momentum continue also into this year. And as we've talked about for a while, the leading indicators of the business has developed very positively as shown in the pipeline and the maturity of the pipeline. But of course, we're still in a macro environment that has uncertainty linked to it, and we're dependent on conversion to deliver continued growth also into 2024.
As no one else is lined up for questions in this call, I'll hand it back to the speakers for any written questions.
Thank you very much. We have few more questions from the webcast. "So what is the new level of annual revenue that your higher production capacity supports? Or put differently, how much can revenue increase before you once again need to invest more in production capacity?"
Yes, it's a very good question. And as we noted in the presentation, we have our second facility in Thailand coming online early in 2024, and that capacity will support the business for the next several years without any step change required. And then the further point, just to reiterate it, is that we've also removed any other single points of dependencies in our supply chain.
Thank you. "Previously you've talked about customers postponing orders or extending decision-making cycles. Can you give any more update on how you see that now? Is there any change versus what you saw at Q3?"
I wonder if the question has come in ahead of some of the other answers we've given. But so nothing fresh to add there. I mean we've talked about the sensitivity of the macro environment. And whilst that remains a challenging environment, we'd expect to continue to see this cautious approach to CapEx that we've talked about.
"Are there any new developments in the Amazon store at Long Island that you briefly mentioned last time?"
So as I mentioned last time, we have confirmed that relationship. And what I can say is that it's developing positively.
There is one question on, one more about guiding. "Any comments, further comments on the lack of guidance and the way you see the market? Can you say anything about how the current backlog is distributed across the different quarters in addition to your intro on that?"
Yes. I've talked there in the previous answer about the likely conversion of backlog into 2024, the 75% to 85% range typically. So nothing to add to that.
"How are order trends faring into Q1 so far?" And also another question from same analyst. "Are you being impacted from -- by the Gulf shipment delays?"
So we've seen a good start in terms of order intake to quarter 1, albeit I would naturally stress it's the 14th of February. So there's a way to go in the quarter, but a good start to the year. And no, no disruptions to either deliveries or supply chain as a result of any geopolitical factors.
Thank you. There's one question on sustainability. "What are your priorities and objectives for that work for 2024?"
On sustainability more broadly, we are in the process of setting ourselves the right targets. We have the sustainability reporting that we do that provides more details as such. But this is an area where we are very focused as a business. And in addition, the inherent advantages that our solution provides to a whole host of end-customers in many different segments is impact that I'm proud of.
There's one question here for Paul regarding free cash flow and simplifying definition. "How would you sort of comment on that as that definition and the percentage you gave excludes things like interest and tax and working capital? So how would you comment on the free cash flow when you look at the reported number?"
I think all the components are there for anybody who wants to take a different definition of cash generation. They're all there and for you to consider. But the measure that we've put forward, the 83% conversion has been our chosen measure, I believe, since this business IPO-ed. And again, I think more fundamentally, it points to the very strong cash generation, no matter which level or which measure you choose for our business.
Final question for now. "Do you have any comment on SoftBank's involvement with Symbotic?"
So Symbotic is a provider that predominantly provides solutions for a different segment of the warehouse than what we are doing, for case handling, pallet handling, et cetera. But they're a very strong business but operates in a different segment of the market than what we are doing.
One final question. "Now how sustainable is the rebound you saw in EMEA in Q4 as you head into '24? And how do you see your ability to continue to outgrow the markets going forward?"
So EMEA overall continues to be a strong market for warehouse automation more broadly, and we expect that to continue not only for 2024, but in the foreseeable future. And in terms of our ability to outperform the market, I think we've proven over time that as we gain access to new opportunities, we are gaining market share. We've done so in very, very good times throughout COVID. And we've even done so in a more challenging market in 2023 where we delivered growth in a declining market. And I think that in itself speaks about the secular drivers towards AutoStore relative to other form of automation as well. So we feel very good about our ability to outgrow that market, and we feel very positive about the outlook of this market in a very, very long period of time.
Thank you. And on that note, we don't have any further questions. Obviously we are available for questions later on phone or e-mail. But with that, I'll pass back to Mats for his final remarks.
Thank you. So I would like to end the session just by calling out some key points. First, we are the pioneer and global leader of 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, giving 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 model. And last, we have a long track record of delivering strong revenue growth with high margins. And for all of these reasons, we at AutoStore are both proud of what we have achieved and what we are achieving in the current market conditions. So wrapping up, I'd like to reiterate the high activity we see in the market with a strong pipeline and positive sequential development in order intake. The macroeconomic backdrop is uncertain. But for us, this uncertainty is confined to the timing of projects and not the interest and appeal of our solution. So we are very excited and optimistic about the future, and we remain confident in our ability to continue delivering strong profitable growth. So thanks again for joining us this morning, and we look forward to providing you with future updates.