Good morning, welcome to AutoStore's Q2 2023 presentation. My name is Hiva Flåskjer, and I'm the Investor Relations Officer at AutoStore. I'm pleased to host our presentation today from Oslo, Norway. I'm joined by members of our executive team, including Mats Hovland Vikse, AutoStore's CEO, and Bent Skisaker, AutoStore's CFO. I would like to remind you all of our disclaimer with regards to forward-looking statements, which you can read in your own time and leisure. Moving on to the agenda, Mats and Bent will provide an update on the business and discuss the second quarter results. As a reminder, all financials are stated in U.S. dollars. The management discussion will be followed by a Q&A session, with our participants joining from the earnings call as well as the webcast. For webcast participants, please submit your questions at any time.
We will conclude the session today with some final remarks from our CEO, Mats Hovland Vikse. With that, I'll hand over the word to Mats.
Thank you, Hiva. As you can see on this page, the team has delivered yet another solid quarter. In the second quarter of 2023, we achieved all-time high revenue of $176 million, which is up 18% compared to the first quarter and 6% from Q2 of last year. Our gross margins grew to 68%, representing an increase of 11 percentage points versus Q2 of 2022, and 13 points compared to our low point in Q3 of last year. This quarter, we're also delivering an EBITDA margin of around 50%, which represents a return to the industry-leading levels that we've had historically. On the order intake side, we achieved $137 million, which is taking our backlog to $452 million, which provides good visibility for our 2023 target.
On the operational highlights in the quarter, we opened a new office in Ulm, in Germany, which is located in the heart of the strategically important DACH region. With this new AutoStore location, we aim to get even closer to our partners and customers. In July, we reached a complete settlement of all the claims between AutoStore and Ocado, and we're very pleased with this agreement. It resolves our differences and allows us to continue on our respective business goals. For more information about the accounting treatment of this settlement, you can see that in our Q2 report. Moving on, let's take a step back and look at some of our unique attributes and a snapshot of our accomplishments in numbers. To date, we've sold more than 1,250 systems and over 58,000 robots in 50 countries.
This is a scale and reach which is unlike any other player in the industry, spanning all key geographies, virtually all end markets, and across all system types. We have an efficient go-to-market model, where we sell through a network of now 23 distribution partners with more than 2,000 representatives. We have a scaled global platform with now more than 900 unique end customers, and our lean business model has resulted in a superior financial profile with high growth, 50% CAGR since 2010, and around 80% annual growth the last two years. We have high EBITDA margins of around 50% in recent years and high cash conversion at 85%. Our sales has also continued to be strong with existing customers, and still around 50% of sales are to already existing customers through new sites, extensions, and subscription fees.
All of this, the growth, margins, the market access, and the scalability we have, is enabled by our, by our business model. We have a winning product that's built on proprietary technology, developed over 20 years, that produces high throughput at low cost at an average 99.7% uptime, which is best in class. Our solution is completely standardized and modular, which means that you can design it in any shape, form, or throughput as you'd like. You can start small and expand as you go, which also means that we address everything from SMEs to large caps, and you can see that in our numbers as well. Revenue per system ranges from a couple of hundred thousand to tens of millions. This, together with our global model, where we sell through partners, gives us unique market reach across geographies and markets and system types.
Also, as I mentioned, we have a large portfolio of 900 unique customers. This customer base has grown 50% the last two years. When we look back at historical data, we see that 70% of our customers has come back and bought additional product compared to their first sale. If you look at it, it's really the combination of all of these elements that enables us to scale like no other and what drives our industry-leading margins. As you'll see on this page here, this is also what the track record tells us. We have generated a sales CAGR of more than 50% since 2017, and as you can see from the graph, some years with higher growth than others. During the period, we have outgrown the market by 2-3 times.
We've not only been able to deliver high revenue growth, we've also done this with industry-leading profitability. In 2022, our margins were under pressure, primarily due to higher grid costs, and we implemented actions on both pricing and sourcing, which has in turn yielded strong margin improvements. As you can see, we are now back to industry-leading EBITDA margin levels of around 50%. For the market overall, industry research suggests that the market will be down around 7%-8% in 2023. With that in mind, our target of 20%-30% growth just underpins our strong competitive position and the value proposition we offer to our customers. It underpins our market reach, and that we continue to gain market share.
While things are more uncertain in today's global economy, this is a market driven by secular megatrends, and the long-term potential and the attractiveness of the market remains intact. Looking at research, the market is still expected to grow at around 15% in the medium to long term. Let's now move to order intake and backlog. Over the course of the past few quarters, we have discussed the order conversion impact from a more uncertain macroeconomic environment. During the second quarter, we were more impacted by those trends than earlier. Topics like inflation and interest rates, which you all are very, very well aware of, impact the market dynamics, and as we just discussed, the warehouse automation market in 2023 is expected to be down 7%-8%. Our order intake of $137 million should be seen in light of that.
Maybe to give you some examples of what our customers are communicating to us, we have those that say that it's just difficult to access traditional ways of funding, while others have access to funding, but are more disciplined and careful with deploying capital in this environment. While we don't see any clear pattern, it is more evident among retail and e-commerce customers, and we see more of this in Europe than what we see in U.S. and APAC. In terms of the decision-making process itself, we see that more customers now need to get board approval, while historically, we could see that the decision would typically be made by operational-level managers within the organization. Ultimately, all of these factors are causing the slower order conversion in the short term.
At the same time, we continue to see that the top of the funnel is developing strongly. We see an overall high level of activity when measured in numbers of opportunities, as well as the amount of offers that we issue across our network. Our pipeline continued to grow in the second quarter. To give an example here as well, we are seeing that many are using this period to reassess their fulfillment and supply chain strategies. For instance, many customers that we are working with are now spending a lot of time reviewing their fulfillment network and planning for the future.
They are clear that this is an area that they will continue to invest in, and for us, I think the fact that they are now pausing a bit, has been an opportunity to come in and be thoroughly evaluated against the alternatives that they've used today, something that overall is favorable for us, given our strong value proposition and high win rates. Moving on, our order backlog of $452 million gives us good revenue visibility for the balance of the year and puts us in a good position relative to our 2023 growth target. It is, however, worth noting that due to the project nature of our business, and given customer project delivery schedules, we expect that the revenue distribution for the second half will be softer in Q3 and stronger in Q4, and currently, we're tracking more towards the lower end of our guidance.
Moving to our customer portfolio, which today count roughly 900 unique customers globally, we have included a small selection of them here on this page. What I would like to emphasize is our exposure to a wide range of end markets. We support e-commerce and omni-channel fulfillment across different end markets. In addition, we serve end markets like industrials, automotive, healthcare, and we even just released a new case study where AutoStore is implemented in a library. As we say in AutoStore, "As long as your product fit inside our bin, we should be a good solution." Before I hand the word over to Bent, I would like to play a short video of one of our recent customer wins, which is Kesko in Finland. They just recently installed a grocery MFC system in a shopping mall.
We operate in grocery, trade, building and, and construction, and car trade, and we operate in seven countries. Our grocery division covers 1,200 stores, which are run by independent K-retailers. This is the first micro-fulfillment center in Finland, and one of the first one into Europe. This site is located at the Ruoholahti Shopping centre. This area where we are standing at now is at minus five, five level, meaning below sea level. Store itself is located at minus two level, and there's an elevator connection between the sites. Compared to the other automation solution, we believe the AutoStore solution is the most flexible and scalable system which you can get from the market, and it fits the most different sites which you can find.
If we think about new problem sites where we want to fit it, AutoStore is the best fit for us. The profitability about the e-com business was one case, so we are looking for better profitability with this solution.
What was really important was density, so that we could hold, you know, the growing number of products.
Flexibility was another really key requirement. That was because the space that was allocated underneath the store had a number of supporting pillars. Really, the solution had to work around that space. What a lot of customers ask for is that they want the solution to really improve the efficiency of the process, but also to reduce the cost at the same time. Now, AutoStore delivered on all of those things.
The concept enables bigger volumes and faster deliveries as the store is close to the customers, meaning short lead times and also less environmental impact.
The benefits for my company is more efficiency. We get more capacity for, for the business.
Previously, during manual picking, we had 30 to even 50 pickers in store. Nowadays, we only have a maximum of 10 pickers at a time in the in-store area. We're able to double our daily volumes.
Thank you, Mats. Next, let's look at the financial highlights on page 13. As, Mats already stated, we delivered another strong quarter. We delivered all-time high revenue of $176 million, 68% gross margin, and 50% adjusted EBITDA margin. We are back to industry-leading and historical margin levels. Further, we delivered 85% cash conversion, $137 million of order intake, and we end on an order backlog of $452 million. On the next slides, I will go into more details on the key financials. As I already said, we reported all-time high revenue of $176 million in the second quarter of 2023, up by 18% compared to the first quarter this year, and by 6% compared to the second quarter last year.
We had good diversification across a wide range of end markets. I would particularly call out 3PL, apparel and sports, and grocery, which in total represent around 50% of our revenues. On the right-hand side here, it shows the geographical split. Here we see that revenues in the EMEA region increased to $123 million, up by 29% year-on-year. While EMEA continues to represent the majority of our revenues, we see that revenue in the APAC region increased, although from a low base, by 15% year-on-year to $5 million. North America is down versus the corresponding quarter last year. It is up versus last quarter, and the order intake supports continued growth. Moving from revenues to gross profit and adjusted EBITDA.
On the left side of this slide, you see that Q2 gross profit ended at $119 million, up by 27% versus the same quarter in 2022. This corresponds to a gross margin of 68% in the second quarter. In line with what we have emphasized in previous quarters, our gross margin has gradually improved over time. Over the past three quarters, we have seen a substantial sequential improvement. This has been driven by the successful execution of our strategic pricing actions and reduced grid costs. Let's now look at Adjusted EBITDA on the right-hand side here, which is very strong. Adjusted EBITDA was $87 million in the second quarter, representing an EBITDA margin of 50%. This represents a margin improvement of eight percentage points versus the corresponding period last year.
As we previously discussed, given the project-based nature of our business, we have some variety in quarterly revenue distribution. Consequently, margins can also fluctuate from one quarter to another. However, as Mats addressed earlier, our lean business model is designed to enable high margins and operating leverage as revenue grows. Before I hand over the word to Mats, I want to remind you that Adjusted EBITDA is an important supplemental measure to give our investors the overall picture of operating profit generation. You can find the breakdown of Adjusted EBITDA in the appendix section to this presentation. The meaningful adjustment for this quarter is obviously the Ocado settlement. The settlement amount is GBP 200 million, and it will be paid over two years. The equivalent amount in U.S. dollars is $239 million, which has been adjusted for the time value of money.
The preliminary assessment is that the settlement is tax deductible in 2023. For more information, please see the note section 5.2 and 5.3 in the Board of Directors report.
You can also find additional information on adjusted EBITDA as part of the APM section in the financial report on page 25, 26, and 27. For the full P&L, balance sheet, and cash flow statements, please also see the mentioned Board of Directors report, which was released at 6:00 CET this morning. The Board of Directors report provides an in-depth discussion of the consolidated IFRS accounts. With this, I give the stage back to you, Mats, and you will walk us through the outlook.
As we have presented today, we operate in a market that's still in its early stages of development. Even though more and more warehouses are automated, only about 15%-20% of the market is automated today, leaving plenty of space for growth. The secular drivers of automation and the business case for investing in AutoStore remain very strong. On top of that, we have a well-defined strategy that will continue to drive growth for us going forward. We're progressing well on our strategic initiatives. Now, to the growth outlook, which remains unchanged. We reiterate our growth target for 2023. We have a solid backlog, which gives us good visibility. On top of that, we continue to see long-term growth in the market at around 15%. We have a strong confidence in our ability to grow 2 to 3 times that market.
There will be variability year-over-year, as the historical numbers also show, but the growth potential here is huge. I want to end the session by calling out some key points. First, we are the pioneer and global leader of cubic storage. The global warehouse automation market is massive and growing, and we are able to serve applications across all types of end markets, system types, and geographies. We have a market-leading technology and a proven growth strategy, with an efficient and scalable go-to-market model, where we are driving growth across all of these different applications. Last, we have a long track record of delivering strong revenue growth at high margins. 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, and we're very excited and optimistic about our future.
Thank you for participating this morning, and with this, I'll hand over the meeting and webcast to Hiva, who will take us through the Q&A.
Thank you, Mats. Let's start with the participants on the earnings call. Operator, can you please open the line for any questions?
Yes, will do. If you do wish to ask a question, please press five star on your telephone keypad. To withdraw your question, you may do so by pressing five star again. There will be a question, will be from the line of Toby Ogg from JPMorgan. Please go ahead. Your line now be unmuted.
Just from my side. Just, just firstly, on the on the macro environment, and the greater impact there in Q2, you mentioned, Mats, the inflation and interest rate environment there as drivers, but I guess these have been, been issues for a while now. Why in Q2 do you think this has materialized specifically, incrementally? Then just in terms of the, the sort of look forward, you know, what's your core assumption for the mac-- to how the macro evolves for the remainder of the year? Thank you.
The first one, I think as we've said over the last couple of quarters, we have the volume of projects, but the uncertainty sits around conversion. The overall sentiment and the overall situation in the market has been largely the same in Q2 as in the previous quarters, but because of the conversion uncertainty, the range of outcomes can become quite broad. In this quarter, it ended on the lower end for us simply because of that.
When it comes to our assumptions on the macro situation going forward, I don't think we're in a position to speculate on how the global macroeconomic environment will develop, but what we do know is that our market is driven by secular trends that will persist even in these even through such challenging environments, and we have a product and a position that puts us in a very good spot to grow through that.
Great. Thank you.
Thank you, Toby. The next question will be from the line of Eirik Rafdal from Carnegie. Please go ahead. Your line will be unmuted.
Yes. Hi, team. Eirik Rafdal from Carnegie here. Thank you for taking my questions. I've also got a couple. I think if, if we start big, big picture, Mats, in your opening remarks in the report, you talked about overall high activity levels in terms of opportunities, pipeline, et cetera. Would you be able to quantify the evolution of the pipeline or give some sort of indication on roughly how much it is up, year-over-year?
We report pipeline once a year, as we will also continue to do going forward. Last year it grew by 25%. We can say is that we've seen it grow meaningfully also in 2023.
Okay, perfect. Thank you. Over to the Ocado settlement as well, which was, you know, mentioned, now. I was wondering, were there any specific customers who were kind of pushing you to have this settled before they could fully commit to using the AutoStore system, or is this kind of, fully an internal, decision to opt for this now?
As I've said previously, over time, the litigation has not been a big topic with customers, and the reason why we got to this settlement is because it was the right for the company, and it enables us to focus on the go-forward growth of our business. We've always said that if we can come to a settlement that is good for us, we'll do that, and that is exactly what happened.
Perfect. Thank you. Just 1 final one for me before I'll jump back in the queue. On, on kind of current trading, we're, we're halfway through Q3. Could you say anything about the kind of momentum so far in, in the quarter? You mentioned that you ended on kind of the low end on conversion rates in Q2. Could you give any indications on kind of where we are now that we're halfway through Q3?
Q3 has started similarly as the previous couple of quarters. What we see is that we still have the volume of opportunities in Q3 and for the second half. Then it comes down to, to conversion at the end of the day.
Perfect. Thank you for taking my questions.
Thank you, Eirik. The next question will be from the line of Lucas Ferhani from Jefferies. Please go ahead. Your line will now be unmuted.
Hey, good morning. Thank you. Just to come back on that kind of conversion and demand recovery picture, do you still expect Q2 to be at least the, the weakest in terms of the order intake, potentially to see a better H2 than H1 overall? Or it's too unclear to, to kind of say?
As I mentioned, we've seen the pipeline grow, and we see that the amount of projects that we expect to get to a decision in second half is big and growing. As I said, then it comes down to conversion of those, but the volume of projects is absolutely there for the second half.
Perfect, thank you. Just on the, the margin as well, you're back to kind of where you, you wanted to be and where you were historically. Can you discuss what's happening with the aluminum surcharge? Is it something that is still in the card, or is something that you want to, to phase out?
We are always evaluating the price levels and the price strategy. Yes, we are back to a historical level on the margin side, but at the end of the day, the pricing of our system also boils down to our competitiveness in the market. What we see is that we are maintaining our very high win rates, and we are in a very strong competitive situation, both against competitors, but also for the business case for the end customer. Going forward, as we always have been, we will evaluate pricing, and I think the way to look at the surcharge is that it's part of the total system price.
Perfect. The, the last one, just on the litigation. Firstly, just wanted to confirm, the outlook or your ability to sell the Black Line has not changed versus previously to the litigation. Also, the, the payment is final, and there are no payments potentially in the future or any royalties, and this is the last cash out regarding this.
Part of the settlement is that we can continue to sell all existing products with all existing functionality, and B1 is a part of that. As I've mentioned previously, we see that most of our demand is linked to the Red Line system because that is what provides the stronger customer ROI, and we expect that to continue also going forward. As we announced, the settlement payment is GBP 200 million, and that is the payment.
Perfect. Thank you.
Thank you, Lucas. As a reminder, please press five stars to ask a question. The next question will be from the line of Emilie from DNB. Please go ahead. Your line now be unmuted.
Hi, good morning. Thank you for taking my questions. First, a bit on the order intake and the visibility for 2024. In the same quarter last year, you provided an early guidance for next year. What is the visibility for 2024, and has this changed compared to last year?
The reason why we were able to provide guidance as early as we did last year was because we had exceptionally long lead times. If you look historically, when we've had the lead times that we have at present, we have not started to build next year backlog until the second half of the year. With current lead times, that is also the expectations here. We already have some backlog for 2024 because of our exposure to the high-throughput segment, which naturally has longer project duration times, but it's first now in second half that we start to build backlog and comfort for 2024.
Perfect. Thank you very much. For, for the different type of solutions, what kind of revenue share are you seeing from, from MFC, and, and high-throughput solution? Specifically for the, for the MFC solutions, how is this segment evolving? Are there any particular geographies or, or customer segments where you're seeing particular traction, and any gaps in, in terms of your capabilities, and your solution that you need to further, further, further invest in or develop?
So to start on a high level on the system types, for this quarter, on the order intake, the majority was actually in the standard segment, which is positive from a volume standpoint. Seeing in a bit longer lines, we're seeing that high-throughput is what is taking the highest relative share of our revenue, and that's, that's growing a lot, which is a hugely attractive market. Whilst MFC continues to stay on around 10% of our of our business. What we're seeing more broadly overall is that MFC, as a fulfillment concept, is still high on the agenda with retailers, and we are discussing with companies in the grocery sector, but also outside of the grocery sector. We expect it to be an attractive market going forward as well.
In terms of capability gaps, we have now installed the first pilot on frozen, and that's functioning very well, and we will continue to develop in that area. With the scalability of our system, and especially with the flexibility and space efficiency that inherently sits within our system, we have a very good solution for that segment.
Thank you. That's helpful.
Thank you, Emilie. As there are no more questions in this call, I'll hand it back to the speakers for any written questions.
Thank you, operator. We do actually have some questions from the webcast participants. The first one is: Can you please elaborate a bit on the margin implications in the order intake? Will somewhat weaker markets put pressure on margins, or should we think about 70% gross margin, 50% adjusted EBITDA margin, also, if orders doesn't pick up in the near term?
On the gross margin side, our margins are relatively stable because we sell standardized products at a fixed price. There can be variability quarter -over -quarter, driven by product mix, but we are not providing meaningful discounts or have changed our pricing strategy in light of the current market situation. In terms of EBITDA margins, we have a relatively stable OpEx space, but we do continue to invest in the business, particularly in sales and R&D. Of course, mathematically, from a margin perspective, that is also impacted by, by the top line.
Thank you. Moving on to the next question. Does the litigation settlement provide you from developing and selling robots which lift the bin into the body of the robot itself?
No. The B1, which currently has that lifting strategy, we are perfectly fine to use also going forward. The restriction sits on the single space robot, which is a robot that we don't have in our portfolio today, and it's not part of our go-forward technology plans.
Sticking to the topic of the Ocado settlement, during the IPO process, you stated that Ocado claims were not well-founded and were unlikely to result in a significant economic loss. What went wrong?
What we've said is that this doesn't have any business impact on AutoStore, and we are still comfortable with those statements. As litigations has moved on, it has not gone in our favor, which we've also talked about previously. As we've said from the start, if we can come to an agreement that is positive for us, we'll do that, and that is exactly what has happened.
A follow-up on that. Two questions on the Ocado settlement. The first one is, the release stated you agreed to a cross-license of each other's pre-2020 patents. Are there any patents your current product uses for which there is no cross-license agreement, i.e., patents post 2020? What would be the implications? The second question is, is regarding the single space robot, which you've already answered, I believe.
On the first one, we can continue to use all existing products and all existing functionality as part of this settlement agreement.
Moving on to our next question: Do you think conversion rates can return to previous levels, or are you structurally lower because of improvement of project from the board?
I think conversion levels is tied to things like confidence in the market and overall macroeconomic situation. Is there anything structurally that is keeping us from returning to historical conversion rates? No. Do we expect it to go back? Yes. This market is driven by secular trends that will persist also through a challenging macroeconomic environment, this market is still expected to grow at very high rates in the long term.
Another Ocado-related question, Mats. Can you comment on the importance of the patent, of patents in light of the settlement with Ocado?
Patents is still an important part of how we're protecting our technology, but it's not the one important thing alone. First of all, we are continuously developing our product, as we've done for 20 years, and we have a very strong customer base with 900 unique customers across 1,250 installations, and we have a very strong go-to-market that provides us with access and protection across. Remember, the Ocado situation was about a handful of patents, and in total, we have 1,600 patents and patent applications that is protecting a broad area of our technology and our products.
Thank you. Now a question for, for Bent. Your receivable days in Q2 2023 were up year-over-year. However, the portion of revenue derived from regions with lower payment terms have declined to 30% of sales in the period, from 42% a year ago. What explains the increase in receivable days?
The level of receivables is, of course, related to, to the general revenue level, but, but, it's also, very much related to, to the invoicing, time. So, this, fluctuation can be explained by later, later invoices, in, in the quarter. So that's a natural fluctuation.
Thank you, Bent, and thank you, Mats. I think from the webcast, we have gone through all questions. Are there any other questions with you, operator?
There are still no more questions, so I'll just hand it straight back to you.
Thank you. Mats?
Thank you. I'll end the meeting today with two key takeaways. One is that we continue to execute on our strategic growth plan, and through that, improving market access and growing our pipeline. Through that, and for all the reasons discussed today, we remain confident in our ability to continue to deliver strong, profitable growth. Thanks again for spending this morning with us, and we look forward to providing you with future updates.