Macro Challenges Continue To Impact AutoStore 2Q24 Results, But Believe Near-Term Struggles Continue To Create Long-Term Buying Opportunity
Key Takeaways: AutoStore reported 2Q24 results with revenues and adjusted EBITDA falling short of expectations as the challenging macro environment has postponed delivery times. Combining the revenue and profit shortfall, with a more uncertain outlook due to the challenging operating environment, shares traded down ~15% on these results.
We are not surprised by the 2Q24 results given the macro challenges many of our industrial tech company’s have indicated during Q2 earnings, but admit we were a bit more bullish given positive comments from a key global distributor. However, we believe the 2Q24 demand shortfall is purely driven by a timing issue, and not an indication of slowing demand. Given the size of these deployments, we believe it is a normal course of business for sales to be pushed out due to timing and macro factors. However, we believe they will create buying opportunities for long-term focused investors. That said, we remain very upbeat on AutoStore’s long term opportunity as a leader in the quickly emerging warehouse automation space and remain BUYERS.
View detailed historical results in our full downloadable financial excel model here.
Source: Company Filings, FactSet; Data In Millions
2Q24 Earnings Summary
AutoStore 2Q24 revenues of $154.2M were down 12.0% Y/Y, and came in below analyst expectations ($173.7M). New orders were up ~3.4% Y/Y to $141.4M, which came in below consensus expectations ($171.4M). This drove a ~5.9% Y/Y growth in backlog, exiting the quarter at $478.8M. The revenue decline and sluggish new order growth was driven by delayed decision-making cycles among end customers in the industry as a whole, and normal variations from one quarter to another. In the Company’s conversations with customers, it is clear that they remain committed to warehouse automation. This is the same across all end markets and regions. However, it is evident that these same customers are cautious on the timing of their commitment due to the challenging economic backdrop with sustained high interest rates.
Despite the revenue shortfall, the Company saw gross margins expand 530 basis points Y/Y to 73.3%. Gross margin expansion was driven by favorable product mix and favorable sourcing of raw materials. Combining their strong gross margins with their lean operating model, the company reported adjusted EBITDA of $75.2M in 2Q24. Although adjusted EBITDA missed analyst expectations as a result of lower revenues, we believe adjusted EBITDA margins of 48.8% at this scale is unbelievable. The company is also generating strong free cash flow, which was $20.1M in 2Q24. We expect strong free cash flow generation to continue, which will allow them to further fund the business and additional R&D efforts to sustain their leadership position.
While macro uncertainty as a result of the high interest rate environment has slowed sales and bookings, the Company continues to see interest grow. That said, the company did not provide formal 2024 guidance, and commentary on their outlook has deteriorated since last quarter. They highlighted that as a result of the uncertain economic environment, it is challenging to accurately predict the time it takes to move opportunities through the pipeline to order intake and, ultimately, to revenue.
5-Year Financial Outlook
Driven by lower than expected 2Q24 results and uncertain outlook we have lowered our estimates. We now expect revenues to decline ~3% Y/Y to $625.4M in 2024, which is ~$40M lower than our previous estimate. As we look into 2025, we assume the macro improves as interest rates are expected to come down, but conservatively lowered our revenue growth rate to 15% from 20%. That said, we expect revenues to accelerate and sustain 20%+ growth in 2026 through 2028. Keep in mind, AutoStore saw revenue growth of ~80% in 2021 and 2022. Given the strong macro tailwinds driving companies to automated solutions, we would not be surprised to see our estimates end up being very conservative when we return to a normalized environment. Furthermore, even in a challenging operating environment we are impressed with the Company’s ability to expand gross margins and now expect the Company to sustain ~72%+ gross margins through 2028. We do expect opex to grow with revenues, but anticipate operational efficiencies will allow the company to see adjusted EBITDA margins reach 54% by 2028. This would imply $670M in adjusted EBITDA based on our $1.2B revenue estimate.
Below is an overview of our 5 year outlook with a full downloadable financial excel model here.
Source: Industrial Tech Analyst; Data In Millions
Investment Thesis
We view AutoStore as a clear market winner within the fast emerging automated storage and retrieval market as secular trends of e-commerce, labor shortages and rising labor costs have made their solution increasingly attractive in fulfillment centers across a growing number of industries. AutoStore has a history of strong growth but macro uncertainty as a result of the high interest rate environment, slowed sales and bookings growth. However, the company continues to see interest grow from thousands of customers globally. We view the slowdown in demand as an opportunity for investors, as we believe the company will return to 20%+ growth as macro conditions improve. Furthermore, the company has been able to grow profitably. Driven by ~70% gross margins and lean partner driven operating model, the company is consistently reporting adjusted EBITDA margins north of 45%+. AutoStore is currently trading at 12x EV/EBITDA based on 2025 estimates, which is below our industrial tech comp group (~25x) and their closest public peer Symbotic (~35x). We believe as macro conditions improve, current estimates will end up being conservative and likely drive multiple expansion. Our robust outlook drives our bullish stance on AutoStore shares.
As shown in our table below we use a 5 year DCF model to value AutoStore shares. We also value shares in Norwegian Krone (NOK) given they are sold on the Oslo Exchange. Based on our current forecast we value AutoStore at 26.36 NOK, which equates to ~80%+ upside at current levels. We lowered our price target from 30.30 NOK due to a lower revenue forecast.
Source: Industrial Tech Analyst, Data In Millions Except Price Target
Looking to become a better investor or need to find that perfect gift for your finance friend?
Check out these products from our partner Trading Roadmap.
Research Disclaimer: We actively write about companies in which we invest or may invest. From time to time, we may write about companies that are in our portfolio. Content on this site including opinions on specific themes and companies in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.