Soft Macro Environment Continues To Impact AutoStore 3Q24 Growth, But They Continue To Report Robust Profitability & Cash Flow
Key Takeaways: AutoStore reported 3Q24 results with revenues and adjusted EBITDA exceeding expectations despite the challenging macro environment continuing to postpone delivery times and project deployments. Driven by results that came in above Managements guidance provided at their Investor Day, as well as better than expected profitability, shares traded up ~8% on these results.
We are not surprised by the 3Q24 results given the macro challenges many of our industrial tech company’s have indicated during Q3 earnings. We continue to believe sluggish sales 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. Although Management did not have a sense of when market conditions will improve, we are cautiously optimistic growth can accelerate driven by a more bullish outlook as a result of lower interest rates. In turn, 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
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3Q24 Earnings Summary
AutoStore 3Q24 revenues of $144.2M were flat Y/Y, and came in above the high-end of Management’s guidance ($135-140M) they provided at their investor day and analyst expectations ($137.4M). New orders were down ~5% Y/Y to $143.9M, which came in below consensus expectations ($152.7M). This drove a ~3% Y/Y growth in backlog, exiting the quarter at $478.6M. The revenue decline and sluggish new order growth was driven by delayed decision-making cycles among end customers in the industry as a whole. 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 540 basis points Y/Y to 73.4%. Gross margin expansion was driven by favorable product mix, pricing and favorable sourcing of raw materials. Combining their strong gross margins with their lean operating model, the company reported adjusted EBITDA of $67.5M in 3Q24, which exceeded analyst expectations ($61.1M). The company is also generating strong free cash flow, which was $32.1M in 3Q24. 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.
The company reiterated 2024 revenue guidance they provided at their Investor Day, which calls for sales to be in the range of $575-600M. This implies sales to decline ~10% in 4Q24 and ~9% in 2024.
5-Year Financial Outlook
Following 3Q24 results, we lowered our 2024 guidance, but kept our long-term targets mostly unchanged. We now expect revenues to decline ~8% Y/Y to $595.2M in 2024. As we look into 2025, we assume the macro improves as uncertainty dwindles and interest rates come down, but conservatively lowered our revenue growth rate to ~11% from ~15%. 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 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 $619.1M in adjusted EBITDA based on our $1.1B 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 ~9x EV/EBITDA based on 2025 estimates, which is below our industrial tech comp group (~30x) and their closest public peer Symbotic (~55x). 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 24.34 NOK, which equates to ~100%+ upside at current levels. We lowered our price target from 26.36 NOK due to modestly lower revenue forecast.
Source: Industrial Tech Analyst, Data In Millions Except Price Target
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