AutoStore Holdings Ltd. (AUTO) Earnings Call Transcript & Summary

Good afternoon. My name is Hiva Flaskjer, and I'm the Head of Investor Relations at AutoStore. It's a pleasure to welcome you to Manchester, to THG, to a truly innovative customer and partner of ours. And most of all, welcome to AutoStore's second Capital Markets Day. We chose to invite you here to THG to provide you with a better understanding of how the AutoStore system works. And also, how it fits within a customer's value chain. I hope all of you present here today really enjoy the tour of THG's AutoStore powered warehouse, which -- this warehouse can actually manage an impressive 1.2 million units a year and over 0.5 million shipments every single day. You may have also seen our Pio P100 system, which is aimed for small and medium businesses. This really talks to the versatility of the AutoStore system from small businesses to large global brands. We can cater to them all. Now it's been a little bit more than 2 years ago since we had our first Capital Markets Day. So we're really excited to provide you with an update on how the market has progressed and how we are developing our business over the medium term. Today is principally about that. At the same time, we know that the focus is also around the short term. Therefore, Mats will kick off this afternoon addressing the short term, and we'll open up for questions immediately after. Hopefully, by now, you've had the chance to meet my AutoStore colleagues. The entire executive team is here today, and they're really looking forward to meeting you during the break and after the presentations during the reception. And as you can see here, we have 4 members of the team presenting today. Mats Hovland Vikse, our CEO; Paul Harrison, our CFO; Israel Salvador -- Losada Salvador, our Chief Operating Officer; and Parth Joshi, our Chief Product Officer. Before I jump to the program, I have to let the audience know here. I have to run through the safety drill with you. There is no drill alarm scheduled today at THG. So if you hear an alarm, we need to vacate this building. And if we're in this room, we are going to vacate through the entrance where you all came in. And later on, when we are at the Pio installation, we will then take the backdoor. So I'll cover that a bit. Now if we look at the program on this slide, I just said that Mats will kick off the session with the short-term outlook. He'll then proceed with talking about AutoStore's foundation and the latest market update. Paul will follow, and he will talk about AutoStore's position in the market. After Paul and Mats had their presentations, there will be an opportunity for Q&A, both from the audience here in the studios, but also from the webcast audience. So please, webcast viewers, submit your questions throughout the day, and I will read them out during the Q&A sessions. In addition to our team, I'm very excited to have a guest speaker and a customer of ours here today. Mark Irvin, Chief Supply Chain Officer of Best Buy, is here, and he will provide you with the customer perspective. There will also be an opportunity to ask Mark questions after his presentation. We'll have a little break around 3:00 p.m. U.K. time. And after the break, you'll hear from Israel and Parth, who will talk about operational excellence and product innovation. We'll then switch to format somewhat to a fireside chat with Mats, our CEO; and with John Gallemore, THG's COO. Finally, we will hear Paul speak about the financials, and Mats will round off today with some closing remarks. And with that, I'll hand over the word to Mats.

Thanks, Hiva. And hi, everyone. It's very good to see all of you here and also welcome to those joining us remotely. Look, the entire management team and I are happy to host our second Capital Markets Day. And also special thanks to THG for taking us through their AutoStore system but also for having us here today. So before I dive into the agenda that Hiva just walked through, I do want to talk about what we are experiencing right now. The market has been very challenging for the last couple of years and continues to remain challenging as we sit here today. And AutoStore has not been immune to the cyclical low that we've been experiencing. Look, we've delivered well relative to the market slowdown overall, but not relative to our own ambitions. So if you look at the chart on the left side of this page, the market grew at a CAGR of 18% from 2019 to 2022. Between 2022 and 2024, however, the market is down roughly minus 11% to minus 13% over the period. But with softening economic growth, higher interest rates and just more uncertainty in end market demand, we have seen that customer CapEx spend has reduced. In addition to that, we have seen that growth in e-commerce has slowed following the pandemic era highs, which means that customers out there are focused more on just operating and optimizing what they have versus building out additional infrastructure. So in the last 2 years, and due to these market dynamics, we have seen slower decision-making and also less urgency with our customers. And even with the growth in our pipeline, the conversion from pipeline to order and from backlog to revenue has elongated, leading to the flat development that you see on the page here. So overall, this has caused our growth to slow in the last 2 years versus a CAGR of 44% between 2019 and 2022. In 2024, specifically, we see the year ending between $575 million and $600 million. When you compare this with the market as a whole, we have gained share through the entire period. But growth is not where we want it to be. But because of the secular growth drivers driven by long-term e-commerce adoption and warehouse automation penetration, more in general, we are unwavering in our confidence that the market will return. And as we progress through the day, hopefully, that will become apparent. But for now, I want to share some more detailed observations on the market. In the standard segment, which has been our historical stronghold, we continue to see good traction, and there continues to be a massive opportunity in front of us. This year still represents around 50% of the market. In high throughput, where the average order size for us is about $10 million, which is more than 7x the average of the standard, we have taken share and proved our position [ and ] also right to win. And this here represents a large growth opportunity for us, and we'll speak more about that later. Competitively, we see the same players as before as well as some emerging smaller cubic players. On our end, we have maintained our high head-to-head win rate. And as you saw on the previous page, we also continue to take share overall. And we'll talk more about why this is and also what this will continue to be the case throughout the day. Further to that, we've been also been able to increase prices in this environment and while still maintaining the best-in-class customer ROI and also partner profits. And we can do this because we have a truly differentiated solution. And lastly, we still have massive scale and leverage to our global go-to-market model with partners. We've continued to supplement that with our business development managers and global account teams, all of which gives us this unique combination of broad market access, but also customer intimacy. But look, the business is lumpy and can be hard to forecast, particularly given the market dynamics that I touched on earlier. But fundamentally, the drivers of this business and our position is as strong as ever. However, when the timing of customer decision-making is unclear and when the same urgency just doesn't exist, it all just becomes a bit more challenging. And you might ask yourself, why can't we just enforce delivery dates on orders we have. Look, our view is that we're still at the early stages of this market. And a better strategy is to be patient and work with our partners to accommodate our customers' plans. Building these trusting long-term relationships is still the right approach. Looking at this year, our first 2 quarters has been down year-on-year. And as you can see here, in the third quarter, we expect revenues to land between $135 million and $140 million. And as mentioned, full year to end up between $575 million and $600 million, following a similar trend at the market overall. But even against this challenging market backdrop, we have continued to invest heavily in our business to position us for long-term growth. We've increased sales and marketing spend by nearly 50%, particularly in our business development and global account programs, which has already generated stronger demand for us. We've also increased our investments in product and R&D, making sure that we continue to build the best software and hardware and production spend has nearly doubled after expanding capacity in Poland and opening up a new facility in Thailand, which is all according to our capacity expansion plans to take on more growth. And lastly, we've also built out necessary G&A functions that will generate operating leverage for us as a growth return to the business. And since our business is designed the way it is and with the high gross margins that we generate, we have been able to do this while maintaining best-in-class financials. Remember, we've demonstrated strong margin performance driven by the standardization of our product offering. Look, with our system, there isn't just this heavy customization, which is what drives this consistent margin performance. And you'll hear more about this later in the day. But let me repeat, it may be a tough market, but our recent performance is not at the standard that we hold ourselves to and not in line with our own ambitions. As I've said, we've built and strengthened our market position over these years, but we also know that we can do better. To address this [ head on, ] we've done a number of things to get us back to growth even in what's a difficult market condition. First of all, we're elevating all commercial functions to report directly to me as we conclude the search for a new permanent CRO, which will instill even more focus to us. Together with that, we've also set up a win room where we focus on the most high-potential opportunities, just removing roadblocks, understanding what levers to pull, making them available for action, just making sure that the entire organization is aligned behind it. Also to ensure that we're focusing on the right customer groups and segments, we've put an account-based marketing strategy in place. And using the insights that this generates. This helps us better understand where to put our focus so that we also can use our resources better also for short-term performance. As a result of that, we will, as I said, be able to focus on the highest value and highest potential opportunities, but also where it's more likely that customers will make decisions now. We've also adjusted incentives for our sales force to drive more commercial. And through the fast growth period that we went through, we had an incentive model that focused mainly on order intake and other leading indicators. And look, these continue to be key components. But now we've also added targeted incentives to shorten the time to revenue. We're also going to make more of our installed base because every day, we are tracking performance across the majority of our sites to our Unify Analytics platform. This area gives us a unique insight into where customers can improve performance and capacity just through expanding their installation. And right now, we're running a sales program for that. And due to the short lead times, such expansions can actually help our customers meet the high season now with added performance. And lastly, we're putting our entire global partner network to work. We're right now going through our annual planning cycle with all of these partners. And in these meetings, we're focusing on how to win in today's market conditions. And those initiatives can be marketing related, how we approach customers together, how we focus on the right opportunities, could be individual deal tactics, et cetera. But all together, all of the initiatives you see here will take us back to growth even in today's challenging market. But as mentioned, this market will return to growth anyway. The platform that we've built to win in this market is stronger than ever. So as we look forward to the rest of the afternoon where we will look beyond the short term, these are the messages that I want you to take away. First, the light ASRS market will continue to benefit from strong structural tailwinds. Within that market, Cubic storage offers unique advantages and will continue to take share from other solutions. Secondly, AutoStore is the #1 within Cubic storage. And with 97% of the installed base, we are the clear leader. Thirdly, we have a clear right to win with real competitive differentiation and a partner network that gives us true global reach. And short term, we're improving execution, and we will continue to invest and innovate. And last, we have a strong financial profile supported by product standardization. So clearly, whilst the theme of today is to discuss the medium-term prospect of the business, I do want to give you an opportunity to ask questions you may have about the short term and the balance of 2024. So to that end, I'll now invite Paul up to the stage, and we'll have a short Q&A session before we move on.

It's Luke Holbrook from Morgan Stanley. My question just is on the delay of orders that you experienced in Q4 last year. I guess the expectation was that it would help support some of your revenue profile for this year. So my first question is on what is the drawdown of that push out of orders and what underlying growth rate are you seeing? And then my second question just is on the Q4 visibility that you have. You're obviously discussing an uptick from Q3 into Q4. So just interested to hear, is that based on conversations, just given what happened in Q4 last year?

Yes. So the Q4, first of all, the Q4 uptick is a product of very detailed deep dives into a bigger projects that we have slated for Q4, talking to partners, talking to end customers and gaining a greater degree of confidence around the timing of those projects. So it's a line-by-line review of the projects that are in our backlog for Q4. As a more general point around the backlog, which I think goes to your first question. When you look at the backlog, around 90% of our order backlog is less than 12 months old, okay? So there is a currency to the backlog. There is -- of the rest of those projects in the backlog, a forensic sort of review that we do of the remaining 10%. And I would also just on backlog, remind you that we've never seen a cancellation out of backlog either.

[indiscernible].

Yes. So as Paul mentioned, around 90% of that backlog is less than 12 months. So we do see a constant in and outflow of that backlog, right? But for all the reasons that I've talked about, during the presentation as well, we do see postponements of those investments, and that's a trend that we see in the market overall. But the kind of reasons in our backlog also suggests that there is an in and out outflow.

Yes. Just building on that question. At the Q2 presentation, you talked about sequential growth in the second half. Just trying to understand what has happened since then. And also, at this point in time, like how many weeks of secured deliveries do you have versus how does it look towards the end of the year and Q4, specifically? How is the distribution of those orders towards the end of the year?

So look, as we've talked about, we have continued to see postponements, both on orders coming in, but also in the backlog and that's a trend that we've continued to see also since we reported. When you look at the distribution of the backlog [ ahead of ] time, first of all, the orders are secure, right? We've showed to a 99% conversion of that backlog, and that continues to be the case. And we also said that in Q3, we expect revenues of $135 million to $140 million. So the remainder of that is, as Paul said, a line-by-line review of those opportunities.

And how do [indiscernible] how do you know like when is the last [indiscernible] in order?

So as I mentioned, we do think that the right strategy is still to support customers if they were to do that. But of course, the closer you get to that delivery, the likely is that those plans are actually laid out. And then I think with the distribution of revenues that we just talked about, the answer lies within that.

But you'll note as well, that's why we have a range of outcomes that we've disclosed today for both quarter 3 and quarter 4, which goes, I think, to where you're heading, which is there's still a degree of uncertainty, but that's the range that we're expressing today.

It's Luke Holbrook again. And just my final question would just be on some of the incentives that you mentioned there driving from order backlog into revenue. Just be interested if you could just [ comment ] maybe piece together a little bit more what that means. Just to understand what we're talking about there.

Yes. We're talking about incentives to our sales force, right? And naturally, our sales force has been incentivized mainly around leading indicators. But given the conversion dynamics that we've seen in this market and all the learnings that we've had from operating in this market, we saw that it was valuable to make some adjustments to those incentives to also focus on the conversion from backlog to revenue and the timing of that. So that we are able to utilize the entire team as we drive to shorten down the revenue conversion time.

Sorry, just to be clear on Q3 because you're also providing a range. I recognize it's not a large range, but is there still uncertainties with respect to Q3 at this point in time?

Consistent with that narrower range, then yes, there's still a range of outcomes, but considerably narrower than Q4.

And just to add to that, we must also remember that a pretty sizable portion of our business is also a quick turnaround orders, right? That can be new sites, but also a meaningful portion of our business is extension type orders where customers come in, they buy additional robots, additional modules, which is immediately coming in for delivery, right? So this is why also short term, there may be some fluctuations. But as we've talked about, it's incredibly hard to forecast several quarters out because of the market dynamics that we see in this market. That's just the reality we're in nowadays.

I'll just read a question from the web audience [indiscernible] with further project postponements, should we expect some kind of catch-up in revenue compared to the expected market growth in 2025 of 2% to 6%?

So look, the expected market growth is obviously a result of all the implementations that is happening in any given year, which then obviously also include whatever is being executed from the backlog at that time. But I think the way to look at it is that when you look at our backlog, those are orders that will execute where timing has some uncertainty. If you elevate that up to the market overall, that's, of course, a global estimate of how much automation is to happen during a year regardless of what type of solution it is. But that follows the amount of implementations that happens totally.

Thank you, Mats. I think that concludes the questions from -- sorry, another one just popped in from Kristian. Another way to ask the question, will we see a period with abnormally high backlog conversion once these projects finally go live?

As I said, it's very hard to predict exactly when these products are to convert into revenues and when they will do implementations. And the reason why that is the case is because of the individual customers making different types of decisions on when to do that. So I don't think there is going to be a situation where everyone suddenly decides the same day, but it's a result of individual customers' decision-making.

Thank you. So I have no further questions from the web audience now.

Sorry. Just one very quick one. So you touched on revenues and backlog. How do you think of the sustainability of your margins in that environment?

Sure. Well, we'll talk a lot to that theme today. But what I will say is, I'll remind you of the progression that we saw with our gross margin at quarter 2. And my comment that, that -- at the time that, that gross margin, starting with the 7% in the early 70s is sustainable and that remains our view. So I think notwithstanding the revised revenue range, you can continue to expect to see strong margins both at a gross and EBITDA level.

Thank you. So now that we've been through what we're seeing in the market today and what we're doing, I want to start the next part of the day, just going through some of our history and why we have such a strong position in what is an incredibly attractive market. Look, we, at AutoStore, we believe in never standing still. We've been the pioneers of Cubic and robotic fulfillment for over 20 years. And the perfect combination of cutting-edge software and robotics that you see today is really a result of 20 years of solving complex problems through innovation, product development and engineering expertise. And it's this experience that drives our global leadership, our unmatched customer ROI and also the truly best-in-class performance metrics. Look, our vision is the same as it always has been, to be the engine of every fulfillment journey. And with the platform that we've built with a global go-to-market and the broad customer base we have, that puts us in a unique position to deliver on that. So the picture that you see here is our headquarter in Nedre Vats, Norway. This is where it all started, but also where we continue to push the boundaries of what is possible. So I want to talk a bit about the principles of our business and our product and how those have enabled and will continue to enable success for us. First of all, innovation is at the very core of our DNA. We've pioneered several market firsts over the year, both on software and hardware. And you can see our museum in this picture. So please visit and you'll see the generations of robots that we've launched, each improving on the last. But I think even more excitingly, when I go into the labs area, which is behind the buildings that you see here and look at the next generations that we're working on, I know that we keep on moving forward. And we develop both hardware and software, but the secret sauce here is really in the software. A good example of this is the router software. When we released that in 2020, we increased our total throughput by 4x, and we improved each robot's contribution to that throughput by up to 40% without any hardware modifications. Since that, we've seen up to 20% additional performance through continued optimizations in our cube control software. Okay, as I've already said, in AutoStore, we're never standing still. And moving on, this industry has far too much customization. It always has that. And for us, standardization has been a critical element in how we've designed the system overall and something that we've stood firmly with throughout all of these years. And believe me, we've said a lot of no to customization requests. But with standardization, we have shown the market that you can reduce complexity while still maintaining a truly modular and flexible platform. Just look at all the end markets and different use cases that we've sold for. And this approach to standardization has just helped our business scale and keep a strong financial profile, not just for us but also for the entire ecosystem that we operate in. First of all, it enables good growth and robust margins for us. But it also enables strong economic benefits and scale for our partners. And one of those partners said that due to the standardized nature of our product, they can do 5x as many AutoStore projects in a year as they can do with some of the legacy technologies out there. And last but not least, it creates customer value. Our customers receive paybacks of 1 to 3 years when investing in AutoStore, which is best-in-class. But this win-win-win dynamic wouldn't have been possible without the level of standardization we have. The next one is reliability. And look, customers need to trust us, and we need to deliver on that trust. And just through years of brutal learning, deploying automation across so many different use cases, we have achieved 99.7% uptime across our 1,500 sites. This is the best in the industry and also something that we take very, very seriously. When you just think about the customer decision-making process, they need to absolutely trust us when they put all their inventory into our system. But having had that focus over so many years means that we can show them that we deliver reliability at scale. That's just a huge competitive advantage. And last, we have designed our solution, but also all aspects of our business for scalability from the modular design and flexible solution architecture to our partner-led go-to-market and the way we do production. And this is a true end-to-end design from the way we do design and simulation of the opportunities we're working on, how we price it, the way we're working with our integrators and the way we do production. And because of this, we've been able to sell into 57 different countries, and this is also why we've been able to add hundreds of installations over the last couple of years with that market-leading reliability and performance. It's all by design. And this inherent scalability also enables us to take market share and deliver when others get capacity constrained. And as you can see on this page, outlining the financial profile and also the developments since IPO, this model and this principle works. Since our IPO in 2021, we've increased our customers by 120% with 100% growth in systems in the market. But with only 1.4 systems per customer today, there is just a huge untapped potential in our customer base alone. So with everything that I've just talked about and the differentiation of our offering, our financials are best-in-class with 40-plus percent top line CAGR since 2021 and 48% adjusted EBITDA margin, we continue to demonstrate our resilience at scale. And for the future, we're also seeing more and more opportunities in our pipeline. And we've talked about the conversion dynamics that we're seeing in the market today. But taking a step back, what this pipeline growth is really telling us is that more and more potential customers are getting interested in AutoStore, and they're doing real work on it. I think what you see on this next page really tells you why the interest level and demand is increasing even in a cyclical low because these are real structural issues that our customers are facing regardless of where we are in the cycle. And I know that these trends are trends that you all know very well. So I'm not going to spend time going through them. But what they all do is that they create a world where the need for automation just increases. This will not stop. These are long-term secular trends that will drive automation penetration. And to deliver on these needs, the AutoStore system is the best. Speed, density, reliability, all powered by cutting-edge technology and analytics. We offer unparalleled value for our customers across all metrics, driving substantial efficiency gains and also cost savings. Look, as an example, our system quadruples available space and deliver throughputs that increase labor efficiency by up to 5x. And you'll hear more about this from my colleagues, but also our customers throughout the day. So before I go into detail about the market opportunity, let me summarize a bit. We've developed a product and a business that's in a unique position for growth, enabled by innovation, standardization, reliability and scalability. We have a best-in-class financial profile driven by how we've designed the business and the uniqueness of our offering, and we've delivered attractive growth rates, and we will return to growth in what is a massive market as we deliver on our initiatives, but also as we leverage the business platform that we've built. So in this section, I want to talk to you a bit more about the market opportunity, which, as you remember, is one of those key messages that I wanted you to take over today. Look, secular megatrends are driving this market with warehouse automation penetration continuing to grow even during the downturn. Today, only around 20% of warehouses globally use automation. But as labor becomes more scarce, wage inflation grows and just e-commerce penetration increases, the demand for warehouse automation will also increase. And look, global research is one thing, but what makes me confident in this opportunity or all the conversations that I'm having with customers out there. Look, as an example, where we automated today around 10 sites for one globally leading customer. They have a total of 1,600 warehouses, where around half of that is realistically addressable with ASRS Light. And this is not the only one. Look, some of the most aggressive implementers of automation in our customer base is still only at 10%, 20%, 30% adoption. And with the average of 1.4 sites per customer, that's still very early. There's just so much potential within our existing customer base alone. And remember, these are the ones that have already started the automation journey. And look, the conviction among those same customers remain strong. Current slowdown is more a reflection of delayed capital allocation. And as you can see on the next slide, the market is expected to grow from 2025 and onwards. Look, as you can see here on this page, there has been a market correction post the COVID fuel boom in e-commerce. However, as the broader markets stabilize, we expect growth to come back for the various structural reasons that I've already talked about. Market outlook then suggests that 2025 will see low single-digit growth. That's more confidence just returns to decision makers. From there, research suggests that the market will grow at a CAGR of 16% to 2028 and 12% from 2028 to 2032. This all translates to a '24 to '32 CAGR of 14%. So this is still an attractive market. This page shows the different technologies that make up that market. And first of all, you have the Cubic category, which we pioneered and continue to lead. And this is a highly scalable type of technology, which serves most use cases. I will talk more about this later. Secondly, you have the shuttles, which is still the main legacy technology in the market. And these are less flexible installations that mainly serve large and high throughput use cases, typically large, long lead time projects where you build for the future. In addition, you have the autonomous mobile robots, which are the ground-bound flexible robots that travel on the floor. And this is a flexible lower-cost entry-level type automation, that's mainly used in lower throughput environments. And then you have the mini loads, which are crane-based system that today is mainly used for full case storage. And lastly, we're also seeing some technologies that are using a hybrid approach. For instance, combination of the shuttle approach and AMR approach to get slightly more flexibility. But they as well cannot really compare to Cubic and the key performance metrics such as density, the modularity of the system and the flexibility. So overall, Cubic is emerging as the leading technology within this market and is gaining share. In a nutshell, it's good for almost everyone, and it provides real differentiated value versus the other technologies that I talked about. It solves fulfillment needs across different end markets in the broadest variety of warehouses, and it is to adapt to various technical requirements on throughput, density, scalability, et cetera. And it does this while ensuring the best ROI for customers. Going back to 2021, Cubic represented around 8% of the total ASRS Light market. Whilst in 2023, that has grown to 13%. But with the broad applicability and the value proposition that we give to our customers, there is an even higher right to win. And look, we are the biggest and best established player in the cubic space, having around 97% of the total installed base with our 1,500 sites. We're the pioneers of this technology. And we've built great trust with our customers and the broader market over the last 20-plus years. And for all of the reasons that I've already talked about and that you'll also hear more about during today, we're very well positioned to maintain this leadership position. Look, our technology can be applied to almost all types of businesses, regardless of end market system type, whether it's greenfield or brownfield or whether you're fulfilling to stores or e-commerce. On the one hand, we're doing these large e-com fulfillment sites, as you've seen here on THG today. We're also doing the very small ones, as you see with the P100 system that you just saw. But we also do store replenishment systems, we do industrial use cases, health care, car parts. Look, with even then the archiving system for FBI in the U.S., where they store more than 2 billion pages of official paper records. And further to that, to capture as much as possible of this large $400 billion TAM, we have and we are developing novel and exciting products that Parth will talk about later. So to summarize. Warehouse automation is still in its early innings of growth and penetration is driven by strong secular megatrends. Light ASRS is the most attractive subcategory and is expected to grow by 14% annually through 2032. And Cubic is emerging as the winning technology, and we'll continue to gain share in that Light ASRS market. And AutoStore is the clear leader, the pioneer and winner within Cubic. So with that, I want to hand over to Paul, who will talk more about why AutoStore is in the pole position in this market. Thank you.

Well, look, thanks, Matt. And as you said, with that context, that market context, it is now time to talk a little bit more about orders stores position in this exciting market. Now look, there are many reasons why order store wins and will continue to win, but I want to share upfront 5 key observations with you. First, we have a large blue-chip installed customer base with over 1,100 world-renowned businesses relying on our solution. But we're just at the early stages of this journey. As a global member, we serve 1.4 warehouses per customer. That leads so much to go after within our present installed base. And as Mats has said and tells us often, we don't stand still. Our highly standardized product serves multiple end markets. It's appeal is very broad. And we serve those customers through a powerful channel of systems integrators through whom we reach 57 countries worldwide today. And finally, our solutions powered by continually enhanced proprietary software, which lies at the heart of the value we deliver for customers. Again, Mats just talked about the different technologies that serve the Light ASRS market. What I'm showing here on the slide are the considerations that our customers tell us are important and how we stack up. Now I'm not going to go through them all, but the critical ones for you to take away here are density, scalability, throughput and reliability. But I can hear some of you asking, well, so how can we don't always win then? Let's be clear. Shuttle or oil-based technology has been around for a long time, and it's familiar to many of our customers. We're a disruptor, but it takes time to overtake those legacy solutions. And that's why we talk about being in the early innings of this market. Mats also talked about how other solutions like AMR have also gained share against shuttle. But as we show on this slide, even against these technologies, we have a clearly differentiated and superior solution. Fundamentally, we win because we demonstrate a vastly superior customer payback of between 1 and 3 years following customers' investments in our system. And by the way, if you'd like to learn more about that payback calculation, you'll see a link here in the deck that goes to the report prepared by Forrester that looked into this. So take a look, please. Mats has featured the growth of the market a minute ago. As this slide shows, over that same period, AutoStore's growth was over 7x the market. Clearly, off the back of lockdown, we saw e-commerce accelerate significantly in '21 and '22 and moderate more recently -- But stepping back, as we do here, the underlying trend is very clear. But look, enough for me on our credentials, let's hear it from Puma, who will talk about how order stores transformed their customer experience. [Presentation]

So it's great to see the value that AutoStore delivered for this global brand. So how are we going to continue to win? Where is our focus going to be? I would talk shortly to 4 principal growth drivers. These are by no means our only growth initiatives, and soon, you're going to hear Parth talk to others, but expect these 4 to underpin growth in the medium term. First, our land and expand business model. Second, our focus on the high throughput market. Thirdly, our continued expansion of our winning go-to-market strategy. And then finally, I want to touch on product innovation without stealing past thunder. As I observed a minute ago, our large loyal installed base is an incredible strength for our business. And as this slide shows, we've significantly increased the size of our customer base in recent years. The great news is delighted customers come back for more. As you can see here, around 70% of those customers brought in before 2020 have since placed a new order. So that recent acceleration in customer wins bodes well for the future. And typically, they'll return to place a second order in 2 to 3 years' time. That's what we see. Now this is a familiar slide to many of you, but I'm not going to make any apologies for putting it up because we're really proud to serve these customers. But consider also for a moment, the likely sizes of their warehouse estates, and you see the huge and still untapped potential in our installed customer base. As this slide shows, 45% of our revenues come from existing customers. And as Mats explained earlier, we designed our system to enable customers to scale up as their businesses grow. And that's the beauty of our principles of product standardization. So this enables us to sell extensions to existing sites and also to reach additional warehouses in our customers' estates. And I'll take you back to my previous slide and my point about the size of our customers. On the slide, I've highlighted a couple of customer case studies that show how these customer relationships have developed over time. And I would add that it's the role of our global account team to nurture these relationships and indeed accelerate the penetration of AutoStore into their warehouse estates. In addition, customers subscribe to our software on a recurring basis. More broadly on this theme of recurring revenues, I will share with you that we're engaging in a growing number of conversations with customers about OpEx models. I think it's too early to call this out as a major growth driver for the business. But our customer needs are indeed at the heart, of course, of everything we do. And needless to say, from our perspective, we'd be delighted to accelerate recurring revenues. Okay. Next, we're going to double down on the high throughput market. We've long proven our success in what we call the standard market, and we're now making clear headway in the high-throughput market, thanks to recent software and robotic enhancement. You've heard us use this high throughput term. But what have we set out on the slide here are some of the key characteristics of this market. We're talking about installations that see upwards of 10,000 BIM presentations per hour. So think about fast-moving consumer goods businesses, store replenishment and e-commerce. Indeed, we've all visited one of these installations this morning. And you've heard earlier from Hiva, THG's AutoStore solution ships over 500,000 units every day. And at the bottom of the slide, look, how our order intake has progressed in this market. It's grown by more than 90% over the last few years. And that has happened because we're forced to reckon with in the market. To be clear, the same fundamental buying criteria are applied to this segment, but our customers' history with shuttle technology means we're fighting our way in. So in due course, expect to see our share of this market be much higher than the 5% shown on this slide. Undoubtedly, we've got the right product, brand and go-to-market model to win in this space. But again, don't take it from me. Let's hear from a large U.S. customer, Geodis. [Presentation]

Speaking personally, I was delighted to visit Geodis' site in Ohio and see firsthand this system in operation. So returning to our growth levers. As Mats has said already, we have a superior go-to-market model. Our partners bring market expertise and truly global scale. Indeed, we've now certified nearly 3,000 of our partner sales reps to design, sell and install the AutoStore solution. We [ complemented ] with our business development managers and more recently, our global account management team. Through their efforts, additional business opportunities have been identified and concluded with our partners. As I said earlier, that addition of more than 300 new customers over the past 2 years is due in part to the success of our BDMT, which now contributes around about 30% of revenues compared, I think, to 18% at our last Capital Markets Day. It's a winning formula, and we're going to continue to invest in it. My final call out is a teaser of past presentation a little later. We've defined this market and we'll continue to invest a significant proportion of the cash we generate back into a continuously enhanced customer experience, but I'm going to let Parth share more about that. So to summarize, we have a differentiated and winning solution. We have a large, loyal and diversified customer base. As I've indicated, we're going to play to our strengths, and our go-to-market model provides us with the best market access. So with that, I'm going to invite Mats back up and invite Hiva to lead our next Q&A session. Thank you.

Thank you, Paul. So let's start with questions from the audience here in the studios. Raise your hand if you have a question.

Eirik from Carnegie. If we take a step back and start where you kicked off, Mats, on the theoretical addressable market, one thing is kind of the TAM, another one is the realistic addressable market. I think you mentioned 50% or so of the 1,600 warehouses for a big client that's addressable for Light ASRS, but one layer kind of below that again, if you exclude ultra-high throughput or extremely flat ABC distribution or these different nuances and differences to use cases, how do you kind of see the -- call it, the RAM, the realistic addressable market?

Yes. Look, I think I understand your question as twofold. First, around the broader addressable market and then what is -- of that what is truly addressable by Cubic today. So let's start with the $400 billion. Look, the way it's calculated is that you basically take all of the warehouses existing today, automate that with today's market prices, and you have that value. Of course, that's not all going to be automated as of today. And as this technology continues to evolve, the higher this realistic addressable market is going to become. So we stand here today into the future, I would say that a meaningful part of those addressable warehouses or that theoretical addressable markets will be subject for automation as technology continue to evolve over time. When you look at Cubic today, we have a clear right to win in a meaningful part of that market. But if you also tie it back to the number I provided earlier, Cubic only represents around 13% of that market today and it's not going to grow to 100% tomorrow, right? There will be use cases where other technologies can be used. But there is also just perceptions out there that we need to work on changing every day because there is muscle memory towards certain technologies out there. And our job is to take that down. But of course, there are some edge cases on ABC throughput. There will be some case handling systems where we are not the best one, and there can be local dynamics that just trigger customers to go with other types of technologies, and that will continue to happen. But we have, over time, shown that we are gradually outgrowing the market and taking share, and we will continue to do so also in the coming years.

Can I go on another one? On that note, with the perception on high throughput, called out as a critical midterm driver, if I remember correctly in the IPO process, I think the relative competitiveness of AutoStore versus a shuttle solution was, you could say, lower than in a standard warehouse if you look at the payback period. How has that evolved since IPO? And given that, that competitiveness is not necessarily -- the spread isn't that high? Are you as confident that you'll win in high throughput as what you've been able to achieve in standard warehouses?

As I talked about initially, since we released the router, which was just before we IPO-ed, we've seen 20% performance increase using the same hardware, and we've also upgraded hardware. So our relative competitiveness has definitely increased. But of course, this is also a market that has been dominated by shuttles for a long time. So the market also needs to understand those capabilities. And often, it's just not the ASRS Light engine alone, it's also everything that it integrates to. For all of you that took the tour today, you saw that there was a sortation system. There was some conveyors involved and it's the integrated solution becomes even more meaningful as you go up the throughput curve. So that's also an element and also where we partner with the best systems integrators out there to help us achieve that.

Mats calls out router and enhancements to software, but also the R5 Pro robot, shorter battery charging times, longer battery life. All those things make significant -- have a significant impact in the high throughput environment, which is typically, as you know, a 3-shift system constantly on. But Parth will talk a little bit more about that later.

It's Luke Holbrook from Morgan Stanley again. One of the things you talked about is targeting the high throughput market. And we've seen today also your PA system, which is targeting small and medium customers. You're also discussing at the same time, increase in repairing revenue in the mix. I'm just wondering how we should think about the relative size of each of these separate opportunities and what investment it'd require internally into your PDMs, your sales team, just in the context of a lot of the sales today are done by your partner networks? So you have less control maybe over that. So just interested in your perspectives there.

So if we start with the high throughput segment as we talked about that already, that represents roughly around 40% of the total ASRS Light market today. Compare that to us, it's -- we have around 5% market share and a meaningfully higher right to win. It's going to -- we're going to continue to invest in our product to even further increase our competitiveness, but we have a technology that is suitable for that market today. And we have the partners and the sales force that is able to sell into that market today as also evidenced by the high growth that Paul showed on his slide. The standard segment, which is kind of more of the typical historical AutoStore systems that you've seen is still around 50% of the market, and we see good traction there. But there, we have the engine, we have the product, we have the sales force, we have the partners, and that will continue to go. PO is one of the examples where I said we also need to drive penetration of this market through technological advancements. And in the SMB segment and in smaller types of applications, automation simply hasn't been available. So PO is one of those examples where we invest, we build a product and hence, also increase that realistic addressable market that's the term that Eirik coined here.

Any other questions? Over there.

Emilie Engen from DNB. On the Light ASRS market, can you say something about the different geographies? And what kind of market share are you expecting medium to longer term?

So Europe has been the largest market and continues to be the largest market where kind of automation penetration has come further than rest of the world. We have seen higher relative growth rates in the U.S., and it is catching up. So that's an area that we also invest a lot in. APAC, the automation penetration is even lower and represents maybe a little less 10%, 15% of the market today, but also expected to grow over the coming years, but also an area where, look, we haven't seen the growth there in this market either.

And your expectations for market share, medium to long term?

So today, Cubic represents about 13%. And as I said, the right to win is meaningfully higher than that. But we've provided you with the building looks on medium-term growth rate in the ASRS market, and we will continue to gain share of that in that market.

If we don't have any more questions from -- sorry.

It's Tim from Barclays. So following the market share questions, do you have any targets about your market share going forward? And given the fact that there's new capacity coming -- new technologies coming to the market with some new solutions, how do you see about the competitive landscape from these new competitors or technologies?

We've not set the specific market share target in the medium term other than we will continue to gain share. And even with new players entering into this market, we've seen that our head-to-head win rate has continued to be very, very high. And as we've evidence on the pages here, we have continued to take share. Still only at 13% of the market. So others have also taken share. But when we first compete, we have very, very high win rates.

Okay. We're running out of time, but maybe we have time for one question from the web audience. So from Hakon Fuglu at SEB. What does your end goal in number of BDMs and [ GAMs ] in order to succeed with your strategy or share versus partner share?

We don't have a specific target in terms of how many BDMs and [ GAMS ] we want. What's important for us is that they're adding value in the market over and beyond what the partners are generating for us. And we've seen that when we invest -- continue to invest in that, we get net new business and we drive demand. So we will continue to invest in that.

Thank you, Mats and Paul. I think we have to round off here. For those who have asked questions on the web and haven't received an answer, we'll follow up. So don't worry, you will get answers to your questions. Okay. Thank you, Paul. Thank you, Mats. So now we had an update on the market, and you heard about AutoStore's position in that market. I'm very excited to introduce the next speaker, and that's Mark Irwin from Best Buy, who'll talk about the experience Best Buy has had with AutoStore. Mark, the floor is yours.

[Presentation] Well, good afternoon. How are you doing? I couldn't tell you this, I am so excited to be here to talk about AutoStore and to talk about Best Buy because they are inherently integrated. And I want to tell you a few stories about why that is so important to me. Now number one, I am the Chief Supply Chain Officer of Best Buy. I've been at Best Buy for about 11 years. And you'll see that there were things and decisions that we made on the journey. They actually catapulted my own personal career. And so secondly, because I'm in the United Kingdom, it's important for me to explain like maybe who is Best Buy. I will tell you, if you're in the United States or Canada, and you're looking for the coolest latest technology, there is no other place that comes to mind. You would go to a Best Buy store and you would talk to who we call blue shirts. Now our blue shirts are people that have expertise in product lines, and they can help you to bring the latest and greatest technologies to life. And that's why Best Buy is so important in the marketplace. And I would say, in most cases, we have people that do things, but we don't have people that compete at the level that we do in technology, in appliances and in computers. So let me take you on a bit of a journey. This is our Best Buy supply chain journey. And again, I mentioned earlier that I've been with Best Buy for 11 years. Now I wasn't always the Chief Supply Chain Officer. I was actually for a number of years, I was running our facilities and running our buildings. But in 2016, I've become the Vice President of Fulfillment. Now Fulfillment at Best Buy is really, how do you use the entire network at Best Buy. How do you use stores? How do you use DCs to fulfill not just customer orders but also what's the right way to replenish our stores. And so in 2016, if you think about what was happening from an online perspective, the categories that Best Buy serviced were amongst the most saturated towards online of any other categories, computers, electronics and appliances. And most people had said at the time, I'm going to use generic data. Generic data was 24% of that business was online. And people had done models that said that maybe between 5% and 8% of that would go year-over-year over year toward online. Now I think most of the people in the room know this, bold decisions always start with questions. What if questions and why questions. And so in 2016, I began to ask my team because we were so highly concentrated towards online. What would happen if it wasn't 5% to 8%? What would happen if it was 10% to 20%? And so we did some modeling. You could tell in that video I just showed you, we're all about the modeling. We're all about the data. And how do you use data to help you to make informed decisions. And so as we modeled 10% to 20% online growth year after year, I can tell you it set us back in our seats because as we begin to compare that data against our current building configurations and how we delivered experiences to customers, we grew concerned. And so we took that journey amongst our executive team, we took that journey into our Board of Directors, and they were equally seeing the need to invest in our supply chain. And so you can imagine what that would do for all of us. We were trying to find what's the right solution for this. Automation can be incredibly expensive. Automation deploy that doesn't work is even more expensive. And so for us, it was important that we found a tried and true complement to our supply chain. And so we got on planes and we flew to Europe. We went to visit multiple sites. We looked at cranes. We looked at AGVs and then we found AutoStore. Now again, we had a lot of conversations. And we were pretty sure that the solution that they proposed would be an adequate one and one that would exceed expectations. But even then you still got to take a look, you got to find someone who's actually doing it at scale in a market that's similar to yours. And so I think you saw in the video, we actually went out to a Puma facility in Los Angeles, California. And we visited that site, we had a relationship with some people at that site. And when we saw what they were doing, we were incredibly impressed. So we knew without a shadow of a doubt, we had found the right partner with the right systems, technology and probably more important -- and just as important to us, scalable with speed. Remember, I told you at 10% to 20%, it might have outrun our network. So we need to find something that would work, and we need to find it fast. And so again, we found AutoStore at that time. And I can tell you that has been a no regrets decision. So let's talk a little bit more about that. A little bit about our time line here. Now let me just say this again. So I get you a sense of what are we trying to solve. Now think about it amongst the competitors that Best Buy has in the United States by name, number one, would maybe be -- it would be Amazon. And so if you think about it, I'm trying to solve not just potential e-commerce growth. I heard somebody in one of the videos, they say, well, next-day delivery. I will tell you, in my business, next-day delivery is probably too slow. I need to be able to deliver not just next day, but same day and scheduled delivery. I need to be able to have a customer that goes online and says, I need it by 2:00 to 3:00. And can you get it on my front door? So speed was paramount for us. And then the third thing that was incredibly important to us was, can you build a tote in a way that it took the laborious work away from our stores so that our blue shirts, our team members that service customers could be focused on the customers' needs. And so we actually had in our capability set with AutoStore. We design totes, we build tote, we decant our product. We do all of that work for the upstream. And what stores get is a tote that is built on the planograms of that individual store. So that is the 3 things we were trying to solve. And we absolutely solve those 3 things with AutoStore. Now a little bit about this time line, you'll find it quite interesting. And there was things that we said during the presentation, it absolutely true. Number one, 2016, we had our why. 2017, we had our partner. 2018, we started to go. And you can see we were so sure of the solution. From a network perspective, the biggest facilities that I've got are on the western part of the United States. Most people, unless you have -- if you don't have a tried and true partner, you would not go to your biggest marketplace and try something new. But we went to our biggest marketplace because we were so completely convinced of the systems and the capabilities. And so we started on the West Coast, Dinuba, California. And then we also deployed something brand new for us. And this is something that you have to always think about with automation. Remember, speed to market actually draws deeper decisions on how far do you need to advance the automation because you're up against the question around labor, how much the space cost, and when do you have enough density to make different decisions. So for us, in Los Angeles, we deployed something called a MEC. A MEC is a metro e-commerce center and it's designed to handle the density of demands in the Los Angeles marketplace. And we started to do that across the United States. We picked our first 3 markets: L.A., Chicago and New York. And everywhere we have that type of density and scale and demands, we will continue to evaluate our network and how we do business. Now across our supply chain, we have a various number of approaches. If you think about it, the use of stores to replenish and service e-commerce orders. We do that until we have enough density that we move to what we call a hub store. Once we have enough density in a hub store, we move to something called a CFC, a customer fulfillment center. And then when you have to the next leg, it is the MEC. It is full on automation that can deliver up to 35,000 orders. So just incredible use of automation and technology. Now think about this time line in front of you, though. Over the course of 3 years, we actually deployed 8 AutoStores. So remember, they talked about the ability to scale this technology, the ability to implement it with speed. Like I was talking to my team, if you think about this from the time we wrote a PO to the time the system was up, in most cases, 12 months or less. That's incredible. You can't do that in other systems. And so you can also see that there was a bit of a pause because something happened in 2020. We all know this. When in 2020, the pandemic hit, Best Buy was forced to close all of our stores down. And we moved to a curbside pickup model where people could continue to shop us, but they had to drive up to our stores, and we would come out and deliver the product. Now if you think about it, if we had not made the investments that we made. If we had not made the bold decisions around what and why, 2020 would have put a tremendous strain on our network. But what happened was is that our mix and our DCs we're able to fill the gaps, and we continued to fulfill customer orders even at higher and increased demand. And we talked about this, the system, 99.7% uptime. Quite frankly, it just doesn't fail. And I've got a history, I've worked at other facilities that had crane-based systems. And I remember the cranes would go down and the investment from a mechanical perspective, they would go down and we would lose access to completely rows of products, couldn't get to them. That does not happen with AutoStore. They're reliable. And the other piece of this that's so incredible, and I'll talk about this a little bit more in the presentation. If you can imagine, with automation, the ability to drive down a defect rate to next to nothing. When we had a manual process, our defect rates were quite high. And so now when we ship orders to customers, I never really get a note anymore that says, I ordered this, but I got that. The ability to AutoStore to deliver in that way is actually quite incredible. And again, this year, we're picking it back up. In 2025, we will actually open our first AutoStore in Canada, just outside of Toronto. And we'll continue to look for opportunities after that as well too. Now let's talk a little bit about this because I think it's important. Now if you look at the lower part of the screen, I'm just going to put this up, you can see it at the same time. If it doesn't -- it's totally advanced it. I won't do that. If you look at the lower part of the screen, you'll see how we used to do it. And if you can imagine a team member coming into work, now again, for those of us that count steps, it might be fun. But those of us that would have to count steps every single day will trust me. The motivation goes down really quick. Average team member coming in to work would walk 5 to sometimes 10 miles a day, up and down this configuration. And if you can imagine, the physical wear and tear on the human body. I had team members that said, with the introduction of AutoStore, they were making different decisions about when they would retire. And so you can tell from the video, this is all about who we are at Best Buy. We don't just deploy technology for no reason. We're looking for symbiotic solutions that make the lives of our team members better. AutoStore made the lives of our team members better. And we're going to continue to pick our spots to do exactly the same thing. The other thing you saw in the video is we talk about a world-class supply chain. And it was funny when they put up the slide that had all of the other names of different companies they worked with. Many of those companies actually come to visit our building because Best Buy now has a reputation of deploying world-class technology. And because of that, they had made decisions because they had seen how Best Buy navigated through the pandemic, the reliability of the experience and the expectations of our customers. So one, I will tell you, I'm here because of that because, one, AutoStore has been an incredible partner. And when I say partner, they're the type of partner you can come to and say, I'm trying to figure this out, what should we do? And that moves you from just somebody I work with to a partner and a friend. And so of course, on this incredible day, I wanted to get on a plane, fly to United Kingdom and be a part of this conversation. So what I just want to say thank you. Thank you, AutoStore, for the partnership. Thank you for what you helped us to achieve through the pandemic. And what we are achieving every day now because I can guarantee if you go to the United States, you ask a question or Canada. If I order from Best Buy, how long will it take us to get our product. Most will say, I can get it in 30 minutes because we're not playing, and we have some massive competitors out there, but AutoStore made it so we can outpunch our weight class, no doubt about it. Thank you.

Thank you, Mark. That was a great presentation. I would like to open up questions from the audience if there are any directly to Mark.

Yes. And I want to set expectations, too. So just as you know, I am the visionary. If you start going technical, I'm not an engineer. I'm going -- I'll let AutoStore handle all those questions.

Lucas from Jefferies. I had a question on the mix of technology you're using. So you said you went through a tender, you looked at several things today. What else you have in your except AutoStore? How do you think about these other technologies as kind of complementing the AutoStore?

Yes, that's a great question. It's interesting. How do we say this, I don't want to be first. I really don't. I want to follow someone and be a fast follower of proven technologies. So I think you know in this space, AGVs are proven technologies. And so we now have a pilot that's up and operational in Upstate New York, where we're looking at the use of AGVs. And how can that complement what we're trying to do with AutoStore? Now we don't have a final verdict yet. I've been looking at some stuff and I go, this may be a good entry, but are there other ways to approach this than what I've just seen, but that's what we're doing right now.

And also when you think about kind of automation, obviously, there are several things you look into, like you said, the uptime was important, the price was important and the payback [ period ]. So if you had to rank, what's the #1 thing maybe that AutoStore provided the others didn't? Was it the price advantage? Was it just a combination of things what did you win already?

It's a great question. It's interesting. You would think that people in this business can easily answer a question. And the question is always, what's the payback, right? So number one for me is always, when human beings are interfacing with it, does it enhance their lives and what they do in our buildings. But then number two is, is that I won't be able to get it across anyone's desk if I don't have a payback. I go to multiple vendors, and we're talking about paybacks and what they're trying to present to me. And in general, the paybacks don't work. What I founded with AutoStore was, number one, they were incredibly clear. Number two, we had a great integrator that worked with AutoStore. They delivered on their time lines and their commitments, and we've exceeded what we thought from a payback. That's critical to us because you have to build momentum in this space. Supply chain is expensive. And so if you bet and you bet wrong, guess what, no one is going to write any more checks. But if you find the right partners, you can make a bet and it works, trust me, people come back to you and they go, yes, when you ask for more. So that's what's important to me.

The last one I have. Just we just start on the market and the fact that some of the customers are seeing a bit more elongated decisions to go ahead with kind of more projects, a bit more kind of cautious on CapEx. Can you tell us how it is at Best Buy?

Yes. I would -- again, proven technologies, you can see we're actually going live in Canada. And we're going live in Canada, even in uncertain markets because we know it works. And again, we've got more space to operate in Canada. Canada is a big area. It's a big part of our business. And so we continuously will look for places that we have payback or we can make a bold bet, and it's got to solve big problems for us as well, too. So we're still right in check. Just as it was a pause in the pandemic and it's probably a pause for maybe the 4 years following the pandemic. But I think now all of us are thinking about our business. And as they were talking today, I was going -- if you think about why is Best Buy on the cutting edge? Remember, the concentration of what is converted to online. The pandemic accelerated some of that thinking. So I do believe there is a tide of people behind us that now need to think about like what is the solution. Now we typically host different building visits across our network and people are looking for the next solution. So I think it's coming, absolutely.

Thank you, Lucas. Any other questions from the audience here? It's a great opportunity to speak with one of our own customers. There, behind you.

Kind of taking 2 or 3 steps back, could you just help me understand what put AutoStore on your radar in the first place? Was it you knowing a sales rep at an integrator who sells AutoStore? Was it your own due diligence trade fair because listening to the longer-term case, it seems to be kind of an at-bat issue like you want to be more and more at bat. And I'm just trying to figure out how did AutoStore end up at bat for that initial first project that you guys have.

Yes. It's interesting. It's -- if you step back to your point, you kind of look at the whole network of what's available out there. This conference is out there. I don't know if I can legally say the conferences, but there's a conference out there that show you technology, the latest ingredient, and it is actually overwhelming, to be honest with you. Because it all looks good and fine, but you've got to find someone that's actually utilizing it. So for us, the journey started with one, you call up consultants, you ask questions about what's particularly out there. It's a bit like some of those conferences. Then they take you into different places. Like for us, we went to Europe, we started to look. But when we went to Europe because many of the issues that are facing in the United States were already facing in Europe. And so the need for automation was much more dramatic in the U.K. and other places than it was in the United States at the time. And so as we did that, now we've got an integrator, and we're asking questions. An integrator began to lead us down, here's different options for you. And again, one of those options was AutoStore. And again, once we did that, the next question is, I don't want to be first, can you show me somebody that's in the United States that has a similar business problem they were trying to solve and there was one, it was Puma for us. And so then once you could see it at scale, once you could talk to people and actually, in some ways, have the sidebar conversation, which is, if I do this, do I get to become the Chief Supply Chain Officer one day? Or does my career stop at Vice President? But that was our journey.

Any other questions?

My question is about a model, which was mentioned earlier, the pay-per-pick model, which I know that at the moment, the vast majority of AutoStore systems are for -- you invest the CapEx and you don't pay for it through OpEx. From the customer's perspective, is there any demand or how much demand is there for a system where it's funded through OpEx as opposed to your CapEx, so paying for volumes rather than sort of making a big upfront investment? And how would you sort of think about weighing up the 2 alternatives?

Yes, that's a great question. It kind of depends. It depends on the use of cash in some ways, right? You're making a cash decision. It's almost the same decision we would make on whether or not we buy a car or lease a car. And so for us, it's customers and especially the explorers of technology. Sometimes when you're exploring technology and trying to implement the first step into it, and we've done some of this as well, too, is to actually say, okay, we want to do a lease deal. And so it's both around the table. Neither one is, I would say, is necessarily a model we have to do, but it depends on the use of cash and how sure you are about that technology where you might scale it. That's how we approach it.

I think there was a -- and I think there's a question here from Tim.

A little bit on the competitive landscape. I know you know a lot. You know about technology, but it's you're going to expand again, if an other integrator coming to you for some other new solutions, maybe Ocado, maybe Brightpick, will you consider new solutions for your new projects?

Yes, it's a great question. It's interesting. At Best Buy, I'd like to always think about the people that we work from -- work with. To work with Best Buy, our company is like a heart and soul that we talk a lot about we're family. People come to work at the company and they stay for 20, 30 years. And so in some ways, the way we approach our business is we try to form partnerships. We typically don't interact with companies that we don't feel like we can have a deep partnership, and that shows up when things don't go well. Like where does the company stand and how do they show up through the things that are the bumps in the night. And you're never going to do an implementation where there isn't something that requires a bump in the night or a rally call. And so for us, I would say it would be a hard sell for us to move away from an existing integrator or from an existing partner because we have to have something that would draw us away from them. And even in that discussion, we'd probably go back and ask questions. That would be our approach to that. But again, if they had technology that our current integration -- our current integrator did not talk to us about, we would ultimately take a look, we take a look about that, for sure.

Thank you, Tim. Any other questions from the audience here in the studios? Okay. Thank you, Mark. Thank you.

Thank you. I appreciate it.

Thank you. Okay. That was really a great presentation. We're actually ahead of schedule somewhat. So I think we should take a break now and come back at 3:00 U.K. time, we'll continue with the rest of the program. So we'll take a break now, and we'll be back at 3:00 U.K. time. [Break]

So welcome back to the second part of AutoStore's 2024 Capital Markets Day. We've so far covered the market update, our position in the market as well as some of our growth initiatives. We had the pleasure of hearing Mark Irvin from Best Buy speak about our successful collaboration. Let's now turn our focus on what we're doing on operations and product innovation. And as I mentioned earlier, we're going to switch up the program somewhat with a fireside chat, together with our Mats, our CEO, and with John Gallemore, THG's COO. We will round off after Paul has walked us through the financials with a joint Q&A. And finally, we will have Mats ending the Capital Markets Day with some closing remarks. With that, I'll hand over the word to Israel.

Hello. My name is Israel Losada, and I'm the Chief Operating Officer. I'm responsible for our manufacturing facilities, our suppliers, product quality and our aftersales technical support. My main responsibility is to ensure that we deliver high-quality products at the right time, at the right price to the right place and for the right margins. Let me tell you a little bit more about how we go about doing this. First, I would like to talk about our business model. Our business model is designed to generate and sustain high gross margins. I will let the numbers on the right speak for themselves. We have kept a high gross margin for a full cycle. We are comfortably over 70% in 2024. And when you look at it, we've gone up 19 percentage points since COVID in Q3 2022. This does not happen by chance. This happens by design, and this design is based on 4 pillars. First is our standardization. We delivered the same standard modules to all our customers. As both Mats and Paul have mentioned, this allows us to have low cost and low people utilization. We don't need to invest hundreds of hours in customizing, in optimizing a design. Quite the opposite. We deliver the same modules, whether you are an apparel sports company like Puma or an industrial company like Bosch. Secondly, I would like to talk about our go-to-market strategy based on our partner model. This model allows us to focus on what's more important for us, which is our technology. Our partners help us with sales, help us with integration and help us with project management. So we, AutoStore, can focus on what I'd like to call the filet mignon of the warehouse. Thirdly, pricing. We should not forget that we have the best technical solution in the market, and that commands pricing while still delivering very attractive return on investments for our customers. And lastly, I would like to talk about our operational excellence. We continuously try and strive to be a little bit better than the day before. So in summary, we have a business model that produces high gross margins, and our operational excellence way of working protects it and enhances it whenever possible. I would like to take you back to what we say in our Capital Markets Day of 2022. We made certain commitments, and I would like to say that we have followed through with these commitments. We have expanded our manufacturing facility in Poland from 6,000 to 41,000 square meters. We have built a new manufacturing facility in Thailand that is 27,000 square meters. If we were to populate these 2 manufacturing facilities with the production lines that we can fit and we were to work just 2 shifts, we will effectively multiply our capacity of producing robots by 10x. So we are ready for growth. Secondly, we have worked very actively with our suppliers. When we started this exercise, we had 3 suppliers of aluminum. Today, we have 15. And the same can be said about our suppliers of bins. Bins are light, but they take a lot of space to transfer them. So it is critical to have as many suppliers as we can so the distance between production and final destination is as short as possible. In these 2 years, we have doubled the number of companies we work with, and more importantly, we have doubled the number of factories that produce bins for AutoStore. So a lot has been done with our suppliers. But we cannot forget our own internal production. We have set up our line just in the same way that automotive companies do, and I am very proud to say that we have one robot leaving our lines every 4 minutes. Let me remind you, this would not be possible without the unique standardization of our modules. The impact of the actions that I just described go beyond just improving gross margin. They have secondary positive effects for us. Having a new manufacturing facility in Thailand and expanding what we have in Poland and getting new suppliers makes us being ready for growth with very little CapEx investment. Having built a new manufacturing facility on the other side of the world from the one that we had in Poland and having onboarded a totally new set of suppliers in that part of the world made us much more resilient than what we were before. We have circumstances like Red Sea situation going on today. It does not matter. We continue delivering, and we continue delivering on time. And lastly, I think it's very important to mention, as it has been explained during the day, that we need to try to get competitive advantage wherever we can. This expansion in internal and external capacity has greatly reduced our lead time. I think we can clearly claim today that we provide the best time to customer in the market today. In closing, I would like to go back once again to what we said in Capital Markets Day of 2022. At that time, we said that our focus was going to be on delivering high-quality products at the right place, at the right time and for the right price. I am really proud to say that in the last 2 years, we have not had one single production stop, not one. We have slashed our lead times by more than half, and we have greatly increased customer delight. A lot has been accomplished in 2 years, but there is still a lot left to be done. And as Mats mentioned before, we are constantly trying to be a little bit better than the day before. Let me leave you with this reassurance that we will continue staying focused on the fundamentals. We deliver high-quality products at the right place, at the right time for the right price. Thank you very much for your attention. I would like to leave you with Parth Joshi, our Chief Product Officer, who will tell you about the great things that we're doing on the product side.

Good afternoon, everyone. It's truly a pleasure to speak with you today. My name is Parth Joshi, and I recently joined AutoStore as Chief Product Officer. A little background about myself as I joined just 2 months ago. I spent the last 25 years working across both startups and Fortune 500 companies with notable executive roles at Cisco, Eaton and Hexagon. Most recently, I led $2 billion in P&Ls across 4 diverse business units, managing a global team of 3,000 people. Over the years, I've been part of teams that have launched industry-leading hardware and software for some of the world's largest companies. My focus has always been on innovation and growth, proven across 3 different industries, being part of major growth while also transforming those same industries. Now I'm truly excited to be a part of AutoStore, where I'll help lead the next stage of our growth journey over the coming years. Today, I would like to share a few key takeaways. First, we'll be addressing complex customer challenges with greater scale, speed and reliability. Second, we're looking at tapping new markets through innovation. Third, we'll continue to leverage software, data and analytics to enhance our offerings. And finally, we're committed to growing alongside our customers by improving our best-in-class systems, driving continuous innovation and reinforcing our legacy. These priorities will ensure that we not only remain the global leader in automated storage and retrieval systems, but also position ourselves as a key player in the broader warehouse automation market. Now I would like to introduce an exciting video that showcases the evolution of our systems over the past few years. [Presentation]

AutoStore revolves around innovation in everything we do. Our journey over the past decade clearly shows where we started, where we are now and where we are headed. As a tech company, our innovations have helped us scale and solved high-value problems for our customers in terms of scale, use cases and reliability. It's incredible to reflect on our progress from a fleet of just a few hundred robots to 70,000 live robots globally and from 50 robots per site to over 1,000 at some locations with 99.7% uptime. This exponential growth and innovation has not only benefited our customers, but also expanded the markets we serve and will continue to serve. To remain the leader and stay ahead, we need to focus on key areas in the coming years. First, building a best-in-class system that evolves alongside the customer journey. We want customer-centric feedback loops to drive continuous innovation. We're going to continue, as Paul mentioned, R&D investments to accelerate our innovations and then enhance our software value propositions. Our innovation here is not about only providing a singular product to the customer. Instead, we offer a complete system that supports the customer throughout the entire journey. Software is at the core of this system, guiding the entire process. What I mean by this is that we engage with the customer at every stage, from presales to integration, to operating the grid and robots and, later, having the health of the fleet by data and analytics through our unified platform. This system approach ensures we're providing a best-in-class system to our customers and helps provide data back to us from these different software, from the buying process through operations and even beyond, driving data back for advanced analytics. Our unified platform adds another layer, delivering data and analytics that help customers expand and optimize their systems. Providing this full system with software at the center is what truly sets us apart. As Mats described earlier in his intro, a good practical example is how we're using these insights and utilizing them to upsell to our installed base. If we dive deeper and look at the impact of our software, we can see the data from our various software products plays a crucial role in improving our overall system and also the customers' own operations year after year, particularly in areas like uptime and reducing system stoppages. By leveraging all of this data, we've enhanced our systems in ways that lead to impressive results, such as being able to achieve 46,000 bins per hour throughput at a single site. This capability has allowed us to be in the pole position in the high throughput market, as Paul mentioned earlier. And as Mats mentioned, since its release just a few years ago, Router has allowed us to increase total throughput by over 4x without any hardware modifications. And since that, we have also seen an additional 20% performance increase through the optimizations in our robots and our cube control software. These capabilities, combined with our software utilized from the buying process, the design aspect, the operations and analytics, allows us to install large-scale systems across multiple sites. An amazing example of this is the work we've done with Medline. The role of software in the customer journey is truly remarkable, as we see with Medline, a customer I recently spent a few days with just a couple of weeks ago, with the major improvements in their system, they're a customer of both ours and Swisslog, and now operate over 20 AutoStore systems across 20 different warehouses with their first system going live in 2013. Together, we've improved their efficiency to the point where they now process up to 58,000 order lines per day. Thanks to this collaboration, Medline can provide next-day delivery to 95% of the United States from these warehouses, as you can see in the short video. [Presentation]

Everything we've discussed so far are innovations, solving complex customer problems and our ability to scale through our incredible software has been a key to our growth. As you can see here, in just the last few years, we've grown from 47 customers and 57 installations to 1,100 unique customers and 1,550 installations. That's really remarkable, and it still means we have plenty of growth potential with our existing customer base. Moving forward, we'll continue this customer-centric approach, leveraging our global data and analytics throughout the entire life cycle, to optimize not only our technology, but our customers' installations also. A great real-world example of this partnership is with Boozt and Element Logic, which has not only been thriving but a showcase of our scalability and our adaptability of our overall system. Boozt is a customer we began working with just in 2017, starting with a single AutoStore system. Thanks to our incredible scalability and flexibility in the system, over the next few years, we expanded from 50,000 bins to 1.2 million bins and from 20 robots to 1,150 robots and nearly 300 ports across 3 different grids at 1 site. This scalability, driven by the growing demands of Boozt, allows them to now process almost 200,000 items daily and achieve a peak order fulfillment in just 63 seconds. [Presentation]

Really an incredible video from Boozt. We're constantly expanding our use cases through our innovation with new product launches and continuous feature updates. As you can see here, we've made significant strides in both hardware and software over the past few years. More importantly, beyond these new launches, we remain committed to ongoing improvements, regular hardware updates and major regular software releases across our cube control software, presale software and also our powerful Unify data and analytics platform. With that, we have also launched dozens of new software features and products in just the last few quarters. I want to take a minute here to highlight some of these new recent exciting innovation announcement that just came. First, let's start off with incredible new R5 Pro Robot and software. Innovations in charging and battery technology have made the R5 Pro, paired with our cube control software, the new standard for multishift operations and large-scale systems. This reduces the number of bots and chargers needed, driving greater efficiency and speed. In addition, advancements in the cube control software have boosted overall system performance, increasing throughput, uptime and reliability. Biannual updates will continue to deliver customer value throughout the system's life cycle. Next up, last week, we launched the expanded 18-level grid, along with an upgraded R5 robot. This new grid extends a vertical reach to 18 levels for the 330 and 26 levels for the 220 bins. For new customers, this will boost storage density by 13% while still cutting floor space by 11%. This enables us to be the densest of systems even in taller warehouses. Next up, a really exciting innovation announced just last week, the multi-temperature solution. This opens up a new market by supporting frozen and chilled zones within a single AutoStore cube. Key benefits include reduced labor turnover, hazard pay and energy consumption. Plus, ports are in chilled zones only, so no more picking in frozen environments. The feedback so far on this product is highly positive with one site fully implemented and 2 already underway. Next up is the Pio P100, which brings cube storage solutions to smaller e-commerce and 3PL markets. It's truly a plug-and-play AutoStore system, optimized for peak season flexibility and powered by a Pio app for seamless operation. This dynamic system scales effortlessly, keeping it simple: products in, products out. To clarify how real this is, for those attending today live, we just saw a demo of the Pio P100 a couple of hours ago. The parts for this system arrived just this past weekend. And in 2 days, we installed it, commissioned it and have the software fully operational. This is the power of a plug-and-play system, installed and operational in 48 hours, supercharging any warehouse. As Mats and Paul mentioned earlier, we've grown R&D investments from $28 million to $42 million a year over the past few years. We're committed to driving innovation and helping customers in their automation journeys with a customer-focused road map. With these continued investments, we will accelerate improving the grid and cube speed, capacity and efficiency while reducing customer TCO. Also we'll give enhancing software capabilities and performance through our regular updates elevating our customer value proposition going forward. Next, we'll focus on adjacent technologies to optimize solutions, offering flexible interfaces to integrate our system into larger warehouse setups. With these, we will continue internal R&D, while also being opportunistic with M&A to enhance value. I'm truly excited to be a part of the AutoStore's incredible journey. Together, we're not just shaping the future of warehouse automation, we're leading it. The innovations we've discussed today are just the beginning. Our commitment to pushing boundaries, listening to our customers and driving continuous improvement will keep us ahead of the curve. I am very confident that the road ahead is filled with opportunities and I look forward to sharing even more groundbreaking achievements with you as we continue to transform the industry. Thank you, and here's to an exciting future together.

Now let's switch up the format somewhat and welcome THG's COO, John Gallemore and Mats Hovland Vikse, AutoStore's CEO to a fireside conversation. Mats and John, please welcome me on stage.

Thank you. So one of the first things that I always look for when I enter a warehouse or a distribution center is -- what's the feeling I get? Is it a chaos? Is it calm? I think for everyone here that visited this warehouse today. You came in and you got the sense of things are under control, things are quiet. But there is also massive volumes going through that.

It wasn't the case. We have 2 periods of downtime today, didn't we? It was chaos today.

Maybe to start things off, can you tell a bit. What is THG?

Yes, THG. So, we were founded in 2004. So effectively, is typical to describe, we're a brand builder, but also a technology provider, right? And the reason I'd say that is we've tried to build technology solutions to the issues of building a brand globally, right? So you could put that into 3 pillars really. You've got e-commerce technologies, websites. You've got demand creation technologies, a studio to build content. And then you've got logistics, route, so you got fulfillment centers. So you've got all those things that comprise what we are really about, in essence, and we've tried to develop and internalize solutions to problems of scaling those over the years. So that's how I describe us now.

It's an impressive business. What about the distribution needs? Thoughts more about that?

Yes. Okay. Look. So well, we've been in distribution for 20 years, right? And -- we carry a lot of scars. We've had a lot of issues, and you learn a lot of -- so for us -- our first warehouse, for example, 20 years ago, was a 3PL that didn't even have software. We were using spreadsheets. And then we've got our own warehouse and then we grew when we had lots of these little warehouses and it was all very chaotic and difficult to manage. But then we took a big investment decision in 2016, and we built -- commissioned 1 million square feet. And within that, we built our own software, which was a big step change for us in terms of our ability to be good in the fulfillment operation. We were less reliant on third parties. The site we built in 2016, it was quite complex, lots of conveyance and stuff in -- pretty horrible to be honest, right? But it informed a few decisions that we took later on. So we learned a lot of lessons. But we thought we were done in 2016, we wouldn't need anything else. But then lockdown came. 2019, we turned over $1 billion, and it was $2 billion in 2021, so we'd run out of room. So we needed a solution quick, right? And there's a field where this is -- it was a field then. So we built this and we built the facility next door. So then we needed a solution to go into that facility, which is where we met you guys, right?

And tell us more about that decision-making point. So you talked about what triggered it, right? You need a space? You needed more volumes? How did you go about that position making progress?

Yes. So you'd expect it to be, and it might be slightly different now. We might say now return on investment might be the first thing I'd say to you, right? But then it was like, we needed space, needed it quickly, and we needed to work before the next peak. So execution risk was really important to us, right? So from the space perspective, we had -- half of our business was in the beauty category. And we felt it fit really neatly into your system without really overcomplicating it. The lessons that we'd learn deploying the previous system, we felt looking at the AutoStore, we could just effectively drop it into a building. We could wrap all of our software around it. So the plumbing as we described is pretty straightforward, right? What could possibly go wrong? So -- and that's why we did it. It just felt the right solution, but the least risk solution. And if we didn't have it live for that peak, we'd have a big problem.

And how did you learn about AutoStore?

I don't know. Is the only answer -- no I do -- we actually, we looked at Sports Nutrition business in Norway, maybe in 2012 or '14 -- and we saw this odd thing and it looked really interesting, right. And then we walked away from it. And we considered buying one in 2016. And for some reason, we didn't. And I've regretted that day ever since. But then I think we'd known about it from 2016, right? And because this was -- the reason we didn't do it then is we needed -- we felt -- we needed more flexibility with the benefit of higher sight, we didn't because we hadn't. We just didn't realize we'd get it, right? So we felt that the AutoStore would really fit the beauty category, and it fitted all the other prerequisites. So that's why we did it then.

Did you evaluate any other solutions in that process?

We must have done right. But I can't remember that. I can't remember evaluating economics or other solutions. It was just this one is perfect for what we need. We don't need to look anywhere else. Then we just did it. We have to move quickly. We're reacting more on instinct.

And as we implement because, as you said, time was of the essence, you needed to get this in quickly. What was the scars you sit with today through thinking back of that -- to that implementation?

There are very few. You class it as a major project, right? Technology project. There are very few that actually happen as they're supposed to happen. But this one did, it didn't miss a beat from beginning to end, right? So we've got access to the building at the end of May '21. It was still a building site, and there's still elements of the building we couldn't go into. We had a space that was cordoned off. Element Logic did a great job of building it in 3 months right on schedule. So then we start to inject -- we moved 10 million units of stock in, in 6 weeks and then middle of October, right on queue, we shipped our first order. And we had to, right? Because peak, we've got Singles' Day in China on the 11th of November, and then we had, obviously, Black Friday a month ahead, and we didn't know what we were doing. So it had to work and it did, and it kind of justified the space, the speed and the execution risk, it all delivered, which is rare.

But it's important, right? Because you need to trust it. As you said, we're putting so much volumes into that piece of automation from the get go.

But it's easy to understand it, because it's a mature system, right? So we saw it in Norway years ago, right? So it's not something just off the shelves right. So it's been there a long time, right? So with that maturity, you expect reliability, okay? And then you just got to assess the complexities of the integration and like I said, effectively, we're just wrapping our software around it, so you didn't have lots of partners involved in a complex integration. So it was simple, in essence.

Simple as valuable. From the first time you got your order, how did it -- or you sent an order out of that system. How was the first 100 days?

Yes. Well, yes, okay -- like. So all the commission was brilliant, right? And -- but we launched it right in the middle of peak and we didn't know what we were doing because we'd never use the system. There was no trail period. We just went live on day 1. There's no testing, just started shipping orders on day 1, right? And then the issue we had was because of the timing we had different pick strategies, we're picking to orders and then we knew we have to pick to a batch picking system fairly quickly, which involves software changes within the system, but also process changes outside the system, right? So we found that a little bit difficult, but it wasn't for 100 days. It was maybe for 50 days. We had a very painful 50 days. And then as soon as volumes normalized, it was -- it was just smooth, right? But our cost actually -- so we compare our cost to like a pre moving into their baseline in 2021. For that first 50 days, it was plus 50%, we were burning a bit of cash getting used to it. But then -- the next year, it dropped by 35% and then that's '22. Then the next year, we dropped by 20% again. And then in the first half of this year, it's dropped by another 20%. So like in 2.5 years, we've had a 61% reduction against the 2021 baseline. And while at the same time, our wage inflation has been 30%. So the actual economics that we never considered in the first place, you might argue probably the strongest investment case in hindsight. But superb, but then most organizations will kind of just look at the cost benefits and think that's brilliant. That's it. But then there's another point. There's more to it. Fulfillment sits at the heart of any digital organization, right? It's the only time you ever talk to your customer with that delivery, right? So it's the one thing you've got to get right, and it's one thing that's largely ignored, right? So not only -- and most organizations do ignore it, Amazon kind of the one global exception, but they've got the balance sheet, they have the expertise right. So they can focus on that. But most other organizations can't or don't, right? So everyone has this conflict between costs and service levels. So fulfillment typically just negotiated away through procurement teams where services sacrifice for cost. But what we've been able to do because of the quality of the product and what it allows us to do, you can get a very cost-effective solution, but then really turbocharge the service that you've given at the same time, then the knock-on impacts to the business can be pretty dramatic, right? I'll give you examples. So the next day cutt off in that building is 1 a.m. right? So no one does that in the U.K. at 1 a.m., but we keep trying to push it. Now the reason you can do that is you can identify and get orders very quickly in the system, as long as you can feed in through for the website. Now, there's things you need to do feeding through from the website. But as soon as they're there, the warehouse management system, you can go and get them right. So you've just got to be able to move them quickly through the warehouse, but 27% of our next day orders happen after 10:00 at night, when most of our competitors won't ship next day, right? So then what you've got is an acquisition tool, right? Customer acquisition tool -- it's not a fulfillment cost. It's an acquisition tool. But then you build relationships with the couriers, right. And so what we also now do is we upgrade a lot of standard orders. The standard order would be a 2- to 3-day delivery, right? But we'll upgrade it to the next day, and then we can get into customer cohort. So every new customer will shop to those will get an automatic upgrade, whether they've asked for it or not. And then we'll also upgrade lots of other cohorts or types of customers, right? So what you're effectively then getting is a very strong retention tool. Right now, we find in most organizations, right? They'll have huge marketing budgets whereby you'll allocate GBP 50, GBP 100 to acquire a new customer. And then you'll lose that customer because for 10p, your given a really c*** service, right? And it's never equated. So what I feel is what you've managed to get now is not only brilliant economics, superb economics, but you've then got a tool that goes to the entire organization, it reduces your marketing spend. It means you can optimize your marketing spend. And it touches all of it and I think brands now need to wake up to what that does. Fulfillment isn't a commodity. It's much more than that. And I think tools like this facilitate it.

And I agree and look, we've been seeing that more broadly where we operate as well. This has gone from being solely a cost-saving lever. Something that's strategically important for brands, because it's how you deliver on your promise, how we deliver to the SLA? So much of that customer experience is with how you actually fulfill. One thing is accuracy, but it's also speed.

Yes. It is. And what we found with the AutoStore is, we can keep pushing the boundaries with it. Right. On day 1, when you spend a lot of money on this thing, you're scared to breaking it, right? And then you get the economics to start working in and your scare to breaking the economics. So it took us 18 months to really start experimenting with it in terms of what else can we put through it. And then we just started to add different product sets to it. I mentioned before we didn't choose it in 2016 because we didn't think it was flexible enough. But -- so we put footwear in and the economics are still the same. We put clothing in, and it didn't have any negative impact on the economics and more than that, the economics kept improving. So you keep putting more at it. And then -- so it keeps giving more back in terms of the cost perspective. But you're right, you can keep pushing them the service elements of it because it's is so immediate, you can just go and get the orders you want to get whenever you want them, and there's zero delay. So the biggest delay in there at the moment is because the conveyors are so flipping slow, right? Because someone built a kink in the conveyors. It takes 15 minutes for an order to get from the top pack bench down to the sorter. That's a problem we have in there at the moment. It's not been able to get the orders. It's just to automate to transport them down.

What's the next move.

Yes. Remove the kink. Yes. But that's fulfillment, right? It's lots of small changes.

Yes. It is.

Right, so then the other small change is within our facility, right? So we were worried that we were going to run out of space, and that space is a great solution, right? But we just weren't being very smart in how we put it away and how we configure our bins, right? So now having put all these additional products in that we were scared of putting and we've got 100,000 empty bins out of 300,000 total. So 1/3 of the bins are empty. 90% Of our picks come off the top 2 layers. So we're not using 14 layers below it, right? So we now know we've got tons of space. They're going to get lots of clients and fill the space, but then -- but then it shifts -- the bottleneck shifts. So inbounds are slight issue, so we're going to automate inbound a little bit and outbound becomes the bottleneck for us now. So how do we figure out how to automate the outbound, right? But it can impact still for us. So we've built a simulator now. So we've -- we've changed a batching algorithm for this peak, right? Because you can't test it unless you're live right? You only find out if it works or it doesn't work, but now we can. So we think we're going to have a better peak this year. We do 25% more, we think, because we've changed a batching algorithm. And -- but that's the point, right? You can just keep getting more and more and more out of it.

Exactly. And this is continuous optimization part of how we designed our model is that we know that we're not only going to be the entire solution on our own. We're going to be dependent on other types of solutions around us. And we also believe that partnering with best-of-breed technologies out there enables you as a customer to actually optimize. So how do you -- would you say that this open interface mentality has you as value.

Yes, look -- and your right -- and it depends on the maturity of the site as well, right? So we've got a site in New Jersey and we're going to put one in Poland. We wouldn't look at having to do automation on inbound and outbound, yes. We just put that in. But the one is -- it's like a Formula 1 car right, you are the engine, right? The engine is brilliant, but how do we get better tires and better fins, right? Just to -- just to tweak it around the size, and that's all you're doing, right? You're building around the engine, the heart of it. And you are that heart. But we've got to keep finding ways just to I guess, follow up cost or follow bottlenecks right. Because we can -- we think we'll do 0.5 million units at peak. If we can through some not too expensive software around it, double out to 1 million, right, and start using the bottom 14 rows as well. So we've had payback more than 2x in less than 3 years, on those economics, right? So imagine if we double the outputs from it, what the payback is going to be. It's just a cash machine, isn't it? If you can use it well.

It's valuable. Tell me more about the site that you're putting in place in New Jersey?

Yes. We did that last year. It's a smaller site, but that's the beauty of it, it's modular. We can just keep building on it. It's in New Jersey. We've got facilities in East Coast, West Coast but this is kind of our core facility. So we've got it in there. We've actually built the control system for that site. So we took more of the technologies ourselves because we're curious about how we can try and get into that and figure it out in a lower-risk, smaller environment. So -- but we haven't done much of that experiment. We spend all our time getting the big returns on this one.

With results?

Yes results, you keep doing it, right? Just carrying on doing that.

Yes. So if you spoke to decision-makers in this market, trying to think through, should I put automation in today, should I wait 2 years? What would be the advice you'd give them?

I think this year the industry face is that the biggest cost in the fulfillment center is payroll rise. It's going to be a minimum of 60% of any fulfillment centers cost base. And in the U.K., it's going up 30% in 3 years, in Poland minimum wage went up 20% this year, right? So rightfully, is getting pushed up, right? So organizations need to address that efficiency point, the repetitive tests have to be automated, right? I think what organizations need to figure out is how they get the balance sheet but then the ongoing optimization. Or if you could think, well, we'll get X amount of payback in year 1, but it's going to keep giving. Then it's going to be a different viewpoint on the investment decision -- and I would think most spreadsheets will just have a fairly flat cost line where that has been coming down and down and down. So it's a case of how do you get authority behind that ability to continue to -- how do you continue to optimize it, right? What are the things, what are the measures that a user of it needs to do to keep making it better.

There was also a question from the audience earlier about paper, pick or OpEx-based model. What's your view on that versus taking everything as CapEx?

Well, I'm a big advocate of it. I think it's just -- the biggest barrier to all users, I think it may have been one of your stats, 80% of fulfillment centers are still entirely manual.

Yes.

Which is crazy. It's just not right. So why is that? Well, it's -- there's the CapEx barrier isn't it and then there's probably a lack of expertise within those types of organizations, which means they don't have the confidence to make those big investment decisions. And then been able to then optimize it. I think we will look at an example, the cost structures in some organizations are becoming quite you would say, politely, right? So there's so much money in it to take out. So -- but you've got to overcome that CapEx hurdle. So as much of that as you can remove with confidence, then I think is great. then there is so much ongoing financial upside for everybody that there's plenty -- you're turning an annuity then aren't you? So look -- and I think, there's a lot more constraint on balance sheets now than there was maybe 2 or 3 years ago, right?

It's a good point. I also wanted to open up for the audience. Any questions? We have a wealth of knowledge and experience here.

Thank you very much.

Thank you. Maybe to address maybe the other side, are there anything with the AutoStore today where you're still struggling or you would like maybe better performance, any parts of the system where maybe you're working with them to find a way to improve further?

Always. But the same applies to anything, at any business right? I mean particularly in warehouses where there's lots of small processes happening in lots of places, right? There's work you can always do. So we've got ongoing strategies to increase bin fill, which means you've got to work when you put away logic and you pick in logic. So you've got different logics that determine the health of it. We're working on how we can get the robots to travel less distance. So then they spend less time charging, for example. But again, that comes down to logics around picking, putting away and how many empty areas that you have and where you're picking from. So it's like many things, there are just so many things, small changes that are there to be had. You just need to effectively prioritize them and go for the biggest upside, but it's totally ongoing. But that's -- that's how -- I mean we've added complexity to it by putting orders in there that we think are more difficult but from an inbound and an outbound perspective, yes, we're still reducing the cost by 20%. And it's because you just all the time, just making small changes, there's no big bang answer. You just got to really understand how it's operating and what you're going for. So what we're going for -- well, it was space, let's free more space, because we calculate, we were at 45% full and we calculated that with this change, we could get to 25% full, right, which really does open up a lot of storage capacity, right? And that's great. So we're about 35% now, so it's working nicely, but we've got to figure out outbound capacity now as well. That's now our biggest capacity constraint effectively. But it shifts around, but you just got to understand the tools that you have and what you need to be focused on.

I just wondered if you could comment a little bit on the payback period that you experienced because this was presumably during the COVID period, where utilization rates were a bit higher and then dropped down. Just interested to hear what it would be like in the utilization rates that you're running through today?

Yes. Sure, look. So we -- I'm calling from '22, '23 in the first half of '24. Okay? So in '22, we reduced our operating cost by 35%. So just about didn't pay back in that period. It was about 80% it paid back in year 1, but it's paid back more than twice now in 2.5 years. And we reduced the cost by 20% in '23 and 20% in the first half of '24. And bear in mind also, we've now got quite a large amount of 3PL business in that facility as well because we freed up the space to be able to put that in. There's an awful lot more volume going through it.

So with the improvements that you've made, would you have made a different strategic decision, I guess, more at the start to reduce the amount of automation you were putting in initially, maybe more variable labor. I'm just wondering how you think about the automation space in that context?

No, I wouldn't have done. I might have made some different decisions, but the sizing one wasn't one I would have done. I think we got it right. Our difficulty was in between '19 and '21, we doubled in share GBP 1 billion to GBP 2 billion, right? And you have no idea what's coming next. You have to make decisions, right? And the one we made in 2016, we thought would last a decade and they didn't it lasted 3 years, right? So you've got to take some viewpoint on it. So we felt 100,000 square feet. We bought more robots in. So we added the number of robots to get more capacity. But in terms of the space capacity is exactly the right size to do it. But you can -- the optionality is different sizes into different locations, into different demand locations, right? So we build a business around that facility now as well as serving our own stuff.

And if you think about this uncertainty that you mentioned, you don't know what's going to happen 2 years from now, right? How important is the scalability aspect of our solution relative to what you see with some of these sort of legacy technology.

Well, the modularity of it is great, isn't it, right? So that's 100,000 square feet. The one we got in New Jersey, it's about 15,000 square feet. And the one we're looking at in Poland would be about 40,000 square feet. So -- and it's fairly straightforward to increase it. So it's very flexible in that respect.

Very good. Any other questions? Down here.

Just wanted to understand the efficiencies that you've talked about subsequent to putting in the system. Could you help us understand the ongoing involvement of AutoStore in delivering those efficiencies? Or is it really a case of you buy the original equipment? And then as you learn how to use it, that cost efficiency comes through? Or does AutoStore have a big role to play in that?

I think there's 3 parties with the part to play in it. It's Element Logic, built the system for us right. So they have the control system in that. So we speak a lot with those guys in terms of what tweaks and configurations can we do with the software. But equally, we're not going to turn down the opportunity to deal with the people who build the system, right, because they have expertise as well. So -- but equally, just seen boost on the screen there, we've been to visit Boost. And we've been to visit all the customers right. You take as much knowledge and learning, as you can do because each understand different elements. So you build all of that as much as you can do, but what's key is having, I guess, your own people who are able to interrogate all these different third parties and then put that into practice to deal with whatever configuration changes, optimizations you want to do, but you'll speak to as many people as you can do, but each has a very vital part to play in it.

Emilie, I am from DNB. Just curious, I think you have also been looking or have implemented some competitive solutions. Can you maybe explain a bit like how they defer and they compare towards an AutoStore?

Yes. Look, so we've just recently put in a competitive solution, but that was more aimed at a client we have where we're moving pallets around. So we definitely can't put pallets in the AutoStore. It's the one thing that we cannot put in there yet, right? So we did a solution there. It's been live for [ 4 ] weeks. It's probably a little bit early. It will be a very interesting comparison when it's a little bit more mature. But it was to service a particular need. It's a very small proportion of our overall business going through it, but it's too early to tell, really.

Maybe if I may, John. There are some -- we have some webcast viewers watching from home. And I've received a couple of questions to you. One is from Petter Nyström, from ABG. And he's asking, what do you think AutoStore should improve to become an even more relevant system for more customers in the coming years? So what's your advice basically?

How could I answer that one?

Okay. I think, in some instances, it takes too long to understand the improvements that you can make. I wish they were more accessible on day 1. I wish it was just a manual of -- these are the things that must do. Or these are the options you have in these -- well and I know you kind of -- how can you run that book when you don't know what you're running for? But there are maybe some things that could be better understood. Small point.

Thank you. I have another question for you, John. Would you like to see AutoStore offer solutions in adjacencies such as picking arms?

No, would be my answer. And the reason being, picking arm technology, I know why you're asking that question, right? Picking arm technology is incredibly difficult to get right. And there's lots of providers building it and very few actually using it and very few using it at scale because everyone is still trying to figure it out. I believe that you should focus on what your best at, and keep building out the capabilities of the AutoStore. There are certainly technologies that can be adjacent. I don't need partnership models or whatever, right? And -- so we're working on the piece of tech to go and inbound at the minute, we're working on piece of tech to go onto the outbound right. I think that's all very sensible. And there's lots of options with regards to picking arms. But I just don't think it's there yet. No one's really -- it's too many breakages, it's too many misses, it's just not reliable enough. And for us, it's not where our greatest area to attack cost lies or our greatest need is right now. It will come in time. But do you need to develop it out? I get the question, but I'm not sure that you do.

Thank you for those insights. Any other questions from the studio? Thank you.

Perfect. Thank you. Thank you for the discussion.

Thank you.

Thank you to John Gallemore, COO of THG. Now we are soon close to the end of this program. And I would like to welcome Paul Harrison, our CFO, to talk to our financials.

Thank you, Hiva. Okay, to the final session of the day. If you reflect on the day, we've shared our thoughts, we shared our research into the market. We've talked about what we consider to be our unrivaled position in the market. We hope we've come across as both proud of our track record, but equally as a business that's constantly striving for more, restlessly innovating to drive an even better customer experience. We've talked about growth drivers, and we've explained why we see those high margins has been sustainable, particularly given the highly standardized nature of our product. So how does all this come together into a financial envelope? Well look, just before we go there, let's just final slide on this sort of topic take stock, because it's probably my favorite slide of the day, but I'm a CFO, right? As Mats has explained, whilst growth isn't linear quarter-on-quarter, if we step back and look at the performance of this business since its IPO in 2021, since our Capital Markets Day in 2022, I hope you can see why I think it's an incredible business. As the slide shows, we've delivered very strong top line growth and truly best-in-class adjusted EBITDA margins, and that has translated to strong cash flow. Okay. With that, let's return to the principal theme of today, which is AutoStore's medium-term financial prospects. So what I've tried to do on this slide is summarize what you've heard. We've talked about the growth of the light ASRS market and the factors driving that growth. You see reference on this slide to 40% growth that Mats referenced earlier today. I would remind you, however, that we do expect market growth to be lower than that in 2025, as you also saw from Mats slide. We've talked about Cubic storages right to win, the category we created all those years ago. So you can form your own views on market growth and order to share in that market we've given you those building blocks. As we think about our growth potential, it's worth remembering as well that it's underpinned by a record-high pipeline. And importantly, we've seen 90% growth in the pitched element of that pipe over the last 2 years. Let's to be clear, customers don't engage for fun. They've got plenty to do. They engage because they're serious about warehouse automation. Indeed, actually, I was at a large meeting with a large 3PL customer a couple of weeks ago, and they shared with me that warehouse automation for them had actually become a key boardroom topic and that it was seen as an essential source of competitive advantage for their business. So the earlier session this morning, you can see that it's the conversion to order backlog that has slowed, reflecting the longer decision cycles we've talked about. And this is where those initiatives that Mats kicked off the day talking about have been put in place to drive conversion to revenue. In addition, as you see, these projects in our backlog have become larger, reflecting the progress we've made amongst other things in the high throughput market. If I move on to margins. You've heard Israel describe the benefits to gross margin that our highly standardized product brings as well as the initiatives he's introduced to increase the resilience of our supply chain. Together with differentiation against other light ASRS players, enabling us to sustain a progressive pricing strategy, we're confident that we can sustain our high gross margins. This, combined with our partner-based go-to-market model enables us to deliver best-in-class adjusted EBITDA margins whilst allowing us to invest back into the business to address the substantial growth opportunity we've discussed today. On CapEx and cash flow, Parth, giving you an insight into the innovation agenda. With the growth of the business, CapEx has settled more recently at around about 8% of revenue. And that's become a somewhat normalized level, but I will say to you that our CapEx spend is going to be business case and will remain business case-oriented to stimulate organic growth. So I'm looking for Parth, to come up to me with lots of ideas and he will. Free cash conversion has been consistently strong, and it's going to remain so. And this, as you see on this slide, this strong cash flow has seen a gradual de-leveraging of our business, which is why you see net debt of under 1x. So with strong profits, readily converting to cash I've summarized our priorities for capital allocation on this slide. And of course, first and foremost, we use our cash to invest into our business to drive our organic growth agenda. Secondly, though, you heard reference by Parth, to adjacent technologies, which will operate potentially more effectively by a deep integration with our software. And it's possible that some of these technologies will come in via M&A. And finally, we keep under review options to return cash to shareholders. And it's worth stressing, there's nothing mutually exclusive in these priorities, given our high cash generation. Indeed, I would say it's a hallmark of all the strengths of AutoStore that you've heard today that we find ourselves in this enviable position. As I said at the beginning of this section, this really is a super business for a CFO to join. So I want to thank you today for paying attention to that last session. I think we've got our final Q&A session, and I believe I'm seeing all my colleagues, speakers, Mats, Parth and Israel back on to the stage. Thank you.

Thank you, Paul, for running through the financial performance. I do understand that you are very happy to be a CFO with us. So now let's move on to the final Q&A session, of today, and let's open up for questions in the audience and the studios, followed by some questions from the web audience.

It's Luke Holbrook from Morgan Stanley. Just on the M&A point, if you could just run us through in terms of sizing how you're thinking about the optimal leverage for the business? Just to be interested as a starting point.

So optimal sizing, first of all, difficult to generalize. But as I've sort of said there, I think a number of the opportunities we might look at are enabling technologies, probably not themselves stand-alone huge businesses that can come in and we can bring in and interoperate with our system. So I wouldn't want you to leave the room with the sense of substantial M&A around the corner. As to leverage levels, I think previously at IPO, the business had a target I've sort of talked about, a leverage of 2x. Certainly, 2x will be a very comfortable level of leverage, I believe, for a business with our cash characteristics. But -- and I've talked about how we would seek to sort of leverage our balance sheet further in the future.

And my second question is just on -- we've heard a lot today on the sales and engineering investment. What we haven't heard is more financials, the exact guidance on how should we expect margin evolution over time on the EBITDA margins in particular. Is there any way that we could try and maybe square that?

Yes. So look, you've I think got some clear framework building blocks, if you like, to think about revenue for the next few years. We've talked about the sustainability of our gross margins. So you're left, therefore, with the OpEx element. And what I've said today is that we will continue to invest in initiatives such as our go-to-market initiatives, but we're going to continue to deliver strong profits in the future. explicit guidance, we haven't given, but I think you've got the componentry today with which to model this business.

Thanks for the question. I wanted to dive a bit deeper on the software part of the business. Maybe that's more for Parth. Can you share that dollar number today on how much is generated from software? And can you break it down a little bit on what is the Cube part? Whats the kind of the Router? Because those are kind of 2 different and Unify analytics, what is kind of generated there now? How many customers kind of go for it or haven't?

Paul, do you want to start with the financial?

Yes. Yes, sure. The financial sort of context for you is our recurring and reoccurring revenues are less than 10% of revenues today. About 7% or 8% today. Software is the largest part of that router planner. Software been the two principal sort of sources of recurring revenue. So a relatively modest proportion of our business today, but I refer you back to the broader point, I made about recurring revenues earlier without repeating them.

Yes. I think what I would add on kind of the second part of that is if you look at what we covered with the router software and also our unified data and analytics. As Mats mentioned, it's at a majority of our sites on Unify, and Router as we get into the bigger sites and looking at high throughput, it's really the key to the solution to solve those problems for the customer. So we're going to continue focusing on both of those aspects and evolve those since initial launch really be more comprehensive and go across different sites.

And sorry, just a follow-up on that. How do you think about let's say, with the advancement in software, you need less robot, maybe only the same type of installation. And there's cannibalization element there. So how do you think about maybe with some of the other clients that need to move to the water, what happens on the hardware on that site?

Yes. Good question, right. Depending on the site, we model based on the throughput they're looking for and analyze how many robots or chargers are required to get that done. With that, we have a higher value software that's utilized, and there's an additional cost and price that we pull through because of that leverage. So it's not like we're losing the total value. Maybe it's moving from hardware to software, but the total cost is not going down.

And just to be clear, when we first released router, we released that with a way higher price point that are -- versus our previous planner software. So as more adoption happens, it goes over to router, we'll see that recurring software subscription element increase as well. And of course, to Parth's point, as more and more value creation is move over to the software element monetization. Strategies will follow.

It's Vivek Midha from Citi. A question for Parth, please. You mentioned the opportunity to move further into adjacencies. Would it be possible to elaborate which adjacencies look most attractive to you at the moment?

Yes, it's a good question. It's early in my tenure here. So we're looking at the different adjacencies, sizing the market. and understanding the best fit to both work with adjacencies and partnership models and make that easier to work and then also adjacencies, as Paul mentioned, to invest in or look at M&A in those categories. So we're still in that early stage of understanding which is the best -- but as you heard different customers mention, we want to invest and focus on adjacencies that make sense for the customer and not something just for the sake of chasing a new technology.

Emilie from DNB. Just building on the questions on the software side. Can you say something about the current penetration and what -- how we should think about sort of the upside potential here in terms of software revenues, both from Router and Unify Analytics?

Yes. I think I won't give specific numbers on the number of sites, but both -- if you look at the 2 buckets, 1 is our unified data analytics, which is relatively new in terms of the new releases we put out there. We have the ability to pull data and we go back to those sites and show them the benefit of having that platform. So that number has been increasing in the last couple of quarters. And as we launch newer and newer features, that's one of the areas we'll continue to invest and grow our investments in, so Unify will grow. And as we have this large installed base now of 1,500 sites, especially as we pull through a high throughput sites or multisite operations, that number is only going to grow. And the customer feedback has been very positive on the usage of the platform and the benefits it brings to them. So one of the examples I covered with Boost was one where we use the data coming back and expanded the site over a number of years based on this data. The second element is our Router platform. And now with the new enhancements we've made with that plus R5 Pro, that number will continue to grow also.

And then just another question on the software side. What are kind of additional features and functionality that you're looking to add that you don't have today?

So one thing that I covered in my section, is going to be our customer feedback loop and focus on the areas that we're getting the feedback. So initially, when we launched on Unify and Router, we focused on a groundbreaking innovation that we felt would advance the industry and the products. Now we have that cycle of feedback from people that have been using it, hundreds of sites, and we're using that to develop the road map. And what we're getting to now is as we did last week is focusing on a twice a year announcement to the market that will highlight what is launching in the next 2 quarters. And so software is becoming a part of that same package. And so that's something we can go through kind of the bullets of what's happening off-line. But we will continue to be very public in explaining what's coming in Unify and our software Cube control software on a biannual basis going forward.

So look, this is an area that we've invested quite a lot in over the last few years, and we've built the platforms. Now it's about continuing to expand that with new functionality and new releases as Parth talked about, that goes across the Router, it goes to Unify Analytics platform, but also the Qubit platform that we've built, where with some select customers, we go 1 layer up in the software stack, which for some customers is helpful, whilst for others is this open interface mentality that we've always had that creates real value. As John was talking about, there are the optimizations that they can do as a result of that.

And can I just -- if I can on the financials and the current order momentum, we are well into Q3, what are you currently seeing? And should we expect sort of book-to-bill to be above 1 in Q3 and the second half?

So as I said, look, we operate now in the same type of market today as we've been in for a while already. We've put in place the right initiatives to drive also short-term performance, and we'll continue to execute against those initiatives.

Eirik from Carnegie. My final questions for today. If I can start with you, Israel. What type of volume or annual revenue are you capable of handling with the new investments in Poland and Thailand?

In principle, we could go up 10x what we had in 2022. So that should give you a guidance more or less of where we are. And that's considering only 2 shifts. If we needed to go to 3, we could go up. Of course, it will not happen immediately. It will take us a few months to ramp up, but that's the potential capacity. And the investment that it will require to do though, it's actually, it's smaller than people might think.

Perfect. And then also a follow-up on the 15 weeks lead time. What would be the comparable lead times for alternative solutions that you're competing with out in the market today? And also, how much of a key selling point is a short delivery time? Also putting into context that you're working more towards high throughput, where inherently, the processes are a bit longer. So the need to throw yourself around and get the delivery super quick might not be as critical. Just your thoughts there would be great.

I guess it's a little bit more of a complex question to answer. I'll try to do the best I can. You saw in the presentation that we have today that we were talking about our competition as Cubic competition, as Shuttles as RTVs, it's slightly different depending on the technology that you're competing with. If you were to put us head to head against a shuttle, we'll probably be doing half of the time. And with the times that we have right now, we are becoming very competitive with the smaller parts of it that are selling off the shelf with little to no adjustments, right? When I look at the lead times that they have versus the lead times that we have right now, I would think it would be very difficult for our customer to make a choice to go with this solution just based on lead time as we will be talking about 2, 3 weeks difference. And that is something that is a tiny bit robot compared to a massive structure like the one we have. So I think this is really putting us in a very good competitive advantage.

And I think just 1 more thing to add is high throughput is 1 of the key pillars for growth. If you look at what Mats explained earlier on kind of going back to our installed base to upsell to add robots, expand as we've seen at some of the sites. That's still a business, and it's small, medium and those. And so we've seen cases, many cases where people want robots in 2 weeks, 3 weeks to add on to the system or add ports. And so those -- for those sort of things, the lead time is very critical.

And that was actually a nice lead to my next question here. And not to get carried away, and I know we want to be a bit cautious now on the short term and next year as well. But in the late -- or last kind of super cycle, the rule of thumb was that revenue in 12 months was about today's order book times 2. If we were to see interest rates come materially down and customers become more confident, do you think, theoretically, you could end up in a position where you could both convert the current order book significantly faster, but also add on systems for, you could say, instant revenue recognition that fast? Or is that unrealistic?

Eirik, I'll say a few things. One is that historically, growth has never been linear. There has been periods of flatness and then periods of growth afterwards. Secondly, when you look at the leading indicators of the business that Paul just walked through, we have the pipeline, and we have the amount of pitches to substantially grow this business, which tells us something around the market interest in our solution. Thirdly, as Israel talked about, we have capacity. If we need more capacity, it's a matter of months before we roll it out. And even if you add those months to our lead times, we're still very competitive against alternatives. So we have capacity leading indicators are there. But the reality today is that we operate in a challenging market, and we're addressing all of that, right? But for us, it's been very important to strengthen the platform as a business to strengthen the fundamentals so that we are there to gain market share at a scale that no one else can. Think back to the principles by which we built the business that I talked about earlier.

Any final questions from -- yes, there.

Jans [indiscernible] from Investment [indiscernible]. Interesting to hear about all the short-term discussions, but also looking ahead a bit beyond 2025. Could you speak a little bit about where you see the growth coming from? Is it existing customers, new customers, what markets, what application areas? Is it new sites, value per site, a little bit -- your thoughts on that would be interesting.

Yes. A few thoughts around it. I'll tackle it from different angles, right? One is that we have a customer base with an average of 1.4 installation per customer, which means that there is a huge potential within our existing customer base, which is also why we've built up as a global accounts team so that we can be even closer to that and discuss road maps of AutoStore versus just the individual sites. On top of that, you have the extension dynamics, which we've talked about. There's also existing customer base, very, very attractive. Secondly, only around 20% of warehouses out there have automation today. So that means that there is still going to be a lot of new customer acquisition. And the last 2.5, 3 years, we've added 500 customers, even in a cyclical low. So new customer acquisition is still going to be focused, which is why we're investing in this BDM team. If you look at end markets, look, over the past few quarters, the breadth of end markets that we serve has been valuable for us. For instance, industrials has taken a larger proportion of our business last quarter than what is done for a while. But if I look at the leading indicators, there is still a lot of consumer-oriented retail businesses that make up a very, very big proportion of that. But there we're into a bit more of this confidence in decision-making and underlying developments, et cetera. Looking at geographies, Europe has been a stronghold for automation, but we see U.S. growing has the potential to grow quite rapidly, just given the relative underserved automation presence, but also backed by the customer conversations that we're having. Asia, it's interesting because it's low penetration. And in certain pockets of that region, there are trends that will drive automation penetration. But again, a bit longer term opportunity. But we invest across all of those areas to give us that global presence that we talked about.

Then a quick follow-up there. It's super interesting to hear John and Mark speak today, right, and it's great customer stories. In particular, on the back of sort of the very short payback times that -- I believe the both of them have experienced. But it almost seems a little bit too good to be true, right? I mean what is it that you are -- in your eyes have been struggling with or lacking in order to convert even more of the pipeline that you've seen?

Look at present, it's been around customer dynamics and the ability to make decisions. And look, John pushed us a bit in the right direction, right? You need to be even clear on where those benefits are going to come from and how quickly they will come, right? So we can always do a better job, which is also why we're launching these initiatives that we are, right? But to a large extent, when you're this early stage of a market, there's also a lot of just perception, you need to educate the market. There's a complex sales process. There's a lot of stakeholders involved. So what we do every day is to try to change those perception, get even closer to the customers so that we can have these important discussions because we see that not only with Best Buy and THG, but across our customer base, it is very attractive to invest in an AutoStore system. And we see constant in payback times of 1, 2, 3 years. So it is attractive. But early-stage market penetration will come over time as customers realize this and get familiar with what benefits this can yield.

So I think we'll round up the questions from the audience and the studios, and we have a couple of minutes left. And I think I'll do this. I'll ask each of you a question from the web audience. So I think this is probably for you, Parth. What do you think AutoStore should improve to become an even more relevant system for customers in the coming years?

Yes, so good question, right? If we look at the question that was just asked, this is the first company I've been at, where I visited dozens of customers and the feedback just continues to be ultra positive as you heard today. People love the system and how it's benefited their ROI. I think one of the things we have to do better to improve it is just that education the marketing and kind of making sure more of the world knows about us and doesn't have to come look for us. So once it's known, once education is there, the ROI speaks for itself. It's more about kind of getting it out there. And going against systems that have been there a little bit longer and showing the value we have and the benefits we have in ROI. So that's probably the #1 thing I would want.

Thank you. And Paul, what are the biggest risks associated with not achieving gross margin of 70% over the next 5 years?

I guess if we look back, geopolitical shocks that can create spikes in commodity prices when aluminum is obviously a reasonable proportion of our product comes to mind. That said, if you look back at how we handle that at the time, we did apply a surcharge and actually protected gross margins very effectively. But that's the obvious one on the sort of cost input side, I would say.

Thank you. Mats, you touched on it earlier. When you lose to Shuttle Installations, what are often the reason?

Because I said each customer journey sales process is different. But to a large extent, customers out there will go with what they trust. They will go with what's the recommendations of the network that they already have? And look, Shuttles has been dominating this high throughput segment for many, many years. And that's kind of where the muscle memory goes. And it goes with something safe, it works. So whenever we get a true head-to-head chance, we see that our win rate is high. But it's about getting to that point in time where we actually are getting evaluated on those right metrics.

Thank you. Israel, what's the key benefit, the largest advantage of opening the second facility in Asia?

Probably the biggest advantage that we have had, if we look at it from a gross margin perspective is a new set of suppliers, very competitive, that have pushed our existing pool of suppliers to be better, to be more competitive. So from a gross margin perspective, I would say that, that's probably the #1 advantage. And then we have other secondary things. Now we have 2 sites to -- at least 2 sets of suppliers. So we are more resilient than we were before. We're closer to our end markets, less subject to problems with transportation, logistics, spikes in costs, political issues. We're in a much better place from that point of view. So our ability to deliver and deliver on time, it is considerably better than where we were 12 or 18 months ago.

Thank you, Israel. I think that wraps up the last Q&A of today. For those who have asked questions online and haven't received an answer, we will be following up. So with that, I think we'll hand the word to Mats for a final wrap-up.

So look to that at the end, I want to summarize what we've talked about today and why we're so excited about the prospects of our business. So first of all, we operate in a massive underpenetrated market, which is driven by secular mega trends. Look, the market is expected to grow at 14% CAGR between today and 2032, and Cubic storage is emerging as the winning technology. AutoStore is the global #1 within Cubic storage, with the largest installed base of global customers counting 1,500 sites with more than 1,100 customers, and we're not standing still. Innovation is ingrained in AutoStore's DNA, and we keep pushing the boundaries of what is possible. And in this market, we have multiple ways to win. We have a solution that works across all end markets and all system types. And we have a global go-to-market model with 23 partners, supplemented by our own business development and global account teams. And look, we have a strong financial profile, supported by a truly differentiated offering and our approach to product standardization. And look, because of this approach, we have demonstrated strong consistent margin performance. And we are set to deliver growth, strong margins and high cash generation. And look for all of those reasons, we are very excited about the future and what we will be able to achieve in the coming years. So on behalf of the entire management team, I would like to thank all of you for spending the time with us today. And I hope you come out of today with a better view of the business, but also share some of the exciting and the excitement we have about this business. Thank you.