Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reported a 12% sequential improvement in revenue, reaching $154 million, driven by EMEA and North America.
- Order intake grew by 8% year over year to $324 million for the first half of 2024.
- Achieved a Q2 gross margin of 73%, marking the eighth consecutive quarter of gross margin improvement.
- Maintained an adjusted EBITDA margin of 49%, consistent with the same period last year and up 300 basis points from Q1 2024.
- Expanded leadership team with the addition of Parth Joshi as the new Chief Product Officer, bringing extensive global experience.
Negative Points
- Order intake for Q2 2024 was $141 million, a 23% decrease compared to the strong first quarter of this year.
- Revenue declined by 12% year over year, reflecting longer conversion times from backlog to revenues.
- Challenging market environment with longer evaluation cycles and customers deferring automation projects.
- Increased operating cash flow was negatively affected by higher receivables, contributing to higher working capital.
- Investments in market-facing activities and R&D led to a 20% increase in OpEx, despite revenues being down.
Q & A Highlights
Q: My first question is about the backlog duration and how we should think about that then in the Q2 versus year end 2023. I think the backlog is of around $30 million and is this representative for what we should expect as an increase in the second half? Or how should we think about growth in the second half of this year?
A: The backlog duration is extended for the reasons we've talked about. Customers taking longer to make that final purchase commitment and indeed, customers entering into multiyear commitments with us. We are seeing customers commit for longer to the business, which is clearly a good thing. As to the second half of the year, we do expect to see sequential improvement in revenues as we go into the second half of the year, most notably in quarter 4 of this year.
Q: Just a follow-up on gross margins. I'm just curious whether the step-up you've seen in this quarter as well as last quarter, what you expect for them as the remainder of the year?
A: At the start of the year, I talked about gross margins in the late 60s and there was some caution in that statement resulting from the risk around geopolitical factors impacting commodity prices. But you've seen now for two quarters a strong gross margin in the early 70s. So I think it is reasonable at this stage in the year to expect the gross margin for the full year to start with a seven and be in the low-7s as well.
Q: Could you maybe explain to what extent and how are you, from your side, can improve the delivery on the backlog that you have? Or do you feel like you're on this part more like fully in the hand of your customers and their decision of when they really want to commit to the project?
A: We have several initiatives in place not only on the high level strategic stuff, but also on a project-by-project basis. We have, to a larger extent now our people involved hand-in-hand with the partners on a project level, which gives us more insights and more opportunities to impact. However, our top priority is to sit together with our customers and support their timing so that we end up having good customer relationship and end up being partners with them for many, many years to come.
Q: What gives you the conviction into the more, let's say, H2 weighted number like a Q4 weighted pickup then? Do you already have like good commitments from your customers and like feedback that they will really commit to the projects in Q4?
A: We are close to the projects that we have in our backlog. And with the timing that has been indicated for us and with the visibility we have, we do feel good about the second half and particularly Q4.
Q: My understanding was that the start of Q2 had been fairly similar to what you saw in Q1, but clearly, the order intake weakened. Did I misunderstand basically your message in Q1 or did order somewhat softer later in the second quarter?
A: We've seen similar dynamics for several quarters now. However, with the dynamics that we are experiencing in the market now, combined with the fact that underlying we're a project-based business, we will see these types of fluctuations. But if you look at the longer lines, for instance, year-to-date, we're up 8%. So you need to look at this in a larger time service than only individual quarters because we're impacted by these types of dynamics that we're seeing now.
Q: You mentioned a sequential revenue improvement in H2 with more effect in Q4, how good visibility do you have on that? Could it be a scenario that when you enter Q4 that suddenly some of the customers are saying that we need to postpone this until the first half of '25?
A: We're able to talk to our partners on a project-by-project basis and update on expectations. And that's what informed the comment that the likely dates that customers are going to commit to the delivery of projects. But as we've tried to say today, this to your question, is an uncertain market. Is it possible some of those customers will defer? Yes, it is possible that we -- we are looking at this on a highly granular basis and taking actions as noted, to stimulate that quarter 3 and 4 growth.
Q: How should we think about the postponements you cited last year when you took down the revenue guidance in, I think, was the third quarter? And which projects were you cited some delays from H2 '23 to '24? Are these being delivered on now? Or are we still waiting -- are these customers still waiting per se?
A: The average age within the backlog has obviously increased. However, the projects that we were intended to ship last year has, to a large extent, either has been shipped or in the process of shipping. But there is a shift and a dynamic backlog. But of course, the underlying dynamic remains largely the same this year as we also saw last year. But we're deeply involved in these projects. So we have a granular view on a project-by-project basis.
Q: You're investing quite heavily with 20% OpEx growth with revenues down? Will you preserve margins going forward? Or are you kind of thinking longer term here?
A: We always think longer term, that's quite right. But at the same time, we are also thinking about taking actions to drive short-term performance as well. Now what we benefit from here is that strong improvement in our gross margin. And it's that improvement that we're investing into these initiatives to drive growth. Therefore, I expect to continue to report those high adjusted EBITDA margins.
Q: On the Capital Markets Day in September, should we expect any financial targets to be presented? Or will it be mostly product and company centric?
A: There'll be a lot of content on that. But yes, you can expect me to talk about the financial envelope within which we think you should think about and model the business over the medium term.
Q: I just want to understand a bit more about the order intake momentum in the second quarter. How is the run rate or like a development booked second quarter? And how is the momentum going into the third quarter?
A: To describe it is a run rate -- to characterize it as a run rate at the minute would be to belie the lumpiness that we have talked about in securing orders. Whilst we saw that promising start to quarter 2, clearly, over the balance of the quarter, we didn't see a stronger performance. So I don't think at the moment, it would be fair to characterize an order intake as having a very clear run rate.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
