Asetek A/S

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's ACETEC Q1 2020 presentation. At this time, all participants are in listen-only mode. The meeting will be followed by a question-and-answer session, at which time, if you wish to ask your question, please press star and 1 on your telephone. I'd also advise your presentations being recorded today on Wednesday, the 22nd of April 2020, And I would now like to hand everything over to your host today, Peter Madsen. Please go ahead. Thank you.

Good morning, everybody, and welcome to this presentation of the Q1 2020 Asia Tech Results. Our board met a few hours ago and approved the presentation and the report, and the report was made public one hour ago. I'm Peter Madsen. I'm the CFO, and I have with me here André Slot-Eriksen, who is our founder and CEO. Good morning, André. Good morning. Very good. Thank you. Today, by the way, is also the day of our annual general meeting. We'll start in one hour and 30 minutes, and you're all welcome to dial in and listen if you so desire. There's a phone number and a web link on our website. When we're done with the presentation here, then I'll hand the word back to the operator for a Q&A session. and she will help us with that. Otherwise, you're also very welcome to post your questions in the app that you are presumably looking at right now. With that, Andre, the floor is yours.

Yes, thank you. So let's dive right into the highlights for the quarter. A revenue of $9.1 million, a decrease of 18% from the 10 quarter last year. Don't read too much into that. I'll come back to that. Growth margins increased to 49 from 43 to 1. Basically, as we have alluded to earlier, it's driven by higher data center prices and our business model transition in G&E and obviously a stronger U.S. dollar also. We had an adjusted EBITDA of 0.2 million compared to 0.3 to 19, so more or less the same. Our cash position increased to 26.2 at the end of Q1 from 24.5 at the end of 19. In terms of corona, we've not really seen any substantial supply chain or operational impact. In the middle of the quarter, in the early of the quarter, Q1 that is, there was obviously a lockdown in China and our Chinese employees were forced to stay home. So Q1 is affected a little bit by that, but other than that, we have not really seen anything yet. And as such, we maintain our group expectations for the year. Also, we are initiating a share-by-back program launch to offset the stock options that we are granting. Talking a little bit about the COVID-19 situation, Obviously, we are prioritizing the health and the safety of our employees, so we have really used a lot of home offices lately. Here in Denmark, though, we are basically more or less, like all of us, we obviously use social distancing, including in our manufacturing and on our manufacturing lines, and, well, Needless to say, there are travel restrictions both in the company but also on government levels, so that speaks more or less for itself. I would say that our group functions are fully operational. I would say in terms of communication and execution in the company, we have not really seen anything going down compared to where it used to be, and I really think and believe it's because despite being a small company, we are spread all over the globe. So we are used to communicating and we're used to working this way. So good job to our team, I would say. If we look at our supply chain and operations, if we look at the external manufacturers or contract manufacturers, I would say that we have a limited impact on our abilities to meet our customer demand so far. As I said before in the beginning that In Q1, we had a few orders that were delayed because, yeah, essentially the whole of China was on forced holiday. So roughly a little bit more than half a million dollars is moved into Q2. So that's a little bit of the explanation about the decline in revenue in Q1. We see definitely the situation in China improve, and they are and we are slowly reopening Q2. So I expect that we'll be back on full steam at the end of this quarter. We have seen some capacity, or sorry, component shortages, but not something severe yet. Of course, we don't want to be overconfident. We don't know what we don't know. Like the rest of you, we cannot predict the future. All I can say is that so far, so good, and so far we have not really seen a big impact. At ACETEC, Basically, in Denmark also, as I said, we are basically fully operational and back to where we used to be, I would say. We are constantly looking at the scenarios and how the business is evolving and how the market is evolving. So far, we've not laid off any people, so there's not been any adjustments, and we have no plans to that effect. What we have done, though, is we have said that this year there will be no salary increases in the company, and that's company-wide. And I think, number one, that's a good signal. Number two, I think it's also important to keep our cost base in check because things are uncertain. We still have money on our bank account, as you will know, but still, I think it's a good measure. In terms of the market, we are still seeing positive signals from both the gaming and enthusiast OEMs. The purchasing pattern pretty much in line with what we had expected. In terms of the data center, as you will see a little bit later, we think the pipeline looks healthy, but of course, due to the lockdown in various places on the planet, it's really difficult to predict what's going to happen. Yes, as I said early on, we have a strong financial position. we're not going to go out of business anytime soon, no matter what's going to happen. And of course, it's not a sleeping pillow, but in these uncertain times, it's nice to know that we have a strong cash position. So if we look at the year so far, we have Q1 under our belt and we are on our way into mid Q2. And as I said, we have a few special components that's been affected. However, it's not been critical in the sense that we've still been able to supply. We are seeing some of our customers having problems with some of their components. So that could be a rebel effect down to us that if our customers cannot supply, then of course. So let me give you an example. If a PC builder cannot get a memory stick, then, of course, he doesn't need liquid cooling because then he cannot ship his PC. So that's the ripple effect. But, again, it seems to be manageable right now. The gaming and enthusiast demand looks good. People are gaming. People are having fun at home when they can't work. They are building and tinkering with their computers. So we are seeing positive signals from the OEMs. That being said, our visibility is as it always is. We can look a few weeks out, and that's it. In the data center side, we are seeing increased activity. More projects, so specifically HPC, but I'll get back to that, more projects are getting tender. However, it is uncertain how many will move to final award this year because of the COVID-19 situation, but at least so far it looks good. Of course, it also means we have limited visibility for the second half of the year. What we can say, though, is that historically, the second half of the year is typically 10% to 20% stronger than the first half of the year. Of course, in these times, the uncertainty is a little bit more, but, yeah, it looks good. And the net of this is that we maintain our guidance for the year. As you may remember, and as I have said earlier, we have stopped doing quarterly guidance. First of all, we cannot predict what's going to happen. We know that our quarters are always fluctuating a lot, and as such, we have basically turned over to full-year guidance. And our full-year guidance this year is a decline of between 5% and 10% compared to 2019. Considering the current macroeconomic developments, our business model transition that I'll get back to, and reduce demand from one big OEM customer. That's how we landed on this. And, of course, the uncertainty related to COVID-19 just makes things even more insecure. So net-net, we expect a positive income year. And I think if we can get out of this year meeting our guidance being profitable, I think we've done pretty good, actually. If we look at the long-term drivers, and I think that's important to remind ourselves right now, new hardware is constantly required. Gaming and enthusiasts, that market is still strong. As I said earlier, right now we are definitely not seeing a demand problem. It's more a supply problem, if anything. And the need for more sustainable data center solutions is definitely also there. So long-term drivers are the same. If we look at our business overview here, as you can see, it says gaming enthusiast, 95% of sales, data center, roughly 5% of sales. That's what we've said more or less for a long time, but it is fluctuating. And these numbers are also not representative for Q1. And as such, we have also stopped guiding on segment level. Sorry, reporting and guiding on segment level. And when the data center market takes off and we have a meaningful business, we will, of course, get back to it. But for now, the lion's share of our sales is the gaming enthusiasts and, to a less extent, the data center. As you saw this morning, probably, we just had a data center award. So, of course, we'll keep sending releases when we get design wins. but it doesn't really make sense to report on it. If we look at the past, Q1 basically reflects the high market volatility that we have seen, but as you also know already, our business model transition, the fact that we pushed over 600K of orders from Q1 to Q2 basically explains why the quarter is lower, so there's not really drama behind the numbers. Looking at the gaming and enthusiast market, we are currently shipping to more than 20 OEMs right now. Top five represent 81% of the gaming and enthusiast revenue in 2019. And that's a decrease from 85% in 18. And why is this important? Well, it's obviously important because we are focusing on not having or having too much customer concentration. And as you can see on the bars at the right of the slide, we are actually quite successful in that. Some of it is not, let's put it like this. Some of it is a volunteer effort and something we are forced to buy it. especially this one big customer, but I'm actually quite happy and quite proud that we've been able to mitigate it as strongly as we have. And if you're in doubt about what I'm talking about, I think most companies, if they lose their number one customer, representing 60% or 70% of the revenue, and we are still going as we are, I think that's pretty damn good. We launched the highest performance and the most advanced liquid cooling to date within GXT. We're very excited about that, and we're very excited to see how it's going to go in the market. In terms of our branding efforts, I don't know how closely you are following us or you are following the market. It's not something that we are doing a lot of, let's say, investor marketing activities. But definitely in the market, it's going pretty good with our branding efforts. We have done a lot with Alienware and different press sites. Right now, I think we have co-branding agreements in place with seven OEMs. We are connecting directly with gamers and enthusiasts via our CoolNation forum. So we are really trying to position ourselves to monetize on our brand going forward. Talking a little bit about the data center market. In February, we began delivering waste heat from our in-house data center to the district network in Aalborg. That was, in my opinion, quite a big milestone because there are a lot of skeptics out there. There are a lot of people who are trying and companies who are trying to invent stories of why this cannot be done. Now we're doing it. We are selling hot water basically. It's working really well and there's been a lot of interest in it. We see a lot of interest from political side. We see a lot of interest from data centers across Europe specifically. Unfortunately, due to the coronavirus, a lot of meetings have been postponed and a lot of meetings have been canceled. But nevertheless, The global sustainability agenda obviously tightens in. Again, because of COVID-19, I think it's taking a backseat position right now, but as soon as we get to more normal conditions, it's definitely going to be right there immediately. In terms of market adoption, I think it's unchanged. We still need to do our political efforts, And if you're wondering, well, how does that make sense when we just announced an order? The way I look at the market is HPC, so high-performance computing, is obviously a data center. But for us to be hugely successful, we need to get into the environmental agenda, not just HPC where it's about high performance and density. Speaking of which, If we look at the HPC market, as you know, we landed a big OEM recently, and that is actually progressing nicely. Of course, this specific OEM is also in lockdown, and their employees are working at least partly from home. But what I wanted to convey is that it's definitely not standing still. It's moving ahead as planned. As most of you know, we launched an order last night and published it last night. We launched an order in January for another HPC. And as I alluded to earlier, we do see an increased pipeline of potential projects. So that's really nice. Personally, I hope we will see a lot of final awards this year. But there is a chance that it will be moved out because of the situation. But again, so far, so good. And with that said, I will leave the work to Peter for a moment.