Asetek A/S

Ladies and gentlemen, thank you for standing by, and welcome to the ACETEC Q3 2020 presentation conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. And without any further delay, I would now like to hand the conference over to your first speaker today, Peter Mudson. Thank you. Please go ahead, sir.

Thank you, operator, and thank you, audience, and welcome to this ACETEC Q3 2020 conference. The board they met last night, and they discussed the report we are about to give you, and we released it a few minutes ago. My name is Peter Madsen. I'm the CFO here, and I have with me André Slot-Eriksen, who is our CEO and founder. Good morning. Good morning, André. So if I lean out over and look out the window, then I can see quite a lot of sunshine, and that pretty much reflects the mood we're in over here at ACETEC, because the report we released this morning is quite a strong report. What we're going to do now is that Andre, he will go through the presentation. After that, and I will do the financials after that, we have a Q&A session where you can follow the lead by the operator and post your questions verbally. Or maybe even easier, you can go to wherever it is on the website you're following the presentation at and type in your questions there. Then we'll read them out and take them one by one. With that said, We'll go to the first slide. And, André, you were up. Yep.

So before doing anything else, I would like to say thank you to my team globally. I think everybody knows it's difficult situations out there and a difficult environment. And I'm actually very happy and very proud that we've been able to pull this off. It's not been as easy as it's printed on the paper. I can guarantee you that. But it's obviously fun and exciting to be a part of. So let's dive into it and look at the highlights. If we look at the quarterly revenue, it's a new record for us, 21.5 million, and reflecting the growth of, yeah, pretty much 108% over the same period last year. Our gross margins went up over last year. We have a record EBITDA. We have a yet-dead revenue of 45%. As you already know, we adjusted upwards our revenue expectations for the year to a growth of between 25% and 30%, which will be a new record for us also. So I don't know if it's good or bad that we have to start with COVID-19, but let's do it anyway and see how we are doing as a company in this situation we are all in. So if we look at our contract manufacturers and the whole China division, it has actually had limited impact on our ability to supply so far. And as China seems to continue to reopen, it means that our production capacity is also good. And I think needless to say, We have been able to improve our supply chain capabilities quite a bit to service the demand. I mean, it's a lot of liquid coolers we're shipping right now. Internally, if I should call it that, like everybody else, we are obviously focusing on our employee health and safety, so we have done a lot of measures here at our headquarters We are fully operational, but people have the flexibility to work as home or from home as they please. Needless to say, I guess, there's not a lot of travel activity. We're trying to manage everything online. Also, needless to say, I guess, we have a very high sourcing activity. There's a lot of things going around sourcing. And we have also hired quite a few new people, and we're continuing to do so. And we are updating our continuity plans all the time and, you know, following how the situation is, including market research also, but we'll get back to that later on. On the OEM side, so in other words, both on the customer and direct customer and our end user side, We keep to see positive signals from the gaming and enthusiast market and our direct customers as well. That's obviously also what's reflected in our numbers. And on top of that, we also see increased data center activity. So all in all, there's not much to complain about from an Asetek perspective. If we look a little bit about the revenue and profit outlook, we are now down to having one quarter left, meaning that it's pretty easy to do the math for everyone. But as we expect, a 25% to 30% growth, it corresponds to pretty much $68 million to $71 million range. And in any case, it will be a new revenue record for the company. Our gross margins are expected to increase to roughly 47% from roughly 42% in 2019. And our income before tax is, let's say, roughly $10 million, up from $1.5 million last year. So for sure, it's going to be a record year no matter what. And, yes, there's uncertainty related to COVID-19, but fortunately we are at a stage right now where, you know, it will almost require a plane to crash into our buildings to destroy this. Now it looks good, and we feel pretty comfortable about it. Looking a little bit top down on the business, we have more or less three legs to stand on right now. It's on the left, on the slide, we have our enthusiast and do-it-yourself OEMs, so gaming and enthusiast OEMs. To rehab, it's for end users who are building their own PCs, small system integrators and things like that. But, you know, in the essence, people who are building PCs from component level and up. Then in the middle, we have our gaming and performing PC OEMs. There's a few of them here. There's Alienware and MSI. So that's for end users who are buying a complete gaming PC for their gaming system at home typically. And then we have the data center market where we have a few OEMs as well. The most exciting because it's the newest is, of course, HP, Hewlett Packard Enterprise, who has started shipping in the quarter, but I'll get back to that as well. If we just look at how we are organized briefly, I don't want to go into too much detail, but we have sales and marketing in Silicon Valley in the U.S. because it's close to a lot of our partners and customers. And most importantly, that's where we can get the best employees for that type of jobs. Then in Texas, we have our COO close to HPE and close to Dell. We have sales in London. And here in Olbo, where I am, we have R&D, prototyping, sourcing, in-house manufacturing, quality order management. We have most of the management team, and we have marketing and branding also. So as you can see, that's actually expanding quite heavily also. Then in Asia, we also have quite a bit of R&D, actually. We have sourcing. We have our contract manufacturing, of course. We have quality auto management, and then in Taipei, in Taiwan, we have sales. And if you would think if we have a lot of end users in Taiwan, no, we don't have more end users in Taiwan than everywhere else, but pretty much all the big OEMs have R&D facilities in Taipei, so therefore it makes sense for us to be there as well. If we look at the quarterly revenue development, of course, it's nice to see how it develops. But as you can also see, it is fluctuating quite a bit up and down. But I think the closest quarter is actually Q2 2018. But even compared to Q2 2018, you can see the revenue is a couple of million dollars higher. So it's a very strong quarter for sure. Diving into the gaming and enthusiast segment first. What are we doing and how are we doing? We are currently shipping to more than 20 OEMs. And if you think about it, if each of these OEMs have, let's say, between two and four products, it means that we have more than 80 different products just for these OEMs. Top five of them represent roughly 80% of the revenue, pretty much the same picture from 2019, although the composition is not the same. Our ambition, of course, is to increase customer diversification over time. It has proven to be difficult, though, because we are pretty good at picking the best in the market, and obviously as we pick the best, we also get the highest revenue share from them. But that's a luxury problem to have right now. We obviously, as we always are, are looking at the IP situation all the time, and we're If we look at the top five composition of customers in alphabetic order, you have them here, Alienware, Asus, Corsair, Fractal, and NZXT. I would say, though, that if we look at the last quarter, this is not how it's reflected. This is pretty much a picture of the year up until now. We have not only been busy in manufacturing and sourcing, we have also been very busy in R&D. And when we're busy in R&D, it also means we're busy in sales. So pretty much the entire company has been running around to make all of this happen. And just to give you a little picture or a flavor of what's going on, just here in Q3, we had nine new products started to ship, four of them for a brand-new do-it-yourself customer. And three of the new products out of the nine, so a third of them, is actually for NVIDIA's new Ampere GPUs. We also have a substantial pipeline of new products scheduled to start shipping in the next quarter, so in Q4. So, yeah, super busy. As you may remember, what was it, one and a half year ago, we decided to – to get our brand more forward, so making sure that the end user got a choice instead of just choosing between the different OEMs out there. We felt it was important that people know when they're buying an ATT&CK product, and I think that's also a part of our success, that even though we may shift customers, people stay loyal to our brand. We can see that, so for sure that's been a good strategy. and something we're going to pursue even harder in the future. If we look a little bit more on the, let's say, strategic side of the things, our goal, of course, is to continue our growth in the space. And there are a few ways we can do that. We can look at R&D. We can look at branding and marketing. And, of course, we can get more customers. And, yes, needless to say, we're doing all of it. And on the R&D side, we are looking all the time, new innovations, new routes to go, new things to try. On the branding side, as I said before, we are going to push it harder, so we're doing even more co-branding. We are connecting directly with gamers and enthusiasts via our forums. So I think we are well-positioned to monetize our brand. Yes, we are, of course, always looking at new customers all the time as well. Looking a little bit on the data center side, as we can see here on slide 16, HP has started shipping now, and they are online with their products, including our products, obviously. And We have received the first orders also, so that's pretty much progressing to plan, I would say. And in general, on the data center side, we have so far announced nine orders with a revenue of $5 million. We have announced three orders in Q3, and two data center orders announced in Q4, totally different. I think it's actually supposed to mean shipping in Q4. But anyway, we have an increased pipeline on the data center side, and that's what we have been seeing all year and basically what I've been reporting since the beginning of the year that – we are starting to see a pickup here. It's too early to talk about how much and how fast, but the tendency is clear. So that's really good and really nice to see. If we look at the strategic development of the data center side, yes, the goal, of course, is to keep pushing and to keep winning orders, to keep winning OEMs and to penetrate the market. We do that in different ways, but I will still say from an overall perspective, I still believe that what we're doing, meaning the OEM way, is the right way to do it. And, you know, I think HPE is a good example that the more successful they become in the market, the more successful we become. And that's a much better way than us being out there pushing end users. What we should do instead, and that's what we're doing, We influence the influencers and, of course, the whole political side of it as well. As I mentioned at the last call, probably three months ago, there is actually happening quite a lot in the EU behind the scenes, and I am continuously very optimistic that we will get through with some legislation about the use of waste heat and the use of liquid coolant. But it's a big machine, and it takes time. And therefore, of course, it's really nice that while we are doing this big push on the political side, that we are getting orders on the HPC side. So that's really nice to see. And then before I'll do the final wrap-up, we'll have Peter go through the financials. Yes, absolutely.