Asetek A/S

Welcome to the Ascitec Q4 2020 Capital Markets Update. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and a session. Today, I'm pleased to present André Slot Eriksen, CEO. Please begin your meeting.

So, good morning, everyone, and welcome to our Capital Markets Update, March 4th, 2021. I had hoped we could meet physically, but since that's not the case, then we have to get away with the second best solution. And that's what we're trying to pull off now. So if you go to the next slide. There is a disclaimer, I suggest you go and read it. I'm not going to do it for you. So let's jump right into the next slide, into the agenda. So first of all, I'll be talking to you a little bit about growth and market expansion, about some new business areas, what I believe for the future in terms of growth, et cetera. John is taking over, talking more about the gaming and enthusiast cooling business. Deepak is going to talk a little bit about the data center world, how that looks. Jim Carlton will talk about a little bit more about our expansion into the sim sports markets. And then Peter will talk about the financials. And then at the end of the day, Peter and I will do a Q&A and John. So with that, let's go to the next slide. And as we already know, 2020 was a great year for us, and we would like to see that continue, of course. So how do we do that? What do we see? How do we do it, et cetera, is what I'm going to focus on. So with that, let's go into the next slide. In 2020, it was our best year in many ways. It was record revenue, record gross margins, record EBITDA, despite losing our biggest customer, actually. So it's never great to lose your biggest customer, of course, but it's great to see that people keep asking for your products, although you shift the channel, so to speak. 34% revenue growth. I think we have done it before, but now once again, we have confirmed our ability to scale and the flexibility in our business and the scalability in our business. We have, like everyone else, had to deal with COVID-19. I think we have done that in a good way. We have been really busy. We launched a lot of new G&E products. And on top of that, we've also been really busy on the data center side, especially with HPE coming in, of course. And in parallel to that, we are entering new markets. I'll talk more about it, obviously, but we are entering into the sim sports market, which is also a part of the gaming and enthusiast market for that sake. And we think it's very interesting. We are really leveraging our core capabilities. More importantly, I think, is that we are now adding a third leg to our business. Hopefully it will make us even healthier, even stronger. And as a part of accelerating things, we have done a couple of M&A deals and we have added many more team members. So next slide. If we look a little bit of who we are and what we're good at at ACETech, we are founded on innovation and extensive mechatronics capabilities. And these capabilities have pretty much made us into the market leader within liquid cooling and within gaming and enthusiast PC applications. So what is mechatronics? It's actually, let's say, the common denominator of software, hardware and mechanics. And if you look at our products, there is a great deal of all three. And I think that's what we are really good at, combining the three. Next slide. And when I say I think we are good at it, I think I can actually prove that we are good at it, because if you look at this slide on our growth rates the past decade, we have grown 17% a year on average. And that's something I'm proud of. And it's something that I would like to see continue. Next slide, please. The business segments we are in today, I think most of you know, but there may be some who doesn't know. On the gaming and enthusiast side, we are selling coolers. So coolers as a standalone product. to a number of OEMs. Here's a few of them. There's ASUS, Fractal, MSI, NZXT, and so forth. And we are supplying these products OEM, meaning that our customers are branding them. We do have rebranding programs, et cetera, that we'll hear more about later. But the essence is that we don't sell direct to end users. We sell through OEMs and their channels. The target audience here is really PC tinkerers, hardware geeks, gamers, everybody who wants to build their own PC and tinker with their own PC. And along those lines, we also have gaming users, but who may not have the skills or the desire to build their own PC, so they would buy from a gaming OEM. A few examples here is also MSI and Alienware. which is Dell, where we supply the cooler, for example, to Dell directly, then Dell would build it into their PCs and sell it as an Alienware PC. So that's the main part of our market and segments as it looks today. And here on my right side, we're looking at the data center business. That's also purely OEM. We don't sell directly to data centers. We sell to OEMs. Here's three of our top ones, Fujitsu, Hewlett Packard, Enterprise, and Supermicro. Next slide, please. We have been not only from a revenue perspective, but I also think from a volume perspective, quite successful. If you look at the early start, it took some time. But in 2012, we passed the 1 million milestone. And now eight years later, we have sold more than 8 million liquid coolers. Next slide. We are organized in a way where we support our business the best possible way in my opinion. And I think that's also why we have been reasonably successful through COVID-19. And in a normal year, we travel a lot. We see each other a lot. That's not been possible. But because we are spread out, even as a small company, we obviously also used to have a lot of online meetings and communication through time zones and emails. And if you look at the chart here, we have sales and marketing in Silicon Valley. For obvious reasons, we have a lot of customers there, and Jim and Deepak will be calling in from there a little bit later today. Then in Texas, we have John, my COO, that you will also hear from right after me, actually. He's located in Texas. That's also a good place to be because in Texas, you have both Hewlett-Packard Enterprise as well as Dell. Then we have sales offices in London. I'm calling in from Aalborg, Denmark, where we have R&D, prototyping, manufacturing, quality, marketing, branding, and so forth. And then in China, we also have R&D, we have sourcing, manufacturing, quality, order fulfillment, and so forth. And then in Taipei, in Taiwan, we also have sales. And that's important because a lot of our OEM customers have their R&D departments in Taipei. So we believe that we are set up in a pretty decent way to supply or support the kind of business we're trying to do. Next slide. So talking a little bit about the new business we are entering, I'm quite excited about it for many reasons. But one of them is it's not been easy to figure out what we should do next. And when I say next, It could be anything from liquid cooling, other applications to entering gaming markets with different devices, etc. And we have looked for a long time. And I think we have now finally identified the next step in our development. And the reason why we've been looking, of course, is to look longer term, look five years, 10 years, decades out and to continue our strong growth and our solid margins. And needless to say, a business that's selling into five different segments is obviously more robust than a business selling into one segment or only one technology. That being said, we didn't want to go into the rocket ship industry or something similar. We wanted to leverage the capabilities and the know-how and the skills we already have And I think we have a huge potential here for further innovation and consolidation as a business. So next slide. What I'm talking about is the sim sports gaming market. And I do believe that what we're looking at here has a lot of similarities than what we did and what I did some 20 years ago. because the market today is very fragmented. There's a lot of small players selling pedals or steering wheels or things like that. And there are a lot of, let's say, challenges and there's a lot of problems with it. And I think we can solve a lot of those. We got this idea for two reasons. One of them is that I have been in the racing business for two decades myself and I still am. So I, as an individual, know a lot about racing and I have built several simulators myself. And on top of that, our esports academy, we have had, I think, five or six simulators for the last one to two years. And based on that, we got the idea that, hey, there's something we can do better here. There's a good business potential. And from, let's say, a product perspective and mechanical perspective and software for that sake, we do believe there is a big opportunity in the market. Obviously, we would like to go to market as soon as we could and as soon as we can. As such, we made some investments in IP and both hardware and software that was already in the market. I'll get a little bit back to that as well. That will enable us to go to market faster for sure. I think and I hope that late this year we will be able to actually launch the first set of products or rather the first component of a simulator this year. And that has gone tremendously fast. So that's really nice. From a customer perspective, there is a lot of overlaps here. We are still in the gaming space. We're also in the enthusiast space because a lot of people are building their own simulators. And on top of that, a lot of people who are building their own simulators are also building their own PCs. So we see a lot of synergies. Next slide. So to support the development and at the end of the day, our product offerings, We have done two acquisitions as we announced earlier, and what we really bought was, as I said before, time to market. We bought software, we bought technology, we bought consultancy, we bought mechanical and hardware designs. Yes, we could have done this from scratch, but we believed and we still believe that what we have done is we have cut perhaps two years of our development time. And we did that by buying IP from Granite Devices in Finland, a total of 8.3 million, of which half was paid in shares. And then we bought a small company in the UK called Ultimate Game Tech. which was also software and hardware design. And I would say already now, a few months after completion, that these deals have been really good. We are working together really nicely in terms of Granite devices. We are working with them. And in terms of Ultimate Game Tech, we took over a software engineer and took over the business. Next slide. So, We believe that this will fit right into our current business, both in terms of our capabilities, in terms of our customers, in terms of our supply chain and sourcing. And we are very well on the ways, actually. And I would like to show you a little video that we made for the occasion that will give you a little bit better idea of what it actually is that I'm talking about. What we are good at at Acetek is the combination of mechanics, software and hardware. It's called mechatronics. And if you think about it, what is a racing simulator? It's mechanics, it's software and it's hardware. In addition, we are good at mass production. We have sold close to 10 million of our water cooling systems. So we have sourcing and manufacturing and all that in China. So I would say it has gone strong. It's been 7-8 months since I started thinking about this with Simulator as a business opportunity. And now we are sitting here 7-8 months later. I think we are about 16-18 people working on it. We have run a business plan through the board. We have bought up a company in England. And we have bought up Intellectual Property Rights from a Finnish company. As you can see, this is something that we are passionate about. It's something we believe in. We have a decent number of people working on it already. I think we are 18, 20 people or something like that. And I'm spending quite some time on it myself. And if we look at the slide here about our growth, What I hope and what I'm trying to achieve is that in the five years' time, we have doubled our revenue, which would equal $150 million and which would equal a growth rate of 15% a year. And I definitely believe with this entrance to the new market that that's possible. With that being said, I'm sure you have a lot of questions and comments, concerns and excitements. But as mentioned earlier, we will do a Q&A when the rest of my team have done their presentations. So with that being said, I would like to hand over the floor to John.

Good morning. For those of you who don't know me, my name is John Hamill, and I'm the Chief Operating Officer at ACETEC. I'm based in Austin, Texas, and I'm approaching my 12th year anniversary with the company. Next slide, please. So I'd like to start with the overview of our revenue in recent years and quarters. And focusing on last year in particular, it's been quite a ride. We came into the year with modest expectations. In part due to losing our largest customer. And in part due to the outlook provided by our remaining customers. Then along came COVID. And we never looked back. Frankly, we couldn't. We didn't have the time. The entire company, and I'm including quality, research and development, operations, sales and product management, the entire company, our contract manufacturer, our supply chain, was focused on servicing customer demand. And thanks to the sterling efforts of all those entities, we were able to conclude the year with successive record quarters. Next slide, please. The data from John Peady Research confirms we were not alone. Indeed, John Peady Research believes the entire PC hardware market grew substantially last year and effectively established a new level for the industry. Now, whilst COVID played its part, the market drivers we've discussed so often in the past are still underpinning this growth. Next slide. To reiterate how those market drivers come into play, no pun intended, we have to consider how new games or derivatives of existing games drive gamers to chase what we've described historically as that immersive experience because it's that drive for the immersive experience that results in demand for the latest PC technology, the latest CPUs, the latest GPUs, which in turn leads to demand for liquid cooling technology. As liquid coolers are instrumental in enabling these CPUs and GPUs to deliver two things, performance and rock solid stability. And those two elements are both important in achieving the immersive experience that the gamers seek so much. Next slide. As our revenues grew last year, so did our activity with customers. We were able to launch more than 20 new products in the last two quarters of the year. At the same time, we were able to add new customers. We were able to expand product offers with existing customers. And we continue to pursue our branding initiatives. It's a testimony to the resolve and the commitment of the entire Asetek team and again our CM and again our supply chain that we were able to achieve all this and at the same time deliver successive record quarters. Next slide. So this slide is fairly self-explanatory. However, I think it's important to highlight that despite losing our largest customer, we believe that our current customer base is the strongest customer base we've ever had. And we're not resting on our laurels. We continue to look for new partners, new customers, high quality partners, high quality customers. And we're committed to reducing our dependence on any particular customer, whoever they may be. Next slide, please. We touched on our branding initiatives earlier. I just want to reiterate that at this stage, Our branding efforts are designed to complement those of our G&E customers. Our content, our outreach, is designed to remind the community that if you want the best liquid cooling products, you should buy Aceatec products from our partners. Now, there'll be even more emphasis on the Aceatec brand and how the brand is employed when we move into sim sports. And Jim Carlton will talk about that later on in this presentation. Next slide. So to summarise, our goal for the G&E segment is to further develop our leadership. To achieve that goal, we'll focus on innovation sponsored by our R&D team. We'll focus on growing our business with our existing customers. We'll focus on adding new high quality customers and we'll continue with our branding efforts. Now I'll conclude my comments at this point And I'll remind everyone that I'll be available during the Q&A to answer any questions. With that said, I'll hand over to Dipak who will now provide some insight into our data center business.