Asetek A/S

Good day and thank you for standing by. Welcome to the ACETEC Quarter 1, 2021 presentation. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and 1 on your telephone keypad. Please be advised that today's conference is being recorded. And if you require any further assistance, please press star and zero. I'd now like to hand the conference over to your speaker today, Peter Madsen. Please go ahead.

Thanks, Nicole, and thank you to the audience for joining this ACETEC Q1 2021 presentation. I have with me, not in the room, but on another line, Andre Slot-Eriksson, our CEO. Hi, Andre. Hello. Hello. We've had quite a busy day. Our board met last night and discussed and approved this report. And then this morning, we've had our annual general meeting. And we're now ready to present the quite strong Q1 of 2021. The way we'll do it is that Andrew and I, we will be running through the presentation. We'll show it on the web app that you are probably in front of. And then we, as Nicole said, we'll have a Q&A session at the end of this thing. And you can either call in via the phones or feel free to type in your questions on the web application. With that, André, over to you.

Thank you. Let's start on page four. Just a highlight of the quarter that's just come behind us. So biggest, highest revenue ever in Q1, reflecting a growth of 174% over Q1 2020. That was a rather weak quarter, so pretty easy to beat, but way above my own expectation with 174%. That's quite a bit above. Gross margins of 43% compared to 49%. We will obviously go or come back to that in detail, but for those of you who have followed us for a while, you should know that anything about 40% is great. 40% in the space we're in is high. So whenever we have the sun and the wind and everything in all directions, sometimes it's awkward, but 43 is still more than a respectable number. Obviously, we also have a record EBITDA of 4.7 compared to zero last year. We announced the SimSport investments we have done and our plans for that. And we are still on track to launch new products later this year. We made an FDR target change release earlier in April that things look pretty good. We expect now a growth of at least between 20% to 30% compared to last year. over a revenue of 73, so it looks good. We do expect on an overall level that growth margins will decline as already alluded to, but still way within our normal parameters. So if we go to the next slide. If we look at the current situation, and when I say current situation, There are, let's call it, three items that we and everybody else is struggling with at the moment. There's, of course, the COVID-19. It has had a limited impact on us, and if anything, probably a positive impact. But we have our full production capacity running business as usual. We have, of course, expanded our supply chain capacity to meet the increased demand. And so far, we have also avoided a significant impact to the IT shortage on a global scale. Although we have started to see it and know that we have not been impacted thus far, but it is a risk. And the third thing that we are obviously still impacted about is the tariffs. COVID-19 has taken all the headlines, of course, and the global shortage of IT, but as Peter will probably allude to later when we talk about the growth margins, et cetera, don't be fooled to think that the tariffs don't impact us. It has a huge impact on our margins. The good news is that we're still getting along pretty well, but it is a thorn in the eye for sure. We focus on our employees' health and safety. We follow all the guidelines that we have to follow, of course. But our headquarter of sales, manufacturing, engineering, everything is fully operational. We have a, I would even call it a very high sourcing activity. You know, I think here in April, we are manufacturing the highest number of units ever in one month. I think we are approaching 200,000 units in one month, so we are running fast at the moment. And on top of that, we are expanding our workforce, of course, to meet this growth and also to develop our simsports business. On the customer side, what we see is what we call continuous positive signals. Things are looking good. We see good response from the GME business. From the data center side, there's not really a lot of news. As always, we have low visibility. We report significant orders when we get them, and yeah, that's the nature of that business. As I said to begin with, we expect our revenue to increase on top of a very strong year last year. so that's really nice and of course that means that our range of guidance is now between 87 and 95 I don't think it's necessary to say but I will of course say it anyway that we will I will of course go the extra mile to see if we can hit the magic 100 million number and we hope of course but As the situation is, right now things look good, but we also know things can change. But just so you know, hitting the 100 million number would be great. The range we came from was 10 to 20, so still we had expected a good growth this year also. As I said, our growth margins are expected to decrease We are facing forex. We are facing, of course, the IT shortage. So although we don't have shortage, we obviously have to pay for what we get, and it's not become cheaper lately. We are facing a terrorist situation, and I don't want to go into any details because of our customers, but what I can say is that the impact is measured in millions of dollars within the quarter. So it does have an impact. And finally, on the bottom line, we are, of course, also investing in the sim sports business. So, of course, that will have an impact on our income. But that's all a part of the plan. Go to the next, Peter. This slide... It's more or less the same. Yeah, it's probably been like this for a number of years, but there are subtle changes, and I like to go through it every time, and I'll also do it this time because it tells you a little bit about how we are growing our organization and how we are growing it. So if you look to the far left in our Silicon Valley office, it used to be more or less only an abuse support function. But we actually, over the years, have added product management. We have added a new wording called total solutions. That's for those of you who have been around for a long time may remember that word. It's actually FAE, field application engineering, so that we have engineers close to our customers. Up until now, we have primarily had engineering and engineering support out of Denmark, But needless to say, with the COVID travel restrictions and for other reasons as well, being close to the customer makes sense. So we've actually added that. We have branding, outbound marketing, a finance function, and we also have a part of management over there now. So our Silicon Valley office is growing again. And the reason I say again is that when I lived there for seven years, it was also a a sizable office, and then we scaled it down, and now it's been scaled up a little bit again. Then in Texas, close to HP and Dell, we have management, John, our COO. We have sales in London, in Aalborg, Denmark, where I reside. We have product management. We have R&D, prototyping. a lot of in-house prototyping, sourcing, in-house manufacturing, quality, order management, branding, marketing, finance, and then, of course, Peter, myself, and a couple of the other VPs are residing there. In Xiamen, in China, we also have product management now. We have some level of R&D sourcing, obviously. We have our outsource manufacturing, quality, order fulfillment and finance. And then in our Taipei office in Taiwan, we also scaled up a little bit as we now have total solutions, so field application engineering there as well. We have some R&D, product management, and of course sales. So that's the global organization as it looks today. We are roughly 140 employees. It's difficult to count because there are more or less new people starting all the time right now because of our growth. Yeah, I think that's what I want to highlight. On page eight, if you look at the business segments that are generating revenue today, we have the gaming and enthusiast business where we have split that in two. We have the enthusiast and do-it-yourself customers who are building their own PCs. And then we have the, let's say, more hardcore gamer type who is not necessarily building their own PCs, but buying gaming PCs from our OEMs, Alienware and MSI. And then on the data center side, we have Fujitsu, HPE, and Supermicro. That's a select of them. So, We've pretty much been through it. It was on slide nine already. But just looking at the bars, very strong Q1, following a very strong Q3 and Q4. And if we look at the margin just once again, we are obviously spending money. We have roughly 20 employees in the sim sports department. So that's why you see the white line pointing downwards, and it, of course, will be pointing downwards for a while. If we jump to slide 11, if you look at that segment alone, the D&E, it looks very strong again, both on the market side and on the revenue side. I just want to stress once again that on the gross margin level, in my book, it has said minimum 40%. And that's been my guidance towards myself for the last 20 years. And that's also how it will continue. And anything above that is gravy. And, of course, we're doing everything we can to keep it as high above 40% as possible. But nevertheless, 40% is the guidance ticket. If we look at phase 12, along with the number of shipments, we of course also enable new customers and new programs. In Q1 alone, we introduced four new products to our do-it-yourself OEMs. Just here in Q2, we expect to start shipping six new products. We are investing even more in product development, branding, and this whole idea of branding behind the brand initiative, it works pretty well. Our partners are featuring us. They are talking about us. They are highlighting us so that end users, they know they get the real deal and not from a cheap knockoff from someone. So that strategy really seems to work well. If we look at our customer base a little bit, we are currently shipping to more than 20 OEMs. We actually have more in the pipeline. Top five represented roughly 90% of the G&E in Q1 versus 81% for the full year of 2020. The largest OEMs are the ones who have handled the crisis and benefited the best. I don't think that's a surprise. Of course, our ambition is to increase customer diversification over time. I don't know if it's luck or what it is, but it seems as we have been good at picking the winners among our customers, meaning that our really good customers are also really successful. So therefore, it's really difficult for us to manage the diversification, but I'm not too worried about it. And if you look at the graph on the right, the five bars, you may say, oh, the customer concentration looks the same now for the last five years. Yes, that's correct. But keep in mind that name of the different colors is by no means the same So what that means is that if one big collar disappears, then a new one will come in, and that's why I'm saying I'm not too worried about it. On the IP side, I don't want to say much other than we are, of course, following the situation, and there's no dramatic development since our last fall. If we go to page 14, yesterday we introduced... a new series of coolers with ASUS for their ROG, stands for Republic of Gamers. And ASUS have been an OEM since 2018. And they have been in the, I mean, they have been a forerunner of this whole branding initiative that we made since 2019. It's one of our top three G&E OEMs right now. They are doing really well. We have started with you know, early on a simple co-branding program, but it has actually developed over time from, or to that we are now on the retail box. We are on the Republic of Gamers webpage talking about the cool biotech. We have feature videos, unboxing videos. We have promotion giveaways, et cetera. So it's a, It's a really good partnership, more than just, let's say, an OEM customer-vendor relationship. So that's really nice. If we look at the strategic picture in the G&E business, I don't want to dig into too many details, but the goal, of course, is to dominate the market, simply as that. And the way we're going to do that is, of course, we are going to keep developing new products, new technologies, We're going to grow our customer base, our OEM base, and, of course, we'll support it with branding and marketing. Nothing rocket science here, really. It's just getting it done. And if you look forward, I think the reason why people are buying A2Tech is because of the performance, the quality, and the reliability. You know what you get, and that's, of course, what we're going to push going forward. We have co-branding agreements in place. We're going to do more. We are connecting directly with the gamers and enthusiasts via social media and online communities at Discord, etc. So all in all, I think we are very well positioned to monetize our brand. If we jump to slide 17, the G&E... Up until now, it has always been about liquid cooling, but the same sport is of course also within the gaming and enthusiast market. If we just spend a little time on that and recapping and perhaps introducing new people to it as well. The idea is that we see sim racing and sim sports in general. It doesn't necessarily have to be racing. We start out with racing because we think it's the most low-hanging fruit at the moment, but in the longer perspective, it could be gaming simulation of anything from racing to flight sims to golf simulators, skiing simulators. It could be anything simulator-related. we identified this racing opportunity through our eSports Academy and our racing engagements. And it's, in fact, highly complementary to what we do already at AC Tech. As a big overlap of customers, there is a direct overlap in our capabilities within mechatronics, so software, hardware, and mechanics. That's what we're good at at AC Tech. And... Just like everything else within gaming, the racing sim market has really grown and is growing really fast. For us, the way we wanted to enter was we wanted to do it fast. We didn't want to hire 100 people and then say we come to market in five years. So what we did instead was we acquired a company and we acquired some IP from a company that that is enabling us to go faster to market. I have to say that, well, at the end of the day, we need to see how much money we can extract. And that's, of course, and we all realize that that's the judgment day. That is when the revenue starts to take in. But if we forget revenue for a second, I would say that these two acquisitions we have made, it's working really well. We have a strong team, both in software and hardware, And they are working well together with, let's say, old Asetek people and new people we acquired. And I'm actually very confident that we are going to release our first product already this year. And if you think about it for a second, within 12 months, assuming that I'm correct, within 12 months, we've been able to buy two companies, start product development from scratch, and then be in the market. And If you wonder how can you go to market within 12 months and say that it's from scratch at the same time as you say you have bought something, what I'm getting at here is the first we are going to release is a pedal set. And for sure, the software was somewhat developed already. But the mechanics office, everything, we have patented technologies in there. We have a lot of new stuff in there. Everything is grown from scratch. blank sheet of paper within 12 months. So in my view, that's spot on what I had hoped for, that everything we've learned and everything we know from doing liquid cooling, we could apply directly into this, and that is in fact what we're doing. And if we go to slide 18, what you can see also is that it fits directly into this gaming space. If you look to the left of this SimSport bracket, in every simulator there is a PC, and in every simulator, at least at the level we are targeting, there is a high-end PC, and a lot of them are actually PC enthusiasts already building their own PCs, and guess what? Many of them, there is a liquid cooler. So we continue to be excited about this investment, and I'm sure that it will bring us a lot of revenue going forward. Yeah, I think that was enough about Sims 4. So if you go to page 20 and talk about data centers a little bit, on slide 21, Q4 2020 was a strong quarter And the same for Q1, 21, also a strong quarter. You know, when we get significant orders, we release them. So I think it's not a surprise to anyone to learn that there's not been a lot of new orders coming in here in the last month or two. And, well, there wasn't an order coming in today, actually, but in my view, it was not significant enough to release it. It is the lumpiness of the business as we have seen all along and that's also what we see now. We don't really have a lot of intelligence to add other than our customers are happy with what they see and what they get and we keep executing on what we get. In the quarter, we had three new orders and that's why I said that I felt it was strong and the demand was Of course, also no surprise driven by HPE and Progisto. And just to illustrate that there is not a direct correlation between our activities and the order inflow, we have developed roughly 20 new server loops the last few quarters to support new customer wishes for servers and CPUs. So there's actually a quite high activity level, also by fulfilling the orders that we got the quarter before. So the whole data center organization is actually quite busy. I still believe that the whole green angle about data center and regulation and legislation will be the main long-term trigger. And if we look a little bit from a strategic perspective on the data center side, It is still to create a highly profitable and thereby highly sustainable business. That's obviously the goal. And the way we are trying to do that is to influence the influencers, whatever they might be, from journalists to politicians to OEMs. We push on all the buttons that we can. The way we try to increase end-user adoption, it is pretty much the only way we can do it, is through our OEMs. both the existing ones, but also new ones, of course. And the hope, of course, is also that, for example, with an HPE, that now that we have success in the HPC space, the high-performance compute space, that we can ride on that and leverage that into other segments or even more HPC design. That's, of course, the goal. As I mentioned quite a few times the last few years, this whole global agenda about green sustainability, carbon emissions, et cetera, everything plays into our basket from a strategic perspective. The CAS 22, of course, is to turn it into a good business also. And that's, of course, what we are working on. And in my perspective and from my perspective, as I said before, We do need some of the politicians to put the money where the mouth is. It's not enough to claim that we have to be green and we have to do this and we have to do that. But then when we have really, really big problems like emissions from data centers, then they have to also step up and do something about it. And that's what we are trying to influence, of course, as well. So with that, Peter, I'll leave the floor to you.