Asetek A/S

Welcome to the ACETEC Q2 2021 financial reports and earnings call. Throughout the call all participants will be in listen only mode and afterwards there'll be a question and answer session. I'll now hand the floor to our speakers. Please begin your meeting.

Thanks, operator. My name is Peter Madsen. We are coming to you from Aalborg from the Acetek company here today. I have with me Andre Slot-Eriksen. Hi, Andre. Hello. Earlier today, our board met and discussed the plans and the progress and the strategies and all that good stuff. And they approved the report that we sent out a couple of hours ago in the presentation that we're going to give you now. you will have the option to type in questions in the app on which you are following the presentation. And you would also be able to find a call-in number on the invitation that was sent out some time ago. So please ask your questions via whatever means fit you. And if you change the slide operator, there's a wonderful disclaimer. Please go ahead and read that. And when you've done that and change the slide again, yes, thank you. And with that, André, over to you.

Thank you. Yeah, you can go ahead to the next slide. Thank you. So just very briefly about the quarter, a new record revenue of 23.2 million, which is a 64% growth over the same quarter last year. An EBITDA of 3.2 compared to 3.1 a year ago. Our first half year revenue basically more than doubled. And the EBITDA increased 140% as well. We are investing in our sim sports. The R&D part of that investment was 0.7 million in Q2. And we still expect to launch products later this year. We also invested or increased our investments in general in the G&E to basically support The crazy growth we're in as well as future growth as well. We keep our revenue expectation 20 to 30%. I will talk much more in detail about that in a few slides. Same about the gross margins. We have gotten our hands down a little bit. The world has also come to us, so to speak. And therefore, we have adjusted the midpoint of our earnings expectations with three million. And I will also come much more back to that in a second. Next slide, please. So if we look at the things external to ACETEC to the left, so our manufacturing I think everyone in the world and also on this call knows about the shortage of semiconductors. I will not go into a lot of detail why that is, but the fact is that it's there. And up until last quarter, I remember talking about it and getting a lot of questions about it. But until last quarter, we have actually not seen it a lot. But we are seeing it now. And the way we are seeing it is actually twofold. But one of the sides that we are seeing it is that when we have to source our components now, we have to do it basically, let's say, all kind of alternative channels to make sure we can supply. I think the fact that we have doubled our business the last half year, it says it all that we are able to supply, but it also comes at a penalty at some times. We don't expect any situations where we cannot supply our customers also in growth scenarios. But we are buying components on the spot market sometimes. We are obviously focusing on strengthening our supply chain, both capacity and capabilities. And then the US tariffs are also hurting us quite a bit. And I'm no politician. None of us are. We had hoped. that with Biden on board, that they would figure out the trade war between China and the US. But it seems as it's not going to happen. So we are right now starting to look into all kinds of various scenarios for how to avoid that 25% penalty. It does not really make a lot of sense that we are working like crazy in our supply chain to save every cent that we can. And then on top, we pay a 25% penalty. So that is something we're looking into. Needless to say, in AC Tech, we have high activities right now related both to R&D, sourcing and quality. We are expanding our workforce both to meet the increasing demand and growth as well as our new sim sports business. Our headquarters, sales and in-house manufacturing, etc. are fully operational. I'm not 100% sure if our Chinese office is open or closed right now. Okay, so it has reopened. But I think as of last week, they were actually sent home. So for sure, the pandemic is still over us. And as such, we continue to focus on our employee health and safety, of course, and first most. So one side of the way we are being impacted about the component shortage is what I already told you. But there's also the other side, and that's with our customers. Our customers that are typically selling PC peripherals, if the end customer cannot get a new graphics card, as an example, they are, of course, not building a new PC. And if they're not building a new PC, they are not buying PC peripherals. So that is making some of our customers a little bit nervous and rightfully so. It's not something that we feel directly on our business. As I just mentioned, we get the components that we need. We have a record pipeline of new GNE products coming out. I'll get back to that. The data center activity is, yeah, it's still binary. It's still a very small business and it's lumpy. However, for the first time for, I would almost tend to say many quarters, there are positive news. in the sense that the work we have done in the EU seems to have paid off because in the new Green Deal proposals, there are actually legislation language around reuse of waste heat in data centers. So that's obviously very positive. If we look on the next slide, please. Just to give you some insight into the world that we live in and also to continue our style of being open and transparent, I already revealed that we are, let's say, holding on to our guidance with 20 to 30 percent growth, which equals a revenue of 87 to 95 million. Those of you who were on my last call, you may remember I said I was very bullish on the demand and the pipeline. And the fact is that the pipeline is record high and actually beyond our guiding. That's, of course, positive. The thing, though, is our customers are getting nervous by increasing shipping rates, not for us or from us, of course, but the increasing shipping rates, component shortage in the channel, etc., So right now we see a lot of moving around and pushing around of orders from our customers. And, you know, today we have August 12th and I still don't know how Q3 is actually going to pan out because people are moving things around. But the net of it is if we look at the total forecast for Q3 and Q4, it looks very strong. We have decided to maintain our guidance in this situation because with so low visibility, we just kind of have to stick to our best assumptions. So that's what we have done. In terms of gross margin, we expect them or they are normalizing from from 47 percent in 2020. And, you know, we have 43 percent this year compared to 51 in the same period last year. I think it's important to remind everybody that our margin goal on the gaming and enthusiast side is 40%. It's always been 40% gross margin. When we have the combined business, our target is higher because we want and expect much higher margins on the data center side. However, in periods where the data center sales is slow, then needless to say, the overall margin will be closer to the 40 than the 50. No rocket science into that. We have looked at our operating income and with the challenges we are facing and with the deliberate choices we have made. I'll get to that in a second. Then we have adjusted from the previous 11 to 16, from now 8 to 12. which is still in the range, but of course, the midpoint has moved. If we go to the next slide, I have tried to detail a little bit where our margin expectation come from or the bottom line expectation come from. I have categorized it into two boxes. We have something that's happening external to the company And then there's something that we have chosen to do inside the company. And if we look at the external actions first, the cost prices for us have gone 2% up and very simple reason. We are trading in dollars and towards the Chinese currency and towards the Danish currency for that sake, we have to pay more than we used to. That does affect our gross margin.