Asetek A/S

Hello, and welcome to the ACETEC AS Q4 2021, an annual 2021 financial report and earnings call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Andre Erickson, CEO, and Peter D. Messon, CFO. Please begin your meeting.

Thank you, operator, and good morning, everybody. Yes, it's March the 4th, 2021, and we welcome you to this Q421 earnings call and the, of course, the annual earnings call also. I'm Peter Madsen, I'm the CFO, and I have with me here in the room André Eriksen, who's the CEO. Good morning. Good morning. The way this is going to work is that we will go through the presentation as usual, and then, as the operator said, there would be a verbal and oral a round of questions if you decide to do so otherwise on the website in front of you you should have access to where questions and answers a section where you can type in your questions and we will see those and we will address those at the end of the call the board met yesterday last night and they processed the the annual report and the quarterly report and the presentation that we're going to give you now they are all available on the website uh of acetech and have been sent out to the oslo stock exchange at this point with that andre we shall start with you with the highlights so operator please shift forward two slides one more thank you yeah so uh where the dust settled was a 21 revenue of just shy of 80 million dollars so 10 growth

and an EBITDA of an adjusted 7.2 million. Worth noting though, is that our core business actually had a revenue growth of 13% and close to $73 million. Q4 revenues of 18 million compared to a record quarter last year or the year before, sorry, of 28 million. Our gross margins for Q4 were 42% compared to 44 the year before. An EBITDA adjusted of 0.7 million compared to 7 million in Q4 2020. And of course, the operating expenses reflect our investment in simsports, which we did not have the year before. We have had an encouraging market debut for the simsports, especially the reviews have been Yeah, very positive. And that has been encouraging to experience, of course, because we went to market with a very unique value proposition and that has definitely paid off. For 2022, I think everybody can understand it's a very different climate out there right now. Certainly not become easier over the last couple of weeks. So where we have estimated is minus five to plus 15 and on the bottom line between minus one and five and of course this is reflecting the global situation as it is right now i'll get back to that later change the slide please you can see that so if we look on the gaming and enthusiast market specifically For 21, after a few bumps up and down, we settled within our latest guidance. And if you look at our core business again, we are in fact or we were in fact very close to our long term goal of 15% as we settled at 13%. So even in a very, very difficult year, that what turned out to be a very difficult year, Our core business was more or less in line with our long term ambitions here. I would say we are still hit a lot daily of various supply chain challenges, shipping challenges, logistic challenging, US tariffs shortage, you know, GPUs curbing our demand in the sense that If our OEM customers cannot get the components to build their PCs, they are not pulling. Simple as that. So we are juggling this and nothing has really changed over the last year. But that also means that things are not falling apart because it is more or less the same. It's difficult for me to sit here and say, when will we see any light ahead of the tunnel? But this is the situation we've tried to build into our, let's say, 22 guidance and that this situation will continue for some time. And then we hope that by mid end of the year, it will start to clear up. If it happens sooner, the result will be better. If it happens later, the result may be what we predicted or worse. We simply don't know at this point in time. But our outlook is what we communicated earlier, a long term goal of an average 15% growth per year. What we do in our end and what we have done, and I think I've been clear about during the last year, to us, it has not been an option not to ship to our customers. So we have prioritized getting components in inventory, getting products in inventory. And I think that has paid off because when we have seen spikes in demand and when we will see that in the future, we are ready for it. Whereas if we did not have components, then no matter what happened on the demand side, we would not be able to meet it. And just a note on the tariff, we are actually working on, we can take more in the Q&A if you so desire, but we are actually working on getting products manufactured outside of China, Malaysia to be more specific. That's progressing. And at least for now, the sims sports activity are not, let's say, doomed by US tariffs simply due to the fact that we do the final assembly and let's say the enough value add in Denmark that we can claim the products are built in Denmark. And as such, we get rid of the tariff. If some of you should be smart enough to think, why don't we do that with liquid cooling? The short answer is that we are shipping millions and millions of these and bringing these to Denmark would never be a good idea. So therefore, the same sport and the liquid cooling is not really the same animal in this sense. Next slide, please. So just a brief look at the EBITDA margin and the It's as we have said before, it's it's obvious that when revenue goes down, it looks worse. And when revenue goes up, it looks better. And I think it's also clear that if we take out HPC, the world also looks better. And for sure, the same sport investment obviously comes with a cost. Next slide, please. So despite the situation we faced last year, it is actually, and I think that's after all important to remind ourselves, that it was a record revenue. It's our biggest revenue ever. And as you remember, we had a very strong start to the year actually. And the demand was crazy. At some point, we actually saw a growth, three digit growth rates for the year. And still, we kept our guidance from my perspective, at least fairly conservative. But then, of course, we were hit by something completely outside of our control. And at least from my seat, it was impossible to predict. And what we had hoped was some sort of recovery and stabilization in Q4. And I think that's also what we saw. And that's really, let's say, paving the way for how we look at 22. It's, of course, a broad range from minus 5 to plus 15. But what it really comes down to is whether, let's say, the situation around us will heal to some extent. And because just to give you a very real life example, we have a very large OEM customer. And for those of you who are intimate with our business, an OEM business to our partner to us is somebody who's building in our products into their product. And we have a very big one who is giving us very large forecasts and have been for a long time now. And they have the demand. They have the end user demand. But what happens often is that before they actually get to pull our product in their warehouse, they actually see component shortage of some sort from somebody else in the supply chain, and then they don't pull our product. So even though there's demand, even though there's inventory, we cannot get rid of our product. So that's why this is so difficult to predict at this point in time. And we had to come out with some assumptions. And as I said earlier, what we have assumed is that We do believe that, for example, the COVID shutdowns, I believe the Winter Olympics shutdowns, that's what I prefer to call them, will be over relatively soon. I expect that the component situation will improve somehow. And I don't I don't personally believe the shipping situation will clear out anytime soon, especially because the big shipping companies, including the Danish one, don't necessarily have an interest for that to happen. So that's not baked into our assumption here. And then, of course, the Ukraine Ruslan war right now, it does not affect us. But what we will see a few weeks, a few months from now, of course, is impossible to speculate in. And of course, the income is obviously following the top line. So therefore, we have a big range there as well. Next slide, please. Thank you. So if you look at this slide that I will not go through in detail because I've done it so many times, but it's more or less how we are organized. But one thing I would like to highlight is that if you go to the right side of the slide, you can see in Xiamen where we have our current manufacturing and staff, and you can see our office in Taipei, a little further south, a little further southwest, we actually have the Malaysia operation. And our ambition is Q2, Q3 this year, we will be able to ship products from there and thereby avoid the US tariff completely on these products. It has been long underway, and it has been because it's not a trivial decision to make, because moving things there do come with a penalty, both in terms of shipping times, lead times, and cost. And like everyone else, we had, of course, hoped that the US tariffs would disappear, but we have realized that that's probably not going to happen. So now we have made the firm decision, and we are working on it now, actually. Next slide, please. So just a very brief highlight of how our business is construed. On the left side, you can see an open PC. That's where we're selling into the do it yourself market into enthusiasts who are building their own PCs. The way we do that is through a number of partners who are selling under their own brand and most of the times in a co branded situation. Then we have gaming and performance PCs, which is the example I mentioned before, you have PC builders who are building in our product, and then they sell it under their own brand. Let me just rule out a huge misunderstanding that I keep getting again and again. And again, I think I have been very clear, but apparently not clear enough No, we are not exiting the high performance PC business. That's what pays the bills, keeps the light on. And there are a lot of investors asking questions still why we are leaving the HPC business, which they think is the high performance PC business. It is not. They are not related. They are not even remotely related. So let's just once and for all make it very clear that we are keeping our core business and we keep selling to high performance PCs. Then we have the same sports business, which is also under, let's say, the more the larger gaming and enthusiast umbrella. And then on the right side, we have the data center business where, as stated before, we did exit the HPC part of that business. But we are still focusing on the data centers as such. Please move two slides forward. So it's very difficult to draw any big conclusions from the number of launches we are doing with customers. And normally it's a good key indicator. But in these times where the only thing that's secure is change, then it's difficult. But what we're trying to show with this slide is that, as you can see, we are still launching a high number of new products. which of course is showing confidence both from our customers and from us that there will be future demand also. And we keep investing in product development and the same for our customers. Next slide, please. Just some key statistics here. We are currently shipping to more than 20 customers and Top five represented 83% in 21 versus 81 in 2020. And I think that is also very clear that when we have top five running our business, so to speak, of course, it's material if one of them or more of them are not pulling. But on the other side, again, the pattern we see right now is across the board. There's not one customer standing out and saying, Hallelujah, this is just running great and then everybody else is suffering. It's the same across the board. Of course, the largest OEMs, so the largest PC manufacturers, they do have an advantage in the sense that they do have better access to some of the critical components, but still they cannot ship what they have demand for. And our ambition, of course, is to increase, let's say, customer concentration over time. And I think Razor and Sapphire are both good examples of that that we launched in Q4. Next slide, please. Just two examples of new customers. On the left side, we have Razor with their handbow series, which has been off to a good start. That's nice. Same with Sapphire on the right side of the picture, where we ship both with their AMD Toxic graphics card as well as they have launched in December a standalone CPU cooler. Next slide. So looking a little bit more strategic on the G&E business, the goal, as always, is to further develop our leadership and thereby grow. And the way we're going to do that is, of course, continue to invest in R&D, product development, getting more customers and widening the customer base within the OEMs and PC space. Of course, old school branding and marketing also to build up demand. And if we look at how we're doing so far and how will things look or how are things looking into the future? And I think we focus on what we are best at in that space. And that's liquid cooling. And that's what we keep doing. But we also focus a lot on, you know, keep doing innovations. So it's not just always a liquid cooler, but it all sorts of innovation around the product help the customers differentiate, etc. And then, of course, our key mantra is the performance, quality and reliability of our products. That's what I personally believe is really setting us aside from the rest. Yeah, let's take next slide. And the next slide. So our new business area, that has of course also been a different climate to roll out a new strategy and roll out a new business, but it has been good. The team, I would say most importantly, the team has really performed. It has been difficult. And when I say difficult, it's, of course, always difficult to penetrate a new market. It's always difficult to specify new products, come in as the newcomer and actually make a difference. And then there are, let's say, big technical challenges also. As an example, on one of our products that we have not launched yet, We have now redone the PCB layout three times because every time we believe we have a CPU or a chip we can use, then for whatever reason, we run into shortage problems, although we did secure in advance that we would not. So there's a lot of back and forth and back and forth. But if we focus on our if we focus on our pedals, we are rolling out as as we had planned and hoped for. we are, we actually started shipping the other day. So we are shipping now. And it's the pedals, the high end Invicta pedals we are shipping, we are already and have been for quite a while developing steering wheels and wheelbases. We entered an exclusive agreement with, I would say perhaps the most well known motor supplier within simsport in China. And they then will manufacture to our specs, we have done the design of industrial design, we have done all the electronics, all the software, all the firmware, and then they are doing doing the internal, let's say mechanical layout. So that's a that's a very nice deal. And we have planned to launch later this year. And I think I can say from our perspective, we will meet those deadlines. The question is, will we run into some, let's say, unseen or unknown component shortages that we don't know? But it's progressing to plan. We are also progressing on the Pagani licensed products that we also expect to release later this year. And I would say both for me personally and also for Acetec, it has been a big gamble to go into this market. I had the belief, I still do, now it's no longer a belief, now it's a proof, that my team had the fundamental skills to pull this off within mechatronics, so mechanical design software and hardware. I had an idea that we could, and now we are doing it. So that's actually nice to see. For those of you who may not have seen the reviews we have gotten of these first products, I would encourage you to go to our website and find the review section on the SIMSport and then see these reviews. Let's put it like this. If the sales will follow the reviews, this is already a good decision. The reviews have been outstanding. That's the shortest and most precise way I can see it. Pretty much every reviewer, I think there's been 10 so far. Pretty much all of them said these are the best pedals that they have ever tried. They have recognized that's a lot of innovation, that we are doing things differently. We are not just a rip off or knock off of others. And so that's something that we're really happy about. In terms of volume and revenue, I understand you are all very interested in that. Please respect that this is a highly competitive market right now. And for competitive reasons, I don't really have a big desire to talk a lot about it. But what I can say and what I want to say about the revenue and the pipeline is that it's at least meeting our own expectations. And I think that's the most important. If we look at the strategic development for this business, that's, of course, different from the liquid cooling business, because on the liquid cooling business, it's about maintaining our leadership. So that's more, let's say, farming where on the same sport, it's more hunting. The whole idea here is that we want to come in and want to get a big piece of the pie. That's the ambition. And the way we're going to do that is that we are riding on our expertise from the liquid cooling side of the business. And we are going to develop products that are different to the rest. We're going to innovate. We're going to protect these innovations. And while we have launched into this market, I would say at least two other competitors have come in. But it's also very obvious that what they do is they copy the others and see if they can beat them on price. That's not what we want to do. That's not what we are doing. What we want to do is we want to innovate. We want to come out with new features, new products with our own design and still beat them on price. That's the ambition we have. I think it's fair to say that it is even in these circumstances, this is a growing market. We can look at our biggest competitor. That's also a listed company. And of course, we can see they are struggling as well with the same issues that every business is struggling with right now. But fundamentally, it's a growing business. Yeah, on the development and outlook, I pretty much just said our strategy, and that is what we are going to stick to. And of course, the plan from our side is to launch as many new products as we can. And that will be the plan for the next two, three years, at least. Next slide, please. Yeah, one more. So as I already talked about on the first slide, the growth on the G&E products was actually 13%. So that obviously means that something else has not grown as expected. And that's, of course, the HPC part of the data center business. And we are looking at a $5 million loss from that business. Of course, we would rather spend those money on something else. And that is what we are doing. So this is pretty much water under the bridge. I just wanted to show you the graph. Next slide. So to recap on the data center business, we pulled out of HPC and that's another big misunderstanding, I think, that's out there still. that that means that we have given up on the data center space. That's actually not true at all. And we are working on it every day. We have employees working on it every day, both on the technical side to keep improving our technologies and keep preparing for when it will happen. And it's difficult to report this on a quarterly state because you cannot measure it in an Excel spreadsheet. But we are in dialogue with the EU constantly, and we do see progress still. If we don't, you'll be the first to know. I promise you that. But we still have reason to believe that this is going to happen. And I don't want to speculate in other people's misery, but I think it's fair to say that at least in Denmark, and we all know that it's not a Danish thing, but at least in Denmark, If Russia shuts down the gas supply, we are in big, big trouble. And I think it's worth reminding ourselves that just with the Danish data centers, we could have heated the three or four largest cities in Denmark by free and green power, not being depending on anyone else. So I hope unfortunately it's a sad situation, but I hope that situation will actually make the politicians wake up even more and say, OK, perhaps it's not the best idea to be depending on Russia for the next two decades of heat. So there is progress on the data center side and not something I can put in a spreadsheet, but enough that we keep spending time on it. And yeah, I think there's no reason to repeat what I just said. So let's skip this slide and then move into the financials.