Asetek A/S

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the Aesthetic Q1 2022 earnings call. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press the star followed by one on your touchtone telephone. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Peter Madsen. Please go ahead.

Perfect. Thank you, operator. And to the audience, welcome to this Q1 2022 H2Tech earnings call. My name is Peter Madsen. I'm the CFO and I have with on my side here André Slot Eriksen, who is our CEO and founder. Hello, André. Hello. And then for this week, we are being visited by our CEO, John Hamill, who is also in the room here. Hi, John. Hi. How are you doing? Perfect. So the way we will do this earnings call as usual is that we will go through the presentation, which our board just met a few hours ago and approved. And we launched the numbers also a couple of hours ago via the website and new services. And we go through the presentation. There will be a Q&A session afterwards where you can either follow the instructions by the operator or you can type in your questions as you go on the application that you're following the website on. With that, operator, please forward two slides to the highlight session and then over to you, Andre.

Yes. Good afternoon, everyone. Just on a practical note, I have been sick the last two, three days and I actually still am. So if I start to cough or something like that, then please bear with me. But I'll try to pull it through. So some some headlines from the quarter. First quarter revenue of 14 million dollars compared to 25 million last year. Gross margin of 38 compared to 43. Simsports orders and backlog of roughly one and a half million by right now, essentially end of April, where we started shipments in March and the additional products to come still. We maintain our 22 outlook basically because we don't know better. We don't have a better guess right now or a better estimate given the situation out there. So we have chosen to stock or to stick with what we know. Please change the slide. If we look at the revenue and the margin, I think there's no big surprise. When revenue is high, earnings are high. When revenues are not so high, the earnings are also not so high. I don't think there's anything surprising in that. Please go to the next slide. If we just rewind the tape a little bit, When we gave our 22 growth expectations, we felt they were conservative based on what we knew at the time. And they may still be or they may not. It's simply impossible to tell. What we can say is from the company side, there's hardly nothing that we are not hit by right now of what's going on out there. Of course, we are seeing the shutdowns, the power outages, Going back a little bit in the quarter to the Winter Olympics, of course, the COVID impact, of course, logistics, supply chain, shipping, you name it. Of course, we are hit by all of that and then some. So that's how the world looks right now and we are trying to navigate the best we can. And from an industry perspective, not specific to ACETech, of course, the supply chain challenges is a big, big concern for our customers. And the same with the rising components and not the least, just the ability to get the components. We and they are of course seeing that the shortage of semiconductors, we see that the GPUs, CPUs, hard drives, everything is affecting the PC market. And then of course the US tariffs and the added increasing logistics cost is a big concern. I'm sure Maersk is happy about it. We are not so happy. In terms of the outlook, what we can see right now is that the volatility seems to continue. I don't have any crystal ball that the rest of you do not. I probably see the same as you. Of course, structurally, our 15% growth target year over year has, of course, not changed in the long run. What we see right now, I believe everything we see right now is temporary. There's no structural change in that. Of course, we are uncertain to when things will normalize. And that's that's the world we live in. And from our side, what we try to do, of course, is to continue to focus on strengthening our supply chain capacity and capabilities as well in terms of sourcing, getting the right parts, getting the right book, getting them shipped and all that stuff. We have, of course, also adjusted our prices on the ways. It's always difficult not just to increase prices, but it's also as the world is right now. When you think you have adjusted your price to cover for something, then you wake up next morning and then everything just went up once again. So it's a difficult situation, especially with what we call it. inertia we have in the system. Keep in mind our OEM customers, some of them are building inventory months ahead. So if we change the price today, it will not have effect until three months. And how does the world look in three months? And it's complicated. And we do expect major launches from both Nvidia AMD and Intel in the second half. So it'll be interesting to see if that will be paper tigers or there will actually be products out there. And how the inflation is impacting end users. Difficult to say right now. One positive note is that if you want to turn something negative into something positive, the positive of the shipping rates is that they are so high that it makes sense to assemble our stuff in Denmark, which means that we don't have to pay a US tariff on the same sports parts. Please change the slide. So starting with SIM Sports, I think it's more or less 17 months ago, I said that we're going to enter the SIM Sports market. And here we are, or from the time of shipping, 17 months later, we were shipping. And it has been a very positive launch. I can say that now we have gotten extremely strong feedback, both from sim racers, reviewers, press, influencers and by the hour right now, end user feedback is taking in as well. And it's actually something I'm proud about. It has been even more positive than I had hoped, especially in the situation we are in, because we have the same challenges on the Simsport side with components and getting stuff to the factory and getting it at the right cost. But as it looks right now, We have orders and backlog of roughly one and a half million per right now. And that's, of course, thousands of pedal sets. There is a risk, at least on paper, and I want to mention it because we have taken the stance as a company, and I think it's also legal, by the way, in Denmark, that we do not charge people's credit cards until we actually ship. So when we have, let's say 1000 pre-orders, there is, of course, a conversion rate or the risk of people dropping off. It's not a lot we have seen, but I just want to mention it. On the flip side, we have new products in the pipeline that indicates more will come also in this quarter. I'll get back to that. Please change the slide. Yeah, you can change it again. Thanks. I don't want to spend a lot of time on this slide. I do it more or less systematically every time. So I think I'll skip it this time, other than just noting that in the right hand corner, you can see we now have a spot in Malaysia where we are working on outsourcing some of our manufacturing. And if everything goes well, I think in Q3 this year, we will be able to manufacture in Malaysia and thereby avoid some of the US tariffs. Please change the slide. And one more. So looking at the product release activity, I think the headline of that representing our customers it will be uncertainty. We have four new products that started shipping in the first quarter. One new customer, including two new coolers for graphics cards. We have 11 new products estimated to start their shipping in this quarter. However, we can see the OEMs and the customers, they continue to assess the timing of the new products. And it's, of course, because of shortages in their end, the logistics and the cost associated with the logistics. And there's not much we can do other than observe and listen. It's just how it is. Of course, the sim sports business is really small, but that is one of the advantages we have in that business that we don't have here. We can, if we want, go and sell stuff to end users. We can do campaigns, we can do marketing, where on the OEM side, it's not so easy. We can do the development together with the customer. They make a plan, and if they change the plan, all we can do is pretty much take a note of it. So that's one of the uncertainties. We, of course, continue our investment in product development and in branding towards key customers. And, you know, again, there's no structural change here. So we keep doing what we always do and then wait for the market to pick up. Please change the slide. We are currently shipping to more than 20 OEM customers. And as usual, I will say top five represent most of the sales. That, of course, also means that if one customer is not performing, then it hits us hard. And as you can see to the far right, there is actually quite substantial shift in the distribution between the individual customers. And of course, as always, our ambition is to increase the number of customers over time. Please change the slide. So looking into a top down view on the G&E business, not much has changed. We work on the branding, we work on growing new customers, widening the OEM base. product development, exciting new technologies, bringing them to market. That's the same story as always, I would say. And we focus on delivering what we are good at. We are trying to ramp it up. We are trying to drive out cost. We want to be the performance leader. We have branding agreements in place with several OEMs. We connect with the gamers. We do everything as, let's say, as we used to do and more of the same. And we believe at the end of the day, it will come back. Next slide. And one more. On the same sports business, which, of course, is to a large extent the same type of end users, it's gamers. Our product rollout is progressing to plan. We released our Invicta pedals, as you have probably seen and heard. And it's the Invicta pedals that I just gave you the numbers for. We have just opened the pre-orders for our next tier pedals called Forte, which is a mechanical brake cylinder system. And if everything goes well, if we can get the components, we will actually start shipping those in this quarter. So that's what we plan for. On top of that, we are expanding our line of accessories, pedal plates. As you can see on the picture here, we have also designed our own racing boots for sim racing. And just to give you a flavor of the challenges that we are facing, there's 110 days of delivery time. So even though the boots are done and dusted, I have the golden sample here next to me. It will be 110 days before we can get them. So that just shows you a little bit about why the supply situation is as critical as it is. Next slide, please. in in terms of a full ecosystem which is our ambition for sure things are also more and more or less on track and when i say more or less it's because i know that we could have been out faster if we did not have the supply situation on chips and semiconductors but we are hanging in there and We have done the exclusive agreement with what we believe is the leading manufacturer of servo motors for sim use. Our wheelbases are well underway. We are testing them right now. We are in tooling. They are up and running with our own IP, our own software, and we are still planning to launch them later this year. And for sure, that will make 23 really exciting because then Not only do we have the pedals, then we also have the steering wheel and the wheel base. So then at least we have, let's say, half of what a full ecosystem requires. On the marketing side, I hope to be able to announce soon campaigns within both Formula One and GT3. It doesn't make sense to spend millions and millions on product development if we don't tell the world about what we're doing. So we have some interesting news coming within the racing world. And as I said earlier, our product development is really founded on the deep experience we have in mechatronics in AC Tech. And I know the numbers are not what any of us hope right now. I think there are very good explanations for that. But I also think if you think about it, that in 17 months from having a vision, to launching a product that's already recognized as being market leading. I think that's something I'm very proud about. I'm proud about the team that they've been able to pull that off. And we could not have done that had it not been for the liquid cooling business. So I think one of the things where we saw this right was that our existing capabilities within the organization could be used for other applications. And I think this is really the prime example of that. Next slide. So looking a little bit more strategic on the Sims board, I almost always already said it. The goal, of course, is to become the leader in this market space as well by leveraging what we already are good at. Of course, it's new to us to sell directly to end users. And of course, it's new to us to be actually a branded company. But I think that's going pretty well. And I think it's a strong market opportunity. Of course, it's also affected by everything that's true for other gaming businesses. But so far, so good. And we keep focusing on innovation, bringing new and different products to markets than what our competitors have, bringing real value. Some of the customer feedback we have gotten, which is, I think, the greatest you can achieve. One thing is you can talk about quality and you can talk about price and you can talk about industrial design. But, you know, we went to market with a radical different braking system than anyone else out there. And that was a big bet. But we believed it was the right bet because we wanted to recreate the sensation of a real race car. And some of the customer feedback we now get is really that. After getting our pedals, people drive faster. And as this is like in any other game or any other race, it's about winning. So if our customers can drive faster, we are really giving them substantial value. And by the way, we have an Asetek Sim Sports community group at Facebook that you can join if you want to see some of these end user comments for yourself. So feel welcome to do that. We are, of course, building on the channel strategies. We have a lot of different companies and resellers and distributors and what have we come to us. And of course, we are also chasing some ourselves. And it's typical, you know, electronic outlets to specialist shops, to motorsport shops. And right now we are still working on it as we go. There's no stress because we sell direct on our website. So it's pretty easy to try out different things. The challenge for us, of course, is we want to have the best products, but we also want to have the best price, not necessarily the lowest price, but we want to have the best price. And some of the competitors we are dealing with or fighting with, they don't have resellers. They only sell direct. So for us to make margins, good margins, I would say, and to make sure the customer gets the right price and make sure to have room for a retail outlet as well. It's not an easy task, but I think we can manage. And that's, of course, a huge competitive edge for us. Yeah. Next slide. On the data center side. You would think that with the gas situation we have in Europe that there would be much more focus on reusing waste heat and things like that. And I would say that we are doing as usual. I have meetings with some politicians here at ACETEC next week also. But I would say in general, the interest has not sparked by what's going on out in the world. So we keep doing what we do, and that is to work on the European side of things, and there's not really a lot of new things to report. One thing I can say is that I have heard the news that there is a citizen in Denmark that is going to, I'm not sure how to translate it, but as a citizen in Denmark, you can come up with a proposal, and if you get 50,000 votes, then the parliament actually have to consider it. And I know that this proposal will be launched within the next few days or weeks. We will, of course, link to it on our Facebook page. It has nothing to do with ACETech officially, but at least if you're located in Denmark, I can only encourage you to go and support this. And hopefully we can force the Danish politicians to to at least tell us why, if they are not interested. Yeah, please change the slide into the financials. So one more. Thank you. So I'll head over to you, Peter.