Asetek A/S

Good day and welcome to the Aztec Q3 2023 Financial Report at Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time on the phone, simply press star 1 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Peter Madsen, CFO, to begin the conference. Peter, over to you.

Thanks, Operator. And welcome to the audience to this ACETEC ASQ3 2023 Financial Reporting and Earnings Call. My name is Peter Madsen, I'm the CFO, and I'm joined here by Andre Eriksen, our founder and CEO. Hello, Andre. Good afternoon. Good afternoon. A little bit of housekeeping first. We'll go through the presentation. When we're done with that, we'll open up for a Q&A session. You will have either the option to call in via cell phone or via phone line, or maybe easier, you can type in your questions in the app or the website you're on, and then we'll get to those questions one by one. So the board met with the full management group yesterday for a full day of strategy meetings, etc. And then that meeting this morning then turned into a more traditional board meeting. And the board approved the presentation that we're about to give now and the press release that we released earlier today. With that, André, I'll hand over the microphone to you for the highlights.

Yes. So the highlights of Q3, we had a revenue of $20.5 million up 96% compared to the same period of last year. Gross margins of 46% compared to 42, also same quarter last year. And adjusted EBITDA of $4.8 million compared with the loss of 0.6 last year. SimSport's revenue of $1.2 million in the quarter compared with 0.5, same quarter last year, and a nine-month revenue increase of 45% to just shy of $60 million and an EBITDA of shy of 14 versus a loss of, yeah, a loss of 0.2 last year. Our newest OEM, Lee & Lee, launched their first high-end liquid cooler with our technology. And in terms of guiding, we maintain our previous guiding with a little bit of precision in terms of the income that we have narrowed into a window of between eight and nine million dollars. A little bit about what we see right now as a business. I would say the headline is low visibility and continued market challenges. That may seem a bit odd with the results that we have just launched, but nevertheless, I would say during the year and up until now, we have seen and we see a strong interest and positive feedback for our products in both sectors. We are seeing and have seen a market improvement, of course, that's reflected in our numbers, but it's also reflected in the number of orders we get and the execution of product launch plans with our customers. Our recent forecasts indicate normal business activity for some of our customers, but there's also still a lot of up and down and volatility. We see a nice increase in our sim racing shipments on the back of our rollout, but I would also say the pace is impacted by the challenging consumer markets right now. That's no secret, and I think that can be read in our competitors' reports as well. We are successfully building a strong brand and we are rapidly expanding in the sim racing community. So that's nice. In terms of what we do and what we continue to do is that we continue to develop new and relevant products. That's true for both segments. We focus a lot on efficiency, supply chain capacity and capabilities. We are continued shipments from Malaysia. With our current contract manufacturers, we also set up a new contract manufacturer that's now operational in Malaysia, starting with the pedal bills. I would say almost needless to say, the geopolitical events, high inflation, rising interest rates is obviously having an impact, a negative impact on our business. The thing is that a lot of people, they don't think that a liquid cooling device for some hundred dollars, it's a luxury goods. But it actually is because it goes into a three to five thousand dollar gaming machine. So for sure, for sure, we can see and feel what's going on in the world right now. And the way we see it is that we. As always, I would say have limited visibility, perhaps even more limited right now. And there is a high volatility in the forecasts. Changing gears a little bit, you can see the graphic representation of the revenue here in Q3 and also a very nice EBITDA margin. Just to recap why we are here. We are here to talk about gaming devices. That's what we do. We have two different segments. You could call it one is the sim racing, what we call the Asetek sim sports. And then we have liquid cooling that can be divided into two sub segments. One is pure OEM for gaming PCs. So Dell Alienware is the most well-known of that. And then we have the do it yourself parts where we also sell OEM, but to customers who is taking our product, so to speak, and put into their own packaging and sell it directly to consumers who are then building their own gaming PC versus buying a gaming PC. I will not spend a lot of time on this slide other than for those of you who are new can see we are a global company and some of the recent developments is our Malaysia manufacturing plant and contract manufacturer. I went there myself quite recently actually to check it out. If we dive a little bit deeper into the liquid cooling business, let's start with the money side. I almost have to say during the last four years, we have accumulated roughly $80 million in EBITDA. I think it's important to remind ourselves that the liquid cooling business is actually a very strong cash generator. In 2023, as I already mentioned, there's been a high activity on product launches, and that's always a good sign because that means our customers are busy launching new products. And in 2023, we started shipping seven new products. of which four of them featured our latest and greatest eight-generation technology. We expect around eight new products to start shipping in Q4, and we, of course, continue investing in product development and branding to expand our reach to customers, of course. Our newest OEM customer is Lee & Lee. We finally launched the first product with them. You can see it on the right side, the Galahad 2. We are currently shipping to plus 20 OEMs. Top five represented 90% of the revenue the last 12 months versus 85% in 22 as a full year. Of course, as always, our ambition is to increase diversification and lessening the dependence on one single customer. We do expect our new partner, our new customer, Lian Li, to be a top five customer relatively soon. Not much has changed on what it is we're doing and what we're planning to do. The goal, of course, as always, is to develop our leadership in the liquid cooling market, in the enthusiast liquid cooling market. How do we do that? We develop exciting and great products with great quality and trying to expand existing customers as well as building new OEM relationship. And of course, also letting our customers and end users know who we are. The development and outlook is that we focus on what we're good at. That's doing the core liquid cooling solution. We ramp up new developments, new innovations. We keep doing that. And of course, always trying to be on top of the performance, performance being thermal performance, acoustic performance, quality and reliability, of course. If we dive a little bit into the into the sim sports portion, We have been on a mission for the last two years and the mission is quite simple to understand. That is, we want to have a full product program or a full ecosystem. And the latest and greatest within that is we released our quick release adapter in the quarter, in Q3. And what that does is it basically enables end users to use steering wheels from other manufacturers. And as I said before, to me, if an end user buys our wheelbase and combine it with a competitor wheel, to me, that's not a lost sale of a steering wheel. To me, that's a gain sale of a wheelbase. So very happy that we finally got that out. This year alone, we have released up until now 13 new products. So it's fast paced. We have another eight new products to be released in this quarter. It's basically two button boxes and six different wheel rims. We had a Q3 revenue, as already said, of 1.2. And I would say the gross margins, they still reflect that this is a very fast-paced startup. And what I mean by that is typically to have something to sell, we fly it in rather than ship it in with a boat. And of course, there is a cost penalty associated with that. But that's a penalty we are willing to accept for the time being. The focus, of course, is to establish profitability as soon as we can. But as I alluded to earlier, it's also no secret that right now the market is soft for spending three, four thousand euros on a simulator. I'm not sure I understand why, but it's not on the top of everybody's list right now. We were just here in October at the Simracing Expo in Dortmund. I personally like going to trade shows. It's nice to see the customers, in this case end users, in eye height. Of course, also resellers and press. I would say that you can't win a business on having the largest booth or the greatest booth. But for sure, I would say we have the best booth and the most professional showing at the entire show. And I think that's important when you build a new brand and a high end brand. And we have really great feedback from the audience. And I would say that our stand was occupied for all the opening hours for all the days. So I would say that the trade show in itself was a success. No different from the liquid cooling. Our goal, of course, is to be the market leader. We are far from that yet, but we are working on it. And the strategy, for those of you who've been here for a while, know that it's really about leveraging the capabilities we already have in the company, both in terms of product development, but also supply chain and manufacturing. And then, of course, we want the simsports business to be every bit as profitable as the liquid cooling business. So far, so good. We have released a lot of new products, and I would say later this year, I think we will be able to claim that we finally have a full ecosystem. It's still high-end products only, I would say, but nevertheless, it's now possible for an end user to come and buy all the essentials that's needed to build a simulator. And let's just remind ourselves that all of this basically happened during the last 24 months. So that's actually a development I'm really proud of. And with that, we go to the financials.