Asetek A/S

Ladies and gentlemen, thank you for standing by. Welcome everyone to the ACETEC ASQ4 2023 financial report and earnings conference call. At this time, 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'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. You can also submit questions via the Q&A tool on the webcast located on the bottom right hand corner of the interface. Thank you. I would now like to hand the call over to Peter Madsen, Chief Financial Officer. You may begin your conference.

Very good, sir. Thank you, operator, for handing over the microphone to me. And thank you all for coming to this ASQ4 2023 financial report and earnings call. We're going to cover the fourth quarter of last year, yes, and the annual report for 2023 also. My name is Peter Madsen. I'm the CFO. I have here with me Andre Slot-Eriksen, who is our CEO. Good morning, Andre. Hello. and we'll be covering this whole material here. Our board, they met yesterday and then again this morning, and they approved the messages we sent out earlier today at the report. I will soon hand over the microphone to André, but before I do so, I just have a matter of general housekeeping here. As you all know, we were setting up the delisting from the Oslo Stock Exchange early in the year, and all those approvals and assessment that was related to that have been approved. And we will delist this year in Oslo in early April and have the last trading day in Oslo on March 26th, 2024. And for most of the shareholders, that doesn't mean much because they are already registered in Copenhagen. It's fine. However, there are still a number of there is still a number of shareholders who have not yet moved their shares from Oslo to Norway. And we understand that there is some understanding between some shareholders that this transfer of shares from Oslo to Copenhagen will happen automatically. That misunderstanding typically comes if a minor shareholder calls his own bank advisor in the local bank, typically in Norway, and then the bank advisor doesn't know the full details of the transaction. So it's just important to be aware that the transfer from Oslo to Copenhagen will not happen automatically. And if you do decide to transfer while it's easy, that means before April 3rd, then contact your bank advisor. Let them know that you want to transfer from Oslo to Copenhagen. Let them know that if they believe that the understanding is that it will happen automatically, then that that belief is wrong and be maybe a little bit more insisting that you would normally be with your bank advisor. What you need to do is to tell them to transfer. You will need an account here in Denmark. That happens to the bank. It's not dangerous per se. It's just having a foreign depository account, which is outside of Norway, for example, just like any other foreign shares that you may have already. It should happen automatically. If they start talking about a fee to the VP authorities, let them know that up until April 3rd, ACETEC is paying that fee. It's 1,000 Danish kroner. We'll pay it for you if it happens before April 3rd. And that should drastically reduce the fees that the bank is levying on this whole thing. If you do not move your shares, then, of course, the share is still yours. You can still vote. You still own a part of Asetek. Nothing is changed in that respect. However, you cannot sell or transact the share in a stock exchange after that date in early April. So it's going to be more cumbersome and you will most likely, I would anticipate more to move the share at some point later if you're not doing it now where it's easy. later on you would need to contact your bank and again or your broker and insist that this happens or if you are a shareholder with that is registered in name then we can see your name on our shareholder list and then you need to you can contact us and we can help you the problem is that many shareholders are owned many shares are owned through nominee accounts if your bank you hold it in your bank and your bank holds it in another bank and and up the chain it goes uh and we can only see the top level of that chain so in short if you're confused and you still haven't done anything either look at our website or call our investor relations people and they can help you that was the housekeeping and then we change gear to something more interesting and that's the highlights

Yes. So talking about Q4, the revenue was roughly $16.5 million, up 75% compared to the same quarter, 22. Gross margin of 47% compared to 41 in Q4, 22. Adjusted EBITDA just north of $2 million compared to a loss of $0.6 million, same quarter, 22. SIM Sports revenue $2.2 million in the quarter compared to 0.2 comparable year. And then our current look at guidance looks like a minus five to plus five compared to last year with an adjusted EBITDA margin of 12 to 17%. We will, of course, get back to that. If we look at the full year last year, it was a very strong year, our second highest year ever with $76 million revenue up 51% from 22. And a full year EBITDA of $16 million versus a loss of 0.8 in 22. We launched 54 new liquid cooling products and 37 new sim sports products. That's a lot. We passed 11 million units liquid coolers since the foundation in 2004. It is actually since 2006 because that's where we started to ship these products. But of course, it's also since 2002 where the company was founded. We also listed on NASDAQ Copenhagen earlier in the year last year. and swapping to this year um we are broadening our view a little bit we'll get back to this in a second also with a value offering in the liquid cooling market and on the sim racing side we are basically uh continue the journey we on by expanding the products and our ecosystem If we look a little bit on the growth, it's basically both the liquid cooling as well as the SimSport product range. And I would say that roughly 10% of our revenue is now from SimSport. I think that's quite important and a quite impressive milestone to reach only in the second year of operation. If we look at the quarterly volatility, I would say business as usual, the quarters go up and down. And that's also why we need to assess on an annual basis, because diving too much into each individual quarter for our business, at least at this point in time, simply does not make any sense. If we look at the 24 guidance, traditionally, for those of you who've been with us for many years, what we say in Q1 rarely ends up being the way we end the year, for good or for worse. But that's simply because of the low visibility we have, and we get the visibility from our customers, obviously. So it only reflects their visibility as well. So therefore, at this point in time, we are guiding what we see from our customers. But as the slide I just showed you, the quarterly volatility is high. So bear this in mind. But we do see some signs of improvement. But we also see very mixed regional pictures where in some regions sales are strong, some regions it's weak. And I would say another way of saying what's in text here is that some of the large quarters we had last year, if I could pick and choose, which I cannot and I can also not influence it, Then, of course, I would rather have seen some of this spill over in 24 because for sure some customers bought more than they have sold. So there are elevated inventories with some customers. So the guidance is actually not necessarily a reflection of end user demand, but more a reflection of what some of our customers have in inventory. Therefore, the entire picture for the year, we are looking at minus five to plus five at this point in time. The liquid cooling revenue, for the reasons I just said, it looks to it could decline. It could also be flat. Of course, it could also grow. But this is what we see at this point in time on the same sport side. Again, it's a very small business. So, of course, that's unpredictable as well. But at this point in time, we believe in 40 to 60% growth. And then for the full year, we expect an EBITDA margin ranging between 12 and 17%. And the reason there is a range is, of course, that's highly dependent on revenue. We have a long-term growth ambition of roughly 15% per year, and that is still our goal. Next slide. So what we do is essentially gaming hardware. On one side, we supply liquid cooling to people who are building their own PCs and to gaming PC OEMs. And then on the other side of the table, if I could put it like that, We are selling sim sports products, which is for sim racers, enthusiasts, car enthusiasts, casual gamers, etc. We sell to all kinds of segments that are interested in racing. We have a more or less typical setup in the way we are spread out over the world. We are on the West Coast in the US. where we have sales, product management and some management. And that's, of course, because still a lot of our customers are there. We don't have that much engineering. We basically have no engineering left in Silicon Valley, basically because all our big OEM customers move their R&D to Taipei or to China. We have my CEO, John, in Austin, Texas, close to HP and Dell. And here in Aalborg, Denmark, where I reside, we have uh yeah that's a long list product management r d of course we have some manufacturing quality order execution branding marketing finance and management peter is here as well and then in shaman in china we also have a high degree of product management we also have some engineering there sourcing of course um our outsourced manufacturing quality order management and finance and then in taipei We have sales and product management and some level of engineering capabilities as well. And the reason why Taipei is interesting here is that I don't dare to say all, but I would say more or less all of our current customers on the liquid cooling side has a big presence in Taiwan. Jumping into the liquid cooling, what we can see here on this graph, is that, again, we have a strong quarter. We can also see that the liquid cooling business has been profitable, highly profitable for many, many years. And for the last four years, we have accumulated $81 million from that business. Going into the year, three years, Yeah, four years. Thank you. Going into 24. We are in 24. But looking a little bit about the product release, and the interest in our products are as they have been for a long time, our customers are launching new products. So in the fourth quarter, we were shipping 12 new products And basically in this quarter that we are in, we are executing on shipping 10 new products as well. We are also investing still in product development and of course branding, but also product development. There's still a lot that we can extract from these technologies. So for sure, there's still a very high activity going on with our various customers. We have a stable customer base. We are currently shipping to more than 20 OEMs, top 5% at roughly 90% of our revenue in 23 versus 85 in 22. And there's of course a lot you can read into that statistic. And our ambition, of course, is to increase a number of customers and diversification. But we can just say that our big customers are just executing very well. So even though we have a lot of customers, the big ones just shine. A new thing that is coming up. A new thing that's coming up is that we have a lot of also our largest customers, basically asking for value products, and they have done so for many years. We've always been of the opinion, and we still are, that we cannot compete with low-end Chinese copycats. So therefore we had said no, but what we can see from our customers is that they are actually willing to pay more for our quality products. um needless to say we cannot charge a higher gross margin than the cost of the product that makes no sense um so we have had to look very hard on what we can do and we have done so and we believe there is a business opportunity here towards the let's say more value-oriented markets it could be china it could be india but it's also to some extent the us where we have you know, a low end segment that we have never touched. And what our customers are letting us know is that we are losing a lot of business by not being willing to look at it. And to some extent, we may actually also ending up losing customers if we don't react to it. So that's what we have decided to do. It's still very much work in progress, of course. We expect the full effect next year. It's not really any reflection of price pressure at all because our high end product will keep costing what they always cost. That's not true, of course, because we have many different variants, but it has nothing to do with that. And there's also no cannibalization because it is indeed different segments. That is something that is brand new for us and we're looking forward to executing on and of course, keeping you informed about. Next slide. Just to sum up what I basically just said in less a word. We are of course always looking to extend our leadership and ship more products and increase our revenue. That's of course the goal. And the strategy is also unchanged, actually, in the sense that we keep focusing on a high quality and high customer service level of customer service. And by focusing on these two, we can also charge a good price for products that our customers are willing to pay. And then on top of that, we are entering this more value-oriented market. I think I should perhaps stress that although it's a value-oriented market for us, it's still the higher end of that market. Moving over to SimSport, we released eight new products just in Q4, two button boxes and six different rims. There has been a very high level of execution in 2023 on the Sims 4 side. We released 21 new products. And by 20 new products, I don't mean screws and washers. It's real products. And we keep the pace up. We have a lot of accessories coming here in Q1 2024. The revenue last year was $2.2 million, basically $2 million. Sorry, the revenue for the quarter was $2.2 million versus $0.2. So that was a nice growth to have, of course. But I would also say in 22, there was a lot of execution problems. So not so much demand, I would say. It's more a question about we having products available. And then the full year revenue of 7.2, I think that's a pretty decent number in our only second year of revenue. From my perspective, the strategy of focusing on quality and performance and a good customer service over price, that is, has paid off. And our lifelike approach to how a real race car feels is also paying off. And we see that. So that's nice to see the reward for that. Our ambition, of course, is to take pole position in this market and keep building market share based on our open ecosystem. I would say something that has changed or it has not changed, but something that changed relative to when we decided to go into this market is that we had especially two Chinese companies entering and they're actually doing pretty good. I'm not too concerned about them because their strategy is, I would say typically Chinese, their focus is more on price and perhaps on the expense of lower performance and lower customer service. So to me, I don't see it as a threat, but I do see it as an opportunity and a little bit change of our strategic focus in the sense that Our La Prima product series two, three years ago, the cost of what we are selling at now, let's say around $1,000. That was a steal at the time. If we had that bank, then it was a really, really good value where because of these Chinese, primarily Chinese companies entering, I would say that The prices have gone much lower than that, which have led us to, let's say, develop product for that segment because we are fully capable of doing that. And we believe we can still compete. So that is something we are looking at as well. Pretty much the same as on the liquid cooling side. Actually, we have a high end business that is paving the way. for our brand. And then we will get hopefully a much higher volume business in the lower end of the market. And that is basically what we're focusing on right now on the sim racing side. There is a slide here, but I basically said everything that's on it. So I suggest we move on to the financials, Peter.