Asetek A/S

AS Half Year 2024 Earnings Conference Call. All participants are currently in a listen-only mode. Later, we will conduct a question and answer session. To ask a question, if you are dialed in, please press star, followed by the number one on your telephone keypad. And as a reminder, this conference is being recorded. At this time, I would like to turn the call over to Peter Madsen, CFO. Please go ahead.

Thank you. And yes, welcome to this AT Tech earnings call. Our board, they met earlier today and they discussed, obviously, and then approved the first half year 2024 report, which is the basis for the presentation here. As the presenter said, you will be able to ask questions verbally later in the call, but also you can find on your application here, you can find a place where you can actually type in questions that will then address later at the same time as the verbal questions. With that, just saying that my name is Peter Madsen, I'm the CFO. I have here in the room also André Eriksen, who's our CEO. Hi, André. Hello. And he will actually take over the floor right away, starting out with the Q2 2024 highlights.

Yes, good afternoon. Diving right into the highlights of the second quarter, the Q2 group gross margin landed at 45%, same as the same quarter last year. We have seen a weaker than anticipated market rebound, and an increased price pressure is also impacting our liquid cooling market at the moment. Simsport business is growing according to plan, and our updated group revenue from 1st of July is still what we stick to. Next slide. There are multiple factors that is impacting us at the moment. In the liquid cooling, we do still expect a decreased revenue in percentage between 35 and 40, which corresponds to between 42 and 44 million dollar revenue for a year. As I just mentioned, that's because we see a weaker than anticipated market rebound. We have a customer who's leaving the market altogether. And then we also have a customer who's having liquidity constraints, which is basically affecting their ability to place orders with us. So all in all, that's what we are seeing. As it is right now, and it's always been, we have seen big volatility and let's say a very weak ability to look long term. And of course, at this point, that also means that in in 25, we also enter the year we expect to enter the year with an increased uncertainty. And on top of what I just said, we also have a customer at least that has told us that they're going to introduce dual sourcing. And while that's, of course, annoying to be a part of, that's not really a lot we can say about it, in the sense that obviously we have at least dual sources on our entire supply chain as well so i guess it's it's not an unreasonable thing to do but of course it's it's coming at a at a bad time We also see, of course, gross margin impact from low cost competitors in China. And although I believe that nobody can manufacture a cooler, cheaper than we can, then for sure, as we have the majority of our cost base in the western part of the world, then of course, we will need to have higher margins and thereby also higher prices. We do expect growth to be back. in 26 and onwards. And again, this is with big uncertainty. It could be sooner, it could be later, but this is what we're looking at right now. And that's based on, after all, we do have a couple of new customers and we know from history that no matter the size of the customer, it will take them a year or two to get up to speed. We do expect the liquid cooling segment on its own to be profitable for this year, for sure, and also beyond this year. On the Simsport side, we maintain our expectation of a revenue between 10 and 11 million for the year, which corresponds to somewhere between 40 and 60% growth. And that is, of course, and when I say of course, that's because that's the reason why we're investing in this, that we expect the growth trend to continue way beyond 25. I believe at this point, we have an attractive product range. I dare to say we have a superior customer service. And I also believe in the high end, we have a well-established brand by now. We are continuing our investments into the development of new products, sales, marketing, branding, essentially to capitalize on whatever opportunity there may be out there. And in the group margin expectations that I just mentioned, I just want to highlight that, of course, Simsport is embedded there in Just very brief on the guidance. We maintain our guidance from early last month. I don't want to repeat it, but on a group level, it's between 52 and 55, and adjusted every day margin of between one and four. Because of that update to our guidance, or because of the reason of it, we initiated some cost reductions that we also talked about our earlier guidance. And we expect it will take full effect from around Q1 next year. And it will have, we expect, around $3 million of impact. And it has been right-sizing the organization on all levels and in all geographies. But especially in the US, we are scaling down. On the bank financing of basically the new headquarter, we have been in a good dialogue with the bank and we have gotten a new and updated covenant that kind of reflects the new business situation. If we look at the world map here, that is as of how it looked in Q2, but there will be changes. Mainly after the changes, we are down to 105 roughly employees. where we were 130 before that. And on the US side, we are dialing down most of what you see on this map. And the main reason is that the main part of our OEM customers have moved to Asia in one capacity or the other. And therefore our US operation is of less relevance than it used to be. Yes. If we dive into the liquid cooling segment in its own, then we continuously try to be the main innovator and the main performance guy when it comes to liquid cooling. And what you see on the picture here, it's also been out in the press release, is our newest cold plate technology, which is based on 3D printed metal. And it's also It is optimized by AI and that sounds so fancy, but what it really means is that when you can 3D print something, you have a much better ability to be creative in your design than when it's something that's done with traditional machining. So therefore, AI in this complex geometry has been quite helpful. And we have done it in partnership with Fabrigate Labs, who is a leader on the metal 3D printing side. It was shown to customers first at Computex earlier this year. We got a lot of interest from it and we expect the first products to be ready in December this year. If we look at the profitability of the liquid cooling business, as I said before, it's something we expect to continue to see that although it's shrinking, we still believe that the liquid cooling business will be a solid moneymaker. We started shipping one new product in the quarter. We expect to have six new products starting to ship this quarter. And at the end of Q2, we were shipping to more than 20 OEMs. And our top five customers represented 92% of the liquid cooling revenue. So yes, we have reliance. We are relying on a few customers for sure. Nothing new in that other than, of course, now when we see the impact, it would have been nice to have 500 customers. But that's the situation. Diving into the SIMS board, although the numbers may look different, we actually believe that we are scaling up according to our plan. And I'll get back to my little comment before. But the revenue in Q2 was 1.7 million versus 2.4 million at the same quarter last year. And the first half revenue is 3.9 versus 3.7. Then the speedy investor will, of course, ask the question, how can that be 40% growth? As always, it's very difficult to judge us by the quarters because small things can impact them. And what in fact happened in the same quarter last year was we shipped our biggest order to date of, I believe, $1.2 million. um to fulfill a channel and it had to be done in one because it was a shipping container so therefore it actually had a very big impact that should have been spread across the year so that's just an example that you cannot really compare the quarters to to judge whether we are on track for growth or not We are also getting closer to profitability by the day. Of course, our growth margins are still reflecting a scale up phase. And to remind people who don't understand what that means, when we launch new products, typically they are built in Denmark to begin with, because that's here where we have our engineering and that's where we have the resources to fix all, let's say, teething problems with new products. Denmark is not exactly a cheap country to manufacture in. So therefore, until we move everything out, we are seeing lower margins. So that's to be expected. Our margins are improving. We see it, we feel it in the speed as we are able to outsource the products to China and Malaysia. We started shipping a bunch of new accessories here in Q2. A few of them, just to mention a few of them, LMP handles, Le Mans prototype handles, formula suede handles, steering wheel button kits. We have a huge software upgrade for our customers. And although software is something our customers get for free together with the product, it's something we invest heavily in. And for those of you who have followed our reviews, our software have been a little bit behind the rest. That's just the nature of being the newest kid on the block. But I would claim by now that we have the best and best looking software out there. So I believe that's a big competitive edge, actually. We have new accessory shipping in this quarter as well. And then if everything goes according to plan, we will release our Invicta flagship steering wheel, which will complete our highest end Invicta product line for now. And that's, of course, also where we have some comfort in the increase in revenue that we are waiting to get this high-end steering wheel into the channel. So yeah, full year guidance unchanged for now with the growth trend expected to continue. little bit more on the on the simsport side um going forward meaning from next year hopefully early next year but it can also be later next year it's still not decided and we are actually on track on a project we've been working on for a long time which is a more mass market simulator product lineup and what that means is that It's priced much, much lower than our current price points, but still with, I believe, our quality and feature set and of course our brand on it. So that's something we're excited about. We have engaged a commercial lead in the management team to basically support this mass market product launch. and also to establish and execute on a go-to-market strategy for the mass market, because that will be different than our current channels. And as such, we also, I mean, this is a segment we believe in. So as I already said, we are continuing to invest in it. At this point in time, we have two main sales channels. It's our resellers, global niche resellers. So that's basically online stores selling nothing but the same equipment And then we have our own webshop and it's hovering a little bit back and forth between where the biggest sale is. But I would say in rough term, it's half and half. So we are selling half our gear through resellers and half our stuff through our own webshop. As I just said, on the more mass market opportunity, we will be adding new and exciting sales channels to make sure we look into a higher volume opportunity. And by that, I'm going to pass the stick to Peter to talk about the financials.