Asetek A/S

Hello and welcome to Aztec's Second Quarter 2025 Earnings Conference call. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question, please use the Ask a Question box on your screen. I'd now like to hand the call over to Peter Madsen, CFO. Please go ahead.

Thanks, Ellie, the operator. for handing over the word to this Q2 2025 ACETech presentation. My name is Peter Madsen. I'm the CFO. I'm in the room here with André Slot-Eriksen, who is our founder and CEO. Good morning, André. Hello. And we will report to you the report and the presentation that our board met about and discussed this morning and subsequently approved for us to release. As Ali just said, if you have questions, please find the spot on your screen that says something about Q&A and then type in your questions there and then we will see them and respond to them after the presentation. Disclaimer, this is the first one, please read and understand. And then we hand over the word here, the microphone to Andre.

Yes, let's look a little bit on the highlights of the quarter. So sequential increase in liquid cooling revenue along with the new mid-market product line that's been well received so far with shipment starting at the end of the year. Of course, I almost dare to say our simsports revenue was impacted by the US import tariffs just like we had expected. We see a group level gross margin of 45% level with the same quarter last year. I'll get back to it in a minute, but tomorrow I am actually flying out of here in a few minutes. I'm going to Gamescom where we will be launching a new mass market product. And yes, we maintain our guidance for the year. Next slide, please. So on the liquid cooling side, we are seeing a good momentum with both existing and new liquid cooling customers. And there is a demand for innovative high end and new mid market products as well. We do see and what should I call it, returning an increased focus on quality supply chain and full service. And I think the hidden meaning of this bullet is that it's not all about low cost. There are still people who focus on quality, etc. And altogether, that's setting the stage for a profitable growth from next year. Simsport sales reflect the tariff uncertainty and the lower end user demand. As a follow on that, we see the main impact through our resellers and retailers. I'll also come back to that. The mass market initial product line that we're launching tomorrow at Gamescom is, of course, widening the addressable market since it's a much lower price point. And we will later on have a console compatibility with this platform as well. Yes. And then let me address it now. And only now in the sense that I will not address any more questions to this topic or any questions for that matter. We have received additional indications of interest relating to potential strategic transaction with the company. And we have those preliminary discussions that are ongoing. is no certainty then anything will happen at all and yes as i said that's what i will be talking about that topic for today in terms of financial guidance it's still unchanged meaning that it's expected to be between 45 and 53 million with an adjusted ebitda margin of zero to three the liquid cooling segment 40 to 43 with the gross margin between 40 and 45 and the sim sports revenue is expected in the range of five to 10. Of course, disabled and handicapped by the tariff situation. If we dive into the liquid cooling segment first, I almost dare to say that it's a plain vanilla quarter, which is good. Roughly 45% gross margin and roughly 30% EBITDA margin. Right now, we are supplying three out of five of the top global PC manufacturers. We had five new liquid cooling products that started shipping here in the quarter Q2. And between eight and 10 new products, it's estimated to start shipping in this current quarter. We have focused a little bit, we've been talking about it for a long time, but now it's happening, focused on the mid-market as well, because that's widening the addressable market in terms of just selling high-end coolers. And I would say as a very successful start, we have deployed that in China. If there's some misunderstanding, let me just rule that out, that mid-market does not mean necessarily lower margins or anything like that. It's still a very good business to be in. One slide that I personally think is the star of today's meeting is slide nine here. that says continue strong customer momentum. But what I really want to turn your attention to is if you look at the left slide of the graph, although we are a little bit behind on revenue compared to last year, it's only a matter about ASPs or the average selling price. Whereas if you look at units for the entire first half year of 24, we sold 367,000 units you can see this year we have sold 365 000 units so almost the same the interesting point here is the orange graphs in the middle the left hand is exactly the amount of units we lost with two car with two customers going to dual sourcing whereas the right hand graph is actually the growth we have been able to take out of our, let's say, existing and new customers. I actually find it quite remarkable that within one year we have been able to, let's call it, subsidize half of our product and revenue stream with new and existing customers. That, of course, explains why we are not seeing a big growth this year like we are used to, I almost dare to say. But it's also showing that inside the company, we've actually experienced a big growth with new customers and with existing customers. And in terms of 26, we are quite positive that we will return to growth, both because we are in positive dialogues with the two customers who went to dual sourcing about putting more in our basket, as well as we are still seeing new customers and existing customers coming in. One example of what I just mentioned is that we have resumed the collaboration with Antec. Antec was a customer we had many years ago that has now decided to come back. Their profile is that they are a global leader in high performance computer components and accessories. And the first shipments of this mid-market cooler with them is initiated. And in this case, we are delivering a full solution, including the high tops display, et cetera. And from Q4 on, shipments to end users are commencing. On the SIMS board side, There are gives and takes as well. Of course, on the revenue side, you know, half of our revenue last year was the US. So of course we impacted, but not only directly in the US, it has also created a lot of uncertainties around the globe. And it just means that in a high-end segment, like the one we are playing in, we just do see a more cautious buying behavior, both from resellers and also end users. We have... U.S. retailers simply awaiting taking in our products because they want to see where this is heading. So while some people believe it's good that we have now got 90 days of more certainty, it's actually not good. We would rather prefer if we had a final outcome and that's it and we can move on. The highlight of this slide, though, is that our own sales, so direct sales to end users is actually on budget and unplanned. So that's, of course, very positive that there are still end users out there that are buying directly from us and actually enough of them to fulfill our own expectations. We have seen a gross margin at 35%. I would say that's a highlight as well because with what's going on and shipping back and forth and tariffs and, of course, not a very big business yet, I'm actually happy about this. So as I spoke about tomorrow, I'm going in a few minutes, but tomorrow we are launching what we call the initial product line. So initial in Latin means to begin or to enter. And the idea is that this is the entrance to our ecosystem. As far as I recall, this is our biggest product launch ever. because everything you see on the picture and then some is going to be released tomorrow. It has been in development for quite some time now, but it is a high value segment we are targeting here. I don't want to spoil the fun and talk about prices here. You can see them tomorrow, but it'll be much, much lower price than what we currently have available. And what I would argue is that it's actually still pretty high end. So the focus with this is much more gaming mass market. And of course, electronic retail outlets around the globe is the target for this. We are working, as I said earlier, on console compatibility, especially Xbox, which is the biggest platform in the sim racing market. We have been working with Microsoft for a little while now. The cooperation is progressing as planned, but it's also clear that it's not ASICSEC setting the speed here. So we are carrying on and we expect later this year or early next year to be able to launch that. And with that, I will give the word to Peter to talk about the financials.

Yeah, thank you, Andre. And we'll come back to Andre for a summary and outlook after my comments on the financials here. Let's just first take a look at the revenue development by quarter over the last few years. It is a condition of Asia Tech that our revenues are variating quite significantly over the different quarters here. So there's nothing new to that. But we know here that Q2 2025 was a sequential increase compared to Q1 2025. Looking further a bit at the profits and loss statement here, starting at the top. revenues this quarter was 11.2 million dollars versus 12.7 same quarter last year and for the half year it was 21 million dollars versus 25 million dollars compared period last year and if we look a little bit at the data behind that then unit sales as andre also alluded to for the half year itself it has been a very busy period and still we managed to to sell the same amount of units more or less 365 units in the half year compared to 367 last year however with a very big difference in the customer composition and the product composition If we look just at the quarter Q2 versus Q1 2025, then our sales in quantities increased by 13%. And that means that mathematically that the ASP, the average sales price must have reduced. And that is correct. And Audrey also alluded to that. The ASP decreased from 56.6 last year to be specific to 50.4 this year. And that represents a change in product mix. And we always have to caution people here that a decrease in ASPs does not necessarily translate into lower gross margins or lower earnings. It is simply a change in the product set up. Some products are just by nature more expensive than others. I'll get back to a slide on gross margins, but they are 45. 4.45 across the board, both for the quarters, both quarters and both half years. If we take a look at Simsports, by the way, we should have included that also. $1.3 million in second quarter 2025 versus 1.7 last year, same quarter. But keep in mind the very difficult market situation that we are in right now, especially with regards to sales into the United States. Operating expenses at $6.4 million versus $7 million the same quarter last year. That's a reduction of 9%. And that's the same reduction 9% ish that you will see if you look at the half year numbers, first half this year versus first half last year. And that reduction in operating expenses, of course, reflect the relatively large downsizing, rightsizing of the organization that we had to perform 2024. What the numbers don't show, but I can add those, is that the exchange rate, US dollars versus Danish kroner, keep in mind that the majority of our expenses are in Danish kroner, the exchange rate changed last year versus this year by 4 or 5% in our disfavor. So you can add those, so to speak, when you look at the 9% decrease when you want to compare. And that means that our operating income for the quarter was a loss of $1.3 million versus loss last year of $1.2 million and $3 million for the half year versus $2.6 million last year, same quarter, the same half year. There's been a significant foreign exchange impact this year or specifically in this quarter. And that of course refers to the versus the US dollar, how that has been developing over time. Financing expenses at 258, just a quick comment on that, because last year it was basically zero, and of course that has to do with the loans that we have taken up on the building that we are sitting in today. All in all, income before taxes at $1.9 million. quarter versus $900,000 last year, same quarter, and $4 million for the half year versus 1.6 for the half year last year. um and just one and one additional comment here on this page here you're looking at the total comprehensive income the very last line in both letters down there is technically it's not a part of the profit and loss it's just always shown here and that has a huge five million dollars uh income you could say to bring in our total in comprehensive income for the half year to a positive of one million dollars versus $4 million to the negative last year. And that has to do again with the US dollar versus Danish Krone change, which has a great impact on our balance sheet. And that is shown here as a bridge between the income statement and the balance sheet. Gross margin, I promised to comment on that. They are very much on par with recent quarters and past quarters at 45, 44.8 to be specific. 46% came from liquid cooling and 30% was the contribution from sim sports. You can see that the split between the two segments is relatively even. 88% sales to liquid cooling and 12% to sim sports. So actually a non significant development on gross margins. balance sheet we had at the end of june a cash position of 7.3 million dollars we are in compliance with our loan confidence and by the way just a comment on the loans here we have interest bearing debts of 21 million dollars related to the hq financing you say it's actually on the company as a whole but but of course it is in reality related to to the building they mature in march 2028 meaning it's long term so and it has a long term mortgage type repayment profile. It's a Danish type of three rate plus two point forty five points. So I think it's within what's absolutely acceptable. And that brings us back to Andre for a summary and outlook.

Yes. So our revenue, as alluded to, it's, of course, impacted by the tariff situation we are executing on our Simsports growth plan with the imminent launch tomorrow. and we are very much positioning the liquid cooling business for for growth from 26 and beyond both with new and returning and existing customers targeting a wider market perfect and ellie would you just remind people how it works on the q a we're now opening the floor for question and answer session if you'd like to ask a question

please use the ask a question box on your screen. I'd now like to hand the call back to Peter to address the webcast questions.

That is perfect. Thank you. And by the way, if you should not be able to or whatever, want to post your questions here, then you can always send us an email and we'll reply back to you and attend to your question. Investor dot relations at Asia Tech dot com is our is our email for this type of questions. We have a number of questions. Andre, will you comment on the top one here?

Yes. Is there any progress in selling the building? I was not aware the building was for sale. So I don't really know what to comment on that.

And then the next one, I can take that. With $3.8 million cash per owner in the first half and $7.3 million in reserve, what cash management steps are being taken? And do you foresee needing additional financing before the end of 2025 or 2026? And no, we don't foresee needing additional cash within that period of time or in further future for that matter. And that's related to our expectations of enhanced, increased sales going forward from now on. There was a question there.

There's another cash flow concern and whether the executive team have considered temporary salary reductions. No.

That was a very clear answer on that one. I'm hitting the refresh button. And I do that once again. And that seems to be it. Oh, there was one here.

So that's a question relating to the transaction I mentioned earlier. And as I also mentioned, I'm not going to comment further on it.

And that means that we can close the session and say thank you for your interest in ACETech and remind you again of the investor relations email investor.relations at ACETech.com. Thank you for your interest in ACETech. Thanks.