MIPS AB (publ)

through the Q1 results presentation. And if we start with the key highlights of the quarter, as we communicated before, we expected a soft bite market to affect sales and profit in the quarter, and we did see that. Net sales was down 35%. If we adjust for currency effect, organic growth was down 41%. If we exclude the bike-related sales, we actually saw good growth in the quarters, a good performance in the rest of MIPS. We did see a soft start of the bike season due to cold weather. Assumption of gradually recovery in Q2 remains. And the good thing is, of course, that our long-term outlook hasn't changed. As you see also in the drop of EBIT and increase of our investments, we are continuing to invest behind our strategic priorities. We are almost 20% more people on board and of course we have recruited a lot of people to make sure that we can deliver on our long-term plan. we remain confident in delivering on our long-term strategy and the financial targets that we have. If we then look at sport, we are just ending a very strong winter sports season. It has actually in the US market been the best snow season in 25 years. And there is still a lot of snow in US markets and so on. We have seen, of course, a challenging market in bike, and that has resulted in a challenging quarter in sports with a decrease of net sales of 38%. Of course, this is fully explained by the soft bike market. If we look at the other two key helmets in sports, which is snow and equestrian, they actually demonstrate and showed very good growth in the quarter. We do expect gradual improvement of the bike market during the second quarter. And like we have communicated before, when we go into the second half of the year, we actually expect that also bike will be back at growth numbers. And if we look at the longer term outlook, we do see a positive view on sports as a total and especially in bike. If we then go over to moto, we saw a soft development in the quarter, still very positive on the long term outlook. And the soft development of a quarter with a decrease of 33% is fully explained on the back of a very strong prior year comparator in Q1 last year, where we grew 150%. We are really happy that we see great attention on the market, thanks to the new MotoGP helmet that we have launched that is equipped with the MIPS safety system. We have also one of the top-ranked riders that has now also joined Team MIPS. And there was a press release actually this morning that we saw that he is joining our MIPS team. So great to have one of the best riders in MotoGP also in the MIPS team. And of course, we'll remain confident on the outlook also for the Moto categories. In safety, we see strong development and of course, in line with our ambitious plan, we saw good performance in the safety category. In total, we have now 12 brands that have launched helmets and partnership with the MIPS technology inside. The one during the quarter was actually Securis, which is a smaller brand, but really interesting and with a focus especially on oil and gas industries which gives us a really nice exposure also so that type of industry we have of course invested a lot into the safety category to really make sure that we have a strong platform to generate volumes and 2023 will be all about ramping up the volumes and of course driving sales through so really happy with the performance that we see in the safety category If we then look at the development in the different categories, we saw in sports a decline of 38%, excluding bike. We actually saw good performance. Moto down 33% in the quarter, but we do expect good performance going forward. And if you also look at the rolling momentum, we have good growth in the motorcycle category. And in safety, very simple, we are following the plan that we set I will now hand over to Karin, who will take you through a bit of the financials.

Good morning. I'm Karin Rosenthal, CFO of MIPS, and I will take you through the financial part of the presentation. We saw a soft development in the first quarter with a decrease in net sales of 35%. Adjusting for FX due to a strong dollar versus SEC, sales decreased 41% organically. Gross profit was decreased with 37%, and we saw a gross margin of 70.8%, 72.5% last year, despite negative impact from the decrease in net sales. In OPEX, we continue to invest in our strategic priorities, R&D and marketing. We had a negative impact of 5 million SEC from FX under operating costs, in the quarter. EBIT was down 75% to 15 million and an EBIT margin of 17.5% versus 45.3% last year. We had a negative operating cash flow in the first quarter due to the decreased earnings and the tax payment relating to the 2021 year's profit. If we look at the financial KPIs, organic growth of minus 41%, an EBIT margin of 17.5% and an operating cash flow of minus 42 million. If we then turn to next page, we are now on page eight, balance sheet and the cash flow. We have a strong cash position with cash and cash equivalents of 487 million. And important to remind you that MIPS does not hold any loans. A negative operating cash flow in the quarter of 42 million relating to decrease in earnings and paid tax related to 2021 profit. A dividend of 5.5 SEK per share is being proposed and corresponding to 82% of net earnings for 2022. An equity ratio of 88%. Over to you, Max.

So if we then summarize the quarter, it was a challenging quarter. Good performance if we exclude bikes. We do expect a gradual recovery of the bike market already during the second quarter. Good outlook in both safety and motor in 2023. we are continuing to invest behind our strategic priorities to make sure that we can deliver on our long-term strategic plan. So when the markets will turn around in the second half of this year, we are fully equipped to deliver on our growth plan and make sure, of course, that we can improve the profitability improve the growth and so on and we are confident on delivering on our long-term financial targets so with that apologies for the delay we'd open up for questions if you wish to ask a question please dial star 5 on your telephone keypad to enter the queue

If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Adela Dashian from Jefferies. Please go ahead.

Good morning, Max and Karin. I have a few questions. The first one relates to if there's really a risk with the de-stocking that's currently being taken place on the retail level of that being dragged into the second half of the year. Are you seeing any signs of that currently? And I'm saying that just in light of Shimano yesterday cutting their full year guidance. And then on top of that, is there any geographical differences when it comes to progress related to the de-stocking?

Yes, thank you. And of course, I think you need to divide it into a couple of things. So first of all, when we see Q2, we do still expect a soft bite market. What we are seeing is, of course, that our sales will improve a little bit versus what we have seen in Q1 because we have a different product mix. For Q2, the major part of production is actually relating to snow helmets. You know that we are coming out of a very strong snow season, very little inventory on the market. So we basically start from scratch there. So that is really the key driver of the difference. We do expect a gradual recovery in bike, and we were actually expecting it to be a little bit earlier. Due to the cold weather that we have seen both in Europe and in the US, it started a couple of weeks later than we expected, but we're still only a couple of weeks delayed when it comes to that. So do we already now see some signs of recovery? Yes, the first signs is there. We do see some of the orders of the more low-priced helmets that we haven't received order for a long time. We now see that things are starting to improve. If we would rank the markets and how they will recover, we see fantastic development in the Asian markets, no real inventory position there. And it seems actually like bike is doing really, really well. And you also see that in the report with more than 100% growth in the Asian markets. So there, I think that's really, if we talk about the turnaround, where we will see the first difference. Then the second part is actually on the US market where we will see a gradual improvement and that has already started. Of course, we know that the season is fully ongoing at the moment. Sea Otter, which is the biggest bike event of the year, was about one week. It was bigger interest than ever. And we now see start or we now start to see things moving from that. When it comes to Europe, We actually expect that to be lost, because there you have a little bit of different consumer dynamics. The consumer has lower confidence, of course, and is not spending in the same way as they do in the US market. So Europe will probably be the last one out of the starting gates. So hopefully that answers your question.

Yes, thank you very much. And it's interesting that you mentioned that you're starting to get orders for the low-priced helmets, which is a category that, at least from my understanding, has been the worst performing for the last six months. Does that mean that you already have received orders for the medium to high-priced point helmets throughout the last couple of weeks, or how should we view that situation?

Yeah, I think in terms of, you can divide it into a couple of different buckets. The low price element, that's where we have been suffering the most, because of course, that's where also the market has suffered the most. There has been a lot of products in the lower price points blocking the channel, so to say. In terms of the higher price point, there you still see low inventory, you still see a very good demand and that's the same in bikes, that's the same in helmets and so on. So there I wouldn't say that we have seen that much of a difference. Of course, higher price points are normally not as big in volumes and that's why you don't have the same material effect. From high price points, we have seen interest through the whole period. I think what's really the big difference for us is that we start to see also mid price points and the lower price points starting to move.

Would you be able to give us a rough estimate of what your exposure looks like in the different segments, just in bike?

Yeah, so I mean, if you look at the bike, around 50 to 60% of our sales before has been on the lower price points. And then you have around 20 to 30% in the mid price points. And then you have about 10% in the high price points. And the high price points is really helmets at 150 US dollar and above when it comes to bike.

Got it. And then I also have a question on the safety segment and how we should anticipate the timing of the sell through or the volume build up throughout 23 because numbers in Q1 were two materials. So will there be more of a balanced revenue recognition for the remaining quarters or will there be one that's stronger than another? How should we view that?

Yeah, I think, I mean, what we have said, and we said that already last quarter, we do expect somewhere around 20 to 30 million in net sales in the safety category that remains. We had 3 million in the quarter, which is of course a really good start, but we have also said that it will gradually improve throughout the year. So if 3 million, And we need to get to 20 to 30 for the year. Then, of course, you can expect gradual improvement quarter by quarter for the rest of the year.

Got it. And then if I may just ask on MOTO too, is there any other reason than last year just being an exceptionally strong quarter for MOTO that explains the revenue decline there?

No, I mean, what we saw in this quarter is that we had a comparator of 150 percent and of course it's always difficult to grow in that type of comparator q1 is normally not the biggest motorcycle quarter in the year so of course also the number that we achieved we have said before that we expect good momentum in motorcycle if you look at the last rolling 12 months we see good performance So nothing has really changed there. Of course, we see challenges in every category we are in with the market conditions. But for us, we are still so early on the penetration game. So for us, it's more penetrate as many helmets as possible rather than the market development.

Excellent.

I'll leave room for everyone else. Thank you. Thank you, Adela.

The next question comes from Carl Dagenberg from Carnegie. Please go ahead.

Thank you. Good morning. Maybe two brief ones from my side here. First on the sports category here and bike also. You're talking about that you're still growing well in snow and in equestrian. I'm just wondering could you elaborate a bit maybe here on the sequential improvement that you've seen in bike your q1 versus q4 is the the magnitude of the decline sort of worse here in q1 than in q4 and also would it be possible to say anything on the growth rates in in the other sports categories here in q1 that's my first question yes so i think i mean q1 was better than q4 but it's still quite

low numbers when it comes to bikes so we do expect or we did see a gradual improvement in q1 that we expect to be improving even more in q2 but we still expect the major decline of course When we look at the other two types of helmet that is dominating in sports, I guess you refer to snow. In snow, we grew about 60% in the quarter. If you take the other type of helmet, which is equestrian, we had a growth of 82% in the quarter. So, indeed, those two types of helmets is doing really well on the market.

Okay, perfect. And then I had a follow-up here on the mode of development here in Q1. I understand the comparison and dynamics from Q1 last year, but just taking it sort of from a two-year perspective or taking into account also the 2021 comparisons, I think they're also quite tough if you look on a two-year stack here going into the rest of this year. uh so maybe just if you could elaborate a bit you know the comparisons that you're seeing here in in most going forward and also you know the the initiatives and launches on their own roadside that you've had here in in recent months how's the the reception been there yeah so i think i mean if you divide the motorcycle here into different quarters

Q1 is normally the smallest quarter already there, even though we don't talk too much about seasonality. What happened this year is that you had a very early Chinese New Year, which was already in January, which hasn't happened in a lot of years. So, of course, you have a little bit of a different facing there. Q2, you will see improvement versus what you saw in Q1. And then the biggest quarter that we expect to see is Q3 and Q4, of course, following a lot of launches, but also because of the market. So we will be a little bit back. Nothing has really changed versus what we have seen before.

Okay, wonderful. And maybe just a final question. I know that this was already a topic. from the previous analyst here, but on the Shimano guidance, I mean it's a quite severe downgrade here quite recently after they just set out the guidance and it's quite limited details in the reporting, but if you could share a bit light of what you're seeing there, I know that's quite an important market indicator. But mainly also, you know, the weather effects or is it something other indications that the underlying development is worse enough here in 2023?

Yeah, no, Simona, given that they are a component producer to the bicycle industry normally with a lead time of 18 months plus, I think weather will probably not be a big issue for them, especially not when it comes to a couple of weeks. But I think in really... In order to understand Shimano, we still think, even though they are Japanese, that they might be a little bit on the bullish side, because if you look at their market assumption is that if you look versus 2022 versus 2019, they have grown a little bit more than 60% of the market, which means that they had 4% growth in 2019, very similar to 4% in 2020. Then in 2021, they had 44% growth. And then in 2022, they actually had 15% growth. So they have never seen actually the deceleration of growth that the other ones in the industry have seen. And that's what's hitting them at the moment. Then calculating backwards, which I'm sure that you already have done, also with the new guidance, it means that versus 2022, they will be down 28% in full. And of course, in 2022, they grew with 44%. So they are still more positive than a lot of other companies. But if you look at their overall assumption and versus pre-COVID, they still expect that the market, because they basically are the market, is about 30%. bigger than it was in 2019. So really a big assumption on how big the market actually is. If you look at MIPS, our assumption on the same view is about 20% bigger market than 2019. But we divide that into two different chunks. One is that we believe that the market is probably 10% bigger than it was in 2019, which means an average growth rate of around 3% per year. And then our addressable market has also increased with 10% because we can address cheaper helmets than we could before. With our capital markets day, we decreased our addressable markets from 30 US dollar to 25 US dollar. And therefore, of course, that increases our overall addressable market. So hopefully that answers the assumption on Shimano.

Yes, definitely. Thank you very well. That was all from me at this stage. Thank you very much.

The next question comes from Daniel Thorson from ABG Sundal Collier. Please go ahead.

Yes, thank you very much. A little bit of a technical question. The gross margin of 70.8%. Is that fully explained by higher service share of sales in the quarter than previous quarters? Or is it any structural changes to price and COX that we should have in mind in the coming quarters?

No, over time, there is no structural changes as such. COGS has not really moved in a bigger way. What we do see, of course, when you are decreasing with 35%, of course, there is a fixed element of your cost of goods sold, which also dilutes the margin.

Good. Secondly, on the safety, how important is it for you to get more brands than the current 12 to deliver on your growth plan for the coming few years here? Or are the current ones big enough to get you on the way to your target within the safety category? For example, you got to Vex a year ago, they launched half a year ago, but sales haven't really taken off.

Now, I think, I mean, it's always important to have new customers, especially when you are in a new category. If you take the 12 that we have communicated, of course, they are a major part of the addressable market. And of course, a big chunk for us to grow with. But of course, our ambition doesn't stop there. So do we have or have we launched with all the brands we need to deliver our 2027 plan? No. But are we on the plan to get there? Yes, we are. So yes, you can expect that there will be some more brands coming on board. That's natural for any company, of course, having a growing business and so on. We are really happy with the ones we have so far, but of course also like to have more brands coming on board. Given the lead time that we see with a customer that can be one to two years at the most, we have taken a decision quite long ago to not talk about customers that we signed. We don't talk about them until they have a product on the market.

Yeah, fair enough. That's good. My final question is regarding the full year development here. You have previously mentioned at one point in time that you should be able to grow organically for the full year 2023. Has that changed anything given the weak start of the year in Q1? Or do you expect a significant recovery in H2 to be enough to grow full year?

Yeah, so we do expect still to grow in the full year of 2023. And of course, Q1 is the smallest quarter. So in absolute terms, that doesn't really change anything. the picture, even though in percentage it can look a little bit bigger than it is. So no, Q1 doesn't make us change the picture.

Good. That's all from me for now.

Thank you, Ronel.

The next question comes from Emanuel Jansen from Danske Bank. Please go ahead.

Yeah, hi Max and Karin. Just a couple of questions from my side and I think Daniel just touched upon it on the full year growth for 2023. I mean, just given the comparable figures you will face in the second half of 2023 and also including that the bike season seems to have started later than than you maybe hoped for in April instead of March. How confident are you in growing sales in Q3 already?

Yeah, I think what is really different and really important is that a lot of the helmets that will be produced in Q3, especially relating to bike, is not for this season. those are helmets that will reach the market in 2024. So even and depending on what happens for this season doesn't really change the picture. So Q3 and Q4 is mainly production for 2024 bicycle market. So that will not really impact that as such.

okay perfect thank you and also looking at the bike segment with the with rising interest rates i i assume it will be more expensive for retailers to keeping high levels of inventory and probably they might also have to reduce the number of sqs have you any picture of it and and what products If they will reduce the number of SKUs, what products do you think they will mainly focus on and how will this affect MIPS?

No, I think, I mean, there is not something that started now that has already happened. I mean, A lot of the industry have faced an SPU rationalization program. And that is because during COVID, you sourced whatever helmet that you could get. So you listed a lot of new helmets in order to have any product to sell. And then of course, during the last, I would say 69 months, a lot of the retailers have already rationalized their portfolio. to make sure that they have much fewer STUs than they had before. So that has already happened. I mean, if there is any time where cash is king, you are right. That is a scary resource at the moment. There is a lot of things that is demanding cash at the moment. Cash is more expensive than it has been in a long time. So, of course, people are more worried about the inventory. But that has already been reflected in the industry. And that's actually started already in June last year and not something that we are seeing at the moment.

Yeah, okay. That sounds fair. And lastly, from my side, should we expect any difference in OPEC spend the coming quarter? So will it be similar as we have seen in this quarter and in Q4?

Yeah, I think, I mean, we are continue to invest behind the plan and that we set up, like I said, we almost 20% more people today than we were one year ago, where we have really ramped up is of course, a bit in sales and engineers. And then we also in our product development, as you know, also with our new strategy, we are putting a lot more muscles behind our product development. You already saw the first product coming out last year, and there will be more product coming out this year. So you can expect the same pace as you have seen so far.

Okay, perfect. And lastly, can you say something about the new collaboration with Securis? And should we expect any volumes in the next one or two years, or is it?

I mean, they are a relatively small player. What we are really happy with is that they have a really nice exposure to the oil, gas and energy sector, which not all of our other brands have. So, of course, they just make sure that we can penetrate the bigger part of the market. But I wouldn't expect two big volumes within the next one to two years. But, of course, really happy that we get exposure to more markets.

Okay, great. Thank you very much, Max. That's all of my questions.

Thank you, Monja.

The next question comes from Kari Rinta from Handelsbanken. Please go ahead.

Yes, good morning. Most of my questions have been answered, but I have a few detailed ones. And sorry to go back to Shimano, but I think they mentioned that China was trending very strongly for them, and you mentioned that your Asian sales are up significantly. I should know this, but is China a meaningful market for you, or is it other parts of Asia that have been driving this growth?

No, China is the main market in Asia, and historically we have been trending at somewhere around 3-4% in Asia. This quarter we were actually up to 10% We do see great demand both for bicycles, but also for e-scooters and other types of products. So Yes, we see the same really strong trend in China Thank you, and then the

Probably just a small anecdote, but I've seen some news about that given that the US has such a good snow season that some of the resorts that typically do mountain biking in the summer will either open very late or not open at all. Does that play any role for you or is that only relevant for the highest high end of your bike?

Yes, some of the resorts do actually stay out or up longer than planned and that of course is also why we say that the market opened up later in bike than we expected. There was a lot of snow and there is still some snow in the US and so on, which also enables a lot of these resorts to be open a little bit longer for skiing and then of course the bike season starts a little bit slower. I think it's probably plus and minus when you add the two together because if they don't ski then they go biking so I don't expect us to lose a lot from that impact and so on.

The good thing is

sure thanks and then finally going back to the output for 2023 so snow will probably go sounds like you're expecting growth in moto we've already discussed safety so and we have that Shimano guidance so is that Shimano guidance for their bike component sales a good proxy for your bike helmet sales revenues for this year or Is there a meaningful difference in the interfacing of your sales versus their sales? I mean, you already mentioned that the lead times of them are longer and they are a bit more late cyclical, but that should be expected. I guess the question is that should we expect your bike element sales to decline by 20-30% as well this year?

Yeah, I think, I mean, the effect that they are seeing now, we already saw last year. So I don't think that there is a big facing difference and so on. you have some of the other component manufacturers that is experiencing the same. Like last year, they had really strong growth and also in 2021. So they are really, I would say a little bit later, but if you also look in their report, the longer term guidance for them, is really positive in bike and I think they hold on to the same macro trends that we are doing. So no, we don't expect to see the same impact as Shimano because of course we were hit a lot earlier than them but we also expect to be out of the starting gates a lot earlier than them.

All right and then finally let's say that you do achieve growth in your four-year sales are you but at the same time you have mentioned few times that's when the 20% more in terms of headcount and you continue to invest so how should we think about the margin the EBIT margin for the four-year are you equally confident that you will maintain 40 plus for 2023

Yeah, I think there is two things to it. I mean, we have a longer term plan to really get back to 50% where I think we should be and where we have been, of course. And when you will see growth again in the business, of course, we will start moving up to that target. So long term, 50% is the ambition. And of course, for 2023, we will not get there. So I think that if we can get up to 40%, I'm happy with the growth because I mean, we are a very scalable business model. What we have taken a decision is that growth shouldn't be dependent on how we spend our money, because of course we are investing for future growth. But I think if we can get back to 40% by the end of the year, then I think we have done a good turnaround of the business and 40% full year is a healthy margin for most businesses, I think.

Great, thank you very much. Thank you, Kari.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

We also got one electronic question from Sam Koch at Columbia Threadneedle, which asks us a little bit on the project momentum. And we still have a very high project momentum with a lot of inflow of new projects. And so on. And we also had to hire more engineers to manage our project coming in. So we haven't seen any real difference there. So hopefully answered that question. Other than that, I mean, we are ending up this Q1 results presentation. And we welcome you all to listen in to the Q1 results presentation when it's time for that. Thank you all and enjoy the rest of the day.