MIPS AB (publ)

Good morning, everyone. My name is Max Stramnitz, and I am the CEO of MIPS. With me today, I also have MIPS CFO, Karin Rosenthal, and we will walk you through the Q2 results presentation. And if we start with the first quarter and the key highlights, it was a strong quarter with 31% organic growth. Year to date, organic growth is now at 14%. We saw good development in all categories and in all regions, which is, of course, very good to see in these times. The interest in implementing MIPS safety system in new helmets remained high. You see that also in the project revenues in the quarter. And we continue to increase the market share and the penetration of MIPS throughout the world. No change of previous assumption of a gradual recovery of growth in 2024 and that of course continue also into the second quarter. And we remain confident in our long-term strategy and our financial targets. If we then start with sport, we saw strong development in bike and snow with 33%, but also good performance in the little smaller subcategory equestrian. We continue to see positive order momentum in bike, and our previous assumption of recovery in bike remains. And we have now seen three quarters with consecutive growth in bike, which we are, of course, happy to see after quite a tough market situation. We see that inventory levels have returned to a more healthy level, but the market conditions are still challenging around the world. And we are long-term positive on the outlook in the sports category. If we then look at Moto, we continue with a positive momentum there, also good performance with 14% growth in the quarter. The retail environment has improved a little bit, especially for the important US market, but it is still softer than normal. We did implement quite a lot of initiatives and they start to have an effect. especially through new launches. We also have improved sell-through activities on the market. And of course, we also signed new partnerships. We did also host a safety symposium together with MXGP and FIM in the end of May, where we saw great interest from both media and brands. And this is a really important event. to improve awareness in the category. And of course, we also joined as the main sponsor of MXGP. So a very important event to drive awareness in the category and especially around safety. And also here, we see no change to the long-term outlook. We continue to see a really strong interest of MIPS in the category. And then if we look in safety, We saw good development with two important launches in the quarter. First of all with MSA, which is one of the bigger brands in the safety category. And also we did launch forestry helmets with Husqvarna. And we're really happy with the platform we have where we can continue to drive growth and deliver volume in the category. The volume development, even though it's a record quarter for us, it's somewhat slower than we expected, despite that we see very good interest on both the US and the European market. But of course, we expect that to change and already coming quarters, we expect that volume will start to increase more and we will see even stronger development in this category. If we then look at the category performance in a little bit more in detail, sports were up 33% in the quarter year to date is now 14% driven by both bike and snow. We see very good performance in the question, but of course, being a very small subcategory, it has limited effect on the total performance, but really happy with the development that we see in sports. In motorcycle, We continue to develop well, and we see that numbers are increasing again after quite tough market conditions. And we had 14% growth in the quarter. And if we look at the year-to-date performance, 8%. And of course, safety, small numbers. But of course, we see that that is going to change. And with that, I hand over to our CFO, Karin Rosenthal.

Good morning. I'm Karin Rosenthal, CFO of MIPS, and I will take you through the financial part of the presentation. We saw great development in the second quarter with an increase in net sale of 31%, and no change after adjusting for FX. Net sales also increased 31% organically. Gross profit increased with 37% and we had a gross margin of 72.9%. And that's up three percentage points versus last year. And the increase is mainly due to lower share of fixed costs and product mix effect. In OPEX, we continued to invest in our strategic priorities during the quarter. A strong EBIT that was up 125% to 52 million. And the EBIT margin increased with 16.3 percentage points to 38.9% versus 22.6% last year. And this shows how scalable our business model is as net sales increase it will run through and have a positive effect all through our P&L. And good operating cash flow of 29 million in the quarter. And looking at our financial KPIs, 31% organic growth, an EBIT margin of 39%, and 29 million in operating cash flow. We then turn to next page and look at the development for the first six months. Net sales increased with 14% and no changed after adjusting for FX. Sales also increased 14% organically. Gross profit increased 16% and we had a gross margin of 71.6% versus 70.4% last year. In OPEX, we continue to invest in our strategic priorities, marketing and R&D. And EBIT was up 70% to 65 million. And the EBIT margin improved by 10.1 percentage points to 30.3% versus 20.2%. And operating cash flow was 20 million. And then looking at the financial KPIs, organic growth of 14%, EBIT margin of 30%, and operating cash flow of 20 million. If we then look at next page, and we are now on page 9, balance sheet and cash flow, we have a strong cash position with cash and cash equivalent of 266 million. We paid out dividend of 159 million in May. Corresponding to six SEC per share. And just to remind you that MIPS don't hold any loans. And operating cash flow in the quarter amounted to 29 million. And we had an equity ratio of 85%. Over to Max.

Thank you, Karin. So if we then summarize the quarter, it was a very good quarter with 31% growth. And we're really happy to see that we grew in all categories and also in all geographies, which is, of course, really good to see in these times. We see year-to-date sales now in positive territory with 14% growth year-to-date. And it was also really good for us to see that we actually, during the quarter, celebrated that we have delivered more than 50 million units to Helmet equipped with MIPS, which is, of course, a fantastic number and something to be really, really proud about. Our assumption remains the same as previous quarter. We do expect gradual recovery of growth throughout 2024. Our view is that our sales will reflect market sell-out with less impact from our customers' destocking of their own inventory. So what does that actually mean? I think it's really important to realize that the market that we see out there is not super strong. It's still a very challenged consumer. We see that in all markets, of course. What happened in 2023, which of course was the key results of us declining in sales, was that a lot of our customers, they were, instead of buying from MIPS, taking from their own inventory. Now, when the situation has normalized, they start to buy from us again. And of course, if you have soft comparators, they start not to deplete their own inventory, but start buying from us again. Of course, that has an immediate effect in our numbers. And of course, that's one of the key drivers of growth. And if you then also add that we are stealing market shares in all regions and implementing a lot of new helmets equipped with the MIPS technology, then, of course, you get a good, strong growth number. And that's what we're seeing at the moment. We're really happy with our strategy that we have. And you see that also during the quarter, we have a strong financial position and we have confidence in our long-term strategy and the delivery of our financial targets. And with that, we open up for questions.

thank you as a reminder to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced to enjoy your question please press star 1 and 1 again if you wish to ask a question via the webcast please type it into the box and click submit we will now take our first question please stand by and the first question comes from the line of adela dashian from jeffries please go ahead your line is now open

Good morning, Max and Karin, and congrats on a strong quarter. My first question is related to the recovery in the bike category. I think this was much stronger at least than what we had anticipated. Could you maybe dive a bit deeper into explaining how it is that you're still seeing this high recovery rate in the second quarter while some of your peers are being more impacted by the end market challenges. I mean, I understand that you're maybe one or two quarters behind the catch-up effect due to inventory levels now normalizing, but it still seems like you're having better traction than some peers. So yes, that would be my first question.

Yes, thank you, Adela. And we are very happy, of course, about the performance and the recovery. Yes, and we are a bit ahead of our peers. But I think you need to add a lot of different effects. I think the first one is, of course, what I explained that we now see that customers are buying from us again. We also see when inventory is being replenished, especially on the European market, that a lot of the new orders from customers is with MIPS because MIPS is stealing a lot of market share. And when you now buy new inventory of course we see that there is an over representation of MIPS versus before and that of course we also see in the market share numbers and if you are growing faster than the market of course that has a natural effect on the numbers but then of course we also see and I have endlessly talked about all the projects that we are doing, all the MIPS implementation that we are doing. And of course, that also has an effect of the numbers. You also saw in the quarter that we had strong increase also of project revenues, which means new helmet equipped with MIPS that will hit the market that was up 38% on in the quarter, and we have also very strong performance here to date. So of course, it's not one simple thing. It's the customers buying from us, we are stealing market share, and we are increasing the penetration. And going forward, you will see an effect of that. And of course, we grew somewhere between 40 to 50% in bike in the quarter. And now, of course, we go into the bike heavy quarters with soft competitors. Of course, we are very happy about that.

On the comment on the over-representation of MIPS, would you relate that to the customer base that grew during the pandemic? Because I'm assuming that you've had this big pipeline of models that weren't launched in the past two years that are now being launched. As a result of that, would you say that the magnitude of new model launches is more significant in 2024? Or is that pipeline still going to be working through that pipeline next year?

Yeah, so I think, I mean, it's not customer that was actually recruited during the pandemic, but actually we signed a lot of those customers already in 2019 and 2020. We had fantastic performance in Europe. Then, of course, we got hit by the unwind of the pandemic situation which of course hit us as everyone else but of course together with those new customers especially from Europe we developed a lot of new models and we have started to roll out the new models and you will continue to see that effect also in 2025 We have said before that we expect the market to be relatively challenged also during the whole of 2024 and will not see a full normal market situation until 2025. And then, of course, all the remaining models that have been developed will hit the market then. So it will be a gradual rollout. It has already started, but there is more to come also in 2025, of course.

Got it. All right. And when you say a normal market situation in 2025, what do you mean by that? I mean, I think you've previously stated that the market versus pre-pandemic has grown by about 20%. Is that number still relevant or do you see further growth or even lower?

No, I think, I mean, when you look at the market today, we see a little bit growth in the european market from very soft numbers of course there you see a very challenged consumer that is now starting to come back then when it comes to the us market which has always been our main market we are really happy with the performance there but you didn't see the same collapse of the market so the market has actually been quite strong during the last years and so on so Of course, there you have a little bit tougher comparators, and you hear that from a lot of other companies reporting that the North American market is somewhat tougher, but it has also remained strong during the whole period and so on. When we talk about the more normal situation is that you start fresh. You start fresh with inventory levels. Then of course, you have a consumer that is a little bit stronger. And I think everyone in the industry also expects that the markets will start growing much more during the whole of 2025 with a stronger consumer, of course, driving that behavior. If you look at participation levels when it comes to bicycling and also commuting, they are actually as strong as they were even at the peak pandemic situation. So you see really high participation. But that hasn't been reflected in numbers around the world yet.

All right. That's a great color. And then maybe one on safety. Could you explain why we're not really seeing the volumes pick up? Is this still the certification process of the final helmet models that is lagging? Or are you seeing even more weakness now with the construction industry being in a slowdown?

Yeah, so no, it has nothing to do with certification. All of that has been done. We were expecting maybe a little bit more to come in already in Q2. We see really good tractions and so on, and there is basically nothing holding us back. Sometimes you have orders coming in one quarter or the other quarter, but we are not concerned about the development. And I think it's also When we talk about safety, it's still the best quarter we had in safety so far. Of course, still somewhat lower than expectation. But our expectation, of course, in safety is super high. And of course, when you don't deliver on that, you get a little bit disappointed. But we see that the volumes are picking up already in Q3 and Q4. So we are not really worried about that. When it comes to the soft market, our key market is of course the US market and the construction market there is quite strong actually. You see a couple of really big infrastructure projects and so on. So there we are not seeing the trend that we have seen in Europe with very low amount of construction projects and so on. So in the US, we haven't seen any weakness at all. Of course, when you look at the Nordic construction market, it's a very challenged market, but it's only a fraction of our sales and doesn't impact the numbers as such.

Got it. And then just a final one, if I may, on the cost base, do you feel comfortable with the current level or do you see need to increase your spending or I guess maybe decrease your spending going forward?

No, I mean, we were holding back on some recruitment for one or two quarters. Now we will start and have already started recruiting again, especially on the engineering side because of the interest we see in new products and also projects, of course. So that will have, but we are a very scalable business model and When we increase our OPEC spend, it's one or two million at the most per quarter. So it doesn't have a big effect on the total. So yes, it will continue to increase. We have two very important strategic priorities. One is the marketing spend, where we said we want to spend over time 7% of net sales. And of course, that we will do. And then around 5% on R&D, because of course, If you want to maintain a superior technology, you also need to invest behind it. And that's what we will do.

Perfect. Thanks a lot.

Thank you. We will now take our next question. And the next question comes from the line of Carl Dayenberg from Carnegie. Please go ahead. Your line is now open.

Thank you very much. Good morning, guys. So maybe first two questions following up on the momentum that you're seeing in bike. I was just a little bit curious, you know, the pickup. I mean, you've been growing there for three quarters in a row now, but obviously accelerating quite a bit here in Q2. And I just wanted to ask, Is that predominantly being driven by the larger customers of yours? I know that you have a couple of ones that account for a couple of percentage, or is it sort of a wide recovery also among your smaller customers?

Yeah, I mean, you see across most accounts that they are coming back and so on. I wouldn't attribute it only to the large customers, but of course we see Europe being a little bit ahead of the curve. Of course, European brands are driving the performance more than North America, of course. But I would say it's across the board.

Okay, very well. And then secondly, just on the team, I just want to ask also, the sort of monthly momentum here in Q2 and then it's a quite significant sequential pickup here for Q1. And I just wanted to ask, you know, is that been gradual throughout the monthly development here in Q2 or has it been, you know, fairly much in line with what you were expecting yourself when you were going into the quarter?

Yeah, the quarter has been very much as we expected. I wouldn't say that, one month was better than the other, but yes, it was very much in line with our expectations.

Okay, great. And then finally, I had a question also on safety. I mean, we talked about the platform and I know that you have, you know, a brand base now, which is quite significant if we compare it with your addressable market, but would it be possible to talk anything? I mean, the potential, you know, the revenue potential with existing platform, I guess, you know, you're talking about the ramp up and the volumes are still obviously low, but you know, how much could you essentially handle or what kind of revenue potential could you say longer term just with existing brands that you're having right now? I mean, when would you sort of start focusing again to adding more brands here? How, how, how far out would that have to be basically?

Yeah, so if we look at our platform today, we have released partnership with 16 brands. If you talk about how much they represent of the total market, it's something like 30 to 40 percent of the total addressable market. So, of course, we are very happy with that. When we add new brands, it's not so much to directly generate volumes. For us, it's more important when you are an ingredient brand, your success depends on how good partners you choose. So, of course, for us, it's really, really important that we pick the right ones. Sometimes we need to turn customers down because they don't elevate our story and we don't elevate their story so much. They maybe only sell on price and so on. So for us, when we add a new brand, we do it for the right strategic reasons and that they will drive the MIPS brand equity, which is of course really important when you establish yourself in a category. We are not actively recruiting more brands just to add more brands. We're really happy with the performance we have. And for me, and as you've also seen in the report, it's important to drive sell-through. To just add another brand without driving sell-through doesn't help us anything. We really want, with the brands we have at the moment, to start generating volumes to show what we can do on the market. That's the key focus. If we get the right brands, then of course we will continue to add them, but we will not only add them just to get volumes because the platform we have is enough to generate a lot of growth.

Okay, very well. And just maybe shortly, finally, I mean, you touched upon also the revenue development in the sort of services category, I mean, the invoicing that you do for testing and so on with the brands. And I just want to ask, I mean, given that you ramped up or added so many brands and safety stuff, you know, the main contributor in an absolute number perspective, or is it still, you know, growing also in your more mature categories like bike and snow, for example?

Yeah, the biggest contributor for us is still bike. That's by far the biggest category for us. And that's where we add most helmets equipped with the MITS technology.

Okay. Thank you guys.

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Emanuel Janssen from Danske Bank. Please go ahead. Your line is now open.

Good morning, Max and Karin. I hope you can hear me. I think we started to touch slightly upon the bike segment here as well. Just going forward into the second half of 2024, How should we assume the seasonal pattern to be for the second half of 2024, given that the market has slightly changed slightly? I mean, bike normally consists of the majority of sales in Q3 and Q4. Should we still expect the similar patterns here as well as historical patterns?

Yes, we believe so. I mean, if we look at historical patterns Q3 has historically been a little bit lower or smaller than Q2 of course we see quite a big proportion of the bike sales there so that we probably can expect to continue and then of course when you go into Q4 that's really the big bike quarter it's not because there is a lot of bike helmets that are sold on the market in Q4 but It's because that's when you see all the helmets that will be produced for the start of the next season. So basically the helmets that will be delivered to bike shops in Q1 and Q2 in 2025. So, of course, that's why we call it the big bike quarter, because, of course, that's when a lot of the bike helmet sales occur. So we expect the same seasonal patterns as before. And, of course, seeing the good performance in bike is, of course, helping that assumption.

Yeah, and that's also why we should expect that the bike recovery should probably continue to pick up gradually from here, right?

Yes, that's our assumption.

Yeah, great. And just if there are any, what risks should we consider here? within the bike segment that it might not grow as rapidly as you are estimating in the rest of 2024?

Yeah, I mean, it is uncertain times. I think we are all seeing that. Of course, the things that we have under our control, we are still doing what we can to deliver that, adding more employees, delivering a lot of projects and so on. making sure that the MIPS product steel market share increase the penetration on the market. That's what we control. Then, of course, a lot of the brands have very thin balance sheets. Some of them can't afford to grow as much as they want, probably. So, of course, it's a very delicate balance in terms of growing, growing with the right customers and so on. But what we have in our control, we are quite positive about. But it is uncertain times and uncertain market conditions. But we haven't seen anything that is changing our picture at the moment. That's why we still assume gradual recovery of growth in bikes.

Okay, great. Thank you. That's very clear. Maybe last question from my side. I think we have for quite some time now seen quite solid development within the region of Asia and Australia. Can you maybe elaborate a bit on the strong developments over there?

We have done a couple of initiatives, especially for China, where we see a growing interest. We don't go with all brands there. We have selected a couple of brands which we are partnering up with. For us, it's still very much an educational journey because there you need to get the consumer that previously maybe paid $10, $20 for a helmet to pay maybe two or three times as much. So, of course, they need to understand why they're paying a little bit more for a helmet with MIPS. But we start to see that that educational program is starting to have an effect. We did a big educational program together with Decathlon in a lot of their main stores in China. And it's all about explaining to the Chinese consumer why MIPS is important and the difference we make to a helmet. And of course, that's what we do. So we are happy with the performance that we see on the Asian market in general.

And that's mainly by bike sales or bike helmets?

Yes, there is a little bit of snow sales also, but the key one is by far bikes.

And do you see any competition in that market from other competing brands within your solution?

No, I think the main competitor that we have on those markets is the helmet that doesn't have any technology because for us it's more, like I said, an educational journey that we need to do. So it's not that we are competing against someone else. We are really trying to convince the consumer that, MIPS equipped helmet is what they should go for. So no, the competition lies as in any other market with the helmet that doesn't have any technology at all.

Okay, great. Thank you. That's very clear. Well, thank you very much Max and Karin for taking my questions and congratulations on a strong report.

Thank you, Monja.

Thank you. We will now take our next question. And the next question comes from the line of Daniel Thorsen from ABG Sandor Collier. Please go ahead. Your line is now open.

Yes. Hi. Thank you very much. Lots of questions already covered by care. So I take a cost question here. Number of employees were down in Q2 versus Q1. Can you explain why and what type of roles? And is it anything you will regain in terms of hiring in the second half?

Yes. So, yes, you're right. We decreased with a couple of employees. First of all, we did some changes to the organization. And like I said, for one or two quarters, we didn't recruit. So, of course, you have a natural decrease of employees. I think it was two in the quarters. It's not a major number, but you will see that it starts to increase. We have announced four more engineers on the implementation side because, of course, we see a heavy project load. And we're also adding another two product development engineers because, of course, we continue to develop great products. And great products need good engineers. And that's what we're adding. So, like I mean, it's small numbers. But, yes, we will continue to add some employees.

I see. I see. And then the question on the gross margin, which was quite good here at 73%. It is where you have been historically and where you should be as well. But were there any positive items in there to be aware of? Or is that the level we should expect to have?

No, we have said that we will try to maintain a gross margin of above 70%. Of course, the drivers today that you see is that there is a positive element of product mix effect. And what does that mean? When we have a higher proportion of product sales instead of only revenues from projects and so on, we have higher margins of those. So, of course, that has a positive effect. And then also on the cost of goods sold, you have a small share of fixed costs. And of course, as you increase the revenue base, the share of those will also have a positive effect on the gross margin. So I would say those are the two key effects. We haven't touched price or anything like that. And even though we have got a lot of requests to do promotional campaigns and so on coming back to the brand, we think we have a very strong product and we don't want to dilute the brand. by doing a lot of promotional effects. So we kept the price. And of course, the effects that you see in the quarter is from product mix and some benefits of scale of growing faster.

Yeah, I see. That's clear. And then the final question on the 31% organic growth year over year. Can you explain what was volume? What was potentially changes in average selling prices? Given that you have more products in your portfolio today than five years back.

Yeah, so we haven't actually disclosed that but there is a slight positive price effect from having a more premium product mix. Okay, that's fair.

Thank you very much.

Thank you. As there are no further questions on the phone line, I would now like to hand back to the room for any questions on the webcast.

Yes, so we have a couple of questions. The first one, can you please give us a bit more colors on the dynamic in the US? We are seeing a slowdown in terms of consumption. And I think most of the companies that are reporting today see a little bit more careful US consumer. We still see quite a strong consumer, of course, compared to the European market since they didn't have the same slowdown before. But I think it's also important to say that MIPS is in premium price segments and there we don't see a challenged consumer. Maybe we are helped a little bit by that, but we still consider and are quite positive about the US market. And then there is a question on that POC just launched a new helmet, which did not include MIPS. And they talked about the safety story and so on. And for us, that is not something that is abnormal. POC has by far a majority of their helmets with the MIPS technology, and they keep on adding new ones. If they want to do differentiation and talk about other things, of course, that's their prerogative to do so. So nothing that we are extremely concerned about and so on. We still see, like I said, that they have a majority of their products with MIPS and keep on adding MIPS. And then there is a question on for Q2, what was the percentage of sport was bike and what was snow and others? When we look at the sales in Q2, around 50% was driven by the snow subcategory and 40% of the sales was the bike subcategory. And then there was a question, what was the growth of snow and bike individually? Snow grew around 20% in the quarter and bike grew between 40 to 50% in the quarter. and then there is a question also you speaking about gradual recovery does that mean that we shouldn't expect an acceleration of growth quarter versus quarter and yes we say and we talk about a gradual recovery of growth which means that of course the growth is expected to be higher and that of course is health that we have very soft competitors in both Q3 and Q4. And I think everyone remembered that we had quite soft quarters in those periods last year, which of course helping the growth as such. And do you expect bite growth of 40 to 50% to accelerate from here? And of course, given that we said that we expect a gradual recovery and we already are at 40 to 50%, we could probably expect somewhat higher numbers the coming quarters. With that, I don't think we have any more open questions, nothing on the web and nothing waiting. So thanks for listening in. I hope that you all will have a great summer. and speak to you again after the Q3 reporting. Thanks everyone for listening in.