MIPS AB (publ)

Good day and thank you for standing by. Welcome to the MIPS interim report Q1 2025. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 and 1 on your telephone and you will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 and 1 again. Alternatively you may submit your question via the webcast. Please be advised that today's conference is being recorded. Now I'd like to hand the conference over to your speaker today Max Strandvitz CEO. Please go ahead.

Thank you operator and good morning everyone. My name is Max Strandvitz and I am the CEO of MIPS. With me today I also have our CFO Karin Rosenthal and we will take you through the presentation of the Q1 2025 interim report. If we start with the key highlights of the quarter, so first of all performance, we did see a continuation of the last quarter performance and growth pattern with strong performance in the quarter of 42 percent of course organic growth. We saw good development in all the three categories we operate in and good growth in most geographies. We do see strong sales to European customers fueled by improving consumer markets. Good growth also in the US despite a much more careful consumer spending versus before. Our assessment is that the near-term sales development to our customers will be more uncertain due to the lack of full understanding of the effects and implications of the implications of or implementation of tariffs. We did see a strong improvement in the quarter with 78 percent improvement mainly driven by the strong net sales improvement. This was partly offset by legal cost relating to a customer's legal IP dispute. MIPS are not a part of the process but has decided to step in since MIPS has the interest in the IP related areas and we remain confident in our long-term strategy and our financial targets. If we look at current situation and inspect expected impact from tariffs I think it's very important to spend some time in that area to explain what we mean. The rapid implementation of tariffs have brought a lot of uncertainty to our industry and that is valid for all the three categories that we operate in and it's valid for the US market. Our customers main uncertainty is of course what is actually the right cost of the product. Most customers today they don't know how much their product will cost in one month from now when it lands somewhere in the port in the US and of course that creates a lot of uncertainty. If you don't know the cost of your product it's also very difficult to assume or assess what is right level of pricing to protect your margin and cost and what you need to take in terms of covering that part. Then of course the third one if you price how do you actually know that it's the right level of pricing? How will that affect your competitive position and of course in the long run also the consumer demand. I think that question that everyone in the industry sits with at the moment and we believe that that will create a lot of uncertainty. What happened last time this happened? So in 2019 Q3 we actually saw similar type of impact when the bike industry all of a sudden were hit by tariffs which they have previously been exempted from. Then we saw a rising and everything normalized and we do expect a similar type of situation also this time. And just also to clarify that in 2024 53% of MIPS net sales is to US based brands. This is of course also visible in our annual report. Those brands are then distributing the products all over the world and of course we have other brands especially in Europe that is then exporting to Europe. But if we make a net net calculation on our estimate on how much that actually lands in the US market when it comes to volume it is a bit more than 50% and we do expect short term demand swing from the implementation of tariffs. So hopefully that clarifies a bit in that area. If we then go into the first category and sports. In sports the good progress continues. We saw strong performance in sports with 40% net sales growth. Inventory is back at healthy levels. Market conditions in Europe are improving. US consumer market a little bit more uncertain and of course this also fuels a bit what happened in the implementation of tariffs. We have very strong position on the market and we are confident on the long term outlook of the sports category also in the US market. If we then look at MOTO we saw strong growth there and really good to see MOTO getting back on track. Good performance in the quarter with 32% net sales growth. Situation is much more normalized but it is of course a very tough market out there. We have also seen a very successful rollout of Integra TX product which is our fabric solution and to support that rollout we also have a very strong retail activation program which is also working very well. Also here no change to our long term outlook. Good opportunity to continue to grow in the category. If we look at safety we continue to see good development. It was actually the largest quarter so far despite that the Q1 is normally not the biggest quarter. That was actually the biggest quarter in safety to date in the mixed history. 60% growth in the quarter. We did continue to roll out new helmet models and of course also last year we had a strong rollout program and of course we start to see that those models are starting to generate a lot of demand. We are also very positive on the outlook of this category but of course also here short term demand could be impacted by the implementation of tariffs. If we then look at the development and summary of the development in our different categories. In sports good performance with 40% net sales growth, a bit better if you adjust for Forex effect. We see a continuous strong performance. Also good to see that we were growing strongly in bike but also in snow we showed an improvement of 20% net sales growth in the quarter which is of course great to see despite the fact that it has been quite a challenging snow season. Motorcycle also continued to develop well with 32% growth in the quarter and safety the largest quarter so far and here of course we continue to see a lot of traction. With that I hand over to Karin.

Yes good morning everyone I'm Karin Rosenthal CFO of MIPS and I will take you through the financial part of the presentation. We saw strong development in the first quarter with an increase in net sales of 40% and adjusting for FX due to a strong SEC versus USD. Net sales increased with 42% organically. Gross profit increased with 46% and a gross margin of .1% versus .4% last year and the increase is mainly due to the increase in net sales. In OPEX we were negatively impacted by legal costs of 9 million based on what Max presented earlier. We also continued to invest in our strategic priorities R&D and marketing in the quarter. EBIT was up 78% to 24 million versus 14 million last year and EBIT margin improved by 4.5 percentage points to .9% versus .5% last year and we saw a strong operating cash flow in the quarter with 36 million versus minus 10 last year. And if we look at the financial KPI 42% organic growth 21% EBIT margin and 36 million in operating cash flow. If we then turn to next page and look at the balance sheet and cash flow we have a strong cash position with cash and cash equivalents of 408 million and just to remind you that we don't hold any loans and the board proposes a dividend of 6.5 SEC per share versus 6 SEC per share last year and that corresponds to 122% of net earnings and operating cash flow in the quarter amounted to 36 million and we have an equity ratio of 87%. Over to you Max.

Yes thank you Karin if we then summarize the first quarter good start of the year with 42% organic growth good performance in all our three categories strong increase in market share and penetration in the market inventory situation is fully normalized. Our current assessment is that near-term sales development to our customers will be a bit more uncertain due to the lack of understanding of the effects and implications of the implementation of tariffs and we remain positive on the long-term outlook and the delivery of our financial targets and with that we open up for questions.

Thank you if you would like to ask question over the phone lines you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw 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. Please stand by while we compile the Q&A roster. We will start with questions over the phone lines. First question is from Adela Dashian from Jeffreys please go ahead.

Good morning Max and Karin. A couple of questions from me if we could please start with the legal dispute affecting one of your customers. Are you able to share any more information regarding this and particularly as it relates to yourself is it fair to assume that we will see additional legal costs throughout the remainder of the year maybe a timeline on the legal aspects of the disputes would be good as well. Yeah start there please.

Yeah of course this is under confidentiality so there is some things we can share and some things we can't share of course the port relating to us we try to be as transparent as possible. Of course we had 9 million of cost in the quarter that's very much preparatory cost which you normally have when it comes to these things and of course we assume that we will have similar type of cost also going forward at least in the beginning as you prepare for these type of costs or cases. The more you spend the better you prepared you are for us this is a very important area so of course we take this always very serious. I think it's also very important to understand that MIPS patents is not part of this MIPS IP is not part of this. This is about someone else rights and what they could claim on the market as we are extremely adamant and focused on our own brand our brand position our IP and our technology of course we also want to make sure that we have the right rights on the market but also that someone else can't claim this and when we announced our targets in 2022 a lot of people question why we don't have an ambition higher than 50 percent and we said then that we assume that we will have legal costs like this going forward. That's also why we don't adjust for these type of costs but we have them under the normal operating costs and it's part of our business model. It looks a little bit more dramatic of course than it is because Q1 is the smallest quarter of the year so of course proportionally it becomes a bigger part of the total result but as we go forward and of course long term costs like these are assumed to be within the budget and of course not impacting our long-term ability to hit our financial target and for us this is more of a cost issue rather than something else and of course when it comes to these these type of things we always want to do the right thing. We want to make sure that we have the best position on the market and that's why we take a decision to become active in cases like this.

That's very good color thanks. Maybe just a follow-up I guess I'm trying to wrap my head around if it's not MIPS patents that are at risk here like what's the I guess what are you protecting yourself against like what's the worst outcome out of this let's say and is the plaintiff is it the is it a consumer related lawsuit because it doesn't really sound like it's any of the patent infringement related so yeah. Now I

think when it comes to what MIPS is protecting is of course if someone else comes in and of course especially since they don't have any products on the market they could claim that they have the rights in certain areas which MIPS also have the rights of course and patents are normally very specific we want to make sure that our freedom to operate is as big as possible and of course we don't want that other IP could be very close to our product or questionable for our products and that's why we want to be very specific on the actions we take. IP is of course a very complicated matter because a lot of things or discussions like normally about products infringing because the patent can of course never infringe because without the product there is nothing to infringe about so it's more of making sure that other IP is not close or in areas where we believe that we have very strong rights.

Got it got it so it is patent infringement and not the safety hazard. No exactly. Okay perfect that makes perfect sense thank you and then if we follow on on your comments regarding tariffs I appreciate the commentary around what you expect for the the bike market and so on but could you maybe touch bit more on the the safety segment I mean we we had great hopes that 2025 would be the year where volume would ramp up quite materially in this segment and I do know that the US is also important or maybe just as important as it is for the rest of the group for construction helmets so what's the I mean are you still sticking with your guidance of a doubling every six to 12 months or do you think that we could even see with construction helmets delays?

No I think when it comes to I think first of all to to outline what we are saying we don't expect it yet to have a material effect of the full year more of a refacing of sales so our full-term guidance what we said on remains but of course it's more of short-term issues that the customer don't know what pricing they should take what actions they should take and so on and that's impacting all our three categories so yet we don't consider it to be lost sales more refacing of sales and that everyone is trying to decisions as long as possible there is very erratic behavior at the moment when it comes to the implementation of tariffs no one knows what they expect and that's what everyone appreciates at the moment is to have a little bit more time to take more informed decisions and that's why we talk about an uncertainty and not the long-term impact.

Got it all right and then if we think about the the bike helmets category I mean could we assume that you're somewhat protected might not be the right word but but just from seasonality variations the fact that you produce or your customers produce by helmets in the second half of the year and now it's more about sell through to the the retailers and the end users as long as we don't end up in a situation like post-pandemic where inventories were elevated post this spring and summer season like I don't know I'm just trying to think about how how we should I guess the second half of the year could be potentially still okay-ish despite all the certain things

yeah I think first of all it's important that of course we see an impact in us we don't see an impact in Europe Europe is actually tracking very well and you see that also in the first quarter and we believe that also will continue of course when it comes to where the impact will be you're right that bicycle helmet has been produced and a lot of the volume has been produced what will be impacted is repeat orders of course if no one produce that should normally land on the US market late July beginning of August especially when you have a lot of -to-school campaigns and so on so I think that is the volume that is really at risk we believe that the production for next year which will happen in q3 and q4 will not have a significant impact of course all depending on what the levels of tariff is and so on but there we expect it to be much more normalized the other part that is a little bit at risk depending on how long this will take is of course the snow category the snow category normally produces a lot of mid-September beginning of October so that of course is the window that you need to hit and there of course they need to take a decision at some point when is the right time to produce to still make that window because no one will accept that you have a winter helmet coming off the season so I think that's what everyone is preparing for we all have of course very active dialogues with all our brands everyone is in the same position it's more about uncertainty rather than consumer demand and as you also seen I mean we have great traction and momentum on the market but this is something else and of course we need to treat it as an exceptional event and that's why we communicate the way we do I think there is a lot of people that will tell you exactly what will happen at the moment for me they're only guessing because there is very erratic behavior and that's why also we want to really explain this as we see it it's more around uncertainty

makes sense and then just lastly if I may I mean I fully understand the fact that you're not directly so to say impacted by the trade tariffs but that your customers will have to increase prices to offset that could this be a situation where you potentially can end up being a bit opportunistic and then also increase your prices because it's been quite stable since inception really on your end

I mean we we have a little bit of a different pricing strategy I think long term you deserve or you get the price you deserve on the market we manage our pricing mainly through innovation bringing better product on the market that I think is much more attractive way for me using tariffs to be opportunistic I don't think that's our right approach and especially since normally tariffs can go both ways and of course we end up in a quite complicated discussion so I think for us we stick to our current strategy which is of course to innovate ourselves to better products and better pricing and so on and that has worked really really well so far and that's what we want to stick to.

Sounds fair all right I'll step back in the queue thank you.

Thank you we'll take our next question. This is from Carl from Carnegie please go ahead.

Thank you very much good morning so a couple of questions from me first starting coming back to the Q1 numbers and I just want to make sure here but I guess there haven't been any patterns of pre-buys in your numbers given the pace of the implementations and the long delivery cycles right nothing of that in Q1 right?

No I think now we hear from a lot of customers that they wish they had done pre-buys and so on but no we cannot distill in any direction people ask us if there is pre-buys not to a bigger extent people also asked if we saw a lot of delays in the end of Q1 due to the uncertainty of tariffs and it's the same way so no we can't distill any impacts or either direction.

Very clear and then secondly I wanted to come back a little bit on the underlying market I mean I appreciate the color and let's say the increased uncertainty in the US but recalling from Q4 you were actually talking about underlying market growth on bike in Q4 on the sell outside and I just wanted to hear because I guess the statement here for Q1 is a little bit more vague at least relating to you to the US so any more color just you know Q1Q development underlying market would be appreciated as well.

The market development market share numbers for Q1 is available from next week onwards so there is always a bit of lead time but of course if we talk about overall assessment from the industry is that the market was sort of flatish in the US market of course we had a lot better performance than that since we grew 35% with our sales to the US market but best assessment is somewhere around flatish and then if you look at the European market of course that we actually saw quite good development and you have probably seen also that on reports announcement from both Halfords Bike.de and others that they are quite optimistic of the European market and we see that development we see that the European market is improving but it's also worth to mention that it's from lower levels because the European market has been a lot more depressed therefore it's also a lot any upbeat in terms of consumer sentiment will of course have a positive effect but the Europe seems to be tracking quite well.

Very well then I just wanted to come back a little bit also here on Q1 I've been looking at the reported numbers as you disclose you know the sales of goods I guess the pure volumes and the service or let's say yeah implementation invoicing and I'm noticing that it's taking you know both on a -on-year basis a step down and also sequentially here from Q4 down to 3 million on the service side versus let's say 7, 6, Q3, Q4 yeah any more color on that let's say the implementation or interest been a little bit lower from the browns here or anything specific behind that?

No if you actually look at the total number of running projects and so on we still are on a historic high what we have been doing the last two quarters is that we see a big increase of our fabric solution which is also in line with our strategy those solutions doesn't require the same type of tooling especially not injection molded tools and so on which is normally quite expensive so in terms of project momentum no change is more relating to a mix and facing of project as such so no change in momentum no change in customer interest but good to see of course that the fabric solutions is coming out especially the air node solution and also our Integra TX which is of course a higher price solution where we deliver more of the product and we also see a great reception on the market of those products.

Very well and just finally from my side I wanted to hear I mean when you know reading some articles here and there and you know coming back to the situation I mean I appreciate the color that you gave on your pricing strategy but have you seen what your customers have been doing I mean we see you know some bike manufacturers have been talking about price hikes of around 50 offset this effect I don't know if that's actually been materializing or not but have you seen any you know material price adjustments upwards on the helmet side in the US already or is it?

Yeah and the first movers we have started to see acting we have not seen anything close to 50 percent one big manufacturer they increased price with 10 percent another one with 8 percent so so far 8 to 10 percent is what we have seen bicycles could be a little bit more because of course they are more impacted by tariffs at the moment because first of all you have the general tariffs but then you also have material in or material tariffs that impact the products so there some speak about more like 15 percent increase but from what we have seen first movers is somewhere around 8 to 10 percent it all of course depends on what will happen on the tariffs I think the general assumption is that no one believes that the levels of tariffs that we see at the moment is the one that will stay over time and therefore also brands are a little bit more careful of initiating really aggressive pricing with of course the potential impact of that and also the goods that have landed so far has not been impacted by tariffs it's more the goods that will be shipped coming months and of course the argumentation around that but I think also the US market starts to understand and of course also like if you look at Walmart or Target the US government now understands also how reliant they are on Chinese and Vietnamese goods and of course that you will have empty shells if this continues so over time I think everyone expected to be less dramatic than it is now but it's just anyone's guess

okay very well thank you very much guys I'll get back in line

thank you next question is from Emmanuel Jansen from Danske Bank please go ahead

good morning everyone and thank you Max and Carl for taking my questions and just jumping quickly back to the tariff situation I think you mentioned that you expect to maybe see a similar situation as you saw in 2019 and just looking back at those numbers I think we saw a negative organic growth in Q3 around six percent and then in Q4 it jumped back to 30 percent obviously at the moment I think the tariff situation is more severe than last time but do you think that the but or do you experience that the OEMs or the manufacturers has more experience this time regarding this situation or is it a completely new situation for them

yeah they are much more prepared I think no one was prepared for the levels of tariffs that they saw at the moment we started the discussion with our customers already in October last year to understand what their position was how they're going to act and so on because of course it's important to understand I think everyone is taking a bit by surprise by this ping pong negotiation that we saw between US and China of course and how it escalated but you're right they are much more prepared they saw this coming and of course every one of them have a pricing strategy linked to that I think everyone is just waiting for the dust to settle to really understand what's in front of them and of course what the future looks like in terms of the right level of pricing so I think for everyone at the moment it's more like wait and see

yeah thank you that's that's that's clear and regarding these US brands then do you think there is opportunity or maybe a potential scenario where they will focus more near term on the European markets which will maybe drive your penetration faster maybe

no I think in the end we we of course already have a great traction in in Europe last quarter we saw 100 percent this quarter we saw 51 percent growth so of course we still see a good momentum and on I think it's very important to distinguish what happens when it comes to sourcing which is where the focus is on the brands and what happens on the consumer market because at the moment everyone is still as active when it comes to the consumer market one and a half week ago we were at Sea Otter which is a consumer event where we participated we saw a very upbeat consumer of course that's the sweet spot for MIPS because there is a lot of mountain bikers there is a lot of gravel riders and so on and they were very optimistic on the market so I think this is not yet a consumer discussion it's more of a sourcing discussion so I don't think anyone will change their short-term strategy on that and not reallocate resources because everyone is still trying to win on the market and I don't expect one or two months of uncertainty will change that and then it's more like relating to where to produce there is a lot of pressure to produce in Vietnam at the moment there is factories planned to open up in other areas but of course relocating production takes normally a bit of time we will of course follow the customer wherever they go we can move our tooling in a couple of weeks so whatever the consumer or our brands decide to produce we will follow them but it's more of a sourcing discussion rather than a strategy discussion at least for now

yeah right that's clear and can you just remind on the construction or safety helmet side is the majority of the production in China or how is it distributed now

I mean it's a bit of a mix the more advanced helmets that requires a little bit more of manual work and adjustments and so on are normally manufactured in China so a lot of the helmets and so on when it comes to simpler helmet models since transport cost is the big part of the total cost they are normally produced in the country which they are sold so europe for europe and us for us but when it comes to a little bit more sophisticated product it's still heavily reliant on Asia we expect that to change over time but at least for now

yeah great and the last question from from my side here just going back to this lawsuit situation do you think that this this type of case will will become more common in the future I mean

we we have seen last time but then of course MIPS was a party and then we were the ones that were very active on on the market and that was in 2018 and this time it was started by someone else doesn't mean that we didn't decide to be active of course lawsuits like you see nine million in the quarter can be quite expensive so there is not a lot of companies that actually can run a case like this so no I don't expect it to be happen a lot but it could happen and that's why we also assumed it in our long-term budget that sometimes if someone gets rights that we don't think they should have or they are overlapping in the areas where we have rights then of course we will be active it's part of our business model we have a couple of priorities and that is of course to make sure that we have the highest awareness when it comes to our brand we have the best out in the market really important to us and of course where we can also to have good protection around our product that will always remain a key part of our strategy and a key priority for us

great that's very clear Max thank you very much that was all my questions for now thank you very

thank you Emona

thank you next question is from the line of Alexander Silstrom from Pareto Securities please go ahead

good morning guys one follow-up here if you could talk a bit about the start to Q1 in terms of growth given the tariff situation

do you mean Q2 or Q1 because I'm sorry Q2 okay Q2 so like I said we have seen the uncertainty directly from the start of the implementation of tariffs so we said that we expect it at least to remain for one or two months so yes we have seen uncertainty from US-based brands

yeah thanks and then on sort of the snow sales in Q2 and the possibility to recoup that sales in Q3 and still get it ahead of the season what's sort of the outlook there in terms of timing

now I think I mean if we now face one two months delay nothing happened with the tariffs still when we hit June and July there will be a lot of factories running with high capacity to make sure that they catch up and no one can wait longer than that and we have not heard that any brand wants to wait longer than that because like I said also in the beginning consumer demand is a great demand for MIPS product continue to increase market share our brands wants to have our product but what they ask for at the moment is a little bit more time to take the right decision so it's more of a timing issue rather than a long-term issue as we see it now so I believe when we hit June and July the factories needs to be really running a lot of production of helmets to be able to hit the market

yeah got it and can you talk a bit about the inventory situation in the snow segment now post the season it has

actually not been a fantastic season when it comes to winter sports and so on last quarter of q1 we grew about 20 percent which we were very happy about but if you talk to the industry as in general there were a little bit more careful consumer spending especially when it comes to clothes and other accessories and so on but the good thing at least from helmet point of view is that no one went into the season with a orders still very positive and we see good momentum also there so nothing in terms of what we see at the moment that will hurt us in the season so good interest still in snow

thanks and then maybe just a last question on on the partnership with Pyramx in safety yeah if you could give us some color on the the size of Pyramx

yeah Pyramx is mainly active in the US but of course they have sales I think in 63 different countries so also good presence around the world medium size player and the medium size player is normally between one to 10 million in mid terms and so on so quite a decent size player on the market and someone that I think can help us to drive a lot of growth around the world

perfect thanks that's it for me thank you

thank you no further questions on the phones at the moment so I will now hand back to the

question from one investor which is about the legal dispute that will ask us why we don't treat the legal cost as a one-off expense and also if there could be a legal one-off game coming out of the disputes first of all like I said also and explained before we see this part of our business model protecting our IP making sure that we have the right protection for me to put something into adjustment or call it adjustment or adjusted EBIT needs to be for really the right reasons and if you have things that can come and go then of course it's important to treat them in under your operating results I think that's cleaner that's a lot less complex and also much more transparent so we are treating it under running cost because of course these things can always come and go and when it comes to one-off games I think especially for the US market the way that it works

it's

very difficult to get any back money back from a lawsuit and we don't count on that. The second question is also around legal cost is that someone asked if we will incur nine million per quarter or 18 million for the year and of course this is something that you really don't know exactly how much cost there will be like I said proportion of the total result of the year. The cost will be a lot smaller since quarter normally will be bigger but the running cost that you saw in Q1 could of course continue for a couple of quarters because we are still very much in a preparatory phase. Then we get the question is what is the magnitude of price increases that your customers could pass according to the discussion you have with the brands and like I said before so far we have seen 8 to 10 percent that has been put forward to retail. It all depends on where the tariffs will land if they stay at 145 percent of course that will not be enough but I think the assumption from everyone is that they will be significantly lower that's why everyone started more like 8 to 10 percent. Sales in Asia and Australia lower than last year how do you see demand in this area? We have had a fantastic development in Asia we see really good sales in that region. Now it's the low season in the Asian market and there of course you don't have a long shipping time but we expect that to pick up over time. It used historically to be only like three to four percent of our sales last year I think we landed on somewhere around 13 percent so it has become a much bigger part and we still see a lot of interest in especially the Chinese market. We are a little bit careful on who we team up with because of course we are still building a brand. We always do as we do in MIPS we start with the premium brands we start to build a lot of awareness and then where we see the opportunity then we can start reaching down and that strategy has worked well served us well and I think it will work also well in China. And then it was the question in Q2 last year you talked about increasing project hires for project engineers and like I said we are still on the historic high momentum. We still have a lot of recruitment out there for even more engineers because of course we see a lot of good momentum in this area so even though we have recruited we still don't have enough people to manage the workload that we have at the moment so if you are an implementation engineer you're always welcome to apply. With that I think we have answered all the questions in the call. Thank you everyone for listening in and speak to you again next quarter. Stay safe out there. Thank you.

Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect. Speakers please stand by.