Q1 2020 22 April 2020
Highlights • Q1 revenue of $9.1 million, a decrease of 18% from Q1 2019 • Gross margin increased to 49% from 43% in Q1 2019, driven by higher Data center prices, business model transition and a stronger U.S. dollar • Q1 EBITDA adjusted of $0.2 million compared to $0.3 million in Q1 2019 • Cash position increased to $26.2 million at the end of Q1 from $24.5 million at the end of 2019 • No substantial supply chain- or operational impact from COVID-19 beyond the effects of the lock-down in China in mid-Q1 • Group expectations for 2020 maintained • Share buy-back program launched to offset employee option grants 2
Ensuring business continuity amid COVID-19 Asetek footprint Aalborg (Denmark) R&D and Engineering In-house manufacturing Quality Xiamen (China) Management Engineering Outsourced manufacturing Quality Texas (USA) Silicon Valley (USA) Sales and marketing Taipei (Taiwan) Sales and marketing Sales • Prioritizing employee health and safety • Group functions are fully operational • Complying with applicable national guidelines and regulations ‒ Extensive use of home office ‒ Practicing social distancing including in manufacturing ‒ Travel restrictions 3
Robust supply chain and operations External manufacturing Asetek OEMs/end-users Limited impact on ability to meet HQ, sales, in-house manufacturing and Positive signals from Gaming and • • • customer demand to date R&D are fully operational Enthusiast OEMs $0.6 million of Q1 orders were delayed Updating business continuity plans Gaming and Enthusiast purchasing • • • to Q2 due to extended Chinese New and performing scenario analyses as patterns and volumes in line with Year holiday and plant closures situation evolves expectations YTD Situation improving with China slowly No workforce adjustments Potential for delays in Data center • • • reopening and full production capacity investments due to lockdown No increases to salaries planned in • is expected in late Q2 2020 2020 to maintain stable cost base Some “ripple effects” due to • decreased availability of components from geographies outside China
Strong financial position and flexibility going forward As at 31 March 2020 2019 full-year cost composition As % of revenue • Strong cash position Cash position • High equity ratio and low interest- USD 26.2 million bearing debt 57,7% • No capacity adjustments or other opex reductions required at present 100% 42,3% • Flexibility to adjust fixed cost base 9,0% over time if required Equity ratio * 22,0% 79% 11,3% Revenue Cost of Gross R&D SG&A and EBITDA goods sold margin other** adj. *Equity/total assets **Adjusted for share-based compensation and depreciation/amortization
2020 to date meeting expectations even with COVID-19 impact • Impact to date due to supply constraints, not demand • Group outlook for 2020 maintained ‒ Special components affected, however not critical ‒ Revenue expectation of a decline of 5% to 10% from 2019 ‒ Considering current macroeconomic developments, business • Gaming and Enthusiast demand for Q2 2020 developing in model transition and reduced demand from OEM customer line with expectations ‒ Uncertainty related to COVID-19 ‒ Positive signals from OEMs ‒ Timing of orders and shipments will vary when compared ‒ Visibility remains unchanged at six to eight weeks with prior year quarterly results. ‒ Gross margin is expected to increase from 2019 and the • Increased Data center market activity Company expects a positive income before tax ‒ More projects tendered ‒ Uncertainty related to how many tenders will move to final award • Long-term drivers remain intact ‒ New hardware enabling immersive experiences • Limited visibility for second half of 2020 ‒ Need for more sustainable data center solutions ‒ Historically representing a 10-20% increase in revenue compared to first half of the year ‒ Increased uncertainty due to COVID-19 6
Business overview Data center ~5% of sales Gaming and Enthusiast 95% of sales Enthusiasts and do-it-yourself (DIY) Gaming/Performance PCs Data center Strategic position: Large and long-term growing markets | Supplying global brands | Market leading solutions IP platform: Applications | Technology | Systems | Products | Patents | High-volume manufacturing | World wide hub infrastructure 7
Q1 reflects high market volatility Quarterly data center revenue and OEM additions USD thousands 19.535 20.000 17.924 17.652 17.405 17.103 16.505 15.661 15.000 13.868 11.471 11.179 11.147 10.391 9.124 10.000 19,1% 17,3% 16,9% 16,3% 15,7% 5.000 14,9% 11,0% 9,8% 6,4% 6,3% 2,8% 1,9% 0,3% 0 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Enthusiast/DIY Gaming/Performance PCs Data center EBITDA adj. margin 8
Gaming and Enthusiast 9
Developing OEM customer base Top 5 Gaming and Enthusiast customers * Status Top 5 customers revenue split ** • Currently shipping to over 20 OEMs 100% • Top five represent 81% of Gaming & Enthusiast revenue in 2019, a 80% decrease from 85% in 2018 • Diversification increasing with time 60% • Continuous monitoring and assessment of the IP situation 40% 20% 0% FY 2017 FY 2018 FY 2019 YTD 2020 * Sorted alphabetically **The composition and relative revenue share of Asetek’s 10 top 5 customers will vary between periods
Unveiling the most advanced desktop liquid cooling technology to date “When we envisioned creating our next generation of CPU coolers, not only did we want to create the highest performing AIOs, we wanted to give gamers and enthusiasts a unique level of personalization and creativity (..) We worked hand-in-glove with Asetek to define and develop our new Z-3 series and refreshed X-3 series, incorporating Asetek’s latest technology in what we believe are revolutionary new CPU coolers. The result is an amazing performance, quieter operation, and a beautiful AIO with limitless options for customization.” Jim Carlton, Vice President of Products at NZXT 11
Building a gaming and enthusiast brand We put our brand • forward without compromising our customers’ brand Dual-branding and • brand-behind-the- brand strategies Introducing new and • high-end products to live the brand and go back to our roots 12
Gaming and Enthusiast strategic development Goal Development and outlook Levers Focus on delivery of core liquid cooling solutions • R&D and product development Ramp-up of development to bring meaningful innovations to market • Products which deliver best performance, quality and reliability • Continue to dominate the Co-branding agreements in place with seven OEMs • gaming and Branding and marketing Connecting directly with gamers and enthusiasts via CoolNation forum • enthusiast liquid Positioning to monetize Asetek brand • cooling market Currently over 20 OEM customers • Widening OEM customer base Reducing single-customer dependency • 13
• In February, Asetek began delivering waste heat from its in-house data center to Aalborg’s municipal district heating network, demonstrating the viability of Asetek’s technology in enabling power savings and Data center reducing CO2 emissions • Global sustainability agenda strengthens rationale for Asetek’s data center solution • Market adoption remains slow –public standards required to trigger wider use of liquid cooling 14
Increased activity in HPC market • Preparations for release of global server OEM’s product platform with Asetek’s Direct to Chip (D2C) liquid cooling announced in January progressing as planned • $600k-$800k order announced April 21 for Q2 delivery ‒ The largest order to date from existing HPC OEM partner ‒ For a new, high-density cluster in North America for existing undisclosed end customer • $500k-600k order for HPC installation announced in January • Increased pipeline of potential projects 15
Financials 16
Quarterly income statement Figures in USD (000's) Q1 2020 Q1 2019 • Average Gaming and Enthusiast ASP decreased slightly due Unaudited Unaudited Revenue $ 9,124 $ 11,179 to business model transition ($56.6 vs. $57.7) Cost of sales 4,626 6,410 Gross profit 4,498 4,769 • Operating expenses decreased due to lower amortization Research and development 1,167 1,255 Selling, general and administrative 4,252 4,540 of capitalized development costs, reduced share-based Total operating expenses 5,419 5,795 compensation cost and an on average 3% stronger USD Operating income (921) (1,026) versus DKK Foreign exchange (loss) gain 212 164 Finance income (costs) 9 48 Total financial income (expenses) 221 212 Income before tax (700) (814) Income tax (expense) benefit - (7) Income for the period (700) (821) Other comprehensive income items that may be reclassified to profit or loss in subsequent periods: Foreign currency translation adjustments (399) (330) Total comprehensive income $ (1,099) $ (1,151) Income per share (in USD): Basic $ (0.03) $ (0.03) Diluted $ (0.03) $ (0.03) 17
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