Q2 2019 14 August 2019
Highlights • Revenue of USD 17.1m in Q2 vs record level of $19.5m in Q2 2018 • Gross margin up to 42% in Q2 and H1, from 36% in the same periods last year • Adjusted EBITDA of USD 3.3m in Q2, up from USD 2.9m in Q2 2018 • Focus on building end-user brand, developing high-end branded products and innovation • Group revenue expectation for 2019 adjusted to a decrease of ~20% vs 2018 due to macro conditions 2
Two business segments; Gaming and Enthusiast driving short-term development Gaming and Enthusiast Data center 95% of revenue, EBITDA margin of >30% 5% of revenue, investing for long-term growth 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 3
Second-highest quarterly revenue to date for Gaming and Enthusiast segment in Q2 Quarterly Gaming and Enthusiast segment revenue and adjusted EBITDA USD thousands and %-margin 18,288 Revenue 16,568 16,412 16,321 16,104 EBITDA adj. margin 15,614 15,430 13,208 12,431 11,615 11,054 10,472 10,147 9,440 9,414 7,679 7,585 36% 35% 35% 33% 33% 32% 5,387 31% 5,226 31% 30% 30% 4,830 29% 29% 29% 28% 27% 4,401 25% 21% 15% 14% 11% 10% Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 4
Continued sharp focus on profitable growth Quarterly adjusted EBITDA Gaming and Enthusiast Data center Group USD thousands 7,500 5,141 5,000 3,784 2,500 0 (1,357) -2,500 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 5
Gaming and Enthusiast segment 6
27 Gaming and Enthusiast OEM customers represent 95% of Group revenue Top 5 Gaming and Enthusiast customers • Top 5 contributes with approximately 85% of total Gaming and Enthusiast revenue • +20 additional Gaming and Enthusiast customers • US the largest single-market with 45%-50% share of Gaming and Enthusiast revenue 7
Full-year 2019 impacted by macro headwinds 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 • Protracted degradation of US-China trade relations, 25% tariff imposed on US imports from China in May • Brexit an additional source of uncertainty • Impacting Gaming and Enthusiast segment due to China manufacturing and consumer exposure 8
The US tariff raise in May has increased uncertainty End user effects Asetek impact OEM impact Cash flow effect of paying 25% Increased economic uncertainty Changes to OEM purchasing • • • upfront US tariff on China imports will typically impact retail spending patterns • May 2019 increase from 10% to • Retail prices likely to increase as • Reduced OEM forecasts for second 25% reduces ability to internally OEMs seek to offset margin impact half 2019 demand absorb extra cost from higher tariffs Revised Group revenue expectation • Incentive to minimize inventory as Likely to impact end-user demand • • tariff longevity is uncertain 9
Historical revenue development Annual Group revenue Full-year 2019 outlook USD thousands 67,314 58,194 Group revenue expectation for 2019 50,921 adjusted to a decrease of ~20% 35,982 Based on current revenue and cost 20,729 20,847 18,681 outlook, Asetek expects to report a pre-tax profit for 2019 2012 2013 2014 2015 2016 2017 2018 10
Market driven by enthusiasts seeking new hardware and immersive experiences New hardware platforms Core customers Immersive experiences 11
12 Launched August 13 th
Rollout of co- branding strategy 13 https://www.evga.com/articles/01081/evga-clc-liquid-cpu-cooler/
Recent Gaming and Enthusiast product launches Ultra high-end GPU hybrid cooler from EVGA “With Asetek’s Gen6 liquid coolers powering EVGA’s “Whether you are a professional gamer or play “At Falcon, we’re focused on the performance and new GeForce RTX 2080 Ti KINGPIN Hybrid GPU when you can, performance and overclocking reliability of our cooling solutions. So, we decided to Cooler, gamers and DIY enthusiasts get it all – potential are key to the gaming experience…” design our new Talon PC case around the highest extreme performance combined with silent performing All-In-One radiator and pump “We’ve partnered with Asetek, whose latest operation with plenty of room for overclocking...” combination we could find...” generation of hardware is trusted, reliable, and very “High-end GPUs are often the most exciting effective…” “We partnered again with Asetek based on their component for gamers and this is the cream of the proven track record of reliability, and the stunning “Our strategic partnership allows us to grow our AIO crop…” thermal performance of the 680LS Gen6 CPU cooler family…” cooler...” - John Hamill, Asetek COO - Joe Hsieh, Chief Operating Officer at ASUS - Kelt Reeves, President of Falcon Northwest 14
• Orders received in Q2 from existing OEM partners for RackCDU™ liquid cooling installations • USD 0.35-0.4 million order in July from existing Global Data Center OEM Partner to be completed by Q4 2019 for an undisclosed end Data center customer and location • Wider market adoption remains slow – need for public standards to segment trigger wider use of liquid cooling 15
Targeting influencers of data center energy efficiency regulations • Larger-than-expected potential identified for waste heat-recycling and reduction of carbon emissions • Increased long-term likelihood of EU legislation to regulate data center energy efficiency 16
Financials 17
Income statement Q2 2019 Q2 2018 • Revenue reflected fewer unit shipments in the Gaming Gaming and Data Group Gaming and Data USD thousands Group Enthusiast center Enthusiast center and Enthusiast segment due to a softer market for PC’s and components, as expected Revenue 17,103 16,568 535 19,536 18,288 1,248 Gross margin 41.8% 42.2% 30.7% 35.8% 36.6% 23.2% • Gaming and Enthusiast sales unit volumes for Q2 2019 Gross profit 7,156 6,992 164 6,991 6,702 289 were 284,000, down 11% from Q2 2018 (319,000) Total operating expenses * 3,372 -1,851 -1,521 3,163 - 813 -2,350 • Gross margins improved, driven by higher average sales EBITDA adjusted 3,784 5,141 -1,357 3,828 5,889 -2,061 price and stronger USD Depreciation * 923 404 519 993 367 626 Share based compensation 153 76 77 169 42 127 • Operating expenses continue to portray a transition EBIT 2,708 4,661 -1,953 2,666 5,480 -2,814 from Data center towards Gaming and Enthusiast as EBIT margin 15.8% 28.1% N/A 13.6% 30.0% N/A expected HQ, Litigation expenses, net 669 344 • Q2 2019 HQ expenses were reduced by a favorable HQ, Settlement received -753 0 patent litigation settlement of USD 0.8 million HQ, Share based compensation 68 78 HQ, Other 606 580 Headquarters costs 590 1,002 EBIT, total 2,118 1,664 *Due to a lease accounting change effective January 1, 2019, $144,000 of operating lease costs previously recorded as 18 'Other operating expenses'
Margin development Quarterly gross margin development 50% • Q2 2019 group gross margin of 41.8% (35.8%) 40% driven by increased sales prices on Gaming and Enthusiasts products and a stronger USD 30% • Gaming and Enthusiast gross margin increased to 42.2% (36.6%) 20% • Data center gross margin increased to 30.7% 10% (23.2%) Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Group gross margin Gaming and Enthusiast Data center 19
Cash flow statement Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 USD thousands • Strong cash flow performance in H1 Income (loss) for the period 1,747 -821 867 1,624 2,143 Depreciation, amortization and impairment 923 1,023 1,070 779 993 2019 primarily due to optimizations of Finance cost (income) and taxes 245 -41 211 479 271 accounts receivables and accounts Share based compensation 222 317 336 280 247 Changes in current assets other than cash -1,386 5,244 -2,839 1,445 -5,520 payables Changes in payables and accrued liabilities 3,298 -2,127 1,293 -1,932 2,379 Net cash provided (used) in operating activities 5,049 3,595 938 2,675 513 Additions to intangible assets and other assets -356 -360 -621 -329 -313 Purchase of property and equipment & other assets -79 -420 -349 -352 -464 Net cash used in investing activities -435 -780 -970 -681 -777 Cash flows on credit lines/debt/lease -254 -132 -127 -46 -63 Issuance of capital / conv debt / dividend 33 25 -2 85 289 Net cash provided (used) in financing activities -221 -107 -129 39 226 Effect of exchange rate changes on cash 90 -56 -10 -123 -806 Net changes in cash and cash equivalents 4,483 2,652 -171 1,910 -844 Cash and cash equivalents at beginning of period 21,279 18,627 18,798 16,888 17,732 Cash and cash equivalents at end of period 25,762 21,279 18,627 18,798 16,888 20
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