Asetek A/S (CPH:ASTK)

Earnings Call: Q4 2018

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Mar 5, 2019

Very good. Good afternoon. Welcome to this Aesotec Q4 twenty '18 and more importantly, the Capital Markets Update of Aesotec. We have a good group of people here in the room, some investors, bankers, media, employees, myself, a couple of more of my colleagues here. And then we have, of course, whoever is following us via the web. Welcome to you all. Thank you very much for taking time out of your calendars to listen to us talk about our favorite topic, Aesotec. A few practicalities before we go into the actual presentations. One is that you may hear a little bit of sound from we're in the middle of our factory here in Edvard, Denmark. So if you hear a little bit of sound from the factory, please bear with us. It's your money at work, you could say. Furthermore, I have been equipped with this magical device, which through a combination of engineering and magic will allow you guys who are following us via the web to ask questions. They'll come up here. I'll try and read them out as we go. We do have a Q and A session at the end, but if there's something really important, by all means, bring it up and that goes for you here in the room too, of course. We have a microphone. Please wait with your question until I have the microphone at you because otherwise the ones listening via the web cannot follow. If you are following via the web and you are online, meaning that you're looking at it at a later point in time, please write me an e mail at investor. Relationsaseotech dot com and I'll make sure to reply to your questions as soon as possible. Another magical device. If I hit the green button, I will change the slide. The agenda today is that we've had a very light lunch. We then go to the first presentation by Andrejsvadericsen, our CEO and Founder. He is here. He's coming up in a minute. He's going to be talking about building a game and an enthusiast brand. We then go over to John Hamill, our Chief Operating Officer, who's also here, and he'll be talking about how we are driven by the end user experience. Then John and Andre will do a song and dance together and talk about maintaining position in the data center market. And then I'll finalize this session here today talking about financials with the headline of Solid Financial Platform for Long Type Growth. And then we have a sum up by Andre and a Q and A. But by all means, if there's an important question, bring it up as we go. With that, Mr. Eriksen, CEO and Founder, this is your thingy. Thank you. Well, good afternoon to you guys here and the guys online as well. So I've been looking forward for, I think, six or seven months to this day because I've been so enthusiastic to tell about what I'm going to tell you now. So I hope you think it's as great as I do. What I'm going to talk a little bit about is building a gaming and enthusiast brand or in other words, we're actually going back a little bit where we started 20 ago this year. So what we're going to talk about is basically a new branding strategy. You could ask a fair question and ask if we ever had a branding strategy. But now we do at least and that's what I'm going to tell you about. I'm sure at least those of you in the room have already seen our new logo. And what does a new logo mean? Does it mean more revenue? No, not necessarily in the short term. But for us, this new logo means, let's say, a kick start. We are changing our logo to put down a milestone and say from today on, it's a new Aesthetic. And that's both to you guys, it's for our customers and as importantly, it's also for our employees. And I'm not going to entertain you with everything our new logo stands for, but I think you can get a flavor for it by looking at it. We are proud of it at least. Why am I here to talk about branding in the first place? That's because I woke up literally six, seven months back and thought a little bit about our position in the whole ecosystem, being a gaming, being a data center, no matter what. And what I found out was that we are doing solid products and solid solutions for our customers. But at the end of the day, it's our customers' brand that is promoted. Fewer and fewer people actually know who Aesthetek is, so they may go and buy a liquid cooler from NZXT as we have over here. But unless you are a hardcore enthusiast or have the same age as myself, you don't necessarily know who's behind it. And I think that's important. I think it's important because we have the IP situation. I think it's important for people to know what they're actually getting and what they are buying and then to get the real stuff. So what we decided to do, I literally gathered the entire management team and we spent two full days together here talking about all these issues. And the conclusion we have come to is that we will put our brand forward. But of course, we cannot turn our customers into Aesthetic resellers. So we have to do it in a way where it's a brand behind the brand strategy. It could be dual branding. But what it also means is we may actually go and launch branded products ourselves that we may sell directly to end users. We may sell it to our current customers, but with abadabai that says if you want to sell it, it has to carry the ACTEC brand. And if you're not willing to do that, you cannot buy it. And here I'm talking about high end products like more where I founded the company twenty years ago. So in other words, what we want to achieve is to make sure that when people buys an integrated liquid cooling solution, if they do not buy one of our solutions then at least they know that they are not buying one of our solutions, whereas of today, that's not necessarily transparent. I think for the first time in the company's history, we have a real marketing department. In the beginning years, the marketing department was obviously me. But other than that, it has mainly been product marketing. And the reason it's been product marketing because it's always been in dialogue with our customers and say, Thierm is the customer. What would you like us to build for you? Or the other way around, we have developed some products that we thought would be interesting and then we have sold it to our customers and then they have rebranded it, so to speak. So right now, we actually have hired PC enthusiasts, branding experts, etcetera. And it sounds crazy that we have the largest marketing department ever. But please bear in mind, we are still only 100 people in the company. So it's not like we have 67 people of marketing employees. But nevertheless, it's a shift in the company. And I guarantee you, you are going to feel a difference and see a difference in our outbound marketing activities. And one of the first initiatives and to tease you guys a little bit, you probably saw the woman installing the sign over there that says Aesthetics Esports Academy. But I made sure none of you actually walked in there. But you can see it afterwards because what we have in there is a full featured gaming room setup. So right now, there's 10 Alienware PCs in there. We have state of the art hardware and surroundings in there. And this academy that's what you'll see in there when the presentation is over. This academy is really about engaging with the end user community. So first of all, if you live in the area or if you live in Denmark or outside Denmark, if you're interested in eSports and you're interested in having, let's say, elite training facilities, you can come and use the Aesitec eSports Academy for free. So that's a good marketing tool for us. It's a good way for us to engage with the community, get feedback, what works, what does not work. The Esports Academy is just a small piece in a bigger plan. We are introducing, as you can see on our new website, another brand called Cool Nation. So Cool Nation will be an umbrella for several activities, for example, a global eSports tournament. There will be global overclocking contests where, for example, the finalists of the eSports tournament will go here and battle out the last round and there will be streaming from this academy. So it's a great marketing tool for us that we have built. I mean, it's an investment for sure, but we have some good partners, Alienware and Racer, who has pitched in as well and it's really nice in there. If we look at the adoption of our solutions over time, you can see that five years ago no, seven years ago, eight seven, eight years ago, we were roughly at 1,000,000 units. And today, we have passed the 6,000,000 unit mark. So when we claim we are the market leader, there's actually some substance behind it. As a part of this whole rebranding exercise, we obviously looked a lot what is our strengths, what's our weaknesses. And one of the things that we found is that both from end users but also from asking our customers, what we found was that we deliver the best performance, the best quality and the best reliability. What you do not see up there is we deliver the lowest prices and that is our weakness, if you want. But we think this is the way forward. So we are not actually going to change a lot about how we build products and how we sell or market our products because these are our core strengths. This is essentially saying the same as I just showed you in terms of volume that, of course, the revenue has followed the volume. Innovation has been a core tenet for us and it still is. If we look back to the early days of 2000 with the VaporChill product, the HP Blackbird, our first OEM design win ever, our first integrated coolers here, the Corsair H50, our RAC CDU, our in RAC Lag. Of course, I can derive a lot from these slides. One of the things is this VaporChill product. I think it's fair to say that when we attend a trade show, even now in 2019, some twenty two years since I launched the first Vaporgel ever, we still have people saying, why are you not selling this product anymore? Why can we not buy it anymore? So without revealing anything because the decision is not made, this is obviously some of the stuff that we're looking at. Should we bring that back alive? So that was just an example. I am obviously we are obviously going to talk more about the data center business in a few minutes. But what you can also see from this slide, of course, it's not very granular, but what you can also see is that from 2009 and onwards, we have not focused that much on the gaming business. And independent of the data center market, I believe that's a mistake and that's what we're going to fix now. Solving thermal challenges and the more complex, the better. So what does that mean? I mean, everybody and his dog can make an air cooler. It's a number of fins and then you have an airstream flowing by it. That's not our business because we cannot make money there. We are in the wrong part of the world. We are way too many employees for making money on stuff like that. So what we're really looking at and we'll continue looking at is the innovation part. Where can we make cooling solutions for the markets we operate in even better than they are today. So it's all about driving preference for our technology, of course. We want the gamer. We want the enthusiast that enters the store to say, I want an Acertek product. That's the whole idea about this. And as we have the leadership, as we have DNA that says innovation and performance, etcetera, we are doubling down our effort on the gaming segment and the enthusiast segment. And this slide is going to talk a little bit about that. So we have gotten rid of our desktop segment. And in all honesty, it will probably take me a while before I remember myself, but there's some thinking behind it. So one of the reasons why we're getting rid of desktop is that everybody who thinks about a desktop PC thinks about something ancient and dead. Desktop PC is a dinosaur in everybody's mind. So instead of calling it desktop, we have renamed it to gaming and enthusiasts. What does that mean? Because it's still desktop PCs. Yes, it's still a desktop PC, but it means that we focus on the part of the desktop market where people are building high end PCs, where people are gaming. So we think it's an even crisper way to state what it is we are doing. Data center, there's no new sexy names for that. It's still a data center and I think it's pretty precise what it is. As most of you know already, 95% of our revenue comes from the gaming and enthusiast side and then the remaining 5% from the data center. I believe we believe management believes that we are looking at two large and long term growing markets. We do not believe eSports is over tomorrow. We actually believe this is something that has come to stay. We are already supplying global brands. There's obviously more, but we have a good part of it and we have market leading solutions. We have our IP platform. And please note, when I say IP platform, I don't only mean patents. We also have patents. We have our products. We have our high volume manufacturing. We have our quality. We have our hub infrastructure. But now we can also add brands. It's not going to change with one capital markets update. That's why we hired the marketing department. But I think when we meet next time, I think we will have a solid brand. And it's not like our brand is brand new. There's just a lot of people who need to be reminded about who we are. Talking about the IP and talking about the platform, I believe we have a pretty good setup for achieving what we want to achieve in the longer term. We have our Silicon Valley offices. I don't think it's necessary to explain why. Why do we have an office in Texas, John? That's because Jan lives there. But there's one more reason. That's because Dell is there, of course, and we have HP in Houston. Here in Alba, of course, we have some manufacturing. We have most of our R and D. Munich is also kind of a tech center in Europe. We actually also have someone, I'll get back to that later on, that will be working out of Brussels, closer to the EU. Then in China, we have, of course, our entire supply chain, but we are also beefing up more and more engineering out there. And then obviously, you also think, oh, that's cheap labor. No, that's not the point. The point is that more and more of our big customers are actually placing their R and D departments out in Asia. So therefore, we also need to be there. And that's why we are in Taiwan sorry, in Taiwan and in Taipei also. I think I will take questions about what I just talked about now just to structure it a little bit because now we are shifting gear after this. So any questions or comments to the branding story I just told you? Yes? What of cost you expect to incur with this new branding strategy, the Academy and so on? It's not completely for free, I guess. So Anders from SEB asked what the cost was. I think we will dive more into the cost details, Anders. I know Peter will do that later. But I think I can reveal a little bit, and that is the investment in R and D on the data center side. All of you in here in this room, I guess, knows that we are trying to dial that down a little bit and keep that on a constant level. So seen from an outside perspective, you will not notice the cost of what we are doing here. So it's not like our operating costs will skyrocket. And just to put things into perspective, building this eSports Academy, we are perhaps talking $200,000 So it's peanuts in the major scheme of things and it's not like we are initiating a huge investment initiative that we hope then to see return on investment ten years down the line. So is that answer enough for now? Last question from SEB. Will there be a wave of new product launches without diving too much into the guidance? Yes. One thing is, of course, the social media side and the academy side and the gaming side. But the whole idea is to sell more products, introduce more products, introduce more exciting products. So yes, but of course, that's a longer term perspective. I think even if we put all our best efforts in right now, the first product launch that you would see would be a year from now. It's just the time that it takes. But from the branding perspective, getting new products out with our brand name on, that's absolutely something we're already working on. What's that? You guys are pretty much the first ones to know. There are more of our customers, our direct customers. So when you say clients, let me interpret that as our direct customers, yes. Most of them are actually pretty excited because most of our customers, they only sell products from Aesthetic, meaning that they also see the value. So they also want to put forward our brand. I think the best example, although it's old now, is Intel, that if you go to the street and buy an Intel integrated liquid cooler, it actually says cooled by Aesitec. And there was Intel approaching us asking if they could do it. And then, of course, there may be customers who would want and like a financial incentive to like our new strategy. But that's not necessarily bad because just a made up example, if we give people $1 in discount for carrying our brand, as long as that dollar is then spent on marketing our solutions, then it's a win win. So can you pitch in, Jon? Do you agree it's been well received? Customers have been promoting or or at least requesting that type of support for some time. And as Andre says, you know, if if you're only using ESA tech, you know, it's it's very helpful for them that they can leverage any marketing activity that we are driving or driving with them. Good. All right. We will be able to ask questions later on. I would like to ask one question myself just to get it out of the way. And that is, is this something we are doing to put out a smokescreen over the data center business? No. Of course, it's not because: number one, we have focused very hard on the data center business for five, six years now. We are not going to throw that away. Number two, because we have focused so hard on the data center business, we have not had the efforts to do what we are doing here. Still, we have been growing pretty good for five years on the gaming side of the business. So wonder what will happen if we actually start to focus on it. So as you will see later on, all of these slides will offer you full transparency and there's no hidden agendas here. So this branding strategy is not something we made up two weeks ago and say how do we save the Capital Markets Day. So just to be clear on that. All right, John. All righty. So just for those of you that don't know me, my name is John Hamill. I am the Chief operating officer at AcerTech. Just about to celebrate my tenth anniversary of the company. So just thought I'd mention that, Andre. Today I am going to be talking about our newborn market segment, the gaming and enthusiast segment. Of course you all formally know it as desktop. So I'm going to add a little color to that market. And we'll start right at the beginning with a remainder of where the revenue comes from. So there's ostensibly two groups of customers here. We have OEM customers and we have what we call internally DIY customers, do it yourself customers. OEM customers include guys like Dell Alienware, Hewlett Packard or HP if you prefer. On the DIY side, it's guys like Corsair, NZXT, all names you're familiar with. The OEM customers, they tend to take our product and integrate them into complete systems. So actually an example of one just here, this is a Dell system, actually there's a lot more of them next door. But they integrate isotake liquid coolers into the systems and they sell them on to end users. Our DIY customers tend to sell our products as stand alone units to enthusiasts and those enthusiasts are building their own systems. As you can see, there's quite a dramatic difference in the shares. OEM, around about 20% of our business. DIY, 80%. We shipped almost exactly 1,100,000 units this past year. So that says we're in excess of 200,000 units into the OEM business, just under 900,000 units on the DIY side of the business. Now we've developed this very, very simple graphic here just to help explain our view of the market. Our market is described here as hardware enthusiasts. And as you can see, most hardware enthusiasts are gamers. And that means there's a lot of strong parallels between the hardware enthusiast market that we target and the gaming world. And maybe that's just as well because there's not a lot of data specific to the hardware enthusiast market, our target market. So we do find that we have to leverage a lot of information from the gaming world. But I want a word of caution here. There's not a one for one analogy. And sometimes I do shabber when I see some of the the hype around the esports market in particular. Just to touch on something that we've talked about over the last couple of CMUs, Previously I've described an environment where gamers have this insatiable appetite for what I describe as the immersive experience. How real can it be? But that's not the only reason people buy liquid coolers. Any hardware enthusiast will tell you liquid coolers are far more efficient than air coolers and that's really important. You're trying to overclock a CPU or even a GPU, a graphics processing unit, that's critical. If you're trying to build a lower noise computer, it's critical. Liquid coolers have actually seen a lot of innovation in the area of industrial design and aesthetics. And that turns out it'd be really important to hardware enthusiasts. Why? They care about what the inside looks like. They customize the interiors of their personal computers. So lots of reasons beyond that immersive gaming experience for buying liquid cores. So we believe the fundamentals of our market are strong. That's based on information we have from the gaming world. But all the indicators and metrics are extremely positive. There's three separate charts here starting on the left, we have a chart that describes revenue from video games, from advertising within video games and even from esports. We see some very strong growth predicted through 2022. I don't think anyone in the audience is guilty of living under a rock recently, so you won't be surprised to see the huge growth rates predicted for eSports revenue. Just to clarify what we mean by Esports revenue, we're talking about tickets and merchandising from events. We're talking about media and the sale of that media. We're talking about sponsorships and advertising revenues, but very, very strong growths there. And the last statistic, the chart on the right describes the growth in virtual reality headsets. Going back to that immersive experience, that was one of the key drivers we talked about in previous years. Absolutely formidable growth rates forecast there. I can tell you if this is anywhere near right, this basically predicts if you're playing games, you're going to be wearing a headset regardless of whether it's a PC or a games console. So some data closer to home. We have some data here describing trends in the high end gaming PC world from OEMs. So this data is specific to the OEM segment we service. So think again about daily, Elaine Weir, Healy, Packard and the like. We focus on high end because we know in high end systems, liquid coolant is common. As you move down through the price stack, liquid coolant can become an option or even not listed at all for cost reasons. So we tend to focus our attention on the high end. And as you can see from the graphic, see growth of around 3% per annum. What's really interesting is that the growth is dominated in the higher price points of these already high price points. So this high end, we're talking above $1,800 And as you can see here, price points above above $33,000 we're seeing pretty dramatic growth, same for above 2,000 below $3,000 What's interesting from our perspective, as I mentioned earlier on, that we sell just over 200,000 units into this space. So we can do some CEO level math, apologies, Andre. We believe the majority of our sales are into this segment, at least two thirds. And so if you take two thirds or more of the 2 and £20,000 that sells into that segment, it tells me our market share is in the 10% to 15% range depending on how much more than two thirds are selling in to that segment. Just to make it clear, the balance is more than likely air coolers. Air coolers will dominate the balance there. We got some new data from John Pee Dee Research to refresh a view that we shared last year. So John Pee Dee tells us the high end gaming population is now about 26,200,000. So that's 26,200,000 individuals who own computers costing in excess of $1,800 Now to keep this analysis relevant, we have to take out notebooks. That still leaves us with a population of 20,000,000 users, each with a system, a desktop system valued in excess of $1,800 And we know these users refresh their systems every three to three and a half years. So that tells us annually we have an opportunity around 5,500,000 to 6,000,000. Now again, I know that I sold GBP 1,100,000.0 units across the entire business and I'm guessing the majority were into the space at least two thirds. So that tells me that my market share is between 1319% depending on how much more than 67% were sold into the segment. All right, it's really interesting here. We're going to talk about what happened last year and start to look forward to next year. So last year was very unusual guys, very unusual. Ordinarily, I would have told you that Q2 would have been a low point of the year as it is every year. Q2 turned out not only to be our highest quarter of the year, it's our highest quarter ever. That was really unusual. As we moved into the second half of the year, we faced or encountered very strong headwinds and those headwinds included macroeconomic issues as well as industry issues. From a macroeconomic perspective we of course had the specter of The US China trade war. But customers were also concerned by Brexit, the economic situation in Italy so on and so forth. And then we had industry issues. We had the delay in NVIDIA's Turing architecture, an architecture that subsequently suffered very poor market acceptance. We had Intel and product shortages, unimaginable. And we had the whole cryptocurrency issue. And I have had customers tell me they've been hurt by cryptocurrency, believe it or not. Looking forward, can tell you those headwinds prevail and it will impact Q1. However, I think we'll be through the worst of it in the first half of the year and I'm predicting a strong second half. Indeed, as we look at the company's outlook, so the entire company, we're reasonably optimistic that we're going to see growth in the 0% to 10% range. We've been reporting on how we've been able to diversify our revenue base. We made significant progress in 2017 and we looked at 2018, we were surprised to see we hadn't quite made as much progress. However, when we looked at the 2018, we saw a much better picture than something that was broadly in line with our own expectations. What I will say is that that second half picture includes a new player in our top five, a company called ASUS or you may also hear them referred to as ASUS, ROG, referring to their Republic of Gamers brand. So I believe we continue to make very good progress towards our efforts in diversifying our revenue base. So to wrap up this particular section, being no doubt, we intend to dominate this space. And to go back to what Andre was talking to earlier on, we're going to do it by building our brand, by innovating. And yes, the goal is to bring our own branded high end products to market. So with that, I'll conclude the monologue here and open it up to questions. Do you have a microphone? Any questions with Johan at this point? Mr. Knudsen? Hi, it's Anders again. Yes, of course, I can't help asking about the elephant in the room, the decline in Q1. How big is that going to be? And also, I mean, I know you don't have much visibility. When you say strong growth in second half, what kind of numbers are you thinking about? Because obviously, Q2 was a very tough comp given you were such a strong quarter last year. So based on our models, whatever softness we see in Q1, we think we can offset in Q2. Second half of the year. We are fairly bullish based on how we model the business, based on what we can see today that the softness, in particular, in this first quarter will be offset. Is my mic on? All right. Let me just add to that, Anders, because there are two things worth remembering about our business. Number one, we'll always have one bad quarter or low quarter, but we cannot say which one. So that's the first thing to remember. And it's not even a joke. I mean you can go back eight years and look. Number two, I know that you guys like Excel spreadsheets and that's your job. But I warn you, as I've done before, do not read anything into whether one quarter is low or higher than it was the last year or the year before because it doesn't say anything about the future in this case. And in terms of Q1, it's no secret, it's going to be low. And we don't know yet how low because our visibility is short. But in my mind, we have to go back a few years to see a Q1 this low. But what you also know at this time of year when we are doing this guidance that we are trying to be conservative and trustworthy. And if we just forget the data center for a second, our actually running business, we have been spot on or ahead for what we have said in 20 quarters now for Roe. And we would like to maintain that record. So when we say this full year guidance, that is actually what we conservatively believe in, independent of what Q1 or Q2 may or may not show. So I think that's to add a little bit more color to it. Just another question on the guidance. Is there any GPU penetration embedded in the guidance? Or do you see any progress in the GPU penetration? It's modest. It continues to be modest single digit percentage of overall sales. But I would like to add some color on that because that's short term. That was a short term question and a short term answer. Yes, because what I would like to add as a part of what I talked about, what I can say for sure is that GPU is a big part of those plans. Any progress on the Well, so I cannot speak on behalf of my customers because I'm not allowed to do that. But let me put it like this, we have some very exciting GPU stuff going on with a customer that says, yes, I am going to buy this if you can do what you say you can do. That's as specific as I can be. One more question and then we'll basically change. Meaning that the market size will double, the one you showed on the Slide two before, right? That's one unit per PC. And in theory, yes. So now we have the Excel exercise again. Let me just back off for one second. What's preventing GPU adoption to be really big right now, I believe, is the fact that you have two hoses. I mean we have a system over there for those of you in the room who can see it. You have two hoses coming out of the graphics card and then you have a radiator and a fan. And that is prohibitive for some. It's really difficult to go and buy a graphics card and then advance, make sure you have the space in your computer case for the radiator. So the trick is, can you do a liquid cooling system that's more efficient and more low noise than an air cooler but within the same factor as form factor as a normal graphics card? That's the big question. And if you can, then yes, then the bargain would potentially double. And that's, of course, what we're working on. I don't think that's a big secret. We are not 100% there yet, but we believe we can get there. Very good. There's a couple of questions down here. Please state your name, sir. You. I'm Thier Pawson, Danske Bank. I have two questions. The first is also relating to growth. If we look at the Gaming segment and next to what you have up here on the screen, the OEM segment and the DIY segment, where do you primarily see the growth going forward? I don't think the mix is going to change too much. It really hasn't changed in recent years. So I'm not expecting any high drama. There was a period in time when DIY was growing faster than OEM, but I'm not sure that's that's the case any longer. So my guess is and as I guess, it's slightly stay similar. Yeah. Okay. Perfect. And secondly, it's probably concerning your new strategy more, But then you talked about making your own products and releasing those to the market. Does that also mean you're actually going to compete directly against your OEMs? No. That was a great question because there, I was not clear. We are not going to compete with our customers, for sure. I believe fundamentally that's a bad idea. But I can give you an example. So what we sell today, as you know, is this integrated loop liquid cooling. And the dream scenario for me would be to have Coursera a or an NZXT or ASUS branding their own product and then say build on ACTEC technology, for example. But there is a market above that where that's where I said meant by or that's what I meant by getting back to our roots. There is a market for people who are building liquid cooling components. They look very high end. It's like Hi Fi in the Hi Fi industry, right? Look very high end. They feel very high end, but the end user have to mess around with liquid on their own. And I do not believe this is going to be our next greatest growth opportunity, but I do believe from a branding perspective, it's an excellent opportunity for us to show off what we can do with technology that may be too expensive to implement in the lower end, so to speak. And then we will give our customers the opportunity, of course, do you want to sell it? And if you want to sell it, we do it together. And if you do not want to sell it, then we'll do it one way or the other on our own, but it will not compete with their core business. I'm glad you asked that question. Could you be kind and turn around? Same questions. That's fine. Perfect. Thank you. Anyone else? Any takers? No. And loading. We'll take those if there are any. Proceed, please. I think it's still you, John. Yeah. But we're gonna break for ten minutes according to your agenda. We will Just keep going? Yeah. Okay. Alright. So well, at this point, we're we're gonna break with tradition because we don't have a traditional dog and pony show for you. We're gonna take a slightly different approach. I'm gonna kick off and just provide a status update, and then Andre is gonna provide some provoking testimony. I'll suggest, can I say that? Without much further ado, let me get started. As I say, I have a short preamble and then Andre gets to do the fun stuff. Okay, so where are we with data center? Because this started back in 2013. I know I was there and it was a very clever idea, very exciting idea. It was that, hey, we figured out that water is better at moving heat than air and we've been able to prove it in a lot of desktop computers. Why wouldn't it work in data centers? And of course, it does work in data centers and off we went with new ambition or new ideas or new plans. And our report card today, not too bad at all. We have liquid cooling installations around the globe and that's true of Europe, North America and Asia Pacific, Japan. In actual fact, as of today, we have 13 of the world's most powerful and equally important most efficient supercomputers as listed by the November edition of the Top 500 list and the Green 500 list. If you study the top 500 list, we have three of the top 20. So I'm going to tell you our stuff does what it says on the box, no doubt about it. But we're not happy, we're not satisfied, and my guess is you guys are not satisfied either because we've never really achieved the velocity we had hoped for. Looking forward, I don't think anyone in the room would argue with me if I suggested that we're going to continue to see exponential growth in data use, autonomous driving and offset. I don't think we're surprised that data centers are consuming more and more of the world's energy. Our view is that energy efficiency and carbon footprint are going to become very, very important in the data center world, very important. Our conclusion is that if there were to be legislation that could have a dramatic impact on our business, perhaps act as the catalyst to get us to the kind of trajectories and run rates we'd always dreamed of. A quick word on one of our most recent innovations, the NRAG LAC. We have sampled some 14 customers, 21 units in total. As it stands today, testing is either underway or planned to be underway. But it is way too soon to start making any commercial predictions on how the unright wax is going to impact our revenue. With respect to revenue, you should be familiar with this chart as there should be no surprises there. We have been able to build a business and sustain reasonable levels of revenue but nowhere near our ambition. And we do continue to execute our strategy. You'll note that in 2019, we've actually been able to add a couple of customers, NEC Europe, not to be confused with NEC Japan, which is listed in Q4 twenty seventeen as a new customer and Xenon in Australia, both have recently placed orders with us. You won't have seen stock exchange releases because those orders didn't surpass our $100,000 goal for justifying a stock exchange release. But we do continue guys to execute in our strategy. So that concluded the status update that I had prepared. Now pass it on to Andre who will take it from here. So I had another night moment. I've had several of those over the last five years when it comes to the data center we probably all have. And the fact is although we have very solid and really great design wins to talk about, it's nowhere near where we had hoped to be at this point in time. That's just how it is. And the more interesting thing is to understand why because we have very strong value propositions. And as John just said in Scottish, so I'll translate it to English that our product does what it says on the box. We have some of the most difficult customers you can imagine in Japan and they are very, very hard to please. And not only do we have customers in Japan, we have repeat customers in Japan. So why is it that the rest of the world doesn't get it? And I think the most important slide or bullet point, for example, or perhaps on this slide is that energy savings is not really a big deal yet for the guys we are trying to sell to. So as a consequence, let's just talk about the company and the market first. We have decided to discontinue data center guidance for now. We will still inform you when we get a new order. We will still inform you when we get a new customer or if there's something exciting to talk about. But I, for one, do not see the purpose of standing here quarter after quarter telling you about four to 5% of our revenue why that's not going as planned. So I think the CMU, the whole rebranding effort, etcetera, I think it's a good time to put a stick in the ground and say this is where we are. The segment investments, we are going to reduce those. That is not necessarily related to the revenue situation. That's something we've been talking about for a while. I think Peter will put a number on, but I can disclose already now that we expect to be able to scale down the, let's say, investment to $4,000,000 a year. Is that correct, sir? Yes. There is an apparent need for standards in the data center market of what you can and cannot do when you build a data center. And therefore, we are going to put efforts into try to influence the influencers and try to influence the EU and the politicians. For those of you who live in Denmark and for those of you who live in Europe probably also, you cannot open a newspaper, you cannot open a TV show, you cannot open anything without talking about now you cannot eat meat every Wednesday or we have to save the world. There's all this about carbon emission. The crazy thing is that one of the biggest problems on the planet is the prediction of data center power usage. But funny enough, nobody is talking about because it's difficult and because it's new. So if you look at my slide here, the global electricity demand is roughly 20,000 terawatt hours. That's a big number. 3,000 terawatt hours is what they expect to go into data centers to power the data center. If you look at the recycle angle, 70% of all this power could be recaptured, meaning that you could save the same 70% on CO2 footprint. So that means 70% of 3,000 terawatt hours could be reduced. I mean we don't even have cows enough in Europe to match that number. It's really big numbers we are talking about. On top of that, you have the power consumption, where liquid cooling by itself will give you 20% power saving. And as you get power saving, you also get CO2 savings. So just to take this down to earth, we made this slide, which I think is which says a lot. So in Europe alone, we expect that by a few years, the energy consumption of data centers will be 104 terawatt hours. As I just said, we can recapture 70% of that. That would be enough to heat 6,000,000 European homes for free and with zero carbon footprint. Of course, there are logistical challenges like where are the homes placed compared to the data center, compared to the district heating plant and so forth and how many in Europe does actually have district heating. But there's more than 6,000,000 people in the EU. So from that perspective, it's a nonissue. If we bring it further down to earth, now that we have to drive electrical cars soon, all of us. If we look at something that will be much more beneficiary, in Denmark alone, predicts that by 2030 it says 2019, but 02/1930, we will spend seven terawatt hours of power in Denmark just on data centers. 70% of that can be reused as hot water without the need for heat pumps. That's as much as the three largest cities outside Copenhagen's 300,000 households. It's Aarhus, Alborg and Unse. And there is nothing wrong or nothing hindering this to be reality. This is not a dream. So if you go back five years in our media room, you can see videos from the university in in Norway where we are doing this. There's no black magic into it. And why is it then that people are not buying it? It's my conclusion. Our conclusion is that who are the winners with what I just said? It's not HP or Dell. For them, the world is more difficult with liquid cooling because it's new compared to what they do. It's not necessarily the power plant either because now we have all this free heat and they are making a living out of selling it. It's not necessarily Apple or Google or Facebook because they just want the data center to run. And provided it's run by power from the wind turbine industry, they are green. And if they offer, for example, the municipality of Wibor to say, you can get all our waste heat for free, then they're even more green. The challenge is that the waste heat a data center like in Vibor produces will be 10 to 15 degrees cold water. If you put 10 to 15 degrees cold water into our radiators, we will cool this room instead of heating it. So then they came up with this great suggestion that let's use heat pumps. The problem with using heat pumps is it consumes power. So there, the green profile kind of went away a little bit. Number two, it cost millions to install all of these heat pumps. So therefore, the math doesn't stack up. So what we will try to do is to influence the influencers in a way where we get to a standard like we have on cars, for example. You cannot drive your own diesel truck in the middle of Copenhagen because it's not Euro six. If you have a Euro six norm truck, you can drive it pretty much everywhere. And I believe we believe on data centers for this to take off, we need somebody of the politicians to wake up and say, wait a minute, if you want to install a data center in Denmark or in Europe, it has to be efficient. You have to be able to reuse 70% of the heat and you have to be able to provide it as 60 or 70 degree hot water. If you cannot do that, you cannot place a data center here. As you can already hear, unfortunately, this is not something we can fix over the next three quarters. But I honestly believe this is the missing link. This is why we don't see the traction we had hoped for because the value proposition we offer is strong. It's on the highest political agenda globally. But here down on earth, nobody cares about it right now. That's the status as I see it. And before I move on, we can take questions or comments now. Any questions? Yes, sir. Here you go. If thatis the biggest impediment, what do you think you can do to accelerate the process from a regulatory or political standpoint? What sort of resources can you put into that to get this adoption cycle a bit quicker? That's a great question, Scott, because I have been a little bit afraid myself. So we are a small company. What can we even do to have any impact? But largely, unfortunately, I've been meeting with some people who gave me a little bit more hope that even if you're a small company, you can actually do stuff. So for once, there is a professor at the local university here, HEM, I guess, is his name. It's completely coincidence that he's located here in Olborg. But he is actually one of Europe's leaders within district heating. And he's been a big part of defining what they call district heating version four point zero throughout Europe. And he's starting up a new research program now together with Danfoss, together with Grundfoss, together with Logstor, I believe, some of the really big companies in Denmark who also have an interest in this. And for the first time, he's pulling together forces both from the data center industry and from the district heating industry. And of course, we want to be part of that. Of course, I want to be a part of that summit. We may even want to sponsor both money and hardware into this research program because I believe that's the way to do it. I also believe that living in our own little bell here that, of course, everybody knows about Aesthetec and, of course, everybody knows about data center liquid cooling. But I had this professor and some of his people here, and they were like super excited seeing what we could do. They had no clue. I showed them the video from university in Tromso that we were reusing the waste heat. That's a part of this research program that they wanted to investigate how can we do this or can it be done without this need for heat pumps. I do believe we can if we do not use the ugly word lobbyism, then I do believe we can place people in Brussels that can at least figure out who do we need to talk to because I actually believe a big part of this is really just to tell people about it. I can wake up in the morning, blame the politicians, say they are stupid. Now Tuesday, cannot eat beef, but at the same time, I can save the planet. What is it they don't get? But what they don't get is that they've never been presented for it. And that's obviously something we can change. So again, on the marketing side, I have engaged an, let's say, public affairs adviser who can help us get to the right bloggers, help us get to the right media, help us get to the right politicians. It's election year this year in Denmark. And they are craving to tell a story about how you can save the planet, but they don't know about Aesthetic. So that's what I believe we can do. Unfortunately, what I cannot do is I cannot say how long time is this going to take. What's the revenue? When is the revenue? And that's why we have stopped guiding on it. Not to hide anything because it will be completely transparent what the revenue has been. But to be honest, I'm a little bit tired of showing up here, telling a great story about our overall business, but then $3,000,000 of the business is dragging down everything. So instead of focusing on the cheese, we focus on the hole in the cheese. So again, not trying to hide anything, I believe in this more than ever. I'm just sorry to say that we are still too early. That's the only conclusion I can come to. Pierre? Pierre Forsen, Danske Bank. I have a couple of questions. The first relating also to guidance. If you stop guidance and guiding on data center, does that mean that the guidance of 0% to 10% actually relates to Gaming and Enthusiast segment mostly or It's full launching. So what we're not guiding on is, okay, how much of that 10% growth come from data centers and how much come from desktop. And again, it's not to hide anything. It's just if I say a number today on the data center, one thing is for sure because six years of doing this have told me that I will be wrong no matter which direction it is. So instead looking at the bigger picture, is the company performing and are we getting traction on the data center side? I think that's the important key parameters. Yes. Okay. And looking at the NREG LAC product, you mentioned a bit about it, but is it still on track to come out this quarter as Well, you could say that it is out in the sense that I don't think I'm exaggerating. I think the product is ready. I think you can actually, when you go out, see them building it down here. Of course, it's up to the customers to fit into their schedule when they want it and when they are ready, etcetera. But I think I promised in Q3 and Q4 that we will be ready to launch in Q1, and we are for sure. And have you received any orders already or Yes. It's very modest evaluation quantities, or three. Nothing that would constitute what we would be looking for in terms of production volumes. All right, great. Thank you. And my last question, you talked about scaling down investments in the data center segment with US4 million dollars a year. Can you just tell us a bit more how you're going to do that and what it Yes. That's actually fairly easy because we'll just stop developing new products until we have customers who want to buy. In other words, I believe we have the technology that's needed. This is not a question about let's build something that's even more efficient, then we will get the orders. We have that. What we need to invest in still, of course, is that whenever Intel or NVIDIA comes out with a new platform, for example, Intel is coming out with a new platform later this year, of course, we need to make sure we can support it so we can actually take orders. Of course, we need to keep the lights on so that when customers call us that there's actually people in the seat to pick up the phone and etcetera. So that's where the $4,000,000 number comes from. But what we are not doing anymore, even who it is, even if it's Intel calling again, there needs to be a solid business case or we will focus on our core business and focus on that let's get some rules around data centers. Because just back to the data center in Vibor, of course, would not have said, if that's your demand, we are not going to place a data center in Denmark. Of course not. It's not more expensive to build it with our solution. But it's just as long as nobody is demanding it, why would they do it? I just lost that. But anyway, what yes, what I wanted to say is, of course, we cannot get EU to say you have to buy liquid cooling from ACTEC or you cannot place a data center in Europe. That's not how it works. And there are other people who can do it, not as good or as efficient as we can, I believe? But of course, there are other people who can do it. So I do believe this vision is real. And I do believe we should do it. And I do believe that if they are serious about reducing the carbon footprint that they should look at, to use your words, the elephant in the room. Because right now, just as it is, a big part of the green power in Denmark will actually go to data center. And then you can say, yes, the data center is green, but what about the power the rest of us get? So I believe this is real. Talking about elephants in the room, but the Inrag lag, when do we know when it's a success or a failure? How long time are we going to give it? I'm probably going to give it less time than you. Let's put it like So it will not be me you will be hearing dragging this out. We want to find out and we want to find out as soon as we can. But of course, we need to give our customers a fair shot at actually testing it. And although I would hope then InraGlyc is not necessarily as high up their priority list as it is on ours, but this is not something that's going to be dragged out. You can count on that. Very good. Anyone else? It was my impression that on the data center side, was twofold. So the energy efficiency and then also that its CPUs are getting hotter and hotter. I think that's still the case, right? So when Intel is bringing new CPUs to the market that will demand liquid cooling at some point? Or has that case also changed? It's not off the table. I think we have the wins in our direction, so to speak, on all these fronts. However, we believe that for six years, And what we learned is we are not very good at guessing when. But I do not believe it's a coincidence that we have Japan as perhaps what our biggest market. Why is that? Because they had a little accident out there a few years ago, so power is now a limited resource. Power prices goes up like crazy. So therefore, actually being able to reduce power is something that means something to them. Or in other words, as soon as we see customers that like our value proposition, they will buy. I believe that's why we are successful in Japan. It's not because of price, that's for sure. It's our solutions out there are fairly expensive. Here. Then I have a question from Germany. How do you see your competitive position in data center has developed recently also on the technology side? Lots of great questions today. This one, I couldn't have made up better. That's a really great question. If we have competitors out there that would be as successful or even more successful as us, I would be happy because then we are not the only idiots on the block. But the fact is I do not see any competitors out there who is actually making a great job in actually getting business. I think most of us know that Google has made a data center where they have deployed liquid cooling. The challenge for us is that Google also came to us, but what they wanted to buy is a piece of copper with two pipes sticking out of it. And if we are lucky, we also get to sell two piece of rubber hose. We cannot make money on that. Aesthetek is not a metal bender. We are not a cold plate manufacturer. We are a system supplier. And we are not that desperate for revenue that we will ruin our core business and end out being a 10% margin company just because we are so eager to get progress on the data center side. So I guess the short answer is that we are in this together with our competitors. And I do not believe, being a component vendor aside, that we will succeed until we actually gain traction on the politics side. And that could, to your question, Scott, be another solution that we actually team up with some of our colleagues in the business to apply a bigger pressure. So it's not all on Aesthetek. That's seen before. For example, from the wind turbine industry, I believe both Siemens and Vestas have been together in again, let's not use the lobby word, but in pressing the right dots in EU to get the focus. Very good. Any more questions from here as of now? Seems not to be the case. Do you have any more slides there? I assume not. No. Let's take a ten minute bio break. There's coffee and whatever you have over here. Let's meet back here in ten minutes. Thanks. She told me that she loved me by the water fountain. She told me that she loved me, and she didn't love him. And that was really lovely because it was innocent. But now she's got a cup with something else in it. It's getting kinda blurry at a quarter past ten, and he was in a hurry to be touching her skin. And if she ever goes back to the water fountain, the handle will be broken and the rust setting. But my hand, it will be open, and I'll try to fix it. My heart, it will be open, and I'll try to give it. Now I'm grabbing her hips and pulling Last cups of coffee. Take your time, Jon. Very good. Very good indeed. So we released our Q4 twenty eighteen report and our annual report 2018 this morning, both of which we are very happy about. Bottom line pretax for the quarter alone was $1,200,000 in 2018 versus the same quarter last year of only €500,000 So what's not to like? And on the top line, over the last five years, we've been growing 26% on average. That's nice. That's good to look at. Let's make sure that we continue that by putting more resources to the Gaming Onthusia, so we can keep on growing that business. For the year 2018 as such, dollars 67,000,000, which is a 16% increase over the year 2017. Most of that, of course, comes from what we now call Gaming and Altusiast, G and E, formerly called Desktop, with $63,000,000 which is 18% increase versus the year before. We made $9,400,000 worth of EBITDA in 2018. That's a 38% increase. So 1816% up in revenue, 38% up in earnings. That's an okay picture seen from my chair. On the right side of the graphics here, what we're looking at is, of course, the group revenue. And as John alluded to, Q2, that one here, in 2018 was an extremely high number. And of course, that makes our comparisons going into 2019 a little bit strange, but we'll have to take that one quarter at a time as we go along. So how does my world look? We need to build continued profitable growth. We've been talking about that. That's our aim. And of course, we need to do that on a solid financial platform. If we break that down into what we call value drivers, then on the gaming enthusiast side, desktop, I have to get used to that also. G and E, gaming enthusiast, how should we find the words? We'll figure out as we go. We are rebranding and strengthening to strengthen the market position, we need to get closer to our end users, getting closer connection with our end users and thereby, of course, grow the revenue. This is not an exercise of changing a logo. Even though the logo looks nice and the Facebook is going to look nice, I'm sure this is not what the focus is all about. The focus is to maintain our growth position on that side of the business. We're also working with the diversification of our revenue streams. John, I believe, was talked about it, how the split between our top five customers looked more and more healthy. We used to have one very large customer. Now we have five, even six larger customers together. And of course, that's an exercise that we need to continue to work on. Then it says margin protection and optimization, fancy words for making sure that our margins are at the level where they should be. Gross margins in the last many years have been around 40%. We have actually seen gross margins recently up above 40%, but 40% is a good value stick to keep track of. On data center, the next box down, we're talking about maintaining our data center market position. That's about ensuring our operations are efficient and making sure that the adoption continues to happen between our customers. Yes, we're not going to focus so much on it as we have done, but we're still going to sell the products. Have a nice palette of products, and of course, we're going to sell it. So that's what you're going to see in the future. It's also about optimizing the cost of goods. We have a fairly new machine infrastructure manufacturing machine that we still need to fine tune. We've seen a lot of new products over the many years. You've seen margins gross margins go up and down because cost of goods have been going up and down. And that's a continued exercise that we do to optimize our cost of goods. Then it's about cost based optimization, in other words, overheads. And that's like an inwards kind of exercise. We need to make sure that we spend our money in a way that we can talk to you with our eyes open and be okay with the way we spend our money. You will see when we get a little further down that our operating expenses from 2017 has been pretty much stable into 2018. That's a deliberate choice we've done and we have followed our policy on that. We could, of course, develop all kinds of new products and sink a lot of money into R and D, but we have a good debate ongoing in the company about how we spend our R and D money focusing on the right projects. That's an ongoing discussion. Manufacturing, we also have to make sure that we make that we build the machine, as I call it, here locally and or in China. Or if we buy or make the products ourselves, that's also an ongoing discussion. And then it's about sales and marketing efficiency. Last time we met a year ago, we pretty much didn't have a marketing department. That has changed now. That's also a deliberate choice. We need to beef up our muscle to be able to go and develop new products, yes, but also sell it and market it. That's a deliberate choice. Cash flow improvement, the ongoing exercise of converting sales and purchase into cash on the bank account. I'm not totally happy with the way we have performed this year on that particular topic, but I'll come back to that. Revenues. You've seen those slides here a couple of times today. We see a growing business. You also see a fluctuating business. As Andre, he said, we always have one bad quarter. We just never know where it is. John ventured into saying that it's often Q2, but it does fluctuate up and down. That's just how we live. If we in order to flatten that out a little bit, look at trailing revenue instead, then you will see a different kind of picture. You will see a growth case. Again, 20% increase in revenue constantly over the last five years. We started making money bottom line in mid-twenty fifteen and we're actually pretty making pretty good money, you could say. And that's the interesting part here. If you look at the EBITDA in dollars, I'm going all the way over here, 9,400,000.0. But that's just the nature of the business here. If we have a growing business, we have a fairly stable gross margin and we have a fairly stable overhead cost picture, then earnings will increase when revenue increases. So let's back to growing the business. Gross margins. This is a little bit difficult to see maybe, but on the left hand side of the screen, we have the last five years of gross margins. Let me get data sent out of the picture first. That's the gray line that you can see going up and down. It has been fluctuating quite a lot. It has been improving a little bit in 2018, but nothing significantly. But again, it's a small part of the business. It's so small that we do a lot of one offs and it's so small that by nature, the gross margin will fluctuate up and down as is the case. The blue line, the black line is the rest of the business. And you can see over the course of the years, we have been around 40,000,000 There was a little bit of a hiccup in 2015 where we had some one off expenses. But apart from that, it's 40,000,000 and it's increasing. We had some headwind in 2017, pretty much driven by currency exchange rates that we have now seen coming back to help us in 2018 instead. And we have actually if you look at the slides on the right hand side, where it's the last five quarters, then you can see that we have increased our gross margins on the gaming enthusiast side of things to above 40, helped by a sales price increase that you may remember that we implemented in 2018, but it takes some time before it actually rolls through. And then at the same time, when we implemented the sales price increases, we also turned around to our engineers, asked them to develop products that were more cost efficient. And we turned even further around, talked to our suppliers and asked them to help making sure that we got the best prices possible. And all in all, those things have come together during the Q3 and 2018 and has given us fairly nice gross margins. Going forward into 2019, I would if I was the guy with the Excel sheet, I would model 40 as the marker for gross margins on the Gaming and Athusiast side of things, especially now when I'll come back to that a little bit later with the currency exchange rates on China have increased a little bit in recent months. You never know what's going to happen there. One more component of the increased improved gross margin is the fact that we see sort of a slide towards more complex products, higher end products that drives up ASP, yes, but also drives up earnings per unit. Here was my currency exchange rate slide. I don't want to spend a lot of time on it. But the one on the left is dollars versus renminbi. We saw a big increase in the price of the Chinese currency in 2017. That's what we have over here, 6% up. All of that came back and helped us throughout 2018, and that was nice, of course. We then now see an increase of the Renminbi bringing us up to the level around July 2018. It takes there's some time lag in when these things impact our gross margins, but there is an increase, and that's why I would be nervous about projecting a gross margin much higher than 40% in our case. And add to that, that at least I have no clue what's going to happen on the political scene when it comes to the currency exchange rates between U. S. And China. It's a battlefield. On the right side of the slide, I'm showing the exchange rates between Danish kroner and U. S. Dollars. And I do that because 80% of our overhead expenses are denominated pretty much in Danish kroner, pretty much Danish 80%, because we have the facilities here in Denmark. And we saw an increase of that in of the cost of running this operation over here in 2017 and some of that, half of that has come back and helped us in 2018. Net currency cost seems a little bit more stable at this time point in time, but again, you never know. So if we go further down, we talked about revenue, we talked about gross margins, let's talk about EBITDA. Let's start with the enthusiast gaming enthusiast side of things. It's profitable business. It's an even increasing profitable business. We have an EBITDA percentage here in Q4 of a whopping 35%, a very, very good business. We have not grown as much lately as we would like to do. Hence, let's go back, invest in the segment. Let's make sure that we start growing that again. And we can afford that because see how the again, the EBITDA margins are going up to a level that are quite high. So if we take, for example, the $4,000,000 that we're saving on the data center side of things and invest that amount or less in the gaming enthusiast side of things to enable the increased growth, then we should see continued earning also here. Data center earnings, same picture as you've seen many years by now. We have been focusing we've been putting quite a lot of resources into this segment, some quarters more than others, simply depending on how much engineering resource we are pouring into this area here. Right now, this exercise of moving resources from data center over to gaming enthusiasts, it's an ongoing business, ongoing enterprise. What happens is that we have asked our resource and research and development department to simply look through all the lists of actual projects, close down what is not necessary in the new picture here and then start focusing on the enthusiast and gaming projects instead. And it used to be again, for us with the Excel sheet, it used to be that we spent 60%, 70% of all our resources on the data center side. The March order here now is to go down to reduce that to between 2030%. And that's going to happen over the summer of this year. It is very much an ongoing exercise. Combining the two numbers, I just want to remind you that yes, we have been spending money on the data center business, but we have also been earning a lot of money on the gaming and what do we call it? Enthusiast. Gaming and enthusiast. I will have to remember that and exercise during the night. Yes. So going away a little bit from the trends. These are the I know there's a lot of data here. On the left hand side, we have twenty eighteen as a full. We have twenty seventeen as a full. We're bringing it down or breaking it down between the Gaming and Enthusiast, I made it, and Data Center. And then we have, of course, starting out with the revenue top line, which we talked about growing that from 50,000,000 grew that from €58,000,000 to 67 We talked about the gross margins that have gone up from €36,000,000 to €39,000,000 all a nice business. And then you can see here the total operating expenses, pretty stable from 12,200,000.0 in 2017 to 12/2007 in 2018. That's a 4% increase. Keep in mind that we increased our revenue by, was it, 16%? So it's a fairly flat number, I would imagine or I would claim. What's important here to look at, you can see smack in the middle here we go, you may not be able to see it on the screen total operating expenses, Gaming and enthusiasts, in 2018 was $4,000,000 That's what we want to expand. We want to make sure that we can grow the business. And we do that by decreasing the data center spend to $4,000,000 as Andre was to before. That's the end goal. It's going to be reached at some point during 2019. The split of resources that we talked about before going from 60% to 60%, 70% on data center to 25 data center, the yardstick has been set at, I think, it's July 1 or August 1 or something like that. That's the goal point. But of course, there will be a transition. This is a year of transition. And the idea is then to again spend more money because we need to spend more money on developing products, markets, etcetera, on the Gaming Hertuzia side in order to not in 2019, don't expect that, but in 2020 to increase the revenue on that side of the business. And again, it may look like an Excel sheet that we are pretty much swapping these two numbers here from $8.9000000 dollars of data center spend to over to $89,000,000 of gaming enthusiasts. But this is a very real exercise. It's real people. Are hiring. We have hired a marketing department. We're also letting people go, and we are reassigning people from one project to another. It's very real. It has happened over the last months and I'm sure it's going to happen also in the future. So this is by no means an excel exercise. Enough about that exercise. EBITDA dollars 13,000,000 this year versus $8,700,000 in 2017. Depreciation have gone up. That's again the nature of the beast when you're in an R and D business. When you are done with projects that you have capitalized, which is what we have to do, you have to write them off. We have had some quite significant projects in recent years that we are then starting to write off here in 2018. Keeping in mind that our write off depreciation period is relatively short, On the Gaming and enthusiast side of things, it's eighteen months. So it should be off the books fairly soon. What else to talk about? EBIT margin, 13% this year versus 8.8% the year before. Litigation expenses, that's always also an interesting topic when talking to you, has been fairly flat between 2017 and 2018. Last year in 2017 excuse me, when I talk I'm an accountant. When I talk last year, it's probably the year before. It's 2017 in this case. Last year 2017, we made we received a settlement income of $900,000 which, of course, we didn't do also in the same in 2018. So when you look at the bottom line numbers, which were in 2017, 2,700,000.0 of EBIT, then you could actually argue that we should add that nine or we should deduct those $900,000 So instead of 2,700,000.0 it should say 1,900,000.0 of earnings in 2017 and we are now at 4,400,000.0 in 2018. That's an increase of 140%. I think it's quite respectable. So that's the reason why we were happy this morning being able to send out the annual report and the quarterly report. I should add, because otherwise you will believe that I'm cheating. There's one line here called HQ Other. And in hindsight, I would have liked to show that in a different way this year. It's simply a matter of mostly a matter of us being more diligent when we look through the expenses over the course of the year, whether it has been a gaming enthusiast expense or data center expense or an HQ expense. Live and learn, we have been better at doing that. As such, there's not a big increase in HQ cost. However, we have spent some money, of course, on consulting and strategizing around this new setup that we are presenting today. But bottom line, the EBIT, 4,400,000.0. Then cash. Cash is always an interesting topic also. The way this slide looks, let me just explain. On the left hand side here, we have a black bar saying $13,000,000 That was the cash we had in the bank at the 2015. We then made $15,000,000 in EBITDA on the desktop, spent 5,000,000 on data center and then other expenses ending us up at $17,000,000 at the year end of 2016, same in 2017 and the same in 2018. And what has changed apart from, of course, the numbers being bigger in 2018 is not a lot. And that's coming back to that I'm not if there's one thing here that I'm not proud of, then it's our working capital managing. We had the same in the bank at the 2018, dollars 18,600,000.0 pretty much as we had in the bank at the 2017. And with a profit that he just bragged about of $4,000,000 how can that be? And that is primarily an issue, a matter of us giving a little bit longer terms to our customers and us not getting the same long terms with the vendors. We have it right here. There are four three key performance indicators that are important when it comes to cash in our business. It's inventory terms, not that our inventories are high because most of our sales go directly from our factory to the customers at the point of our factory door. But still, inventory is going up from 2.3 to 2.8. And that means that we were a little bit less good at managing our inventories in 2018 than we were in 2017. In 2017, they turned around 23 times. In 2018, they only turned around 14 times. More importantly, on our receivables, up from $13,000,000 to $15,500,000 doesn't sound a lot in the big scheme of things. But in any event, it's a change from us giving terms of sixty four days in average to now us giving terms of seventy nine days on average. So that's a fifteen days longer term on average. That's quite a lot. And combining that with the trade payables where we in 2017, on average, had terms of 77%, we are down to 67% in 2018. So we are not as good as we used to be at getting terms from our vendors. And I'm speculating here, but this could actually be where we see the effect of The U. S. Tariffs because what happens here is on the receivables side, it's, of course, it's a debate with our customers. Yes, Mr. Costum, we would like to charge you a higher price. And then the customer comes back and say, well, you're okay. You can charge you a higher price, but we need little longer terms to pay them. That's a very common discussion. And the same on the trade payables side. We are turning towards our vendors and say, we need you to pitch in and pay a part of the tariff cost here. Then they will say, yes, but then you have to pay us faster. So there's this may actually be the picture here. I think things are improving a little bit. And it's certainly our intention to have the cash conversion come down from thirty nine days towards maybe a zero. That's now a big fat round target goal. Balance sheet. You have seen this slide a million times. We are a cash rich, very solid company. And it's on purpose. We need to be cash rich and very solid because when we talk to new customers, they want to make sure that we're here tomorrow too. When we talk to new vendors, they want to make sure that we are here tomorrow too. And it goes round and round. Also, we talk to competitors, we want to show enough muscle that should they choose to go into a lawsuit with us, we are then solid enough to withstand such a lawsuit. There has been some debate over well, debate, that's discussions over the last year or so about whether we should pay out a dividend of some sort. And those of you who have been with us will know that we went through a dividend payout in the year of 2017. It will haunt me forever. I grew ten years older in two months or something like that because it was quite complex. And it was for a reason. The reason is that we, the parent company, has to be considered a tax resident or tax citizen both in U. S. And in Denmark. And it's certainly not a desirable situation. It's not a situation that we wanted to be in. But it's the case that when we moved the company from U. S. To Denmark some years ago, back in 2013, 2014 ish, The U. S. Was very focused on making sure that people didn't act like Apple, for example, who moved operations to a low income tax company or country. So they pretty much put down the shutters and say, if you move out of U. S, we will still consider you a U. S. Company. And we had thought we could just get through a little hole saying that if you move back to your own country, that used to be the rule, then if you move back to your original company, then we wouldn't have that situation. But they closed that hole in 2013 on us. So all this is not a problem for the company per se, but it is a problem for the investors, particularly investors who are not U. S.-based and particularly for the European investors who are small and don't have a presence in The U. S. If you have a presence in The U. S. And can show me a form which is called a WAIT, I believe it is, then you're home free. But that not a lot of people can do that. And that puts us in a fairly complicated situation. And that means that coming back to dividend, meaning that dividend payments is, in the current situation, not something we can do. Then we turned our focus to a share buyback program. Could we do a share buyback program? It then turned and people said, oh, they do that in The U. S. All the time. That's not wrong. But if you start looking into it and I can assure you, we had some very competent people from different firms looking into this very simple topic. It then turns out that the Americans consider a share buyback program to be similar to a dividend payment unless a certain number of things are checked off the box off the list. And at this point, we're not able to check those things off the list, meaning that even if we do a share buyback program today, for those who are foreigners as seen with USIs, meaning Danes, Norwegians, what have we, they will have an issue with their share buyback program as we talk today. So it's not a very appealing situation. It can be done and we are going through the exercises, the motions to make sure that it can be done. But for now, it is also considering the fact that our cash balance has been fairly flat for a while. We're looking into at least half a year where we are very uncertain about will we see a decline in revenue at least for Q1, right? So for now, the plans of dividends and a share buyback program has been put to aside. But we're setting ourselves up in a way so we can pull it out of the hat and actually exercise that fairly quickly. We're also working I should have put we are discussing whether to work with the Danish tax authorities and The U. S. Tax authorities to solve that conflict that they have. It's written in a double taxation treaty that there should be no double taxation going on. And this is the case. There is double taxation. So please authorities, fight it out. And we'll, of course not, of course, we'll be considering whether to have them do that. The outcome is not clear at this point though. Good. Ending up here with the financial outlook the same way as we as I started out with the priorities: continued profitable growth and a solid platform. We have seen growth. We will facilitate even more growth. And we have seen that 2018, with a very strong bottom line, work and adding to our solid financial platform. So the question is here, how to continue, what to do now. On the revenue side, we are guiding our revenue for the total group of between 010% compared to last year. You know, as I know, that there are some macroeconomic uncertainties that are tempering the whole expectation set here around gaming enthusiasts. And we also talked about how we are protracting our expectations on the data center side of things. Margins continue at current levels. Be positively surprised if we are above where we are today. On the data center side of things, they will keep on fluctuating as we have seen them. The trick the key here is scale. When we get to more scale, then our gross margins will be more stable and will increase also. Capital allocation. R and D, we've been spending between 3,000,000 and $5,000,000 last couple of years. We will do that going forward. We will move R and D spend from data center to gaming enthusiasts. If there are cost savings to be found, we will take them. But for now, for modeling purposes, understand, expect that we are moving from one segment to another and this is a year of transition. CapEx, 2,000,000 to $3,000,000 expected to be in the lower end of that range because I don't see we have a huge need for further enhancing our infrastructure. Headcount, I think we are 100 people right now, expect to be us expect us to be at that level also for 2019. And in all, expect a modest growth in the total on the overheads at group level. Yes, we will if there are savings opportunities, we will take them, but don't build it into the expectations for now. Financial position flexibility, yes, we will I just talked about it. We will continue being as a cash rich company and we will continue, of course, to work come back to working on our working capital to get hopefully the tariff issue fixed. And all this, in total, should, cross your fingers, knock on wood, appreciate the share price. Good. With that, should we see any questions for now? Otherwise, have a more we have a summary and outlook. We actually do have a couple of questions. Sit down, Mr. CEO. One from Germany. How much your reduced investment in data center could burden your cooperation with Intel? So you don't want to answer that? I don't think it has an impact because, number one, we already developed the products. And number two, everything I said today that's on the next slide does not mean it's true. If there is a new opportunity coming tomorrow, of course, we will look We are not trying to create a self fulfilling prophecy here. If a new data center opportunity opens up and we consider it valid and we will probably do even more homework than last time, then of course, we will look at the situation and see whether we need to invest again or not. But for sure, by reducing the expenses on the data center side does not mean that we have closed any doors. A little bit provocative, I can say what it means is that we have shut the free shop of R and D. I think that's probably the best way. Yes. Then same gentleman in Germany is asking, any hopes and I like the word hope here, any hopes for lower legal costs going forward? And of course, there's a hope for lower legal costs. It's not that are calling the attorney asking for new things to do. But what do say, Andre? Do you have a couple of places I have two answers. One answer is that the current case that's progressed the most against AVC, they actually sued us to get a verdict that they were not infringing our patents. So it's kind of the other way around. And of course, there's nothing we can do to not incur that expense. My hope is so again, good and intelligent question. My hope is that if some of you remember back to my presentation, on the IP, I had the branding. I actually do hope, and it is a part of the plan that perhaps we can spend the same money or more money on the branding and save them on the legal expense because I believe that branding at the end of the day should be stronger than your patents. In reality, it should not be a patent that decides what product you buy in the end. It should be the brand preference that you have. So yes, I hope, but I cannot predict what our competitors are doing. But what I would like to say also though is we will continue to sue people who violate our patents. I mean that's our obligation. That's why we have the patents. Yes. And it has time has shown that defending your patents and paying for it is a part of the price of having a high gross margin product portfolio. Any questions from here at this point? Otherwise, summary and outlook. Yes. I'll do it short because we've recently been through it all. We are the market leader and we are de facto being realized and recognized as the industry standard. We are now evolving our brand to actually support that statement. And we'll do that by looking more into the gaming and the enthusiast market and increase the awareness about Aesthetic among the end users. I believe we are still in the forefront, very forefront, still early stages of the data center business. Unfortunately, however, the money we have spent are not wasted because when the market kicks in, we have developed it. So yes, from a timing perspective, the situation could have been more ideal, but it is what it is. And following the strong 2018, 2017, 2016, 2015, we do look at a more tempered outlook for 2019. At the same time, I would also like to say that looking at history, I try to be conservative, and I do not know what's going to happen. We could get a positive surprise. We could also get a negative surprise. I don't know. What I'm relaying to you is exactly what our customers are relaying to us. First half is going to be weak for many different reasons. Second half, things seem to pick up again. That's what I'm telling you and that's what we have been translating into a ceiling of 10% growth. But of course, we hope that we can beat it, but it's just too early to say. Thank you. I don't know if there's more questions and answers. Let's open up for it. Any questions from here? Accounting one. Yes, sir. On the data center side, what do you have in backlog right now? I know you're not guiding officially on that segment, but you announced in January a $600,000 contract to be done in Q1. There's a few deals from past that are still going to contribute in revenues. And then secondly, at the Capital Markets Day last year, I think, John, you mentioned there were around 30 potential sales in the pipeline, varying degrees of probability, high, medium, low. You could update us on the sales funnel from there based on your discussions with all the various OEMs? Yes. So I mean, first of all, our backlog is dominated by the Fujitsu orders that we announced. So I think the question is how much of that can we ship in this quarter. We received that order in late January, which was right on the cusp of Chinese New Year. That meant that we couldn't communicate with our supply base. So we've been running into some challenges with respect to shipping all that product last quarter. It's a situation that's been exacerbated by the trade war because rather than take two weeks off as is typical, a lot of companies shut their doors for three weeks and even longer. So we kind of walked into a bus, so they are better. That's on backlog. It's just whether it ships in Q1 or Q2. In terms of our pipeline, our pipeline is probably the weakest we've seen it since we started building our pipeline. We've actually been very, very successful at taking opportunities off the pipeline. You've seen them show up as orders and stock exchange releases. Some of them we don't make stock exchange releases because they're below our threshold. But we've been pretty successful. What we've noticed recently is there hasn't been new opportunities coming on behind the opportunities. So as the pipeline matures, there hasn't been as many new opportunities showing up. I don't have a canned answer for why that might be. I can tell you what is telling us. And what Fujitsu are saying is that Intel has a new technology coming out later this year and now the market is holding its breath waiting on this new processor. Now I don't know how to validate that guys, but that may be one explanation for why our pipeline is as weak as it is today. Just one more question as well then on the gaming and enthusiasts side. We know you only have four to eight weeks of visibility and you've commented that the first half is going to be very weak, yet you're saying you're confident that the second half is going to be fairly strong, but you don't have the visibility. What's giving you that confidence then? As I said, it's the customers. I participated at CES in Las Vegas myself this time and met with the CEOs of pretty much all our customers. And they are saying the same. There is a dimension here that we haven't touched upon, but I also believe is, I mean, fairly easy to understand. You saw our Q2 how big that was compared to usual. I mean, it was almost double. That means a lot of people bought to inventory to save money because of the perceived taxes or in the trade war. That means that people build up a lot of inventory. And when people build up a lot of inventory that they don't get rid of, then, of course, they are not buying from us again. So it's not only gut feeling. It's also the fact that some of our customers said, okay, we didn't know where this trade war was going, so we were conservative and bought some inventory and now we are sitting on some inventory. So it's not all just what are the end users doing. It's I would actually say, correct me if I'm wrong, John, we have not synchronized this, but I would actually say that in my opinion, we do not have an end user issue here. We don't have an issue where people are not buying PCs or building PCs or playing eSports. Most of this, also the trade war related thing, is with our direct customers because their focus is just all over the map because liquid cooling is not really the big deal for them when talking trade wars, but it's their entire business that's impacted. So I think the softness we are seeing here is something that comes from our direct customers more than the end user. Do you agree, John? Yes. It's a function of confidence. And of course, not all customers are the same. Some are impacted more or behave as though they are impacted more. Others are less sensitive to what's going on around them. But it is a confidence scheme and we've had customers, we share one horror story just to give you guys a feel for what I mean when I talk to confidence. The probably the first half of last year, the cryptocurrency boom was in full swing. We had one customer who couldn't build enough high end power supplies. These high end power supplies are needed to power the graphics card switch, which unravel the algorithm that allows you to print your own money, believe it or not. Almost overnight, the market crashed and this customer was left with a mountain of high end power supplies. I mean a mountain. Like, they went from being sold out to having two years of inventory overnight. I got a phone call telling me stop shipping because I can't pay you. Nothing to do with liquid cooling on my customers. Everything they do with a customer having a crisis of confidence because of cash flow issues. I think another point here is that a lot of people have compared us to NVIDIA in terms of trends. But I think it's important to understand that, yes, NVIDIA is selling into our core markets, for example, gaming and enthusiasts, but they are also selling into other markets, for example, cryptocurrency. And I think that's the best answer I can give you when I have said earlier that you cannot just compare one to one. Number one, I believe that, that whole deal is inflated. And number two, we do not really sell into it. Very good. Maybe just a follow-up on the outlook. Have you seen any progress in Q1? So is March better than February or January? And do you believe this inventory buildup is mostly from? Yes. So answer to your first question is yes, we see progress in Q1. So that's good. I'll take it. It doesn't get us to where I'd like to be. When I say the inventory situation, that was a situation incurred last year. I think we're through the worst of that, absolutely. I genuinely believe the issues we're facing now are more confidence related and our customers feeling good that the second half pickup that everyone's talking about is going to happen and are they going to start placing Orbis as a consequence? You also, in 2018, talked about component shortages. Perhaps you can give us an update on where we are there? That's the opposite of the inventory. So Intel have been plagued with component shortages and that did have an impact on the marketplace. There are varying rumors depending on where you read and who you want to believe that they have resolved it, they haven't resolved it. And I'm not an industry expert. I'm not watching this day in, day out. As pervasive as it was last year, I said, particularly on the second half, I'm not seeing as many news articles. That's the most specific I can be. You know? But correct me if I'm wrong, but you had some component shortages. Right? You had have that been resolved? Not Intel's, but your Oh, sorry. I thought you were referring to Intel component shortages. Those continue. Small ICs have been there's been a chronic demand for small ICs and we're having to go and forage for units in the marketplace. So those are ICs that we use in the pumps, for example. So we have been challenged with that. And as far as I'm aware of that I think it's important to stress that those shortages are related to sudden orders coming in, where we have historically, and that's a big part of our growth story actually, we have had a very dynamic supply chain that's been able to absorb very large orders coming in with very short lead time. But since we do not carry inventory or at least a minimum of inventory, then we get to those situations. But for our forecast, far as I'm concerned, I don't think we've had any shortages. It's really this being able to react like this. I think we're in a situation right now. We could ship more in Q1 that we have plans of shipping if we were able to supply. Let's put it like that. Going back to your question about how is it looking. Very good. Anyone else from here right now? Cool. There's one question from Norway. Can you comment on the general cyclicality, that's a tough one, cyclicality within consumer gaming spend? Is overall linked is it overall linked to GDP growth or less correlated? I think the short answer is no, I cannot comment on that. That's a fair answer. I don't have any data. Very good. Anyone else here? Going one, going twice, third time. All right. With that, thank you for your attendance here. It's been a pleasure having you around the world too. Thank you for your interest in Acertek. Thank

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