Ladies and gentlemen, thank you for standing by, and welcome to the Asetek Q2 2020 presentation conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question -and -answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Peter Madsen. Please go ahead.
Thank you, Angelika. Thank you. Welcome to this Asetek Q2 and half-year 2020 results presentation. My name is Peter Madsen. I'm the CFO. I have here with me our CEO and Founder, André Eriksen. Good morning, André.
Hello.
We're coming to you from a very sunny Aalborg, Denmark today, where our board met just a couple of hours ago and discussed and then approved the half-year and quarterly report, which we're now going to present to you. These meetings happen via web these days during the COVID-19 situation, of course. The way Angelika, the operator, just spelled it out, the way we're going to run this is that we will do the presentation. We will then have a Q&A session where you can either follow the instructions that she will provide, and then verbally speak to us, or you can, during the presentation, go to the web presentation here with the app and type in your questions in the section directed for that. Those questions we will see as they pop up, and we will then address them at the proper time.
With that, André, I'll hand it over to you.
Yes. Looking at the highlights for the quarter, it was a revenue of $14.1 million compared to $17.1 million, and our gross margins increased quite a bit, actually 9 points, from 42% to 51%. Our EBITDA is more or less the same as last year, $3.1 million versus $3.3 million. The interesting thing is last year included almost $1 million in litigation settlement, so quite a strong EBITDA. The first half, $23.3 million versus $28.3 million. We have announced our collaboration with HPE, and we have raised our expectation to our revenue and profits for the full year. I will get back to all of this. If we just start with perhaps little bit more sad and boring part, COVID-19. Let me just spell out how we are doing and as a whole company, not just us, but also our suppliers, et cetera.
In sense of our contracted manufacturing, we had a little bit in early Q1 and our employees in China were sent home. Other than that, we've not really seen any big impact from it. In-house, we are obviously doing the necessary safety precautions, and we have not really done anything special other than that. We have not laid off people. We have not hired people. It has been pretty steady, I would say. In terms of our OEMs and end users, I'll get back to that a little bit. Let's just put it like this, demand is actually pretty crazy right now. We cannot really hide that. We are pretty enthused about that. I will come back to that also. If we look at the revenue, what we said earlier in the year was that we saw a 5%-10% decline.
Keep in mind, we had a tariff situation. We still have that, by the way. We have COVID-19. We have our biggest customer more or less leaving us. Our hopes were, and what we could see, were that if we could do a 5%-10% decline and still have positive numbers on the bottom line, we would be happy and thought that we would have coped really well with the situation. Fast-forward, what we have guided is actually now a 5%-15% growth compared to last year. On top of that, income before tax between $4 million and $5 million. It has been a pretty strong development, and it still is, I would say. Again, I'll get back to that.
Looking a little bit from the top down on our business, we have the Gaming and Enthusiast division, if we should call it that. That's again divided into two. It's divided into the enthusiast and do-it-yourself users, where people are going to a store or online buying our customer's product and go home and build their own gaming PC. Just to name a few, you can see here ADATA, ASUS, EVGA, Fractal, Gigabyte, NZXT and Thermaltake, and that's just a few of them. Then on the PC side, where end users are actually buying a complete gaming PC, we have, among others, Alienware and MSI. Then the other side of our business, the data center business, we are only selling OEMs.
We are not selling to any end users, where we have Fujitsu, HPE, Intech, XENON, Supermicro and Intel, and others. I know there are some new investors on the call. Although this may be repetitive for some of you, the way we are organized, I would say, thank God right now because we are not able to fly. We fortunately have people more or less all over the relevant places. We have our sales and marketing in the U.S. and in California. We have people very close to our big customer, Dell and HPE in Texas. We have salespeople in London. Here in Denmark, where I am, we obviously have management, R&D, we have some sourcing, in-house manufacturing, quality, order management, and so forth. Then we have a rather big site in China where we also have R&D sourcing, all our outsourced manufacturing, quality, order management, et cetera.
Although I'm not necessarily a big fan of spreading a relatively small company all over the globe, I have to say it's really a big force right now. Of course, our traveling budget has been pretty light this year, but we are actually functioning really well the way it is right now. If we look at the quarterly revenue development, I think this is a beautiful picture of why we are no longer guiding on quarterly levels because it's fluctuating up and down as it always has been and as it probably will also continue. I think the most interesting in this slide is really the EBITDA margin of 22.1%. Is that a record, Peter?
I believe it is, yeah.
Yeah. It's probably the highest EBITDA margin we have ever had. That's something I'm really happy about, of course. Diving a little bit into the segments, if we look at the Gaming and Enthusiast segment, the goal has, of course, been and still is to widen and diversify our base of customers. Right now, we are currently shipping to more than 20. Top five of them represent 79% of the revenue. It was 81% a year ago, we are obviously trying to, all the time, improve this picture. As always, we look and monitor our IP situation, we are still moving ahead with our business model transition.
I've mentioned this quite a few times, so I'm not going to spend a lot of time on it other than instead of supplying our direct customers with fully fledged products, we are giving them now our core technology, and then they're doing the customization on their part. That means our revenue per unit is going down, but our margin per unit is going up. It's actually pretty strong that we are able to both increase our margins and our revenue, because it's kind of counterintuitive. If we look at the whole innovation part of the business that we talked to you about a year ago or so, we have just launched with Alienware, what we call the Rad Card GPU Cooler. I will not spend a lot of time on the mechanics of it.
The point is that instead of having a radiator in a fan space in your PC chassis, we now use a PCI Express port, which allows, let's call it very powerful GPUs in a very small form factor. It just started to ship, so we'll see how it goes, but so far it has been received pretty well. We have gotten good reviews. If any of you are interested, you could go to a YouTube channel called Linus Tech Tips. They just made a review of it. We have started shipping two new products for ASUS Republic of Gamers. We are powering a whole new series of coolers for Fractal Design, and we have a massive pipeline of new products to start shipping in the second half of this year. I don't remember the exact number, but I believe it's more than 20.
A parallel to the innovation side was also this building our own brand in the channel without compromising our direct customers. We are executing this dual branding or brand behind the brand strategy. Now when we are launching new products with our customers, we are actually on the box and as you can see, our enthusiast, Dennis, on this beautiful picture, is holding a cooler from ASUS. As you will see, there is this Asetek logo on the box. People actually know that they get the real deal and not some cheap copy from China. On the strategic development and in the Gaming and Enthusiast, our goal as always, of course, is to continue to dominate the market and we have different handles we can pull. The key one, of course, is R&D and innovation.
It's also the branding and the marketing, and it's obviously also widening our customer base. Personally, I think we're doing pretty well on all of these. We are quite busy. Where we have perhaps not succeeded a lot is on reducing single customer dependency. What you cannot see from the slide is that we still have one big, large customer that we are depending on. Within a very few months, we have actually swapped from one customer to another. It's actually a big success story. The reason why this customer is so big is actually because they're just selling like crazy out there. From that perspective, I'm obviously happy that we have lost a significant portion of our revenue to one customer, but we've been able in no time to swap it over.
If we look at the data center side, the most exciting for now, of course, is our collaboration with HPE. HPE, to be precise. Our announcement was a little bit, what should we call it? Timed in a weird way, because the plan was to announce it later in the year when HPE is actually launching products. Because HPE wanted to mention this in a conference in Asia somewhere, we obviously also had to announce it so it would not come to the backdoor, so to speak. That's why it just came out of nowhere. The thing is, our solution is incorporated into their Apollo server platform, and yeah, it's running on track. We have started to ship in small volumes, pre-production units for qualification on their production sites. We announced it in January, and a server platform typically lasts between 18 and 24 months.
So far, we have nothing else to say than that the estimates indicate a revenue between $4 million and $5 million for this program. If we look at the data center business, although that we've stopped guiding on them specifically, and just to refresh your memory, the reason is that as long as one business is 5% of the rest, then there's no point in guiding on them individually. When and if that will happen, we will change as we see fit. For now, we shipped just shy of a million-dollar order that we announced in April. We have announced additional orders in Q2 of $1.2 million, $1.1 million. What we see is still an increased pipeline of potential projects. I would say that the higher activity and increased sales prices have resulted in the quite good financial performance, at least compared to last year.
On the more strategic side of the data center business, there our goal is and still will be to obviously create a meaningful and big profitable business over time. The strategy is that we need to influence the influencers, be it politicians or press or whatever. Obviously increase end-user adoption with existing and new OEMs, take advantage of the leadership we already have, and explore growth opportunities beyond HPC. I would say that our work in the European Union is obviously a little bit handicapped by the fact that it's really difficult to set up meetings and travel there, et cetera. I actually just got a status report this morning, and we actually believe that we have come pretty far. As you all remember, it's not an easy task to go to Brussels and ask them to implement liquid cooling in data centers.
Nevertheless, there are many initiatives in that direction, and I do believe we will end up there where it'll simply be legislation at some point that if you have a data center of a certain size, you simply need to reuse the waste heat. That's an ongoing thing. With that said, I will leave it to Peter.
Yes. Thank you. I'll go through the financials, and I'll start out with the income statement. I'll simply start from the top and then work my way through towards the bottom. Revenues this first half year was $23 million versus $28 million last year, indicating, of course, a reduction, a decline both in sales volumes, but also a small decrease in our average sales prices due to this new business model that André, he was talking about. A reduction in revenue, of course, is never fun to report, but take into consideration, please, that we are now guiding towards an increase for the full year in the revenue between 5% and 15%, meaning that for the second half year, we are looking at $36 million of revenue as it stands right now compared to these $23 million we made in the first half year.
We're going to be quite busy, as André also alluded to. Gross profits, I'll save my talking here to the next slide. Suffice just to say that we showed a gross profit in the first half of 51% this year versus 42% last year. Quite an impressive, I believe, increase. Also, as we had hoped for and planned for, because it's coming from the business model trend. Directing the attention to the operating expenses. In total, $10.7 million for the first half year versus $10.8 million. On the surface, that's a pretty flat development. Please look at the income we had last year of $750,000, it was a settlement payment we received last year. If I take the liberty of adjusting for those when comparing the two numbers, then it's actually a reduction of $900,000 in operating expenses between the two years.
We are running a tighter ship. We have been more frugal. If some of it has, and of course, we're not traveling as much, as André also said, that does help us some. I wouldn't say we have ever had an outrageous travel budget, but of course, it helps then when everybody's sitting at their desks at home. Also on other line items, we have had significant reductions in overhead expenses between the two years. Around 2/3 of our total expenses are denominated in Danish kroner, and of course, it helps when the Danish kroner goes down in cost about 3%, but it's not all of it. We have been more frugal. We have been running a tighter ship. We are loosening up a little bit now when we can see that the COVID-19 situation is not as harmful to us as we may have feared earlier.
I would say this is not a result of a planned cost savings exercise. It is more how the things have been falling throughout the period. All in all, we have an operating income for the half year of $1.1 million compared to $1.1 million also last year. The percentages are a little bit better because this year it's on a lower revenue, so we have a total operating income ratio of 5% versus 4% last year. If we then take the liberty of comparing our first half year here, the $1.1 million operating income, with the full year of last year, where it was a little bit less, then that's interesting in the sense that it shows that last year, the second half year of last year was a zero-sum game. We didn't make any money at all in the second half of 2019.
With the increased revenue expectations and the $36 million we're expecting in revenue, that is not what we're looking into in the second half year. We are looking into quite an interesting second half year. We are planning, as André said, or showing right now, an income before tax projection of between $4 million and $5 million. Gross margins are interesting for a lot of reasons. In this particular case, it's interesting because they've actually always been fairly high. A couple of years ago, we managed to increase our gross margins from the high 30s level to the low 40s level, and I was quite happy to report that at that point. In this year, we are now showing 49% gross margin in Q1 and 51% gross margin in Q2, quite a significant increase. This is caused by a mix of a lot of different components.
The new business model, which is a high gross margin model. We increased late last year our data center prices quite significantly. We have been helped by a stronger U.S. dollar. We have also a general product mix that has helped us. Of course, we have our good sourcing people and good engineers, et cetera, working on lower cost prices for our products, which also helps our gross margins. I remember a quarter ago, three months ago, being asked if I thought we could maintain these higher gross margins. I believe I said no. It's actually been a positive surprise that we've been able to pull off yet another quarter at these very high gross margins. I do believe that we are looking into a second half with somewhat lower gross margins.
There are different components playing in there, product mix changes, and also additional costs. We are a little bit more uncertain about the exchange rates. The dollar has been, if not collapsing, then at least reducing in price, thereby driving up the Chinese renminbi, cost of that. Then we also see the U.S. tariffs being a little bit more aggressive on us in the second half of the year. All in all, at this point, we are expecting a level, and let me stress that it's a level, it's not an exact science here, of around 47% for the year as a whole. When we are stressing anything, let's just stress that 47% is still very high compared to our around 40% we used to report. Absolutely. Balance sheets. You who have been following us have been seeing these graphics for a long time.
We are a cash-rich company and a very solid company. At the end of the second quarter 2020, we had $24.8 million, to be exact, in the bank as cash. 76% of our balance sheet was actually booked equity. We are quite solid, which creates an attractive partner when we discuss new customer relationships. Hopefully, it also shows a solid balance sheet towards the people out there who might be tempted to honestly steal our IP. We are ready and we are able to defend our IP from a financial standpoint, and that has always been important to us. An update on the ongoing share buyback program. We initiated a share buyback program back in May. At this point in time, as of yesterday, we have spent $2.9 million out of the framework, which is $4.5 million. We're still working on it.
It's to be completed by September of this year. The goal was to buy up to 1 million shares. We are almost about halfway through that number. The idea here, of course, is to build up a buffer, or that's probably the wrong word for it. Build up a quantity of treasury shares to back up our option programs that are outstanding. Talking about options and warrants. When we arrive in October, then there will be a big chunk of employee warrants that will expire. They have a lifetime of seven years, and there was a bunch that was granted in 2013. They will expire in October 2020. To the extent, of course, that they are not exercised.
That means that in this open window where we are allowed to exercise warrants, there will be quite a hefty activity, I expect, on the exercising of warrants that's ongoing right now. I know some has exercised this morning, and probably we'll see further exercises from other employees throughout the month of August. On that note, when these are exercised and/or canceled, then we will have around just shy of 10% of our share capital outstanding in terms of the options and warrants. Half of it is options, and half of it is warrants. A final note here, which is important, a group of our management team members, André and myself included, amongst these employees who have warrants from 2013 that will expire if they're not exercised.
Because these warrants are in the money at this time, of course, we have used our right to exercise, and that is happening as we speak. That is the stock exchange release that went out just an hour ago or so. That pertains to a group of management members. You're going to see further communication via the stock exchange on these transactions. Very finally here, a few word on our financial priorities. On the gaming enthusiast side, it's about us from finance, you could say, supporting our business model and drive competitiveness and profitability. It's very much these days about innovation and rebranding, thereby, of course, increasing revenue. It makes sense. On the data center side of things, from my point of view, it's more about running the ship as efficiently as possible. It's about operational discipline, you could say.
The same goes for our cost base, our overheads. We are frugal, yes, and we are running the ship tightly. Of course, we are also very observant to the fact that there needs to be money to support R&D efforts and marketing efforts. Even though we have been spending less money as a total, you should know that our R&D focus is actually, our spend has actually increased. That was that from my side. Then over to you, André, for the summary and outlook.
Yeah. Let me just follow up on the exercising of warrants to be proactive. I have, as the paper said, exercised 325,000 warrants today. At the same time, and that's already a done deal by now, I have sold 260,000 shares at NOK 62. For those of you who should care, that's a net zero deal where I don't make any money when the Danish tax authorities have been paid income tax. Out of the 325,000 shares, I'm left with 62,000 shares that is now in my deposit. That's the deal, if you wonder. Going to the summary and outlook, we are seeing a strong demand for the Gaming and Enthusiast products. In fact, we are seeing a much stronger demand than we have guided for. Some of you may ask, why are you not then increasing your guidance?
That's because we are now facing another issue that we've not really seen before, and that is we have to make sure that our supply chain can actually cope with it. When I say supply chain, one thing is the manufacturing. During these COVID-19 situations, we need to make sure we can get the components for it. We are in the luxury situation that the demand is strong. Of course, we are following the supply side closely and will of course keep you abreast of any developments in that direction. I would like to stress, though, that the guidance that we have given you, we are certain that we can supply that. There's zero risk from a supply chain perspective in that.
On the do-it-yourself business model transition and higher data center, we obviously, the outlook is also that if the top is going up, the bottom is going up as well. That's nice. As I already said, a substantial pipeline of new products that will start shipping soon. We also see an increased pipeline of the data center project. All in all, despite the situation out there in the world, we have no reason to complain here. That being said, all the information that we have given you that goes into the future and what I have just said, is obviously not taking any COVID-19 disasters into account, because trying to guess for that would be impossible. What I've been saying here and what we've been saying today is under the assumption that the world will at least continue as we know it today.
Very good. With that, we will open up the floor for questions, and we'll call on our operator. Angelika, will you help us with that?
Thank you. Ladies and gentlemen, we will now begin the question -and -answer session. As a reminder, if you wish to ask a question over the phone, please press star one on your telephone. If you wish to cancel your request, please press the hash key. Once again, press star one if you wish to ask a question. There are no questions at the moment. Maybe I can once again, press star one if you wish to ask a question.
That's fine, Angelika. Maybe it's the heat. We have two questions coming in via the web here. André, you can read as I can. Maybe you can address the first one.
Yes. The question was, which market did you describe as crazy in the start of the presentation? I cannot see when the question came in, whether it came in before my summary and outlook. In any event, that was what I described in the summary and outlook, that the market is hot in the sense that there is a lot of demand. We can all guess or try to guess why. I don't want to do that. I would say that apparently a lot of people are building PCs and gaming right now and for whatever reason. That's how it is, and I think it's a well-known phenomenon, not just for Asetek. Of course, also the fact that we are launching so many new products at the same time, obviously also creates a demand.
Very good. There's a question from Germany for you, André. Can you give us some additional information on the new Rad Card GPU coolers? How big is the additional business potential of this product? Could you use for laptops? Any remarks about other product pipelines and the business opportunities that they could offer?
Yes. It says any update on the legal action against the CoolIT and blah. Yeah. On the Rad Card GPU cooler, let me start about what it is not. It's not something that will fit into a laptop for the very reason that the graphics card itself is bigger than the laptop, and so is the cooler, and the laptop does also not have a PCI Express slot. It's not a laptop product. It's a desktop PC product. I don't want to mix up what potential is and what I believe. Let's just answer your question without any waiting from my side. Potentially, it could fit into any gaming PC where there is a need for it, meaning a small form factor PC.
On top of that, there is also a possibility for an end-user game where the end user would go and mount it himself. There is at least one challenge with that, and that is when you buy a graphics card, unlike a CPU, when you buy a graphics card, the cooler is already attached to your graphics card, and typically, if you remove it, then you will lose your warranty. I don't think a lot of customers have appetite for that when they just paid $1,000 for a graphics card and then to remove the cooler. There are opportunities there for sure. In terms of our legal action, I think for obvious reasons, I don't think this is the time and place to shed a comment too much on that.
What I can say from a process perspective is that, again, because of COVID-19, I have not been able to travel to the U.S. I have specifically been asked by the court in San Francisco to participate in the mediation negotiations. It's actually scheduled for later this month, and it'll be a Teams meeting instead of me being there physically. I would say that the process has been standing still, and that's probably also why we see it in the numbers.
Very good. There's a question here from Denmark. Congrats on your strong profitability. Thank you. Can you elaborate more on the increased pipeline of data center projects statement?
No.
Very good. Good. A question, I think we are in France right now. How much of your former large client is represented in Q2 revenue, and how much would we expect in the second half? I can address that.
We don't want to address it.
That's good.
For competitive reasons, we don't want to address it.
Okay. Very good. Let me hit the refresh button. There seems to be no further questions. Let me do that again. There are no further questions coming up. That means that we just have left here to point your attention to our email address, which is investor.relations@asetek.com. If you write to us there, we'll do our utmost to provide you information and answers to your questions. With that, thank you for your interest in Asetek.
Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speaker, please stand by.