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Edited Transcript of ASETEK.OL earnings conference call or presentation 26-Feb-20 7:30am GMT

Q4 2019 Asetek A/S Earnings Call

AALBORG Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Asetek A/S earnings conference call or presentation Wednesday, February 26, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* André Sloth Eriksen

Asetek A/S - Founder & CEO

* Peter Dam Madsen

Asetek A/S - CFO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Asetek Fourth Quarter 2019 Conference Call. (Operator Instructions)

I would like to advise you that your conference is being recorded today, on Wednesday, the 26th of February, 2020. I would now like to hand the conference over to your speaker today, Peter Madsen. Please go ahead, sir.

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Peter Dam Madsen, Asetek A/S - CFO [2]

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Thank you, Annette, and good morning, everybody. We're coming to you from Denmark, Aalborg today, where we -- where our Board met last night. They approved 3 reports that we released this morning, the quarterly report, the presentation that we're going to give you now and then the annual report that they submitted to our Annual General Meeting, which is going to be on April 22 this year. And so with that, we are ready to go through the Asetek Q4 2019 results.

Again, my name is Peter Madsen, I'm the CFO. I have here with me André Sloth Eriksen, our founder and CEO. Good morning, André.

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André Sloth Eriksen, Asetek A/S - Founder & CEO [3]

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Good morning.

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Peter Dam Madsen, Asetek A/S - CFO [4]

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The way we're going to run this today is that we will go through the presentation. And then as the operator, Annette, said, we're going to have a Q&A session. (Operator Instructions)

With that, André, over to you, for the highlights.

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André Sloth Eriksen, Asetek A/S - Founder & CEO [5]

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I would ride in, and we reported a Q4 revenue '19 of $15.7 million compared with $16.5 million in the same quarter last year. Well, the year before nowadays, so it's 2018.

Gross margins of 43% compared to 42%. Q4 EBITDA adjusted of $2.6 million, pretty much more or less the same as Q4 2018. Revenues of $54.3 million. And EBITDA adjusted of $6.2 million for the year compared to $67.3 million and $9.4 million in 2018. Our cash increased just shy of $6 million. And as most of you know, we released that we're going to supply our liquid cooling to a global server OEM.

The segmentation of the business is more or less the same as it's been for a while now that our G&E market accounts for 95% of the revenue with an EBITDA margin just shy of 30% and the data center is the rest. We still believe that the data center will be a long term and hopefully an exponentially growing market one day, but I will get back to that.

If we look at Slide 4, the bars are, of course, reflecting the numbers I just gave you. But what they're also reflecting is the high market volatility that's just associated with this business. And as such, we have decided to actually cease our guidance for quarterly levels because we cannot predict how the quarters are going to look. So going forward, we will be guiding on the full year only. Of course, we'll report on the quarters. But that -- the quarterly guidance is not really helping anyone.

So diving into the Gaming and Enthusiast segment. I think it's not a surprise to anyone that there's macro and industry headwinds coming our way, well, coming everyone's way, I guess. We have the trade issues that are not resolved. We have the Brexit uncertainty. And obviously, the potential effect of the coronavirus. As you know, we -- or some of you know, we came out with the stock exchange release recently saying that the coronavirus has not affected us and that our exposure is more or less the same as the rest of the industry. That still stands. It's not like there's been any positive or negative development in the meantime. So up until now, we have been relatively unaffected, but what's going to happen in the future is obviously impossible to tell. And obviously, these things are influencing our markets and our end users.

On top of that, and as I alluded to in the last presentation, one of our large OEMs has significantly reduced their purchase. And at the beginning of the year last year, we thought it was more or less the same as everybody else because of the trade wars, but they were sticking out. And we have now also realized that they have actually started to buy from one of our competitors. So obviously, that's affecting us also.

At that topic, if we look at our top 5 customer revenue split, the top 5 normally accounted for more than 85%. And right now, we're down to 81%. And of course, that's something we're looking to, well, basically making a healthier business. So we like that number going down. Of course, we don't like the number going down if it's only because a customer is going away. But I think in this case, the picture is more nuanced. Obviously, we are monitoring the situation and assessing the IP situation at all times.

One change that we've talked about before also, but we are going to see an even stronger impact from in 2020 and going forward is that we are developing our business model a little bit, and it's actually pretty simple. If we take an example with the retail packing. When a customer buys a product from Asetek today, we are developing everything, including, for example, the retail packing. Believe it or not, the retail packing is an expensive component. And with our gross margins, it's obviously difficult to tell a customer that they have to pay a 40% markup on a packaging. So we have decided to, well, if customers want to keep, let's say, overpriced retail packaging from Asetek, of course, they can. But a larger customers, they are buying bulk, and the same goes with a lot of the, let's say, commodity features, such as LED lights, et cetera. It's not a place for Asetek to make a lot of money. It consumes a lot of resources, so we are cutting those features away. We leave it to our customers to develop their own industrial design. We focus on what we are good at. That's liquid cooling. And of course, it will have an impact on our ASP. Our ASP will go down. But on the flip side, our margins will go up because now we can charge the margins that we deserve and that we have earned on what we are good at, liquid cooling.

And then it's up to our customers to, let's say, to develop the commodity part. There's a lot of good things about it because it also makes our customers capable of, let's say, differentiating themselves from their competitors. There is also a risk to it that I want to highlight that's not listed here. And the risk, of course, is the execution on the customer side. Hypothetically, we could be in a situation where we've developed everything, but the customer is not ready. And then we're kind of hanging there. It's not something I fear because if I feared, then we would not have done it, but I just want to mention that, of course, there is a risk.

In terms of the branding or the co or dual branding strategy, nothing has changed. We are obviously still looking at that and getting our brand forward. So those 2 things are absolutely unrelated.

Just to expand a little bit on that. Historically, we were completely OEM. We developed the products as our customers wanted it, and they got it in their box with their branding. What we're doing now is more or less the same. However, what we're also doing is we are focusing on getting our brand adopted and getting our brand in front of the end customer as well and we move forward.

The goal, of course, is to dominate the Gaming and Enthusiast electrical market. I think that's needless to say. And the way we do that, we believe, is the best is to focus on, as I said before, what we are good at that liquid cooling performance reliability, not to mention quality, quality is a big one. As it is right now, we have co-branding agreements in place with 7 of our big customers, meaning that we are getting in front of the end user. We are connecting directly with gamers and enthusiasts via our CoolNation forum. And the whole idea, of course, is to monetize the Asetek brands. We have currently more than 25 OEM customers, and we are reducing single customer dependency.

We started in 2019, developing, let's say, more specialized and high-end products, and we expect to release them here in 2020, which will confirm our position in the market that Asetek is the standard in liquid cooling.

Just a couple of examples from the branding or dual branding. When AMD launched the Ryzen 3950X processor, they actually made a statement that their goal was to push the performance to the limit, and liquid cooling was the enabler for that. And as you can see, there is a statement about Asetek and our cooling solutions. And as you can see, there is -- and Asetek logo just next to the AMD Ryzen logo.

On the next slide, a little bit on the branding. What you see on the picture is the ASUS Strix LC 240 RGB cooler, where you can also see the Asetek logo on the front of the box. And we have more or less similar agreements with ASUS. This is an ASUS product. EVGA, NZXT, Dell Alienware, GIGABYTE, Adata and Zadak. And as you also saw before, we have done promotions with AMD on the Ryzen launch. So we believe that these co-branding programs are working very well. They are well received both by the OEMs and the public. And the public in this context is both the press and our end users.

Swapping a little bit to the data center business. The global sustainability agenda, obviously, is a driver for us. And then none of us can open a news or a paper or a media without somebody talking about carbon emission reduction, et cetera. So of course, as we have kind of counted on, it's blowing in our direction. That doesn't change the fact that the market adoption is still slow. And I still believe we need public requirements and standards to trigger this to really get the exponential effect.

One big step on that route, of course, is the design win that we just announced with a global OEM. I cannot say much more than you already know at this point in time, but I can say why. And it's pretty simple. There is no OEM out there that would like to have their own product plans preannounced. So that's why we cannot mention the name. The name will be public. And what we think we know is what we have given you already. And that's a forecast that indicates a revenue potential of $4 million to $5 million over the course of the -- sorry, over the course of the assumed product life. And the reason why I say assumed product life is that it's not really in our destiny to say when one of our customers' products has end-of-life. It could very well be that they will last longer. It could also be it lasts shorter, and I believe that to be the case. So -- but this is what we know. We expect the products to be released before the year-end 2020. And then of course, we will all know more about it.

And that being said, I'll give the word back to Peter to talk a little bit about the financials, and then I will be back shortly.

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Peter Dam Madsen, Asetek A/S - CFO [6]

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Sure. Thank you. I'll start out by commenting on the quarterly income statement, and then I'll go to the annual statement and then work my way through in that way. Starting on the top line. Revenues in this quarter were pretty flat compared to the fourth quarter of 2018, 5% down. Most of that decline comes from the data center, where we have pretty much, in Q4, half the shipments of the comparable quarter last year. It's not unusual, though, to see fluctuations in revenue, especially on the data center side. And actually, also on the Gaming and Enthusiast side, as André has said before.

Gross margins, I'll come back to those in a minute. Going further down, looking at the operating expenses, they're pretty flat also. Look here, by the way, how you can see that we have transitioned, shifted our resource consumption from data center towards Gaming and Enthusiast. If you're looking at data center spends last year, it was $1.9 million, now it's down to $950,000. And then the other way around, the Gaming and Enthusiast spend that is up from $1.2 million to $2 million. So it's the transition we've been talking about for pretty much a year now. We've been helped a little bit though, I have to admit, by the dollar-Danish kroner exchange rate. The Danish kroner has been 6%, on average, cheaper than last year. And since around 2/3 of our expenses are expensed in Danish kroner, of course, that does have an impact. But all in all, a flat development in other operating expenses.

That then takes us down to the bottom line, where we have $1 million -- $1.2 million of EBIT, earnings before interest and taxes, versus the same amount last year. So all in all, I have to say it's quite an uneventful quarter, which is not a bad thing to us at all.

Looking at the year as such. Starting, again, on the top line, here, you can see the decline in revenue. We had, I think, it was 19% decline in revenue as announced from '18 through '19. That's $13 million. Then on the other hand, our gross margins were up a little bit. We -- on an average gross margin last year of 42% versus 39% the year before. And that means that the shortage in revenue, which was $13 million, turns into a shortage of -- on gross profits of $3 million.

Overhead expenses. The same picture as before, meaning that it's flat and that has shifted towards Gaming and Enthusiast. And then taking that all the way down to the bottom line, the $3 million that we were missing. And gross profit is also pretty much missing on the bottom line, meaning that we have the bottom line earnings before interest and taxes, '19 at $1 million versus $4.4 million the year before.

Just a few words on the gross margins. 90% of our revenue comes from the Gaming and Enthusiast. And that means that, of course, that is the segment that gives us the most impact on gross margins. That's the blue, very flat line on the top. You can see there, it's quite flat. For the year -- last year, the group total was 42.9% versus 42.1%, so really, really flat. And I believe for the last 5 quarters, we've been above 41% in gross margins. Quite nice. We had an increase in the margin levels around Q3 of 2018. So just prior to what you can see in diagram here. But since that increase to above 40%, we've been quite flat.

Gross margins from data center is increasing significantly, but it's still too early to announce the victory here. It's still very fluctuating quite a lot up and down.

Shifting to an annual cash generation overview. And I know this is a little bit of a complex diagram here. But if we started looking at -- from the left and you have 3 years' worth of cash contribution where you see the black bars is the cash holdings at the end of the year, starting back in, what I should say here, year-end '16 and then going through '17, '18 and '19. And then you can see how we have a contribution of -- in, for example, 2017, $16 million coming from Gaming and Enthusiasts. We then spent $7 million as a contribution to the data center market. And then we have the other components also impacting cash flow, like investments and working capital.

And if we then just focus over on the right-hand side, but it's 2019, you will see that there is, indeed, a contraction of the business here, which of course comes from the lower revenue in Gaming and Enthusiast. Primarily, we had $14.6 million of contribution coming from Gaming and Enthusiast. We then spent $4.2 million on the data center business. And look how that number is significantly lower than the years before. Both in '17 and '18, we spent $7.2-ish million, $7.3 million on the data center business. And this year '19, we're down to $4.2 million. Also of interest here is that the investments, CapEx was down from both in 2017 and '18, a level of around $4 million. It's down to $2 million.

And finally, at least, of interest here is the working capital, where we have a positive working capital impact in 2019, which is about $2 million versus a negative in '18 of $5 million, and that comes from lower inventories, lower accounts receivables and higher accounts payables. Our cash conversion cycle, which is the number of days from when we initially pay out to buy components until the day when we receive this final money from our customers, is down to 11 days, where it was 41 days the year before.

And that leads to our balance sheet. This is probably -- this has to take the prize for the most boring slide. We've seen that quite a lot. It's a very solid balance sheet, a lot of cash on the books. We are definitely ready to see what else to take on, whatever the future will throw at us.

Financial priorities. We've seen those are also -- we have -- from my chair, from the CFO chair, we have, of course, a target, a goal of continuing to grow profitable and create a solid financial platform. And we have certain tools to obtain those goals. And there are no differences in those tools compared to earlier. But of course, they differ from segment to segment. There are different tools from Gaming and Enthusiast to what we do on the data center business. Of course, my tier is -- my work is also focused on cost optimization, overhead optimization. We certainly make sure that we work diligently to make sure that we get the best out of the resources. And then finally, it's about cash flow improvement. And as you saw on the slide before, we have been working on cash conversion throughout 2019, and we are in a good solid position on that.

So with that, André, going back to the summary and outlook?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [7]

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Yes. So as mentioned, we are looking at a small change in our business model to support our customers' own customization, and we are focusing on delivering core technology, which is liquid cooling. And of course, as I said, that business model will have a change in revenue. On the flip side, it will give us better margins. So on the bottom line, I'm not sure there's a big difference. But with what's going on around the world also, we expect to see a 5% to 10% revenue decline this year, still with a net positive result for the -- so I'm not sure that there's a lot other to deduct from this, but as we look at it, the year could very well be pretty flat.

In terms of the coronavirus, of course, I cannot predict the future. So it's impossible to say what's going to happen. Right now, it's not had a big effect on us, but whether it will have going forward is impossible to say. I also think it's very small things we can do to mitigate it. It's just the state of the world right now.

In terms of the OEM design win. Of course, I hope that we will launch this year. I hope it will have a positive impact. But in my view, we have taken a rather conservative approach to how we see the year, and I think it's a wise thing to do, everything considered. I think that's pretty much what I have to say. I know Peter has a small update here. What do you want to say?

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Peter Dam Madsen, Asetek A/S - CFO [8]

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Yes. And I just want to come back to the quarterly income statement. I forgot to talk about a topic here. And André, he said that we have stopped, we've ceased guiding on revenues on the segments. We used to guide pretty much quarter-by-quarter and very detailed. We've stopped that. We will also stop reporting on details of the 2 former segments. We have simply spent too much of your time and our time talking about a segment that has been quite small. And by doing that, we have also revealed, we feel, too much information to competitors and customers and (inaudible), et cetera. So we will still talk about revenue historically in 2 segments, but we will scale down significantly on the detailed levels on the overhead and the margins, et cetera. So that was just a citing up on how we're going to report going forward. We'll show you the details here in Q1.

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André Sloth Eriksen, Asetek A/S - Founder & CEO [9]

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Yes. And obviously, we are still going to report orders, et cetera, so it's not a big change.

With that, we would like to call on our operator, Annette, to host the Q&A session. We also have some questions on the web here that we can do after the verbal Q&A. So Annette, please take it away.

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Questions and Answers

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Operator [1]

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(Operator Instructions) There are no audio questions at the moment. Please continue.

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Peter Dam Madsen, Asetek A/S - CFO [2]

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Okay. Thank you. We've received a number of questions online, and we'll simply start from the top question from Germany.

How much will the one large OEM reduce its orders? Is there a risk that we'll lose them totally? Or are there follow-on orders of other products from the data center? Now I think that's 2 questions, here.

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André Sloth Eriksen, Asetek A/S - Founder & CEO [3]

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Yes, I'm not really interested, to be honest, in discussing our customer orders out in the public like that. But what I can say is that I don't expect any meaningful revenue from this customer this year. And then it doesn't take a rocket scientist to figure out that expecting a pretty flat year, it actually means that we've been able to replace quite a substantial amount of revenue, which is really good.

In terms of follow-on orders, I'm not really sure what the question means because it's -- we have gotten an OEM design win. And of course, there will be plenty of orders. So I'm not sure -- it's not a single order. So I'm not sure what that means.

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Peter Dam Madsen, Asetek A/S - CFO [4]

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The relationship that is developing. Well, we don't know anyone. Very good. Then we go to France, I believe. In the higher -- the minus 5% to 10% guidance. Can you give us details on the underlying ASPs and volume components for the G&E division?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [5]

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No, I cannot because we have 25 different OEMs who probably have 3 to 4 products each, meaning we have more than 100 different products. So the ASP is simply all of them stacked on top of each other, divided by the number of products sold. That's not really anything I can say. But what I can say that'd perhaps be helpful is that for some products in the really high end, of course, the ASP will be a substantial reduction because the bling and the features and the LED will be a substantial part of the bill of material, whereas as if you move to the lower end of the product stack with not so many features, then the ASP will not go down so much. So it's -- yes, it's more or less impossible to say.

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Peter Dam Madsen, Asetek A/S - CFO [6]

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There are many components and yes, complex game here.

Then we go back to Germany. How long time will the transition of the business model in the Gaming and Enthusiast take? Will it be finalized here in 2020? How pronounced will the margin effect of the change model be?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [7]

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So it's not necessarily smaller customers will transition to the business model. So it's not like there is a start and an end phase, just like there are shipping programs that we are not changing. So it's a mix, I will say. I actually expect the margin effect to be substantial. And what is substantial? That's a point we are measuring in here, for sure, it's not behind the comment. The thing, of course, is what's going to happen with exchange rates, et cetera, going forward is impossible to predict. So that's why we are also a little bit conservative. But if we exclude factors like exchange rates and what's going on around in the world, then I would say, between 3 and 5 points on the margin. So it's substantial for sure.

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Peter Dam Madsen, Asetek A/S - CFO [8]

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Indeed. Then we are in Copenhagen. On the question on the OEM, reducing the purchases, have you removed this customer from the guidance?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [9]

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We have, obviously, taken into account what's going on in our guidance.

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Peter Dam Madsen, Asetek A/S - CFO [10]

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And then there's a question here from U.K., I believe. What is the potential for a meaningful replacement cycle from Gaming and Enthusiast this year?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [11]

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That's impossible to answer. I don't know. I think the potential for replacement is going on constantly. People are building PCs every day. And every time they build a PC, they're buying a cooler and CPU and a motherboard, but I don't know how to quantify it.

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Peter Dam Madsen, Asetek A/S - CFO [12]

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Very good. Then there is a long question here and actually it seems to start out by a statement. Bear with me, I'm reading. My conversations with data center operators and OEMs, again and again, point to some key barriers of adoption of liquid cooling around perceived risks to hardware, maintenance, complexity and risk on planned downtime. Since Asetek seems to be proving that these are misconceptions, have you considered providing risk-sharing or insurance protection for this for first-time customers to lower the adoption bearings, especially given your strong balance sheet, which could be -- could give credibility to such guarantees?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [13]

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Well, first of all, it's not reflecting what I see from either OEMs or data center operators at all. As a matter of fact, I don't think it's related to finances or risk or hardware or anything like that. What we see out there is the data center operators, they do not see the value. To them, they can save power and they can save much more power than in cars to implement liquid cooling. So the math stacks up. What I see is that, for example, hyperscale data centers, they want to build the same hardware around the world. They want to build the same data centers around the world. They don't want a liquid cool data center in Denmark and then something else in Finland and then something else in Nevada or California. And what's going on in the hyperscale space right now is that people are competing really hard. So time to market, meaning how fast can you build the data center, et cetera, is really what's driving it. So in my opinion, I don't think financial incentives will make any difference at all. I think we need to focus on the environmental angle of it, as we are doing. And I think we need to realize and the data center operators, they need to realize that they own a big responsibility in this -- in the carbon emission reductions. And I personally believe that's the way forward. I have further -- well, further to that part, I have personally been involved like a couple of years ago, where we basically offered hardware for free to a data center. And they were not interested for the reasons I just mentioned. So I don't think starting to give away money or discounts or credits or anything like that will change the picture.

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Peter Dam Madsen, Asetek A/S - CFO [14]

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Very good. Then from the same gentleman, but going back to Gaming and Enthusiast. The test of OEM who reduced the purchasing. Did they do that change in sourcing to circumvent U.S.-China trade tariffs? And if so, would Asetek consider that in its supply chain to mitigate the exposure?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [15]

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I think the OEM reduced its purchase because it was cheap and wanted lower pricing. The other half of the question, we have been considering for a while, supply chain mitigation. And we are doing that effectively in the sense that, for customers this is a big deal, we are actually moving some of our manufacturing to Malaysia. But it's not that easy. Because it's very easy on paper to say now we move our manufacturing to Malaysia. So now we don't have tariffs. No, that's correct. But you have an extra layer of shipping. Because a lot of your sub-suppliers are already in Malaysia, it will change your entire shipping schedules, et cetera. So it's not that easy. But for sure, it's something we're doing.

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Peter Dam Madsen, Asetek A/S - CFO [16]

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Very good. Diving a little further down into the gaming segment here. Has gaming demand for liquid cooling gone structurally from high growth to low growth? Do you see a long-term risk from online gaming streaming platforms, like Geforce Now, sorry, for pronouncing at its best -- incorrect and Google Stadia?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [17]

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Not at all. In terms of gaming demand, I have no metrics to kind of say for that. I think if you're following our presentation, you'll know what's going on. But in terms of streaming platforms, I don't see that as competition at all. It doesn't worry me at all. Number one, let's see if they can ever get it to work. Personally, I've never seen it work to date, but that's not what we are banking on when I say as I do. People have to understand our customers are hardware enthusiasts. They build their own PC. You cannot outsource to Google or to Nvidia to build your own PC online. Building your own PC is something that goes on in your own living room. Whether you are then a gamer or you're not a gamer that's a different discussion, but it has 0 impact on our business because people who like to buy their own PC and to build their own PC, it makes no difference what you can do online from any service. It's not even related.

On the contrary, I think it's a great development for us because it means we will have a lot of high-performing data centers out there, which is a big opportunity for us. So I welcome these services.

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Peter Dam Madsen, Asetek A/S - CFO [18]

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Very good. On the data center side, how do you foresee an environmental regulation on data centers would look like? And how would this incentivize data centers to go for liquid cooling over the alternatives, like sourcing green energy and other efficiency improvements? Google, for example, achieved a PUE, that's a power usage effectiveness, as low as 1.14 on one of its data centers before it began to use liquid cooling.

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André Sloth Eriksen, Asetek A/S - Founder & CEO [19]

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Well, I think this is a great question because that displays very well the misconception that's going on. PUE has nothing to do with whether liquid cooling gives you an advantage or not. Even if you have a PUE of 1.0, which would be the perfect in this world, it still means if you don't reuse the waste heat that you are wasting all of the power going into your data center. You can have a data center with a PUE of 1.5 and measure it up against Google, so 1.1, and the 1.5 will be the most energy-efficient because they reuse waste heat energy. And thereby, they don't need to have fossil fuels for heating.

So the way I see that it would work is -- and that's what we're working on. I think actually, was it 2 or 3 days ago, the EU came out with the new regulations for data centers, et cetera, and it's actually listed in there that they have to reuse waste heat. So it will come, no matter if they like it or not. And I think that's the way forward that we have to realize that data centers, in general, and we all know the examples of streaming movie, it will emit the same carbon as boiling 50 cups of coffee. So what does it help? If you're not flying, if you are then on the Internet streaming movies. The way forward is not to change people's behavior. We need to keep flying, we need to keep streaming movies, of course, but we need to put in not incentives, in my view, because the incentives are already there, we have to put in regulations just like we do on the car industry. We have to put in regulation. Let's say that, okay, if you use 100 megawatts of power, you need to be able to reuse at least 60% of that. So I think it's pretty simple. It's just not an easy ship to turn.

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Peter Dam Madsen, Asetek A/S - CFO [20]

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Very good. Then a very specific question on the G&E. Do you plan positive volume growth in the G&E division in 2020?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [21]

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That's an excellent question. I would have to go -- get back to -- I don't remember, to be honest, on top of my head.

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Peter Dam Madsen, Asetek A/S - CFO [22]

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Very good. Shifting gear again. I noticed Asetek is more active on social media regarding data centers and carbon emission reduction, et cetera. Do you have a fixed strategy for influencing EU and the political environment? And have you received any political recognition on your efforts so far?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [23]

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Well, I think as we have reported the last many quarters that I don't know if the strategy is fixed or not, but I personally spend a lot of time with politicians. I'm actually going to see the Minister on Monday in Denmark, and I'm spending a lot of time in the EU as well because I do believe it's the right and only way forward. And in terms of recognition, I mean if we take the ultimate recognition, meaning we can measure it on our bottom line, no. But as I said, with the EU and the new green deal that's come up, I would not say I'm the guy behind it. But for sure, I would like to think so that if we have not been doing what we are, I don't think it would have been on their agenda, to be honest. On top of that, we just have here in Denmark a lot of questions asked to the (inaudible). And that was a direct result of me going to the Danish parliament. So it is moving. And people are starting to see that this is a big deal. So I think it's just like we have to keep pushing and we will.

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Peter Dam Madsen, Asetek A/S - CFO [24]

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It's a hot topic, that's for sure. Staying in the same line of questions here. Please talk about your efforts to expand the business to help buildings reduce their CO2 emissions by using the heat generated from data centers. No need to say that this part -- sorry, no need to say this, but many ESG funds being created. Are you going to become a part of the ESG wave?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [25]

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Correct. But what we also have to realize is that Asetek is a small company. We don't have the muscle. Even if we spent all our $20 million on our bank account, we don't have the muscle to do that. We have the muscle to support an OEM, and that's what we can do. We are not selling directly to data centers. We don't have the business model for them. I don't think we will ever go in that direction. So what we can do is we can focus on the benefits. We can focus on the politicians to take this seriously. And we can build all the case stories we want. But if the data centers don't want to listen, it doesn't help. What we have done recently and as probably a lot of you have seen, that we have started basically this year, early February. And probably as the first in the world, we have started to sell our waste heat to the district heating plant here locally, not because we are saving anything environmentally by doing that with our small data center, but just to circumvent these discussions and whether it can be done and whether it makes sense or not. We are, right now 24 hours a day, selling the waste heat from our data center, and thereby we proved that it can be done. And if people are in doubt, they can come and check it out.

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Peter Dam Madsen, Asetek A/S - CFO [26]

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Yes. One thing is what we do towards our customers and with our products we sell. On the internal side of ESG, we have started a project to hopefully score higher in the various ESGs scoring tools that are out there that we have in the past. We have not scored high, that's primarily because we haven't been focusing a lot on it, but that will certainly change.

Totally shifting gear here. How is the possibility for a share buyback developing?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [27]

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Well, I think it's the same answer as last time that as soon as there is any development, we will let you know. I don't think it's the right time to go into a discussion of why. But for legal reasons and for tax reasons between the U.S. and Denmark, we are not able to do a dividend payout or a share buyback. And we have people working on it, and I can guarantee you that it's not on our side. People are stalling. But when we're talking about the IRS in the U.S. and the same in Denmark, things are just moving at glacial pace, it seems, yes.

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Peter Dam Madsen, Asetek A/S - CFO [28]

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Yes. So we're waiting for those. Let me just refresh. Questions seem to have coming in, and they have stopped. There are no more questions. Thank you for all the good questions. We -- if you have questions after this, please post them or send them as e-mail at investor.relations@asetek.com. Let me repeat that, investor.relations@asetek.com, and we will reply to -- to the best we can. With that, André, any further comments from you?

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André Sloth Eriksen, Asetek A/S - Founder & CEO [29]

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No.

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Peter Dam Madsen, Asetek A/S - CFO [30]

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No. Then we will cease this presentation. Thank you for your interest in Asetek.

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André Sloth Eriksen, Asetek A/S - Founder & CEO [31]

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Thank you.

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Operator [32]

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Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.