Earnings call transcript: Asetek’s Q2 2025 revenue drops amid new product launches

Asetek, a leader in liquid cooling solutions with a market capitalization of $34.81 million, reported a decline in revenue for Q2 2025, with sales falling to $11.2 million from $12.7 million the previous year. Despite the downturn, the company maintained a steady gross margin and reduced operating expenses. The stock price remained stable at $0.12, reflecting cautious investor sentiment amid ongoing product innovations and strategic market positioning. According to InvestingPro analysis, the stock appears to be overvalued at current levels, despite showing strong year-to-date gains of 56.58%.

Key Takeaways

• Q2 2025 revenue decreased to $11.2 million from $12.7 million in Q2 2024.
• Operating expenses were reduced by 9% to $6.4 million.
• Asetek launched new products targeting the gaming and mid-market segments.
• The company maintained a gross margin of 45%.
• A cautious market environment persists due to US import tariffs and high-end segment behavior.

Company Performance

Asetek’s performance in Q2 2025 reflects ongoing challenges in the market, with a noticeable dip in revenue compared to the same period last year. However, the company has effectively managed its operating costs, achieving a 9% reduction in expenses. This strategic cost management, combined with consistent gross margins, highlights Asetek’s resilience in a competitive industry.

Financial Highlights

• Revenue: $11.2 million, down from $12.7 million YoY
• Gross Margin: 45%, unchanged from the previous year
• Operating Expenses: $6.4 million, reduced by 9%
• Operating Income: Loss of $1.3 million, slightly higher than the $1.2 million loss last year
• Cash Position: $7.3 million
• Interest-bearing Debt: $21 million, maturing in March 2028

Outlook & Guidance

Asetek projects full-year revenue between $45 million and $53 million, with an adjusted EBITDA margin of 0-3%. The company anticipates growth in its Liquid Cooling segment, with expected gross margins of 40-43%. SimSports revenue is forecasted to be between $5 million and $10 million. Asetek remains optimistic about returning to growth in 2026, driven by new product launches and strategic partnerships.

Executive Commentary

CEO Andre Eriksen emphasized the company’s commitment to innovation, stating, "We are executing on our SimSports growth plan with the imminent launch tomorrow." CFO Peter Madsen addressed concerns about pricing, noting, "A decrease in ASPs does not necessarily translate into lower gross margins." Eriksen also expressed optimism about future growth, citing positive dialogues with customers.

Risks and Challenges

• Market Uncertainty: US import tariffs continue to create unpredictability in sales and supply chains.
• Cautious Consumer Behavior: High-end market segments are exhibiting cautious buying patterns.
• Competitive Pressure: The need to maintain market share amid dual-sourcing by customers.
• Financial Stability: Managing interest-bearing debt and ensuring sufficient cash flow for operations.
• Product Adoption: Success of new product lines in capturing market interest and driving revenue.

Q&A

During the earnings call, analysts inquired about Asetek’s strategic plans, including potential building sales and financing needs. The company confirmed no current plans to sell its building or reduce executive salaries. Discussions about strategic transactions are in preliminary stages, with no certainty of outcomes.

Full transcript - Asetek (ASTK) Q2 2025:

Operator: Hello, and welcome to Astec’s Second Quarter twenty twenty five Earnings Conference Call. Please note that this call is being recorded. After the speakers’ prepared remarks, there will be a question and answer session. I’d now like to hand the call over to Peter Matson, CFO. Please go ahead.

Peter Madsen, CFO, Asetek: Thanks, Ellie, the operator, for handing over the word to this Q2 twenty twenty five Aesthetics presentation. My name is Peter Madsen. I’m the CFO. I’m in the room here with Andre Eriksen, who’s our founder and CEO. Good morning, Andre.

Hello. And we will report to you the report and the presentation that our board met about and discussed this morning and subsequently approved for us to release. As Eli just said, if you have questions, please find the spot on your screen that says something about Q and A and then type in your questions there, and then we will see them and respond to them after the presentation. Disclaimer, this is the first one. Please read and understand.

And then we hand over the word here, the microphone to Andre.

Andre Eriksen, Founder and CEO, Asetek: Yes. Let’s look a little bit on the highlights of the quarter. So sequential increase in liquid cooling revenue, along with the new mid market product line that’s been well received so far, with shipments starting at the end of the year. Of course, I almost dared to say our sim sports revenue was impacted by The US import tariffs just like we had expected. We see group level gross margin of 45% level with the same quarter last year.

I’ll get back to it in a minute, but tomorrow, I am actually flying out of here in a few minutes. I’m going to Gamescom where we will be launching a new mass market product. And, yes, we maintain our guidance for the year. Next slide, please. So on the liquid cooling side, we are seeing a good momentum with both existing and new liquid cooling customers.

There is a demand for innovative, high end and new mid market products as well. We do see an, what should I call it, returning an increased focus on quality supply chain and full service. And I think the hidden, meaning of this bullet is that it’s not all about low cost. There are still people who focus on on quality, etcetera. And, altogether, that’s setting the stage for a profitable and and, a profitable growth from from next year.

Simsport sales reflect the tariff uncertainty and and the lower end user demand. As a follow on that, you know, we we we see the main impact through our resellers and retailers. I’ll also come back to that. The the mass market innovation product line that we’re launching tomorrow at the Gamescom is, of course, widening the addressable market since it’s a much lower price point. And, we will later on have a console compatibility with this platform as well.

Yes. And then let me address it now. And only now in the sense that I will not address any more questions to this topic or any questions for that matter. We have received additional indications of interest relating to potential transit strategic transaction with the company, and we have those preliminary discussions that are ongoing. There’s no certainty then anything will happen at all.

And, yes, as I said, that’s what I will be talking about, that topic for today. In terms of financial guidance, it’s still unchanged, meaning that it’s expected to be between 45 and 53,000,000 with an adjusted EBITDA margin of zero to three. The liquid cooling segment, 40 to 43 with the gross margin between 40 and 45, and the Sims Sports revenue is expected in the range of five to 10. Of course, disabled and handicapped by the tariff situation. If we dive into the liquid cooling segment first, I almost dare to say that it’s a plain vanilla quarter, which is good.

Roughly 45% gross margin and roughly 30% EBITDA margin. Right now, we are supplying three out of five of the top global PC manufacturers. We had five new liquid cooling products that started shipping here in the quarter q two. And between eight and ten new products, it’s estimated to start shipping in in this current quarter. We have focused a little bit.

We’ve been talking about it for a long time, but now it’s happening focused on the mid market as well because that’s widening the addressable market in terms of just selling high end coolers. And, I would say as a as a very successful start, we have deployed that in in China. If there’s some misunderstanding, let me just rule that out, that mid market does not mean necessarily lower margins or or anything like that. It’s still a very good business to be in. One slide that I personally think is the star of today’s meeting is slide nine here that says continue strong customer momentum.

What I really want to turn your attention to is if you look at the left slide of the graph, although we are a little bit behind on revenue compared to last year, it’s only a matter about ASP, so the average selling price. Whereas if you look at units for the entire half year, ’24, we sold 367,000 units. As you can see, this year, we have sold 365,000 units, so almost the same. The interesting, point here is the orange graphs in the middle. The left hand is exactly the amount of units we lost with two car with two customers going to dual sourcing, whereas the right hand graph is actually the the growth we have been able to take out of our, let’s say, existing and new customers.

I actually find it quite remarkable that, within one year, we have been able to, let’s call it, subsidize, half of our half of our product and revenue stream with with new and existing customers. That, of course, explains why we are not seeing a big growth this year like we’re used to. Almost dared to say. But it’s also showing that inside the company, we’ve actually experienced a big growth with new customers and with existing customers. And in terms of ’26, we are quite positive that we will return to growth both both because we are in positive dialogues with the the two customers who went to dual sourcing about putting more in our basket as well as we are still seeing new customers and existing customers coming in.

One example of what I just mentioned is that we have resumed the collaboration with, ENTTEC. ENTTEC was a customer we had many years ago that has now decided to come back. Their profile is that they are global leader in in high performance computer components and accessories, And the first shipments of, this mid market cooler with them is initiated. And in this case, we are delivering a full solution, including the high tops display, etcetera. And from from q four on, shipments to end users are are commenting.

On the Simsport side, there are gives and takes as well. Of course, on the on the revenue side, you know, half of our revenue last year was The US. So, of course, we impacted, but not only directly in The US. It has also created a lot of uncertainties around the globe. And it just means that in in a high end segment, like the one we are playing in, we just do see a more cautious buying behavior both from resellers and and also end users.

We have US retailers simply awaiting taking in our products because they are they want to see where this is heading. So while some people believe it’s good that we have now gotten ninety days of more certainty, it’s actually not good. We would rather prefer we had a final outcome and that’s it and we can move on. The the highlight of this slide though is that our own sales or direct sales to end users is actually on budget and on plan. So that’s, of course, very positive that there are still end users out there that are that are buying from, directly from us and actually not often to fulfill our own expectations.

We have seen a a gross margin at at 35%. I would say that’s a highlight as well because with with what’s going on and shipping back and forth and tariffs and and, of course, not a very big business yet, I’m I’m actually happy about this. So as I spoke about tomorrow, well, I’m going in a in a few minutes. But tomorrow, we are launching, what we call the Innisium product line. So Initium in Latin means to begin or to enter, and the the idea is that this is the entrance to our ecosystem.

As far as I recall, this is our biggest product launch ever because everything you see on the picture and then some is going to be released tomorrow. It has been in development for for quite some time now, but it is a high value segment we are targeting here. I don’t wanna spoil the fun and talk about prices here. You can see them tomorrow. But it’ll be much, much lower price than what we currently have available.

And what I would argue is that it’s actually still, pretty high end. So the focus with this is is much more gaming mass market and, of course, electronic retail outlets around the globe is is the target for this. And we are working, as I said earlier, on, on console compatibility in especially Xbox, which is the biggest platform in the sim racing market. We have been working with Microsoft for a little while now, and the cooperation is progressing as as planned. But it’s also clear that it’s not ASIC setting the speed here.

So we are we are carrying on, and we expect later this year or early next year to be able to launch that. And with that, I will give the word to Peter to talk about the financials.

Peter Madsen, CFO, Asetek: Yeah. Thank you, Andre. And we’ll come back to Andre for a summary and outlook after my comments financials here. Let’s just first take a look at the revenue development by quarter over the last few years. It is a condition of Asetek that our revenues are varying quite significantly over the different quarters here.

So there’s nothing new to that. But we note here that Q2 twenty twenty five was a sequential increase compared to Q1 twenty twenty five. Looking further a bit at the profit and loss statement here, starting at the top. Revenues this quarter was $11,200,000 versus $12,700,000 same quarter last year. And for the half year, it was $21,000,000 versus $25,000,000 compared to the period last year.

And if we look a little bit at the data behind that, then unit sales, as Andre also alluded to, for the half year itself, it has been a very busy period. And still we managed to sell the same quarter amount of units, more or less three sixty five units in the half year compared to three sixty seven last year, however, with a very big difference in the customer composition and the product composition. If we look just at the quarter Q2 versus Q1 twenty twenty five, then our sales in quantities increased by 13%. And that means that mathematically that the ASP, the average sales price must have reduced, and that is correct. And Arndre also alluded to that.

The ASPs decreased from 56.6% last year, to be specific, to 50.4% this year. And that represents a change in product mix. And we always have to caution people here that a decrease in ASPs does not necessarily translate into lower gross margins or lower earnings. It is simply a change in the product setup. Some products are just by nature more expensive than others.

I’ll get back to a slide on gross margins, but they are 45 across the board, both for the quarters both quarters and both half years. If we take a look at SimSworts, by the way, we should have included that also, 1,300,000.0 in second quarter twenty twenty five versus 1,700,000.0 last year, same quarter. But keep in mind, the very difficult market situation that we are in right now, especially with regards to sales into The United States. Operating expenses at $6,400,000 sorry, versus $7,000,000 the same quarter last year. That’s a reduction of 9%.

And that’s the same reduction 9% ish that you will see if you look at the half year numbers, first half this year versus first half last year. And that reduction in operating expenses, of course, reflect the relatively large downsizing, rightsizing of the organization that we had to perform in 2024. What the numbers don’t show, but I can sort of I can add those, is that the exchange rate, U. S. Dollars versus Danish kroner, keep in mind that some of the majority of our expenses are in Danish kroner.

The exchange rate changed last year versus this year by 4%, 5% ish in our disfavor. So you can add those, so to say, so to speak, when you look at the 9% decrease when you want to compare. And that means that our operating income for the quarter was a loss of 1,300,000 versus a loss last year of $1,200,000 and $3,000,000 for the half year versus $2,600,000 last year same quarter the same half year. There’s been a significant foreign exchange impact this year or specifically in this quarter. And that, of course, refers to the increase of the Danish kroner versus the U.

S. Dollar, how that has been developing over time. Financing expenses at DKK $258,000,000, just a quick comment on that, because last year, it was basically zero. And of course, that has to do with the loans that we have taken up on building that we are sitting in today. All in all, income before taxes at $1,900,000 for the quarter versus $900,000 last year same quarter and $4,000,000 for the half year versus $1,600,000 for the half year last year.

And just one additional comment here on this page here, you’re looking at the total comprehensive income, the very last line in bold letters down there. Technically, it’s not a part of the profit and loss. It’s just always shown here. And that has a huge $5,000,000 income, you could say, bringing our total comprehensive income for the half year to a positive of $1,000,000 versus $4,000,000 to the negative last year. And that has to do again with The U.

S. Dollar versus Danish kroner change, which has a great impact on our balance sheet. And that is shown here as a bridge between the income statement and the balance sheet. Gross margin, I promise to comment on that. They are very much on par with recent quarters and past quarters at forty five percent forty four point eight to be specific.

46% came from liquid cooling and 30%, as Andre also alluded, 30% came from was the contribution from SimSports. You can see that the split between the two segments is relatively even, 88% sales to liquid cooling and 12% to SimSports. So actually, non significant development on gross margins. The balance sheet. We had at the June a cash position of $7,300,000 We are in compliance with our loan covenants.

And by the way, just a comment on the loans here, we have interest bearing debt of $21,000,000 Related to the HQ financing, you would say it’s actually on the company as a whole, but of course, it is, in reality related to the building. They mature in March 2028, meaning it’s long term and it has a long term mortgage type repayment profile. It’s Danish kaibre three rate plus 2.45 points. So I think it’s within what’s absolutely acceptable. And that brings us back to Andre for a summary and outlook.

Andre Eriksen, Founder and CEO, Asetek: Yes. So our revenue as alluded to, it’s of course impacted by the tariff situation. We are executing on our SimSports growth plan with the imminent launch tomorrow, and we are very much positioning the liquid cooling business for for growth from ’26 and beyond both with new and returning and existing customers targeting a wider mark.

Peter Madsen, CFO, Asetek: Perfect. And, Eli, would you just remind people how it works on the q and a?

Operator: We’re now opening the floor for question and answer session. If you’d like to ask a question, please use the ask a question box on your screen. I’d now like to hand the call back to Peter to address the webcast questions.

Peter Madsen, CFO, Asetek: That is perfect. Thank you. And by the way, if you should not be able to or whatever want to post your questions here, then you can always send us an email, and we’ll reply back to you and attend to your question. Investor. Relationsaseotec dot com is our is our email for this type of questions.

We have a number of questions. Andre, will you, comment on the on the top one here?

Andre Eriksen, Founder and CEO, Asetek: Yes. Is there any progress in selling the building? I was not aware the building was for sale. So I I don’t really know what’s coming on that.

Peter Madsen, CFO, Asetek: And then the next one, I can take that. With $3,800,000 cash burn in the first half and $7,300,000 in reserve, what cash cash management steps are being taken, and do you foresee needing an additional financing before the 2025 or 2026? And no, we don’t foresee needing additional cash within that period of time or in further future for that matter. And that has to that’s related to our expectations of a enhanced increased sales going forward from now on. There was a question there.

Andre Eriksen, Founder and CEO, Asetek: There’s another cash flow concern on whether the executive team have considered temporary salary reductions. No.

Peter Madsen, CFO, Asetek: That was a very clear answer on that one. I’m hitting the refresh button, and I do that once again. And that seems to be it. Oh, there was one here.

Andre Eriksen, Founder and CEO, Asetek: So that’s a question relating to the transaction that I mentioned earlier. And as I also mentioned, I’m not going to comment further on

Peter Madsen, CFO, Asetek: it. And that means that we can close the session and say thank you for your interest in AsiaTech and remind you again of the investor relations email, investor.relations@azotech.com. Thank you for your interest in Azotech. Thanks.

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