Asetek A/S

Investor Presentation • Oct 27, 2016

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ASETEK.OL in brief

Listed on Oslo Børs		OSE4520 Technology Hardware & Equipment
Business	Provider of liquid cooling systems for data centers, servers, workstations, gaming and high performance PCs
Sales	YTD Q3'16 FY'15	\$33 million \$36 million
Market cap*	26 October '16	\$132 million

* 1 \$ = NOK 8.25, share price as of 26 October 2016

The computer cooling market opportunity

• Servers and data centers have become

denser, more hardware in less space requires more cooling

• Data centers consume ~2% of the world's power, a financial and environmental cost • Air cooling struggling to solve increasing cooling need

• More efficient cooling solutions needed

• Direct To Chip Liquid cooling is more efficient than air cooling
• Liquid cooling can recycle waste heat and improve resource efficiency and sustainability

Asetek today

Adoption of Asetek's technology growing

3.5m Asetek liquid cooling units deployed in the field

3,452,000

Q3'16 report highlights

• Record quarterly and first nine months revenues
• Desktop revenue driven by demand for cooling high-end gaming systems
• Both within DIY market and Gaming/Performance Desktop PC markets
• OEM installations starting to lift data center revenue
• Profitable in the quarter and first nine months

Asetek Selected by HP to Cool New OMEN X Desktop Gaming PC

• Announced 26 August 2016 that Asetek had been selected by HP® to cool its new OMEN X Desktop Gaming PC
• Marks HP's return to ultra-high end gaming systems, boasting enthusiast hardware and revolutionary thermal performance
• PC Gaming the "new black" due to VR and Esports

NZXT's new Kraken Series of All-In-One liquid cooling products utilize Asetek's solutions

• NZXT is a leading computer hardware manufacturer with award-winning products empowering DIY hardware enthusiasts globally
• 19 October 2016 Asetek announced that NZXT's new Kraken Series of All-In-One liquid cooling products utilizes Asetek's solutions
• The 3rd generation of liquid coolers Asetek has provided to NZXT since 2012
• NZXT's Kraken Series represents a large leap forward in features for all-in-one liquid cooling
• Asetek's pump enables quieter operations with improved performance

Desktop segment continues positive development in challenging PC industry

• Strong demand within Do-it-yourself (DIY) category
• 1 new product began shipping to a repeat customer
• Strong demand within Gaming/ Performance category
• Growth in the graphics cooling market
• 4 new products began shipping, including liquid cooling for HP's new ultrahigh end gaming system, the OMEN X
• Workstation category marginal part of segment today

Shipped 262,000 desktop units in Q3'16

Data center segment experiences broadening acceptance of liquid cooling

Select data center/HPC installations in the U.S., Europe and Asia adopting Asetek's technology

1: U.S, Penguin Computing and U.S. Department of Energy's National Nuclear Security Administration is using Asetek liquid cooled HPC system for an Open Compute Installations in 80 racks spanning three National Laboratories

2/3: Poland, Format installed Asetek liquid cooled HPC systems at the National Centre for Nuclear Research (NCBJ) and a University. 7 Racks

4: Singapore, 40 rack Fujitsu HPC cluster at the Agency for Science, Technology and Research (A*Star)

5: Japan, 70 Asetek liquid cooled Fujitsu servers will be installed at the Joint Center for Advanced High-Performance Computing (JCAHPC)

Source:

Shipped \$1.3m of RackCDU Direct to Chip™ products to Fujitsu's HPC installation in Q3

• Announced purchase order April 28th for a total of 70 RackCDU™ and in excess of 8,000 node level cooling loops
• Fujitsu is using Asetek's liquid cooling to remove heat from processors and other high power components in its PRIMERGY servers in order to deliver maximum performance and minimal cost

Current Fujitsu projects

Largest single installation PO to date received from OEM Fujitsu

Revenue from OEM Fujitsu relationship

• Installation at the Joint Center for Advanced High Performance Computing (JCAHPC) in conjunction with University of Tokyo and Tsukuba University
• Undisclosed installation in Germany
• Shipped \$1.3m of RackCDU Direct to Chip™ products to Fujitsu in Q3
• The Fujitsu OEM relationship has generated \$1.6m of revenue in 2016

Good progress with OEM Penguin YTD Q3'16, Q4 deliveries deferred to 2017

OEM customer Penguin Computing incorporates Asetek's liquid cooling solution into two servers

• OEM customer Penguin Computing, Inc. incorporates RackCDU D2C™ liquid cooling into its Tundra™ Extreme Scale (ES) HPC server and Relion 2900 server
• Penguin's end customers include the U.S. National Nuclear Security Administration's CTS-1 systems deployment at three national laboratories, which will collectively constitute one of the world's largest Open Compute-based installations

• In September, Asetek began shipping liquid cooling for the Relion server

• Revenue from OEM Penguin relationship

• Shipped \$0.2m of product under purchase agreement in Q3, generated cumulative revenue of \$1.1m
• Shipments planned for Q4'16 have been deferred to 2017, relationship expected to continue to generate material revenue next year

Both U.S. government contracts progressing, yielding revenue in H2'16

California Energy Commission contract 2 year contract

• Total contract value \$3.5m • Revenue of \$0.1m in Q3, principally from engineering associated with converting a supercomputer (the first of two data centers) to liquid cooling • Generated cumulative revenue of \$0.4m in 2016 and \$1.0m since contract inception in 2015 • Expecting substantial increase in revenue on this project during the balance of 2016

Department of Defense (ESTCP) contract 3 year contract

• Total contract value \$2.4m • Generated cumulative revenue of \$2.2m from inception in 2013 through September 2016 • Project restarted after being paused temporarily while the DoD relocated the project to a different site • The new site was secured during the first quarter and facilities work and equipment transition to the new site began in Q3 • Revenue is expected to ramp in the fourth quarter of 2016

Asetek's ecosystem growing while market need for efficient cooling increases

Segment	Value proposition	Select OEM customers	End-users
			Do-It-Yourself
Desktop			Gaming/High Performance PCs
	Enhanced performance Reduced noise		Workstation
			Joint Center for Advanced High Performance Computing (JCAHPC)
Data center			+ other end-users in the U.S.
	Energy and cost savings Density increase Higher Performance		and Europe

Revenue development

• § Q3'16 group revenue of \$14.2m driven by record desktop and data center sales
• § Increase of 43% vs Q3'15
• § YTD Q3 2016 revenue \$33.0m, up 40%
• § Q3'16 desktop revenue \$12.4m
• § Up 32% vs Q3'15
• § YTD Q3 2016 revenue \$29.4m, up 31%
• § Driven by demand for cooling high-end gaming systems
• § Q3'16 data center revenue of \$1.8m
• § YTD Q3 2016 revenue \$3.6m, vs \$1.0m YTD Q3 2015
• § Driven by new OEM installations

Group revenue, \$ thousands

Gross margin and earnings development

• § Group gross margin increased to 41.0% (37.3%)
• § Incremental increases due to richer product mix and improved buying power effects
• § Data center gross margin at 31.9% (27.7%)
• § Margins continue to fluctuate due to variations in sales composition (government sales carry lower margins due to different markups on labor, product, outside services)

EBITDA adjusted development

• § Desktop operating profits improving
• § Driven by revenue growth
• § Q3 2016 EBITDA adjusted \$4.5m, YTD Q3 2016 \$9.5m
• § Asetek continues to invest in data center segment
• § Q3 2016 operating losses \$1.0m, YTD Q3 2016 \$3.2m
• § Expenditures relate to technology development, product marketing and sales activities with data center partners and OEM customers

Income Statement

\$ (000's)		Q3 2016		Q3 2015
	Group	Desktop	Data center	Group	Desktop	Data center
Revenue	14 249	12 431	1 818	9 957	9 440	517
Gross Margin	41.0 %	42.4%	31.9%	37.3 %	37.8%	27.7%
Other operating expenses	2 330	748	1 582	2 711 1 225		1 486
EBITDA adjusted	3 517	4 519	(1 002) 1 003		2 346	-1 343
Depreciations	594	161	433	658	240	418
Share based compensation	81	32	49	18	8	10
E B I T	2 842	4 326	(1 484)	327	2 098	-1 771
EBIT Margin	19.9 %	34.8%	N/A	3.3 %	22.2%	N/A
HQ, Litigation expenses	443			382
HQ, Share based compensation	34			32
HQ, Other	322			249
Headquarters costs	799			663
EBIT, total	2 043			( 336)

• Other operating expenses lowered due to organizational structural improvements in 2015

\$ (000's)	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015
Income (loss) for the period	Cash Flow Statement 2 055	(387)	391	948	( 383)
Depreciation, amortization and impairment	598	702	615	721	658
Finance cost (income) and taxes	6	9	14	511	33
Share based compensation	115	120	5	121	50
Changes in current assets other than cash	(3 142)	(752)	4 181	(2 209)	( 946)
Changes in payables and accrued liabilities	3 670	2 088	(3 164)	1 888	1 284
Net cash provided (used) in operating activities	3 302	1 780	2 042	1 980	696
Additions to intangible assets and other assets	(398)	(539)	(465)	(378)	( 356)
Purchase of property and equipment & other assets	(169)	(251)	(129)	(550)	( 55)
Net cash used in investing activities	(567)	(790)	(594)	(928)	( 411)
Proceeds from debt issuance, other LT liabilities
Cash flows on credit lines/debt/lease	(44)	(37)	(2)	(13)	201
Proceeds from issuance of capital / conv debt	-	4	17	117	77
Net cash provided (used) by financing activities	(44)	(33)	15	104	278
Effect of exchange rate changes on cash	25	(114)	211	(312)	(11)
Net changes in cash and cash equivalents	2 716	843	1 674	844	552
Cash and cash equivalents at beginning of period	15 577	14 734	13 060	12 216	11 664
Cash and cash equivalents at end of period	18 293	15 577	14 734	13 060	12 216

• Positive cash flow from last 5 quarters
• Solid cash position is a positive factor when partnering with multinational OEM's in pursuit of growth

Balance sheet

\$ (000's)	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015
Total non-current assets	3 752	3 715	3 580	3 536	3 284
Inventories	1 324	1 268	1 471	1 786	1 590
Receivables	9 584	6 443	5 678	9 366	7 976
Cash and equivalents	18 293	15 577	14 734	13 060	12 216
Total current assets	29 201	23 288	21 883	24 212	21 782
Total assets	32 953	27 003	25 463	27 748	25 066
Total equity	21 086	18 896	19 306	18 646	17 587
Total non-current liabilities	267	218	247	259	289
Total current liabilities	11 600	7 889	5 910	8 843	7 190
Total liabilities	11 867	8 107	6 157	9 102	7 479
Total equity and liabilities	32 953	27 003	25 463	27 748	25 066

• § Inventory turns: ~26 times per year
• § Significantly improved (higher activity vs. stable inventory levels)
• § Trade receivables DSO: ~54 days
• § Decreased (improved) due to higher sales early in quarter
• § Trade payables DPO: ~97 days
• § Stable compared to recent quarters
• § Cash conversion cycle: Negative 29 days

Balance sheet structure, Q3 2016

FY 2016 revenue outlook

Segment outlook

• The high-end desktop market continues to thrive despite the challenges facing the PC industry
• Growth in high performance and gaming PCs is driven in part by customers' desire for new technologies such as 4K screen resolution and virtual reality capability, requiring high performing graphics processors (GPUs) and advanced cooling
• Asetek's total addressable desktop market, which includes GPUs as well as CPUs, is expanding a high performance PC now typically needs two liquid coolers instead of only one
• Asetek is on track to double its revenue from GPU cooling products in 2016 vs 2015 and expects continued growth
• Expect desktop segment revenues to exceed \$43m in 2016
• Revenue variability by quarter is expected to continue
• Q4 gross margins expected to approximate Q3

Segment outlook

• Strategy is to increase end-user adoption within existing OEM customers and to add new OEM customers
• Investing in product marketing and sales activities with data center partners and OEM customers
• Leveraging the successful performance achieved at installed base of universities, enterprises and government entities
• Continuing to develop and defend market-leading technology and IP
• Expecting significant revenue growth in 2016 vs. 2015 level of \$1.9m
• Revenue and operating results expected to fluctuate as partnerships with large OEMs are developed

Summary

• Record quarterly and first nine months revenues
• Desktop revenue driven by demand for cooling high-end gaming systems
• OEM installations starting to lift data center revenue
• Profitable in the quarter and first nine months
• Expecting growth to continue

Income statement

Figures in USD (000's)	Q3 2016	Q3 2015*	YTD 2016	YTD 2015*	2015
	Unaudited	Unaudited	Unaudited	Unaudited
Revenue	\$ 14 249	\$ 9 957	\$ 33 009	\$ 23 505	\$ 35 982
Cost of sales	8 405	6 243	19 927	15 569	23 570
Gross profit	5 844	3 714	13 082	7 936	12 412
Research and development	834	884	2 390	2 968	3 938
Selling, general and administrative	2 967	3 166	8 506	9 549	12 641
Other income	-	-	-	(1 844)	(1 844)
Total operating expenses	3 801	4 050	10 896	10 673	14 735
Operating income	2 043	(336)	2 186	(2 737)	(2 323)
Foreign exchange (loss) gain	(11)	(14)	(95)	218	305
Finance costs	(6)	(16)	(29)	(48)	(67)
Total financial income (expenses)	(17)	(30)	(124)	170	238
Income before tax	2 026	(366)	2 062	(2 567)	(2 085)
Income tax (expense) benefit	29	(17)	(3)	(28)	438
Income for the period	2 055	(383)	2 059	(2 595)	(1 647)
Other comprehensive income items that may be reclassified to profit or loss in subsequent periods: Foreign currency translation adjustments	20	(17)	120	361	181
Total comprehensive income	\$ 2 075	\$ (400)	\$ 2 179	\$ (2 234)	\$ (1 466)
Income per share (in USD):
Basic	\$ 0.08	\$ (0.02)	\$ 0.08	\$ (0.12)	\$ (0.07)
Diluted	\$ 0.08	\$ (0.02)	\$ 0.08	\$ (0.12)	\$ (0.07)

*Interim 2015 results have been restated as described in Note 5.

Balance Sheet

Figures in USD (000's)	30 Sept 2016	31 Dec 2015
ASSETS	Unaudited
Non-current assets
Intangible assets	\$ 1 836	\$ 1 852
Property and equipment	1 363	1 188
Other assets	553	496
Total non-current assets	3 752	3 536
Current assets
Inventory	1 324	1 786
Trade receivables and other	9 584	9 366
Cash and cash equivalents	18 293	13 060
Total current assets	29 201	24 212
Total assets	\$ 32 953 \$	27 748
EQUITY AND LIABILITIES
Equity
Share capital	\$ 416 \$	416
Share premium	76 686	76 665
Accumulated deficit	(56 334)	(58 633)
Translation and other reserves	318	198
Total equity	21 086	18 646
Non-current liabilities
Long-term debt	267	259
Total non-current liabilities	267	259
Current liabilities
Short-term debt	394	375
Accrued liabilities	1 037	862
Accrued compensation & employee benefits	1 090	1 272
Trade payables	9 079	6 334
Total current liabilities	11 600	8 843
Total liabilities	11 867	9 102
Total equity and liabilities	\$ 32 953 \$	27 748

Equity

Unaudited
	Share	Share	Translation	Other	Accumulated
Figures in USD (000's)	capital	premium	reserves	reserves	deficit	Total
Equity at January 1, 2016	\$ 416	\$ 76 665	\$ 207	\$ (9)	\$ (58 633) \$	18 646
Total comprehensive income - nine months ended Sept 30, 2016
Income for the period	-	-	-	-	2 059	2 059
Foreign currency translation adjustments	-	-	120	-	-	120
Total comprehensive income - nine months ended Sept 30, 2016	-	-	120	-	2 059	2 179
Transactions with owners - nine months ended Sept 30, 2016
Shares issued	-	21	-	-	-	21
Share based payment expense	-	-	-	-	240	240
Transactions with owners - nine months ended Sept 30, 2016	-	21	-	-	240	261
Equity at September 30, 2016	\$ 416	\$ 76 686	\$ 327	\$ (9)	\$ (56 334) \$	21 086

Unaudited
Equity at January 1, 2015	\$ 264	\$ 64 451	\$ 26 \$	(12) \$	(57 307) \$	7 422
Total comprehensive income - nine months ended Sept 30, 2015
Loss for the period*	-	-	-	-	(2 595)	(2 595)
Foreign currency translation adjustments	-	-	361	-	-	361
Total comprehensive income - nine months ended Sept 30, 2015	-	-	361	-	(2 595)	(2 234)
Transactions with owners - nine months ended Sept 30, 2015
Shares issued	152	12 874	-	2	-	13 028
Less: issuance costs	-	(829)	-	-	-	(829)
Share based payment expense	-	-	-	-	200	200
Transactions with owners - nine months ended Sept 30, 2015	152	12 045	-	2	200	12 399
Equity at September 30, 2015	\$ 416	\$ 76 496	\$ 387 \$	(10) \$	(59 702) \$	17 587

*Interim 2015 results have been restated as described in Note 5.