Quarterly Report • Oct 27, 2016
Quarterly Report
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CVR No. 34880522
Three Months Ended September 30, 2016
Published October 27, 2016
| Figures in USD (000's) | Q3 2016 | Q3 2015* | YTD 2016 | YTD 2015* | 2015 |
|---|---|---|---|---|---|
| Total Company: | Unaudited | Unaudited | Unaudited | Unaudited | |
| Revenue | 14,249 | 9,957 | 33,009 | 23,505 | 35,982 |
| Gross profit | 5,844 | 3,714 | 13,082 | 7,936 | 12,412 |
| Gross margin | 41.0% | 37.3% | 39.6% | 33.8% | 34.5% |
| Operating profit | 2,043 | (336) | 2,186 | (2,737) | (2,323) |
| Reconciliation from IFRS to EBITDA adjusted: | |||||
| Operating profit | 2,043 | (336) | 2,186 | (2,737) | (2,323) |
| Add: Depreciation and amortization | 594 | 658 | 1,909 | 1,669 | 2,390 |
| Add: Share based compensation | 115 | 50 | 240 | 200 | 321 |
| EBITDA adjusted (unaudited) | 2,752 | 372 | 4,335 | (868) | 388 |
| By Segment (Unaudited): | |||||
| Desktop: | |||||
| Desktop revenue | 12,431 | 9,440 | 29,430 | 22,506 | 34,121 |
| Desktop gross margin | 42.4% | 37.8% | 40.2% | 33.7% | 34.1% |
| Desktop EBITDA adjusted | 4,519 | 2,346 | 9,496 | 3,878 | 7,230 |
| Datacenter: | |||||
| Datacenter revenue | 1,818 | 517 | 3,579 | 999 | 1,861 |
| Datacenter gross margin | 31.9% | 27.7% | 35.4% | 35.3% | 41.8% |
| Datacenter EBITDA adjusted | (1,002) | (1,343) | (3,205) | (4,457) | (5,890) |
| Headquarters: | |||||
| Headquarters costs, net** | (765) | (631) | (1,956) | (289) | (952) |
*Interim 2015 results have been restated as described in Note 5 to the quarterly financial statements.
**Headquarters costs include intellectual property defense, HQ admin costs, litigation settlement received. Excludes share based comp.
Summary · Record quarterly and first nine months revenues
The figures below relate to the consolidated accounts for the third quarter and first nine months 2016, which comprise activities within the two segments Desktop and Data Center. The quarterly figures are unaudited.
Asetek reported total revenue of \$14.2 million in the third quarter of 2016, reflecting growth of 43% over the same period of 2015 (\$10.0 million). Total revenue in the first nine months 2016 was \$33.0 million, an increase of 40% over the same period of 2015 (\$23.5 million). The increases in both the third quarter and first nine months reflect the growth in shipment of desktop do-it-yourself ("DIY") and gaming/performance desktop PC products in 2016.
Desktop sales unit volumes for the third quarter 2016 were 262,000, reflecting growth of 27% from the same period of last year (207,000). Unit shipments for the first nine months 2016 represented a 25% increase compared with first nine months 2015. The increase in unit shipments in the third quarter and first nine months resulted from strong demand in the DIY market. Average selling prices (ASPs) per unit in the quarter increased from the third quarter 2015 due to variability in the mix of products shipped. ASPs in the first nine months of 2016 increased compared with the same period of 2015, resulting principally from the sale of newer high performing products.
Gross margin was 41.0% for the third quarter of 2016, an increase from 37.3% in the same period last year. Gross margin for the first nine months of 2016 increased to 39.6% from 33.8% in the first nine months 2015. The increase in gross margin in the third quarter 2016 reflects a change in the mix of products shipped. The increase in the gross margin in the first nine months reflects a one-time charge of \$0.8 million incurred in second quarter 2015 when Asetek decided to recall, rework and reship a bulk of DIY products as a quality assurance measure.
Total operating expense increased in the first nine months when compared with the same period of 2015, reflecting principally a \$1.8 million settlement awarded to Asetek in the second quarter of 2015 for a patent infringement lawsuit with CoolIT Systems (see Note 5 to the quarterly financial statements).
Excluding the litigation settlement, operating costs have declined in 2016. Operating expense in the third quarter 2016 declined to \$3.8 million compared with \$4.1 million in the same period of 2015. Legal costs associated with defense of existing intellectual property (IP) and securing new IP totaled \$0.4 million and \$1.1 million in the third quarter and first nine months of 2016 (\$0.4 million and \$1.5 million in the same periods of 2015), respectively. The Company reduced employee compensation costs in the third quarter and first nine months 2016, when compared with the same periods of the prior year.
Finance expenses include net foreign exchange loss of \$11,000 and \$0.1 million in the third quarter and first nine months 2016 (net \$14,000 loss and \$0.2 million gain in the respective periods of 2015).
Asetek achieved net income of \$2.1 million in the both the third quarter and first nine months of 2016, compared with net loss of \$0.4 million and net loss of \$2.6 million in the respective periods of 2015.
Asetek's total assets at September 30, 2016 amounted to \$33.0 million, an increase of \$5.2 million from December 31, 2015. The change in assets resulted principally from revenue growth which grew cash on hand by \$5.2 million during the first nine months of 2016. Trade payables increased as a result of the increase in operational activities associated with supporting the revenue growth. At September 30, 2016, total liabilities were \$11.9 million and total cash and cash equivalents were \$18.3 million.
Net cash provided by operating activities was \$7.1 million for the first nine months of 2016 (\$3.0 million used in first nine months of 2015). The operating cash provided in the first nine months of 2016 mainly relates to income generated during the period and an increase in trade payables.
Cash used by investing activities was \$2.0 million, related principally to additions in capitalized development costs. The figure compares with \$1.4 million used for the first nine months of 2015.
Cash used by financing activities in the first nine months of 2016 was \$62,000, compared with \$12.2 million provided in the first nine months of 2015.
The activity in first nine months of 2015 represents principally funds raised through private and public offerings of common stock, net of financing costs.
Net increase in cash and cash equivalents was \$5.2 million in first nine months of 2016, compared with an increase of \$8.0 million in the same period last year. Excluding equity offering transactions, the net change in cash in the first nine months of 2015 was negative \$4.1 million.
The Company reports on two distinct segments; the Desktop segment and the Data Center segment.
The two segments are identified by their specific sets of products and specific sets of customers. The splitting of operating expenses between segments is based on the Company's best judgment, and done by using the Company's employee/project time tracking system and project codes from the accounting system. Operating expenses that are not divisible by nature (rent, telecommunication expenses, etc.) have been split according to actual time spent on the two businesses, and the Company's best estimate for attribution. Costs incurred for intellectual property defense, financing, foreign exchange and headquarters administration have been classified separately as headquarters costs and excluded from segment operating expenses as indicated.
| Figures in USD (000's) | Desktop | Data center | ||
|---|---|---|---|---|
| Q3 2016 | Q3 2015 | Q3 2016 | Q3 2015 | |
| Revenues | 12,431 | 9,440 | 1,818 | 517 |
| Cost of sales | 7,164 | 5,869 | 1,238 | 374 |
| Gross Profit | 5,267 | 3,571 | 580 | 143 |
| Gross Margin | 42.4% | 37.8% | 31.9% | 27.7% |
| Total operating expenses | 748 | 1,225 | 1,582 | 1,486 |
| EBITDA adjusted | 4,519 | 2,346 | (1,002) | (1,343) |
| EBITDA margin | 36.4% | 24.9% | N/A | N/A |
| Figures in USD (000's) | Desktop | Data center | ||
|---|---|---|---|---|
| YTD 2016 | YTD 2015 | YTD 2016 | YTD 2015 | |
| Revenues | 29,430 | 22,506 | 3,579 | 999 |
| Cost of sales | 17,611 | 14,923 | 2,313 | 646 |
| Gross Profit | 11,819 | 7,583 | 1,266 | 353 |
| Gross Margin | 40.2% | 33.7% | 35.4% | 35.3% |
| Total operating expenses | 2,323 | 3,705 | 4,471 | 4,810 |
| EBITDA, adjusted | 9,496 | 3,878 | (3,205) | (4,457) |
| EBITDA margin | 32.3% | 17.2% | N/A | N/A |
| Figures in USD (000's) | Q3 2016 | Q3 2015* | YTD 2016 | YTD 2015* |
|---|---|---|---|---|
| Litigation costs | (443) | (382) | (1,104) | (1,480) |
| Litigation settlement received | - | - | - | 1,844 |
| Other headquarters costs | (322) | (249) | (852) | (653) |
| Total headquarters (costs) benefit | (765) | (631) | (1,956) | (289) |
*Interim 2015 results have been restated as described in Note 5 to the quarterly financial statements.
See reconcili ation to consolidated statement of comprehensi ve income in Key Figures table on page 1.
Asetek's desktop revenue was \$12.4 million in the third quarter and \$29.4 million in the first nine months of 2016, compared with \$9.4 million and \$22.5 million in the third quarter and first nine months of 2015, respectively. Asetek's desktop revenue grew in the third quarter of 2016 due to strong demand for do-it-yourself (DIY) and Gaming/Performance Desktop PC products.
Desktop gross margin has remained relatively stable in the past five quarters. Gross margin was unusually low in the second quarter of 2015 due to a one-time cost of \$0.8 million incurred when the Company decided to recall, rework and reship a bulk of DIY products as a quality assurance measure.
In the third quarter of 2016, Asetek's desktop revenue increased 32% from the third quarter of 2015. The increase resulted from strong demand in the DIY market and Gaming/Performance Desktop PC markets in the third quarter 2016 compared with the same period of 2015. During the third quarter, Asetek began shipping four new products in the Gaming/Performance Desktop PC market, including liquid cooling for HP's new ultra-high end gaming system, the OMEN X.
In first nine months of 2016, desktop revenue increased 31% from the first nine months of 2015 due to strong growth in the DIY market in the first and third quarter of 2016. Increased shipments in the Gaming/Performance Desktop PC market also accounted for part of this growth.
Revenue variability by quarter is expected to continue. The Company expects desktop segment revenues to exceed \$43 million in 2016.
Gross margins in the third quarter 2016 improved from the same period last year due to a change in the mix of products shipped. In the first nine months of 2016, margins increased from the same period of the prior year due to a one-time \$0.8 million cost incurred for quality measures in the second quarter of 2015. Gross margins in the fourth quarter of 2016 are expected to approximate margins achieved in the third quarter of 2016.
Overall, the high-end desktop market continues to thrive despite the challenges facing the total PC industry. The growth in high performance and gaming PCs is driven in part by customers' desire for a more immersive gaming experience, which is increasing demand for new technologies such as 4K screen resolution and virtual reality capability. These new technologies in turn require high performing graphics processors (GPUs), which also demand advanced cooling. As a result, 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. Compared with 2015, Asetek is on track to double its revenue from GPU cooling products in 2016 and expects continued growth from this market segment in the future.
Asetek's data center revenue was \$1.8 million in the third quarter and \$3.6 million in the first nine months of 2016, compared with \$0.5 million and \$1.0 million in the third quarter and first nine months of 2015, respectively. The increases in both periods were driven principally by shipments to the Company's principal OEMs.
Data center gross margins increased in the third quarter of 2016 compared with the same period of 2015 but declined from recent quarters. Third quarter 2016 results include implementation costs for new products delivered on OEM installations. Gross margins also fluctuate due to variability in the mix of deliverables on government contracts relative to the volume of product shipments to OEMs.
While Asetek continues the implementation of its data center strategy, costs are driven by investments in technology development, product marketing, and sales development with data center partners and OEM customers.
As the high performance computing (HPC) industry struggles with balancing the contrary requirements of increasing performance and reducing energy consumption, the adoption of Asetek's liquid cooling products has accelerated. The Company has major liquid cooling installations at multiple HPC sites in the U.S., Japan and Europe. To drive growth in this market, Asetek continues to invest in technology development, product marketing and sales activities with data center partners and OEM customers.
In the third quarter, Asetek shipped \$1.3 million of RackCDU Direct to Chip™ products to Fujitsu Technology Solutions GmbH (Fujitsu). 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 include an installation at the Joint Center for Advanced High Performance Computing (JCAHPC) in conjunction with University of Tokyo and Tsukuba University, as well as an undisclosed installation in Germany. The Fujitsu OEM relationship has generated \$1.6 million of revenue for Asetek in 2016.
During the quarter, the Company shipped \$0.2 million to Penguin Computing, Inc., an OEM that incorporates RackCDU D2C™ liquid cooling into its Tundra™ Extreme Scale (ES) HPC 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 Penguin Relion 2900 server. Though shipments planned for the fourth quarter have been deferred to next year, the OEM relationship with Penguin is expected to continue to generate material revenue for the Company in 2017.
During the third quarter, Asetek continued activities on its \$3.5 million contract with the California Energy Commission. The Company completed
conversion of the "Cabernet" supercomputer at Lawrence Livermore National Laboratory to liquid cooling. This is the first of two data centers scheduled to be converted during this two-year contract. Through the third quarter of 2016, Asetek has generated cumulative revenue of \$0.4 million from this contract in 2016 and \$1.0 million since contract inception in 2015.
Progress on Asetek's three-year contract with the U.S. Department of Defense (DoD), which previously paused while the DoD relocated the project to a different site, has restarted. Facilities work and equipment transition to the new site began in the third quarter. Revenue is expected to ramp in the fourth quarter of 2016.
Asetek's progress in the data center market indicates a broadening acceptance of liquid cooling in the HPC market, and high-power technologies such as Intel's family of Xeon Phi processors are supporting this development. Working closely with ecosystem partners such as Intel, and large OEM's such as Fujitsu, has enabled Asetek to connect with a wide array of companies and institutions exploring the Company's liquid cooling solutions. Furthermore, the significant cost savings and efficiency of Asetek's RackCDU installations in largescale deployments is garnering attention from decision makers across the industry.
Asetek's strategy in the data center market is to increase end-user adoption within existing OEM customers, and to add new OEM customers. The Company plans to achieve this by continuing to develop and defend its market-leading technology and leverage the successful performance achieved at its installed base of universities, enterprises and government entities. The Company expects significant revenue growth in the data center segment in 2016 compared with 2015. Future revenue and operating results are however expected to fluctuate as partnerships with large OEMs are developed.
Asetek holds a portfolio of intellectual property (IP) rights including patents providing competitive advantages and high barriers to entry for competitors. Currently Asetek has pending patent and utility model applications worldwide, with additional applications under preparation.
As part of efforts to build and maintain its market share, the Company continues to closely review and assess all competitive offerings for infringement of its patents. The Company has strengthened its intellectual property platform and competitiveness via several positive lawsuit outcomes in prior years.
In December 2014, the U.S. District Court unanimously ruled in favor of Asetek on all claims in a patent infringement lawsuit against CMI USA, Inc. ("CMI"). The jury awarded Asetek damages of \$0.4
million, representing a 14.5% royalty on CMI's infringing sales since 2012, and the court issued a permanent injunction barring CMI from selling infringing products in the U.S. In October 2015, CMI filed an appeal with the Federal Circuit U.S. Court of Appeals. The appeal is expected to be addressed by the court in 2016. During the appeal, the court's injunction against CMI remains in effect. In January 2016, the U.S. District Court denied a motion by CMI to suspend the injunction.
In April 2016, Asetek initiated patent infringement proceedings against Cooler Master before the District Court The Hague in the Netherlands. The proceedings pertain to European Patent EP 1 923 771 owned by Asetek. A decision in first instance is expected in mid-2017.
In 2015, the Company recognized \$1.8 million of income from a litigation settlement at the time the payments were received in the third and fourth quarters of 2015. In June 2016, the Danish Business Authority issued an enforcement decision indicating
The Company has historically incurred operating losses and is in the development stages of its data center business.
The Company's revenue growth is dependent on the market acceptance of its data center offerings and the release of new products from server OEM customers to facilitate its trial system deployments. Revenue in the desktop segment is subject to fluctuations and is dependent, in part, on the popularity and new releases of end user products by Asetek's customers.
In first nine months of 2016, one customer accounted for 59% of total revenue. In the event of a decline or loss of this significant customer, replacement of this revenue stream would be difficult for Asetek to achieve in the short term. Asetek is actively pursuing strategies to broaden its customer base in efforts to mitigate this risk.
Asetek relies upon suppliers and partners to supply products and services at competitive prices. Asetek's desktop products have been historically assembled by a single contract manufacturer which may be difficult to substitute in the short term if the need should arise. The Company added a second contract manufacturer in 2015 to assume a portion that the income from the settlement should have been recognized in full at the time the settlement was awarded in the third quarter of 2015. As a result, this change is reflected in the 2015 results presented in this Report.
of the manufacturing volume. Asetek also mitigates the supplier risk with Company-owned supplemental manufacturing lines which can be utilized if necessary.
Asetek has filed and defended lawsuits against competitors for patent infringement. While some of the recent cases have been settled or dismissed, some may continue, and new cases may be initiated. Such cases may proceed for an extended period and could potentially lead to an unfavorable outcome to Asetek. Asetek has incurred significant legal costs associated with litigation and may continue to do so in the future to the extent management believes it is necessary to protect intellectual property.
Asetek operates internationally in Denmark, USA, China, and Taiwan and is subject to foreign exchange risk. As of September 30, 2016, its principal cash holdings are maintained in deposit accounts in U.S. dollars and Danish krone.
A more thorough elaboration on risk factors can be found in the Company's prospectus dated March 23, 2015, available from the Company's website:
| 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) |
These financial statements should be read in conjunction with the accompanying notes.
*Interim 2015 results have been restated as described in Note 5.
| 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 |
These financial statements should be read in conjunction with the accompanying notes.
| 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 |
These financial statements should be read in conjunction with the accompanying notes.
*Interim 2015 results have been restated as described in Note 5.
| Figures in USD (000's) | YTD 2016 | YTD 2015* | FY 2015 |
|---|---|---|---|
| Unaudited | Unaudited | ||
| Cash flows from operating activities | |||
| Income (loss) for the period | \$ 2,059 |
\$ (2,595) \$ |
(1,647) |
| Depreciation and amortization | 1,909 | 1,669 | 2,390 |
| Finance costs (income) | 29 | 48 | 67 |
| Income tax expense (income) | 3 | 28 | (438) |
| Impairment of intangible assets | 6 | - | - |
| Cash receipt (payment) for income tax | (3) | (5) | 934 |
| Share based payments expense | 240 | 200 | 321 |
| Changes in trade receivables, inventories, other assets | 287 | (4,747) | (6,937) |
| Changes in trade payables and accrued liabilities | 2,594 | 2,355 | 4,243 |
| Net cash provided by (used in) operating activities | 7,124 | (3,047) | (1,067) |
| Cash flows from investing activities | |||
| Additions to intangible assets | (1,402) | (1,111) | (1,489) |
| Purchase of property and equipment | (549) | (332) | (882) |
| Net cash used in investing activities | (1,951) | (1,443) | (2,371) |
| Cash flows from financing activities | |||
| Funds drawn (paid) against line of credit | (5) | 80 | 90 |
| Proceeds from issuance of share capital | 21 | 13,028 | 13,148 |
| Cash paid for fees related to financing | - | (829) | (832) |
| Principal and interest payments on finance leases | (78) | (53) | (76) |
| Net cash provided by (used in) financing activities | (62) | 12,226 | 12,330 |
| Effect of exchange rate changes on cash and cash equivalents |
122 | 310 | (2) |
| Net changes in cash and cash equivalents | 5,233 | 8,046 | 8,890 |
| Cash and cash equivalents at beginning of period | 13,060 | 4,170 | 4,170 |
| Cash and cash equivalents at end of period | \$ 18,293 |
\$ 12,216 |
\$ 13,060 |
| Supplemental disclosures - | |||
| Property and equipment acquired under finance leases | \$ 97 |
\$ - |
\$ 76 |
These financial statements should be read in conjunction with the accompanying notes.
*Interim 2015 results have been restated as described in Note 5.
Asetek A/S ('the Company'), and its subsidiaries (together, 'Asetek Group', 'the Group' or 'Asetek') designs, develops and markets thermal management solutions used in computers and data center servers. The Group's core products utilize liquid cooling technology to provide improved performance, acoustics and energy efficiency. The Company is based in Aalborg, Denmark with offices in USA and China. The Company's shares trade on the Oslo Stock Exchange under the symbol 'ASETEK'.
These condensed consolidated financial statements for the quarter and nine months ended September 30, 2016 have been prepared on a historical cost convention in accordance with International Accounting Standard 34 (IAS 34) 'Interim Financial Reporting' as adopted by the European Union (EU) and do not include all of the information and disclosure required in the annual consolidated financial statements. These statements should be read in conjunction with the Asetek A/S 2015 Annual Report.
The accounting policies adopted in preparation of these condensed consolidated financial statements are consistent with those followed in the preparation of the Company's annual consolidated financial statements for the year ended December 31, 2015.
The Group operates in an industry where seasonal or cyclical variations in total sales are not normally experienced during the financial year.
In April, 2016, the Company granted a total of 600,000 warrants to management and board members. Each warrant has an exercise price of NOK 19.50 (USD \$2.40) per share and becomes exercisable gradually over a period of one or four years.
At September 30, 2016, there are 24.8 million common shares outstanding and 0.5 million shares in treasury. Treasury shares may be used to fulfill share options and warrants outstanding totaling approximately 2.1 million. Share based payment expense associated with total warrants and options outstanding was \$0.2 million and \$0.2 million in the nine months ended September 30, 2016 and 2015, respectively.
In March 2015, the Company raised \$12.4 million in gross proceeds through a private placement of 10 million new common shares, each with a par value of DKK 0.10, at a price of NOK 10.00 per share. In April 2015, the Company raised \$0.6 million in gross proceeds through the public issuance of an additional 480 000 new shares, each with a par value of DKK 0.10, at a price of NOK 10.00 per share.
The Group's business includes a significant element of research and development activity. Under IAS 38, there is a requirement to capitalize and amortize development spend to match costs to expected benefits from projects deemed to be commercially viable. Costs capitalized are recorded on the balance sheet as intangible assets, net of amortization. In the first nine months of 2016, the Company capitalized approximately \$1.4 million of development costs and recorded amortization of approximately \$1.4 million (capitalized costs of \$1.1 million and amortization of \$1.4 million in the first nine months of 2015).
IAS 33 requires disclosure of basic and diluted earnings per share for entities whose shares are publicly traded. Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by adjusting the number of common shares outstanding used in the Basic calculation for the effect of dilutive equity instruments, which include options, warrants and debt or preferred shares that are convertible to common shares, to the extent their inclusion in the calculation would be dilutive.
| Third Quarter | ||
|---|---|---|
| Q3 2016 | Q3 2015* | |
| Income (loss) attributable to equity holders of the Company (USD 000's) | \$ 2,055 |
\$ (383) |
| Weighted average number of common shares outstanding (000's) | 24,842 | 24,710 |
| Basic income (loss) per share | \$ 0.08 |
\$ (0.02) |
| Weighted average number of common shares oustanding (000's) Instruments with potentially dilutive effect: |
24,842 | 24,710 |
| Warrants and options | 759 | - |
| Weighted average number of common shares oustanding, diluted | 25,601 | 24,710 |
| Diluted income (loss) per share | \$ 0.08 |
\$ (0.02) |
| First Nine Months | ||
| YTD 2016 | YTD 2015* | |
| Loss attributable to equity holders of the Company (USD 000's) | \$ 2,059 |
\$ (2,595) |
| Weighted average number of common shares outstanding (000's) | 24,837 | 21,499 |
| Basic loss per share | \$ 0.08 |
\$ (0.12) |
| Weighted average number of common shares oustanding Instruments with potentially dilutive effect: |
24,837 | 21,499 |
| Warrants and options | 560 | - |
| Weighted average number of common shares oustanding, diluted | 25,397 | 21,499 |
| Diluted income (loss) per share | \$ 0.08 |
\$ (0.12) |
*Interim 2015 results have been restated as described in Note 5.
Potential dilutive instruments are not included in the calculation of diluted loss per share for the third quarter and first nine months 2015 because the effect of including them would be anti-dilutive.
In 2015, the Company recognized \$1.8 million of income from a litigation settlement at the time the payments were received in the third and fourth quarters of 2015. On June 15, 2016 the Danish Business Authority issued an enforcement decision indicating that the income from the settlement should have been recognized in full at the time the settlement was awarded in the second quarter of 2015, and presented as a separate line item on the financial statements. As a result, this change is reflected in the 2015 results in the consolidated statement of comprehensive income and other affected schedules in this Report. The following tables present the effect of the change:
| Figures in USD (000's ) | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 |
|---|---|---|---|---|---|
| Income (loss) for the period - reported in 2015 | \$ (2,557) \$ |
(1,499) \$ | 94 | \$ 2,315 |
\$ (1,647) |
| Change to timing of income from litigation settlement | \$ - |
\$ 1,844 |
\$ (477) \$ |
(1,367) \$ | - |
| Income (loss) for the period - revised | \$ (2,557) \$ |
345 | \$ (383) \$ |
948 | \$ (1,647) |
| Q3 2015 | 9 months YTD 2015 | |||||
|---|---|---|---|---|---|---|
| Figures in USD (000's) | Revised | Original | Change | Revised | Original | Change |
| Research and development | 884 | 884 | - | 2,968 | 2,968 | - |
| Selling, general and administrative | 3,166 | 2,689 | 477 | 9,549 | 9,072 | 477 |
| Other income | - | - | - | (1,844) | - | (1,844) |
| Total operating expenses | 4,050 | 3,573 | 477 | 10,673 | 12,040 | (1,367) |
| Operating income | (336) | 141 | (477) | (2,737) | (4,104) | 1,367 |
| Income before tax | (366) | 111 | (477) | (2,567) | (3,934) | 1,367 |
| Income for the period | (383) | 94 | (477) | (2,595) | (3,962) | 1,367 |
| Total comprehensive income | (400) | 77 | (477) | (2,234) | (3,601) | 1,367 |
| Income per share - basic (USD) | (0.02) | 0.00 | (0.02) | (0.12) | (0.18) | 0.06 |
| Income per share - diluted (USD) | (0.02) | 0.00 | (0.02) | (0.12) | (0.18) | 0.06 |
| As of September 30, 2015 | |||
|---|---|---|---|
| Fi gures in USD (000's ) | Revised | Original | Change |
| Assets: | |||
| Trade receivables and other | 7,976 | 6,609 | 1,367 |
| Total current assets | 21,782 | 20,415 | 1,367 |
| Total assets | 25,066 | 23,699 | 1,367 |
| Equity and Liabilities: | |||
| Accumulated deficit | (59,702) | (61,069) | 1,367 |
| Total equity | 17,587 | 16,220 | 1,367 |
| Total equity and liabilities | 25,066 | 23,699 | 1,367 |
In addition to the Company's grant of warrants referenced in Note 2, the following represent additional transactions with related parties. The Company's chairman is a member of the board of directors of Corsair, a customer of the company. During the nine months ended September 30, 2016 and 2015, Asetek had sales of inventory to Corsair of \$17.8 million and \$13.8 million, respectively. As of September 30, 2016 and 2015, Asetek had outstanding trade receivables from Corsair of \$4.9 million and \$3.1 million, respectively.
The Company's CEO serves as Chairman of the Board for a vendor that supplies services to the Company. In the nine months ended September 30, 2016 and 2015, the Company purchased services totaling approximately \$0.2 million and \$0.2 million, respectively, from this vendor.
Since 2011, the Company's annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Previously, the Company's consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). The following represent the principal effects to Asetek's financial statements as a result of this change:
Intangible assets. Capitalization of costs associated with product development is required under IFRS but is not required under GAAP. Intangible assets of \$1.84 million on the Company's balance sheet at September 30, 2016 represent the capitalization of product development costs, net of amortization. The associated amortization over the products' lifecycle is charged as an operating expense.
Share based compensation. IFRS requires that each installment of a share based payment award be treated as a separate grant and separately measured and attributed to expense over the vesting period. As a result, calculation of share based payment expense under IFRS generally results in recognition of a greater amount of expense earlier in the life of the option grant than the comparable calculation under GAAP.
| Figures in USD (000's) | Desktop | Data center | ||
|---|---|---|---|---|
| Q3 2016 | Q3 2015 | Q3 2016 | Q3 2015 | |
| Revenues | 12,431 | 9,440 | 1,818 | 517 |
| Cost of sales | 7,164 | 5,869 | 1,238 | 374 |
| Gross Profit | 5,267 | 3,571 | 580 | 143 |
| Gross Margin | 42.4% | 37.8% | 31.9% | 27.7% |
| Total operating expenses | 748 | 1,225 | 1,582 | 1,486 |
| EBITDA adjusted | 4,519 | 2,346 | (1,002) | (1,343) |
| EBITDA margin | 36.4% | 24.9% | N/A | N/A |
| Figures in USD (000's) | Desktop | Data center | ||
|---|---|---|---|---|
| YTD 2016 | YTD 2015 | YTD 2016 | YTD 2015 | |
| Revenues | 29,430 | 22,506 | 3,579 | 999 |
| Cost of sales | 17,611 | 14,923 | 2,313 | 646 |
| Gross Profit | 11,819 | 7,583 | 1,266 | 353 |
| Gross Margin | 40.2% | 33.7% | 35.4% | 35.3% |
| Total operating expenses | 2,323 | 3,705 | 4,471 | 4,810 |
| EBITDA, adjusted | 9,496 | 3,878 | (3,205) | (4,457) |
| EBITDA margin | 32.3% | 17.2% | N/A | N/A |
| Figures in USD (000's) | Q3 2016 | Q3 2015* | YTD 2016 | YTD 2015* |
|---|---|---|---|---|
| Litigation costs | (443) | (382) | (1,104) | (1,480) |
| Litigation settlement received | - | - | - | 1,844 |
| Other headquarters costs | (322) | (249) | (852) | (653) |
| Total headquarters (costs) benefit | (765) | (631) | (1,956) | (289) |
*Interim 2015 results have been restated as described in Note 5 to the quarterly financial statements.
See reconcili ation to consolidated statement of comprehensi ve income in Key Figures table on page 1.
The Board of Directors and the Management have considered and adopted the Third Quarter Report of Asetek A/S for the period 1 January – 30 September 2016. The Interim Report is presented in accordance with the International Accounting Standard IAS 34 on Interim Financial Reporting as adopted by the European Union and additional Danish disclosure requirements. The accounting policies applied in the Interim Report are unchanged from those applied in the Group's Annual Report for 2015.
We consider the accounting policies appropriate, the accounting estimates reasonable and the overall presentation of the Interim Report adequate. Accordingly, we believe that the Interim Report gives a true and fair view of Asetek's financial position, results of operations and cash flows for the period.
In our opinion, the Interim Report includes a true and fair account of the matters addressed and describes the most significant risks and elements of uncertainty facing Asetek. The Interim Report has not been audited or reviewed by the auditors.
Asetek A/S Aalborg, 26 October 2016
André S. Eriksen CEO
Peter Dam Madsen CFO
Board of Directors:
Sam Szteinbaum Chairman
Chris J. Christopher Member
Jim McDonnell Member
Joergen Smidt Member
Knut Øversjøen Member
Peter Gross Member
Asetek A/S - Third Quarter Report 2016
André S. Eriksen, CEO: +45 2125 7076
Peter Dam Madsen, CFO: +45 2080 7200
Assensvej 2 DK9220 Aalborg East Denmark
| Phone: | +45 9645 0047 |
|---|---|
| Fax: | +45 9645 0048 |
| Web site: | www.asetek.com |
| Email: | [email protected] |
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