Materialise NV (MTLS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Materialise Fourth Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I'd now like to turn the conference over to Jody Burfening. Ma'am, you may begin.

Thank you, Candice; and thank you, everyone, for joining us today for Materialise's fourth quarter earnings conference call. With us on the call are Fried Vancraen, Founder of Materialise and Chief Executive Officer; Peter Leys, Executive Chairman; and Frederic Merckx, Chief Financial Officer.

Today's call and webcast are being accompanied by a slide presentation that reviews Materialise's strategic, operational, and financial performance for the fourth quarter. To access the slides if you have not done so already, please go to the Investor Relations section of the Company's website at www.materialise.com. The earnings press release that was issued earlier this morning can also be found on this page.

Before we get started, I would like to remind you that management may make forward-looking statements regarding the Company's plans, expectations, and growth prospects, among other things. These forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed, including competitive dynamics and industry change.

Any forward-looking statements, including those related to the Company's future results and activities, represent management's estimates as of today and should not be relied upon as representing the estimates as of any subsequent day. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that may impact the Company's future business or financial results can be found in the prospectus filed with the SEC on June 26, 2014.

Finally, on today's call, management will discuss certain non-IFRS measures. A reconciliation table is contained in the earnings release and at the end of the slide presentation.

With those housekeeping matters out of the way, I would now like to turn the call over to Materialise's Executive Chairman, Peter Leys. Peter?

Thanks, Jody, and thanks to everyone for joining us today for our fourth quarter earnings call. To begin, if you could please turn to today's agenda on slide three. First, I'm going to summarize some of our financial highlights; then, Fried will take over and discuss our strategic investments of 2014; after that, Frederic will give you more details on our financial results; then, I will come back and discuss our key 2015 operational goals and walk you through our guidance for 2015. And then, finally, we will open the floor for Q&A.

But let's start with a helicopter view of our fourth quarter and full-year performance on slide four. When we look back at our final quarter of 2014, there are two things that strike us as being particularly relevant. First, during the period, and this frankly much like our second and third quarters, we executed the strategy that we laid out as part of the IPO process and that is a strategy of investing heavily in the near term in both sales and marketing as well as in product development, with a view to accelerating our growth in the mid to long term. Secondly, and once again, we've successfully combined the execution of our strategic investment plan with a strong and consistent short-term financial performance.

So first, let's look at our topline. In Q4, revenue increased by almost 21% to EUR23.6 million. This growth was driven by an exceptionally strong gain in our 3D printing software segments as well as by double-digit growth in both our medical and other industrial production segments. When we exclude the OrthoView revenues, which we only started consolidating during the past quarter, we still post an impressive 16% organic growth compared to last year's final quarter.

Now, the next two metrics on this slide four clearly show where we are heading. In the fourth quarter, 3D printing software sales increased 51%; and our total software sales, both 3D printing and medical, represented 35% of total revenues. This compares to only 27% in Q4 of 2013.

Turning now to the bottom line, our adjusted EBITDA was EUR927,000 in quarter four, which represents 3.9% of revenue. This is admittedly lower than Q4 last year, but still represents a meaningful achievement to us, given the fact that our sales and marketing and R&D expenses increased by approximately EUR4.4 million in the aggregate.

And now, I'll turn it over to Fried, who will discuss our 2014 strategic investments.

Thank you, Peter. Good morning and good afternoon to everyone. Please turn to slide 5. As we told in our IPO road show and on our second and third quarter conference calls, our objective in raising capital brought to get the resources to aggressively invest in 2014 and 2015, and this with the flexibility to deploy the capital wisely, making sound buy or build decisions to derive long-term revenue and earnings growth as efficiently as possible.

I'm really proud to report that we made good progress on each of the initiatives we outlined in our IPO road show. Now that 2014 has come to an end, I want to summarize the investment we made during the year and their strategic rationale. We started investing prudently in the first half of the year in anticipation of completing the IPO, and we intensified our spending in the second half of the year to achieve full speed in the fourth quarter.

Let's start with the investments we made in expanding our sales and marketing teams worldwide. Against this objective, we increased our sales and marketing spending in 2014 by approximately EUR5.2 million or roughly 23%, up to EUR27.5 million. This is in large part due to the increase of the size of our sales and marketing workforce that increased by 38%. The majority of those new employees were hired to support activities in the sales of our software products, both 3D printing and medical, which is clearly in line with our strategy. Because of the care we took in hiring these salespeople, the majority of the hires were made towards the end of the third and during the fourth quarter.

Complementing the sales expansion, we established a separate team dedicated to closer collaboration with the 3D printing manufacturers. The successful launch of our build processor program is to a large extent attributable to this team and we expect to be able to announce several successes in the quarter of 2015.

Lastly, we opened and staffed an office in China to move closer to the manufacturers there. It's early days, but we now have a foothold in the large market that we believe offers substantial long-term growth for Materialise.

Well, we now move to the Research and Development efforts. We invested approximately EUR15.1 million during 2014, an increase of approximately EUR4.5 million or roughly 42% as compared to last year. Our R&D headcount grew by 28%. In our 3D printing software segment, our build processor program is a good example of a successful R&D program. It has already yield incremental sales for us. The program has correctly anticipated to increase interest by OEMs in investing as it is manufacturing as parts of their end part production purchases; in particular, in highly regulated markets such as aerospace or healthcare.

We continue to advance our X-ray project and currently expect to file with the FDA mid-2015. We believe that we are still on track to see revenue growth from the X-ray program in 2016.

We also initiated programs to further penetrate the market for high-value end product printing such as the SCHUNK eGrip platform or the RSPrint customized insoles.

Finally, we dedicated R&D resources to commercialize our metal printing capabilities. We acquired two metal printers to bring metal printing of implants in-house and have completely validated this production process for medical use.

On the capital expenditure side, we purchased 18 printers during the year; and as part of our plan to expand Materialise printing capacity. And following the expiration of the Red Eye collaboration in 2014, we also acquired all 34 FDM printers that we operated as part of this collaboration.

From an M&A perspective, we acquired and integrated the operations of e-Prototypy, a 3D printing service bureau based in Poland; and we acquired OrthoView last quarter, giving us new channels to distribute our surgical preplanning software tools and related 3D printing products. In 2015, we will further continue to advance those initiatives, but this will be later explained by Peter.

Now, I will turn the call over to Frederic to take you through our financial results for the fourth quarter.

Thank you, Fried. Let's turn to slide 6. During the fourth quarter of 2014, we increased our revenue by almost 21%. Revenue from software sales, both 3D printing and medical software, represented 35% of total Q4 revenue. This is the highest percentage that we have ever reported. Revenue from end part manufacturing, including medical end parts, represented 38% of Q4 revenue. The remaining 27% was generated through sales of prototyping business.

In terms of our segment breakdown for the full year, both 3D printing software and industrial production increased their relative revenue share. 3D printing software grew to 22% of total revenue and industrial production grew to 41% of total revenue.

Slide 7 shows our corresponding adjusted EBITDA numbers for the fourth quarter. As a result of a significant EUR4.4 million increase in sales and marketing and R&D spending, adjusted EBITDA decreased by EUR1.4 million to EUR0.9 million. The adjusted EBITDA margin for the fourth quarter of 2014 was 3.9%. Please be aware that we fully expensed R&D spending during the period.

As illustrated, our higher margin software segment increased its contribution to consolidated adjusted EBITDA, generating 62% of the total for the full year compared to 46% for the prior full year.

Slide 8 shows the Q4 financial performance of our 3D printing software segment. Topline growth of 51% was well above the rate at which the overall 3D printing industry has been growing and resulted from a 65% year-over-year revenue increase from new software licenses.

Another positive metric in Q4 was a 51% gain in software sales generated from or through printer OEMs.

Finally, sales in Asia, one of the key growth drivers in the segments, increased by 46% for the full year, as we continue to pursue emerging opportunities in this region, particularly in China. Q4 EBITDA growth for the software segment was 30% and the EBITDA margin was 30.7%. The margin decline in the fourth quarter was due to a EUR1.3 million increase in sales and marketing and R&D expenses; and as we have discussed in our last two calls, we expect these investments to reduce EBITDA margin in the segments from the levels achieved in the first half of 2014.

Turning to slide nine, you will see that the quarterly revenue growth in our medical segments continues to improve, reaching 18% this quarter, which represents a 5% organic growth. Medical software revenue in Q4 increased by 80% from the prior year due to the accelerated conversion from perpetual to annual software licenses and sales contributed by OrthoView. Excluding OrthoView, medical software sales rose by 16%.

Revenue from our direct sales of guides and implants increased by 54% over last year's fourth quarter, offsetting a decrease in revenue from medical collaboration partners, which saw its percentage of Q4 segment sales decline to 52% from 66% in the prior periods. Fourth quarter EBITDA for the medical segments declined to EUR0.5 million from EUR1.1 million in the prior year due to the EUR1.6 million increase in investments in sales and marketing and R&D expenses. As a result, EBITDA margin declined 5.7% from 15% last year.

On slide 10, you will find the performance of our industrial production segments. We delivered a revenue increase of 14% for Q4 2014. The sale of end parts in the fourth quarter rose by 40% over last year's periods, as we continue to add and expand key automotive and aerospace accounts. Sales from our two growth businesses, RapidFit and i.materialise, rose 76% in the quarter.

Our Q4 EBITDA in these segments decreased to a small loss of EUR38,000 from a profit of EUR293,000 last year. Excluding the growth businesses from Q4 segment results, our EBITDA margin drops to 13.1% versus 16.4% for the prior year as a result of increased sales and marketing activities. The profitability of the two growth businesses, i.materialise and RapidFit, have suffered during the fourth quarter from delay in revenue recognition as well on the new franchising contracts for i.materialise which need to be recognized over the duration of the contracts as for some projects at RapidFit for which final deliveries have been delayed to the first quarter of 2015.

Slide 11 provides the highlights of our income statement. Our fourth quarter gross margin rose 510 basis points to 59.5% from 54.4% last year, largely due to a greater mix of software revenue. (technical difficulty) to removing tax exemptions for qualifying researchers and partial funding of R&D projects versus a comparable income of EUR0.6 million in the prior period. With higher gross profits only partially compensating for the increases in operating expenses, the Q4 operating profit dropped by EUR2.4 million compared to the same quarter of last year. Financial income for the fourth quarter of 2014 rose to EUR368,000 from a loss of EUR491,000 in the prior-year quarter due to a foreign exchange gain on the portion of IPO proceeds kept in US dollar.

We've provided you with some additional financial highlights on slide 12. The biggest year-to-date changes on our balance sheet came from our June IPO, which net it was $89 million. We currently have over EUR50 million in cash and equivalents and another EUR10 million held in the held to maturity investments, and a very manageable debt to equity ratio. The EUR6 million increase in receivables is partially related to the inclusion of OrthoView in our consolidation as from October 2014 as well as a result of the importance relative increase in revenue during November-December 2014 compared to the same months of previous year.

Our capital spending in Q4 of 2014 more than tripled to almost EUR5.4 million from the prior year's level, while our cash flow from operations dropped to a negative EUR419,000 as a result of lower EBITDA and increase in working capital associated with higher sales.

With that overview, I will turn the call back to Peter to discuss our growth strategy.

Thanks, Frederic. Now, if you would all please turn to slide 13. The first column of this slide summarizes our operational goals for 2015. The second column shows which initiatives we have already identified earlier in 2014 and which we have shared with you during the IPO; and clearly, we will continue to advance these initiatives in the current year. The third column identifies those opportunities that we identified subsequent to our IPO and that we have added to our budgets of 2015. And finally, the last column shows the initiatives that are extremely high on our priority list for the current quarter Q1 of 2015.

Let's turn to our 3D printing software segment first. To begin, in 2015, we want to further expand the product offering of our 3D printing software segments. Fried already alluded to it. The introduction of Additive Manufacturing in the production process of end parts requires sophisticated tools that enable the manufacturers to closely monitor and control the quality of the production process. To address and anticipate this need, we have decided to invest in additional products that will complement our current suite of software solutions for end part manufacturing. This initiative, which will require significant additional product development efforts in 2015, is not only very recent, it also ranks extremely high on our priority lists. In the near future, we hope to be able to give you more details on this addition to our 3D printing software portfolio.

Already in the second half of last year, we launched our build processors program, which has quite frankly received extremely good traction in the markets. So in 2015, we definitely intend to add new build processors to our portfolio. And in this respect, I would like to refer you to the press release of earlier today that announced the launch of our build processor program with Renishaw.

Finally, we will continue to focus on Asia. Our new office in China is not just a sales office, but also a development center. Each collaboration with a new local player there requires important product development efforts.

Turning to medical, here is what we plan to focus on in 2015. An important goal for the current year is the introduction of our 3D surgical planning solutions into the 2D pre-operative planning tool box of OrthoView. As you know, OrthoView had a strong and very well-respected 2D product line that we will continue to foster and expand globally. At the same time, however, an important rationale for the acquisition was to leverage the OrthoView brand and distribution channel and to accelerate the introduction of our own 3D solutions on the markets. So the integration of our own product offering into the OrthoView portfolio will require important R&D efforts that [we] intends to greatly intensify in the course of 2015.

Moving on, still on the medical, as Fried already explained, we will continue to advance our X-ray project this year.

Thirdly, with respect to metal printing of medical devices, Fried already announced that we made extremely good progress in the current quarter as we completed the validation of our in-house production process. Our focus for the remainder of the year will be to expand the range of medical products that we will print in-house and on the commercialization of these devices.

And finally, for medical, we intend to continue investing in the global sales of our complex surgery product line. As part of that strategy, we recently decided to expand the range of our Mobelife solutions, which will again imply additional product development work. These plants prompted us by the way to acquire the remaining 20% of the Mobelife shares that we did not yet own at the time of the IPO.

Now, here are the 2015 priorities for our industrial production segment. First, we have decided to also include metal printing in the technology offering of our industrial production segment. In that respect, I'm pleased to announce that already in the first half of the current quarter, we have made good progress on this priority. As a matter of fact, since the beginning of this week, our service offering officially includes aluminum printing services. We were able to include this offering immediately in our commercial portfolio and thus avoid a typically time-consuming learning curve through the acquisition of a small local company that has operated a Renishaw 3D printing machine commercially for over a year now.

In 2015, we intend to expand our aluminum printing capacity and we're also gearing up to add other metal materials to our technology range. In 2015, we also intend to continue to monetize the i.materialise 3D printing platform by signing agreements similar to the one that we signed with UCT last December.

And finally, RapidFit is very determined to expand its footprint in the US automotive fixtures markets through M&A activity. While the timing of M&A is typically very unpredictable, we have put this expansion very high on our to do list for 2015. And as a reminder, any acquisition, as is also the case with OrthoView, will require additional investments to integrate the products.

So as you can see, 2015 will be another busy year, and in particular another year of heavy investment in R&D and sales and marketing. During our IPO, and our second and third quarter conference calls, we indicated that 2014 and 2015 would be years of heavy investments as we expand our product offering and build our sales and marketing presence globally.

Well, in 2015, we intend to continue to implement our investment plans, but not only with respect to the initiatives that we had in our pipeline at the time of the IPO, but also with respect to some of the new opportunities that have come into our line of sight since then.

In a dynamic and rapidly growing markets like Additive Manufacturing, flexibility and speed are key. We are convinced that seizing the new opportunities that we have included in our 2015 budget now is the right course of action for Materialise. We have worked hard to achieve our leadership position in the carefully chosen subsegments of the Additive Manufacturing space where we operate today. The stronger-than-expected 2014 revenue growth, in particular in software, demonstrates that we are very well positioned in the market and that our strategy works. In order to strengthen that leadership position and to widen the competitive gap even further, we have decided to put the funds we raised last June to work even faster than contemplated last summer.

So now, if you would turn to slide 14, I will take you through our guidance for fiscal 2015. We expect to report full-year consolidated revenue between EUR99 million and EUR101 million. This represents a growth of 22% to 24%, which is stronger than we had initially anticipated. Our plans to foster this growth and to make it even more sustainable by greatly accelerating the pace of investments in R&D and sales and marketing will impact profitability for 2015. And we expect to report adjusted EBITDA of between EUR4 million and EUR5 million, for an adjusted EBITDA margin between roughly 4% and 5%.

In 2015, we expect revenue seasonality to be similar to the seasonality that we experienced in 2014, while operating expenses should increase more linearly throughout the year.

Turning to slide 15, while we are planning to deploy our IPO proceeds more quickly than anticipated, our long-term financial goals remain unchanged. Aggressive and faster investments in developing new software tools in 2015 and in bringing these products to the market even faster is intended to accelerate growth of our higher-margin software sales. This will help us shift the total Company revenue mix in favor of software sales. As a result, in the next few years, gross margins will go up and operating expenses as a percentage of sales will start to come down. In addition, the growth rates of our operating expenses should moderate substantially.

With this slide 15, I would like to conclude the first part of our call and we will now be happy to answer any questions that you may have. So, operator, if you could please open up the Q&A session. Thank you.

Thank you. (Operator Instructions) Troy Jensen, Piper Jaffray.

Hey, congrats on the nice quarter, gentlemen.

Thank you, Troy.

Hey, a couple of quick questions here on the healthcare stuff, so it looks like the healthcare business grew 5% organically, it's a nice margin improvement over the prior few quarters. Do you feel like healthcare is turning the corner here? And a note, do you think you can get it to continue to grow without the X-ray product introduction?

Well, thank you for this question, Troy, it's Fried here. What you see, especially on the clinical side, is the effect of the growing, what we call, complex surgery products that we sell directly and that are starting to achieve bigger and bigger absolute numbers compared to the OEM-related sales. So I think this is a fundamental process that we have been trying to forecast and that is showing its effect at this moment. So I think it's a fundamental change.

On behalf of your second question, first of all, I want to express that our confidence in the X-ray technology, as, yes, the phases are progressing, is only growing, but despite that, we believe that we are not fully dependent on X-ray. There are so many different clients and opportunities in our medical portfolio that if a disaster would happen to X-ray, again which we don't expect that we still could achieve our long-term objectives with the other elements of our portfolio.

Okay. And then, a follow-up just on healthcare, and one at the end I want to give for Frederic, if you think about metal parts in the healthcare, if we get to maybe size that versus plastic and nylons in maybe two years, three years, five years out, do you think the metals business could be as big as a plastic and nylons?

Troy, I think it's Fried here again. I think I have a better view on the market of the medical devices. So I will take this one for Frederic. In the overall market, if you ask for market info, it's absolutely true that the most valuable devices are the metal implant devices. But if you take it for Materialise in particular, it is expected that in two to three years from now, the metal devices will grow substantially, but not to a 50-50%; we rather estimate it that it will be 20% to 25% of our overall product portfolio.

Okay. Perfect. And a follow-up that I meant for Frederic is this one. Can you just give us any color on what the depreciation and amortization assumption is in your 2015 EBITDA guidance [in the short one] and try to get closer to what an EBIT, so we could model the expenses portion?

I think you can start from the Q4 depreciation and I know that we intend to keep the same level of investments in 2015 as in 2014. I think you can derive the depreciation charge.

So depreciation for 2014 was about EUR4.5 million. So you think it will be the same in 2015?

No, I mean, it will be higher because we invested a lot during 2014. We want to keep that level of investment in 2015. So depreciation will definitely increase.

Could you just give us a range on what you think the number will be, Frederic, so we can get through the operating expenses?

I think it will be higher than EUR5 million, for sure.

This any sense of how much higher though?

Depends on the timing of the investments, could be 5 to 5.3, something like that.

Okay, perfect. Again, congratulations and good luck, gentlemen.

Thank you, Troy.

Thank you. Holden Lewis, Oppenheimer.

Thank you. Good morning or good afternoon over there. The industrial products segment, that has decelerated each quarter this year, coming in at about 14 in Q4. The RapidFit and i.materialise business is growing fairly well. I mean, no real change, kind of growing mid-70s, 80 plus. What was the sort of non-RapidFit and i.materialise growth in Q4? What was that number?

The growth of our base AMS business has been 15% in Q4 and I'm a little bit surprised that you are talking about the deceleration, but the sales growth has been quite consistent throughout the year, even a little bit better in the second half of the year than in the first half of the year because the very first quarter has been a bit rigid.

But didn't the industrial products segment grow about 28% in the first quarter?

Yes, there was a very high impact of RapidFit that was extremely weak in 2013.

Okay. I guess, the other way to kind of think about it is, I think in Q3, you grew about 22% in industrial products; in Q4, you grew about 14%. I think RapidFit kind of fell from 84% in Q3 to 76%, how did the core service bureau stay at around 15% when you saw deceleration in the overall number? Was that just because of the deceleration in the growth businesses?

Yes, we indicated that in the growth businesses, we have had a few elements that, yes, they are not in our favor. On the RapidFit side, several of the projects that were in progress have been delayed because of the project delays on the customer side. So some order fixtures have been placed on hold because of design changes with the customers and as we are there in, let's say, rather big development programs, one design change can hold up an entire series of fixtures and that has happened in the middle of Q4 last year for RapidFit, while for i.materialise, a lot of effort has been growing into the franchise agreement, but there also, like Frederic indicated, we are not recognizing any revenue for this as it needs to be deferred over the entire year.

Okay. And are you seeing any -- what are the trends that you're seeing in the core service bureau business? Anything on the macro side or the pricing side?

The business on what we call AMS has been, well, actually more stable in the second half of the year as in the first half of the year and it's performing in our situation I think better than we see in other reports, but the European economy is at this moment as we experience it more healthy than a year ago.

Okay. Great, thank you.

Thank you. Ben Hearnsberger, Stephens.

Hi. Thanks for taking my question. First, on the X-ray project, you mentioned that you expect to file with the FDA kind of middle of this year. Can you take us through how that process or how we can expect that process to kind of play out? And then, when you expect that product to be commercialized and ready to go to market?

Ben, the process is in a nutshell as follows. Just assume that we -- officially, when we officially introduced the file with the FDA, the FDA has a period of 90 days to get back to us. So that will be three months as of the date when we file. I mean this is a complex product. It's a very innovative product. We do not want to exclude that in the given circumstances, it may take a bit longer than 90 days from the first filing date to get the approval in place, and so we have actually in our outlook here, another six months, basically that the second half of the year foreseen for iterations with the FDA to get our approval in place.

Now, simultaneously, as the regulatory approval process follows its course, we will obviously start devising our go-to-market strategy, which includes discussions with a number of potential partners. And so as the regulatory approval process follows its course, we will also gradually try and put partnerships or other similar initiatives in place to bring the product to markets. So as we've explained before, we believe that contribution to revenue from the US, that is, because I've discussed the US approval process, is something that we still expect to commence in 2016. Let me add that this should not withhold us from already deriving some sales and some revenues from the technology earlier as the regulatory trajectory in Europe will be less cumbersome and should allow us to get access to the market quicker.

Okay, that's helpful. So when do you expect the product to be able to go to market in Europe then?

Well, actually, in Europe, regulatory wise, the product is already approved, but we are now still, yes, in a trial phase and actually that will end approximately at the moment that we are filing with the FDA. So at the moment we file with the FDA, we will probably start also the commercialization in Europe.

Okay, thank you. And then, on the sales and marketing investments you're making, you said your workforce is up by 38% with the majority of those in software sales. I think you said, those were basically 3Q and 4Q hires there. So how should we think about the timeline of training up those new hires and when we can start to see production out of those new hires?

I think we are selling products that are quite technological and quite complicated. So the real contributions from those brand-new people have to be expected in the second half of the year.

[Now].

You make a very good point there. Ben, actually, it is one of the reasons also why we believe that accelerating investments and accelerating hire of salespeople will help us reach our long-term of objectives. I mean the sooner these people are trained, the sooner those people can put their feet on the street, the sooner we will see revenue coming from those people.

Okay, thanks. And my last question within the service bureau, the industrial production service bureau, can you speak to capacity utilization in 4Q and how capacity utilization trended within that business throughout the prior year?

Well, actually, the utilization was most soft in Q1; then, it started to increase during Q2 and during Q3. Now, thanks to the addition of the 18 machines that I mentioned, we now have again more free capacity in order to grow further during this year.

Can you give us an idea of how much excess capacity you have within your business?

Well, we try to operate our machines above 80% capacity utilization. Currently, we have for several processes rather 75%.

Okay, great. Thank you, gentlemen.

Thank you.

Thank you.

Thank you. Bobby Burleson, Canaccord Genuity.

Yes. Good afternoon, gentlemen.

Hi.

So just a couple of quick ones here. From looking at the parts business in Europe, I was curious if you're seeing -- you mentioned the partnership that you have with RedEye and actually buying some of those machines at the end of the year. I'm wondering whether or not you're seeing increasing competition from Stratasys going forward there, kind of what are your thoughts on the evolving competitive landscape for the parts business in Europe?

It's a question that is very complicated because you have so many different -- yes, rapid prototyping or 3D printing or Additive Manufacturing technologies, but as your focus seems to be on the FDM technology, the reality is that this business is under pressure, and I would like to say most due to the fact that there are so many alternatives appearing on the market with low-cost machines that all -- well, where FDM technology is the key, yes, technology that is available. So in the conceptual modeling and so on, the market is from a service bureau perspective really declining. If Materialise keeps doing well here and expect to keep doing well, it is because we use this technology in real high-end manufacturing applications where the finishing and the quality controls and the process controls are of extreme importance.

Okay, great. And then, in terms of the metal capacity that you guys have brought online, it sounds like at this point, it's dedicated to healthcare, but there's obviously a lot of finishing work that's involved in metals and you're having a complete manufacturing-worthy process is an advantage. So do you foresee expanding that metal production beyond things like orthopedic implants, into aerospace or other industrial markets?

Yes, Bobby, I mean, I announced and maybe I wasn't clear enough, but indeed, I mean, actually, we acquired a company earlier this week that already commercially operates a Renishaw metal printer for industrial purposes, not for medical purposes. So that has the post-processing knowledge either in-house or outsourced with very strong partners. So by taking that action, as I explained during the call, we actually were able to immediately include metal [in the case enhanced] aluminum in our commercial offering to our customers. And definitely, our intention in 2015 to, on the one hand, add capacity to expand that aluminum service offering; and on top of that, it's also our intention -- and we've made a few key hires to help us in that initiative, it's also our intention to include in our service offering other metal materials in the course of 2015.

Great, but is that Renishaw process the one that you guys are focused on or as with the other metal capacity that you have in-house, are you looking at other solutions besides Renishaw going forward?

Well, we are there kind of unbiased and we are looking for the technologies that best fit the requirements of our customer base and that can be from different manufacturers.

Okay. And then, just a quick one on the AAOS Conference that's coming up towards the end of this month in Las Vegas, wondering what you guys will be exhibiting there, what your main focus is going to be at the show. Thanks.

Well, we'll continue to demonstrate a leading position we have in the patient-specific medical devices, and both at the level of the highly sophisticated implant for complex surgery and the level of the personalized guiding systems.

Thank you.

Thank you, Bobby.

Thank you. (Operator Instructions) Ben Hearnsberger, Stephens.

Hi. Thanks for taking my follow-up. So I tend to think of software revenue growth of kind of growing with 3D printer system sales and we've seen it kind of growing 30% over the last few quarters before the big jump to 51% or so this quarter. Is the expectation that over the next year, we continue to see a divergence with your software business significantly outgrowing kind of the systems business?

Yes. A couple of things, Ben. First, I mean, we are excited by the buildup of our 3D printing segment and we are convinced that it will continue to grow very sharply. Obviously, there is a bit of hockey stick effect in Q4 for all software sales. So that kind of played a little bit here. But other than that, if you -- I mean our go-to-market strategy has definitely been set up in such a way that, yes, indeed, we are poised to outgrow the growth of the market and we sell together with OEMs which showed an increase of more than 50% our base products, first, so that this growth that is in line with the growth of the market. But then, we have our sales force that in the months and years thereafter will visit those customers and will upsell the customers with a number of modules that we have, that will further allow them to more efficiently use their machines. So if you combine the sales of our initial modules of Magics, for instance, that will follow the market growth and add on that the upselling of our direct sales force, then, yes, our model has definitely been established and construed in such a way to eventually outpace the growth of the market.

Okay, thanks. And then, as a follow-up to that, with most of the new sales hires having just come on, how did you see -- what was that player maybe special about this quarter, how do you see such large growth this quarter? Is anything unique in that number?

Well, we have always indicated that while if we take statistics over the longer term, we outpaced the device market with a few -- and I want to stress the professional devices market, we outpaced the system sales, but that it also happens with approximately a year of delay, so -- and actually end of 2013, there has been -- the entire sector was very popular at that time. So we see there, this is delayed to some extent appearing in our numbers because in general, people think about buying the machine first and then they want to come to more professional software for it. So this is an effect that has been playing, but I think apart from this historical effect that we also are experienced on positive, yes, add-on from our increased close relationship through build processes with many of the OEMs.

Okay, great. That's helpful. My last one, I'll let you go. On the X-ray product market opportunity, I know it significantly expands your market opportunity, but when you say it's going to contribute in 2016, can you give us some idea of how quickly that business ramps? Is it a relatively small contribution in 2016 or do we immediately see that business kind of ramp up closer to your historical medical business?

Well, we have had an historical reference with the introduction of our MRI-based guides and there, the patterns we are seeing have been an important, but still limited growth in the first year, and then which would be 2016, the first commercial year with then really the tough ramp-up or the big ramp-up in the second year, which in this context would be 2017. That is what historically has happened with the MRI-guide business, because also the partners which we are working first want to get to know the product first, place it with a limited amount of key opinion leaders, and then only fully deploy it in the second year.

Okay, that's very helpful. Thank you very much.

Thank you.

Thank you. Holden Lewis, Oppenheimer.

Great, thank you. Just some housekeeping here. What is your expectation for taxes in your 2015 guide? Do you have sort of a tax rate or a tax number you're kind of expecting?

Hi, Holden, the tax rate in Belgium is [24%] and our estimated tax rates in our 2015 budgets is very low, because of the investments we're going to make. But in future, we estimate it will be around 24%.

Okay. So 2016 and beyond, 24%, but in 2015, much lower than that?

Yes.

Okay. And then, the -- I'm just trying to sort of get to your total organic growth, can you just give us how much was your acquired revenue in the period? It seems to suggest that you are sort of EUR750,000, EUR800,000 in OrthoView, so I didn't know if you had any from productivity or anything like that, can you just tell us how much your acquired revenue in the period was?

The OrthoView impact in the fourth quarter is EUR900,000.

EUR900,000, okay.

Yes.

And then, just last thing is, are you going to begin giving us maybe -- you break out the stock-based comp, others break out amortization related to M&A which you've done a little bit of now, are you going to start giving that number or is it just not material to be breaking out?

So far, Holden, I mean it has not been material to break it out, so give us some time to think about that one; and definitely, once it becomes material and important, it's information that we would not withhold from the market, if and when it becomes relevant.

Great. Thank you, guys.

Thank you.

Thank you.

Thank you. I am showing no further questions at this time. I would now like to turn the conference back over to Mr. Peter Leys for any further remarks.

Thank you, operator; and that's thank you, all, for joining the call and for your very good and strong questions. I'm glad we could give you an overview of our accomplishments in 2014. I am even more glad that we could give you a good understanding of the many plans that we have to further our growth strategy in 2015 and beyond.

As you know from our press releases, we will be presenting at various financial conferences in the US in the coming months. As you may also have picked up from some press releases, we are organizing our Materialise World Conference here as of middle of April. We will also be participating in the Inside 3D Expo in New York City in mid-April. So we really hope to see many of you at one or more of these events in the coming months.

Thanks, again; and at the latest, we'll be talking again sometime in May, but hopefully before that. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.

Thank you.