Voxeljet AG (VJET) 2013 Q3 法說會逐字稿

Greetings and welcome to the voxeljet AG third-quarter 2013 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Anthony Gerstein, Investor Relations for voxeljet. Mr. Gerstein, you may now begin.

Thanks, operator, and good morning, everyone. With me on the call today are Ingo Ederer, voxeljet's Chief Executive Officer, and Rudy Franz, voxeljet's Chief Financial Officer.

Yesterday, after the market closed, voxeljet issued a press release announcing its third-quarter financial results for the period ended September 30, 2013. The release is available on the Investor Relations section of the Company's website at voxeljet.com.

Before we get started, I would like to remind everyone that this call is being recorded and will be available for playback, the details of which are in our press release issued yesterday and are also available on the voxeljet website.

During our call we may make certain forward-looking statements about the Company's performance. Such forward-looking statements are not guarantees of future performance and, therefore, one should not place undue reliance upon them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed.

For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the Company's filings with the Securities and Exchange Commission.

Now I would like to turn the call over to Ingo Ederer, Chief Executive of voxeljet. Ingo?

Thank you, Anthony, and good morning, everyone. Thank you for joining us today on our first-ever call as a public company. I will begin with a brief overview of our third-quarter results and discuss the strategic initiatives and direction of our company.

I will then turn to the presentation over to my colleague, Rudy Franz, who will provide a more detailed review of our financial results and offer our view on the outlook for the fourth quarter and the full year of 2013. At the end of our remarks, we will open the call up to answer your questions.

We are very pleased with our results for the third quarter. Total revenues increased 77% in the third quarter to EUR3.5 million compared to EUR2.0 million in the same quarter last year. System revenues increased to EUR1.8 million from EUR0.5 million as the Company sold three new 3-D printers in the third quarter of 2013 compared to two used printers in last year's third quarter.

Services revenues, which is currently limited by capacity constraints, increased 12% in the first quarter to EUR1.7 million compared to EUR1.5 million. Orders for on-demand parts remained strong. We continue to run at near full capacity at our facility and we look forward to the completion of our expanded facility in December 2013 with more capacity capabilities coming online in the second quarter of 2014.

Gross profit and gross margin in the quarter were EUR1.6 million and 46%, respectively, compared to EUR0.8 million and 38% in the year-ago quarter. For the quarter, we reported income of EUR0.11 per diluted share versus a loss of EUR0.03 per share.

Before I turn the call over to Rudy, who will discuss the financials in greater detail, I wanted to take a few moments to tell you why we are so excited about the future of our industry and the perspectives for our company. Since 1999, voxeljet has been one of the pioneers in additive manufacturing and 3-D printing. This innovation has the capacity to substantially change manufacturing production processes as we know them and we believe that 3-D printing technology is still in its early stages.

Today, voxeljet is a leading provider for high-speed large-format 3-D printing platforms. We also operate what we believe is one of Europe's largest service centers for on-demand parts production for industrial and commercial customers. We see tremendous growth opportunities in both our services and our systems business.

We believe our 3-D printers offer the industry's highest speed, largest format printers with the highest output rates, which are key differentiators for industrial and commercial customers seeking to build either the large parts or large quantities of complex parts. Today we offer five different machines providing us with numerous ways to meet the growing demand for 3-D printing in our target markets and we introduce our six machine platforms at the EuroMold exhibition in Frankfurt the first week of December this year.

For example, our VX4000 machine offers 8 cubic meters of build volume and 123 liters per hour build rate. To give you a sense of the power of this machine and our technology, we were able to print a mold set for a pump housing casting which weighed several metric tons in just a few days. A process that would take weeks using traditional manufacturing techniques.

We also have printed several hundred turbochargers housing cores for an automotive customer in a single run. Again, these are just examples that demonstrate our capabilities to meet the growing demand of our industrial and commercial customers.

Moving now to our Services segment, this business offers affordable, high-quality, and on-demand access which effectively lowers the cost of entry to our customers. Our Services business allows customers to experience the advantages and benefits of 3-D printing without initially investing in its own equipment. Ultimately, we find that our on-demand service center is our most effective lead generator for our 3-D printers as it gives our services customers the opportunity to see the quality and efficiency of our 3-D printer deliverables.

Our experience suggests that as a customer becomes more comfortable with our technology and recognize its benefits, they are more likely to purchase 3-D printer, which supports our Systems segment.

With these two business segments, we sell to the large and growing additive manufacturing markets. We believe we can grow faster than industries because of our ability to address traditional markets such as the [metal] casting industry. While the adoption rate and learning curve of using our technology is in its infancy, we believe that the efficiency, quality, time, and financial cost savings we are able to provide to our customers will drive increased adoption of our technology.

Our growth strategy focuses on three key areas. First, we want to establish more large-scale service centers around the world with North America and Asia being our likely next locations. We expect to make a more formal announcement regarding this expansion sometimes in the first quarter of 2014.

Second, we plan to continue to innovate and grow by developing new printing machines and material sets to meet the growing needs of our ever-expanding number of users of 3-D printing. For context, we currently have more than 50 active projects with proprietary intellectual property in various stages of development, which we believe will strengthen our position in the industry and contribute to our long-term future growth.

Third, we want to grow our global sales and marketing presence, which we believe will increase our market penetration and facilitate the adoption of our technology. Again, we believe we are just in the early stages of this technology and are very excited about the long-term perspectives for the industry and our company.

Before I turn the call over to Rudy, I would like to express how very pleased we were with the results of our IPO and thank you all of those who participated and welcome our new shareholders. We look forward to keeping you updated on our progress.

With that, I will now turn the call over to Rudy, who will discuss our financial results and provide you with our guidance for the rest of 2013. Rudy?

Thank you, Ingo. Good morning, everyone. Total revenues increased 77% in the third quarter to EUR3.5 million compared to EUR2.0 million in the same quarter last year. Systems revenue increased nearly threefold, or 273%, to EUR1.8 million from over EUR0.5 million as the Company sold a total of three new printers in the third quarter of 2013 compared to two used printers in the third quarter of 2012.

Systems revenue represents 52% of total revenues for the third quarter of 2013 compared to 25% in the same quarter of 2012. Service revenues increased 12% to EUR1.7 million compared to EUR1.5 million, which we are pleased within light of the competitive constraints we face in our service center in Germany.

Cost of sales for the third quarter of 2013 were EUR1.9 million, an increase of EUR0.7 million, or 55.8%, over cost of sales of EUR1.2 million for the third quarter 2012. Gross profits and gross margin for the third quarter of 2013 were EUR1.6 million and 46%, respectively.

Systems gross margin was 39% in third quarter of 2013 compared to 33% in the third quarter of 2012. Services gross margin in the third quarter of 2013 was 53% compared to 40% in the third quarter of 2012. The increase in gross margin in the quarter was driven by high utilization of those segments which leads to a lower relative contribution of fixed costs and a different product mix to the previous quarter in Services.

Selling expenses for the third quarter of 2013 increased 30% compared to the prior-year period as we supported increased level of demand from both our businesses. It's notable that the increase in SG&A was lower than the increase in our total revenues.

Research and development expenses increased by 17% over the year-ago period and amounted to 30% of total revenues. As Ingo stated, we continue to invest in R&D and have a number of active projects in various stages of development.

We are pleased to have been profitable in this third quarter. Total comprehensive income for the third quarter was EUR0.2 million, or EUR0.11 per diluted share, compared to a loss of EUR63,000, or EUR0.03 per diluted share, in last year's quarter.

I will now move on to the nine-month period ended September 30, 2013. Total revenues increased 21% to EUR8 million compared to EUR6.6 million in the same period a year ago.

Systems revenue increased 53% to EUR3.9 million in the first nine months of 2013 from EUR2.5 million in the same period in 2012 as the Company sold a total of six 3-D printers consisting of five new 3-D printers and one used printer in the first nine months of 2013 compared to a total of five 3-D printers consisting of three new printers and two used printers in the same period last year. System revenues represented 49% of total revenues for the period compared to 38% a year ago. Systems revenue also includes all revenues from consumables, spare parts, and maintenance.

Service revenues were essentially flat at EUR4.1 million, primarily as a result of the competitive constraint at our service center in Germany. As Ingo noted earlier, demand for on-demand parts and services remains robust and we are looking forward to our expanded capacity in our European service center coming online in the second quarter of 2014.

Cost of sales for the first nine months of 2013 were EUR4.9 million, an increase of EUR1.2 million, or 31.6%, of our cost of sales of EUR3.7 million for the first nine months of 2012. Gross profit and gross margin for the nine months in 2013 were EUR3.1 million and 39%, respectively. This compares to gross profit of EUR2.9 million and gross margin of 44% in the prior-year period.

Systems gross margins were 34% for the nine months ended September 30, 2013, compared to 46% in the prior-year period. The decrease in margin has actually nothing to do with the individual system margin. The decrease is mainly driven by the increase in our fixed overhead costs for production and maintenance fees.

As the business grows over the coming quarters, we expect gross margins in the Systems segment to be in the range of 40% to 45%. Service gross margin was 44% in the first nine months of 2013 compared to 43% in the first nine months of 2012. The gross margin services is highly influenced by product mix. We expect service margin to remain in the range of 40% to 45% in the near term and we expect service margins to expand in longer term to 45% to 50%.

Selling expenses for the first nine months of 2013 increased 8% from the prior-year period, while administrative expense increased 7% for the nine months of 2013. Research and development expenses increased 36% and were 17% of total sales. Administration expenses for the nine-month period increased 6% from the prior-year period and represented 8% of total sales.

Total comprehensive loss for the first nine months of 2013 was EUR0.2 million, or EUR0.08 per diluted share, compared to income of EUR0.3 million, or EUR0.13 per diluted share, in last year's period. In October we raised approximately $65 million from our IPO, which we intend to use as follows.

Approximately $40 million for the expansion of our on-demand product service center in Germany, as well as the future establishment of new service facilities in North America and Asia. Approximately $10 million for research and development and sales and marketing initiatives. And the remainder for general corporate purposes including potential acquisitions.

With respect to guidance for the rest of the year, we expect revenues for the year ended December 31, 2013, to exceed EUR11 million, which implies revenues of roughly EUR3 million in the fourth quarter. Our total backlog of 3-D printer orders at September 30, 2013, was EUR5.5 million, representing seven 3-D printers. We estimate that four of the systems in our backlog will ship prior to December 31, 2013, with the remainder expected to ship prior to September 30, 2014.

Also, we won't be giving formal guidance for the full year 2014 until we report our fourth-quarter results early next year. We expect those segments of our business to grow. Systems revenues will be driven primarily by increased sales of 3-D printers, but service revenues will be driven primarily by additional capacity at our European services facility coming online in the second quarter of 2014.

That concludes our formal remarks and now we are happy to open the lines for all your questions. Thank you. Operator?

(Operator Instructions) Troy Jensen, Piper Jaffray.

Congratulations on the IPO and the third-quarter results, gentlemen. How about a quick question for Ingo? And I've got a couple follow-ups.

Can you just talk about the IPO as a branding event? Maybe, I don't know if you've tracked kind of website traffic since you've been public, inbound calls, and kind of what this all means to lead generations for the Company.

Thank you for that question. It is absolutely a great story for us. Especially in the US, the marketing effect is tremendous. We have a lot of request and also a lot of coverage through press and other media.

So far, it is clear that it definitely doesn't turn into concrete leads, but we will definitely see that in the near future. And absolutely positive. We are quite surprised by that big impact.

Perfect. Then you kind of mentioned kind of the US interest of this. Can you just talk about the expansion efforts? Maybe give us a help with -- I guess I'm thinking more on the distribution side, because if you look at your competitors, they get about 50% of sales from North America.

I think voxel just reported 2% in the current quarter, so I think the most immediate growth seems to be just expanding there. So can you talk about distribution kind of intentions and kind of what Joseph is doing to build out the channel there?

We are currently in progress to define the center and the locations, so everything -- what I can tell you for the moment is that nothing has changed with our plan. We want to establish the service center in the Midwest region and we see, as you mentioned, a great opportunity for us in the US because of that growth rate.

Do you guys need to build out the service center before you build out just channel distribution? Is that part of the concept is to just kind of get them into the service bureau first and then converts them into orders? Or can you be working on selling machines or distribution without a service bureau up quickly?

You know that we are currently selling systems in North America; however, we believe that the services center will definitely drive the adoption and also the leads. So these are independent streams and with the systems, as said, we are already in the market.

Okay, perfect. How about one last question then would be, when you think about 2014 pipeline for System sales, what the percent do you think is going to be sand versus plastic? Because I know historically you have been, I think, 90% plastic system sales.

For the moment, the majority is plastic and we will see probably also for the next year a majority of machines in the plastic area. However, sand picks up since we have introduced new material systems in that field, so we expect a certain portion for the next year's machines also in the sand field.

All right, guys. Good luck and congrats again.

Ken Wong, Citigroup.

Again, congrats as well. Can you guys just give us -- kind of building a bit on Troy's question, can you update us on how many agent partners you currently have? And then how should we expect this to trend over the coming year?

Okay, I hand over to Rudy.

Actually we have more than 30 agents on a global basis. In Americas today we operate with two and within the next 24 months we plan to increase our agent network or distributor network to a number of 40 to 50.

As said by my colleague, in the US with the service center which we establish in Q1 we, for sure, believe that this will accelerate our system revenue and system sales. That's what we learned in Europe that every system customer is generated out of service business. And by not having a service activity today in the US, the growth potential for us in that area is huge.

Got it, got it. Then I guess on the expansion of 40 to 50, is it fair to assume that most of that will be in the US or is that going to be pretty spread out?

Usually we identify partners and agents on a global basis. For sure, there will be growth in the US, but I think in the US we plan to have our own people and maybe two or three additional partners in the relevant areas.

Got it, perfect. Then on the expansion of your services, how quickly should we expect the new European facility to ramp kind of closer to the level you guys are seeing now? And then when we think about the US expansion, should that ramp slower, just given that it's a new region for you guys?

I will hand you over to Ingo.

Sure, so thanks for that question. The building here in Germany is already there and we are currently moving over there equipment, so the capacity expansion you will probably see first impact in the first quarter next year. But it's not that we have the full capacity online, there's still enough capacity to grow in for us there.

In the US, as my colleague said, we will establish the center in the first quarter. However, we don't expect revenues from the facility there in the first quarter yet. I think the guidance on that will come also with the announcement in first quarter next year.

I guess, just expanding a little bit on that, I think that somewhat gets to what I was asking. I'm just wondering: how long does it typically take in terms of is it nine months, 12 months, 15 months before kind of the expansion and also I guess the new US center?

How long does it usually take for it to get to the utilization levels that you guys currently see? Which is you guys are near 100% right now in your existing facilities. I'm just wondering how long that lead time is before you kind of get to there.

Actually we indentified location to all that, so we plan to start in early January. But it's not to put in a PC. You have to put in a printer and a full infrastructure, so we assume that it takes at least one to one-and-a-half quarters.

In our business plan, we expect revenues out of our US facility by Q3, by early Q3, so from July onwards. And then it ramps up.

As Ingo indicated, we know a lot more when we give our guidance for the full year of 2014 how the establishment and the installment of our printers in the US facility works. And then we can give more concrete guidance on the business year of 2014 as said.

Okay, okay, perfect. Thanks a lot, guys. I will hand it off to someone else.

Rob Stone, Cowen and Company.

Good morning, gentlemen. I wanted to start with Ingo and ask about R&D efforts and new material sets. What areas are you focused on most for the near term and when we might we see an impact from an expanded scope of materials?

Thank you for that question. So you will see probably when you come over to EuroMold early December this year in Frankfurt, in Germany, one of the R&D results, the recent R&D results which the VX2000 platform, a huge machine with a tremendous output for all our release materials.

But beyond that, equipment development, we are doing a lot of work in new materials and new processes. Normally material development takes time to develop fully. I can say that we are working on several sand materials. We are working also on several plastic materials. You will see probably one or two of them coming as a product release next year, but I think for the moment I can't say anymore.

A couple of housekeeping questions for Rudy, if I may. There was a directional swing in your other operating expense, the nonfinancial part. Any comments you can make on what that was and the trends you expect in the next couple quarters?

Can you repeat it? You're talking -- can you repeat your question, please?

Sure. Within operating expenses, you had a swing from a small income to a small expense in the other operating expenses. Not the financial result, but the one that's above operating income. I was just wondering what caused the swing.

It was mainly driven by, let's say, the increase in expenses by establishing the organization for the next growth. This is mainly an investment in that area and I think all the rest is -- I think it will grow with the revenues, but on a very low basis. That's our plan, actually.

Any comments on your effective tax rate for the fourth quarter?

In Germany, we have a tax rate accumulate of 30% and that's -- we will see it for the full year, whether we pay taxes or not. We have -- the German tax calculation is quite interesting in that respect because we have the spendings on the IPO under IFRS. We count them against the equity in Germany. We have them full in our loss, so tax-wise that helps us a lot. So I don't expect to pay taxes within the next year.

Final question for Ingo, if I may, with respect to the service center capacity expansion, you made several comments about when the equipment comes online. Do you see within your current customer base some aspect of pent-up demand? Are customers essentially waiting for your capabilities to expand?

It's two effects. One is that the machines for the new capacity, some of them are already in progress to build and some of them are assembled in the new production facility, so there will be a setup initially there. So we see them coming online as at first quarter next year.

And we believe, and we know from the requests, that we immediately fill the extra capacity with the customer demand. We know from the existing customers that they are looking forward to get more of these services and we did also, let's say, stopped heavy, heavy marketing the services activity because of our capacity constraints. As soon as we see more capacity coming online, we will start again these marketing initiatives and we are pretty confident that we can still be at the new capacity quite soon.

Great, thank you very much.

B.G. Dickey, Stephens.

Congrats on a great quarter. Just starting with the first question, so you guys put out nice top-line numbers and forecasted a solid fourth quarter. Can you maybe talk a little bit about where the growth is coming from in a little more detail? And by that I mean what kind of end markets are performing best for you and what machines performed the best in terms of sales.

So before I hand over to Rudy I can say that we want to grow in both of our segments. I said earlier the Services segment is still operating on the group level so capacity constraints are limiting our growth rate here, but again the expectation is to grow in both segments. And for better details I hand over to Rudy.

Most of the growth, like in the previous quarter, comes out of our System's revenue, our System segment. So there we see the growth for the full year as well.

The System -- the Service segment is growing a little as said. We will have full access to the additional capacity by early Q2 as Ingo indicated. So this is, as said, this is where the growth comes from.

The industries or from the product mix; we sold -- the printer will be primarily sold with PMA powder, so with plastic powder. I assume that next year, and Ingo said it already, we assume that the revenue on the material side will move a little bit into other materials like sand. We introduced [vinyl] and other binder materials for sand and I think that will drive our growth as well in Systems next year.

Okay. I guess in reference to the end markets, I was kind of pertaining to end-users such as automotive or aerospace. Which of those type industries are you really selling to you the most and which do you forecast to be selling to the most?

I hand you over to Ingo.

So still automotive, automotive sector is one of our strongest customer base, but we address also the other markets. As said, aerospace is interesting for us or general industrial manufacturing. So for next year we expect again growth also coming out from the existing markets, but by adding new markets the growth rate accelerates.

Okay, great. For machine sales, you talked about backlog in the press release and it looks like about EUR5.5 million worth of backlog is remaining for the year, which equates to four machines in the fourth quarter. My question is, given lead times for machines, can you sell more machines or is the backlog number a firm indicator of what's possible for next quarter?

I hand over to Rudy.

So backlog always means there is a signed contract and there is a down payment done, so that's the real backlog. It's not a forecast or what. We work along our sales pipeline and we generate on an ongoing basis new printer in leads and in backlog. Does that answer your question?

Yes, great. So as kind of a follow-on to that, what are the changes that one of the aforementioned four machines that you are looking to sell in the fourth quarter could be pushed into first quarter 2014?

From our point of view, and that's why we gave the guidance that we exceed EUR11 million, today we believe that all four printers can be shipped in Q4. There's always the likelihood that one of our other printer can move into another quarter, but we don't expect it this quarter.

Okay, great. Thanks, guys. That's all I got.

Ladies and gentlemen, we have reached the end of our question-and-answer session for today. I will now turn the floor back to management for closing comments.

Thank you again for your interest in voxeljet. It is truly an exciting time to be participating in this dynamic industry. We at voxeljet see tremendous growth opportunities and we believe we are well positioned to achieve long-term growth.

Thank you again for your participation in today's call and we look forward to our next update early next year. Thank you.

Thank you, everybody.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.