Voxeljet AG (VJET) 2014 Q1 法說會逐字稿

Greetings, and welcome to the voxeljet first quarter 2014 earnings call. (Operator instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Anthony Gerstein, Investor Relations for voxeljet. Thank you sir, you may begin.

Thank you 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 first quarter financial results for the period ended March 31, 2014. The release is available on the Investor Relations section of the Company's website at voxeljet.com.

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.

With that, I would like now to turn the call over to Ingo Ederer, Chief Executive of voxeljet.

Thank you Anthony, and good morning, everyone. Thank you for joining us today.

You can follow along with the discussion by viewing the presentation on our website. I want to now go to slide 3. We'll begin with the presentation with a brief review of the results and highlights for Q1 2014. I will then update you on the status of several of the strategic initiatives we are working on that we expect to contribute to the long-term growth of our company. I will then turn the presentation over to my colleague, Rudy Franz, who will provide a more detailed review of our financial results for the period and also discuss our guidance for the full year 2014, which we are reaffirming.

At the end of our remarks, we will open the call up to answer your questions. So please, now turn to slide 4.

Total revenues increased 15% to EUR2.7 million compared to EUR2.4 million in the same quarter last year. System revenues increased to EUR1.3 million from EUR1.2 million, as we sold two new 3D printers in this year's quarter compared to one new printer and one used printer in the last year's quarter. Services revenues increased 21% in the first quarter to EUR1.4 million from EUR1.2 million, with orders for on-demand parts remaining strong. We achieved this growth while relocating into our new, larger facility in Germany, which was substantially completed in early April.

Gross profit and gross margin in the quarter were EUR1.1 million and 39.4% respectively, compared to EUR0.9 million and 38.2% in the last year's quarter.

The gross margin for our systems segment decreased to 30.3% in the first quarter of 2014 from 35.5% in the prior year quarter. One of the printers sold in this year's quarter was to a research institution which received a discount to the listed selling price, which contributed to the decrease in systems gross margin.

We usually give discounts to universities and institutes in exchange for first right of refusal to future research and development results from these parties. This is good for us and the industry as a whole as it supports and educates the next generation of users, and will ultimately contribute to new ideas and technology for voxeljet.

The gross margin for our services segment increased to 47.8% from 41% in the first quarter 2013, mostly because of a favorable product mix. Rudy will discuss the financial results in greater detail during his remarks.

Moving now on to slide 5, I will now update you on several of our key strategic initiatives, starting with an update on our German facility on slide 6. We have again included several pictures showing changes to our facility since our last earnings call six weeks ago. We completed our initial relocation into our new, larger facility in early April. At approximately 40,000 square feet, the facility is more than twice the size of our prior facility. We are currently operating 10 3D printers for services.

Looking at the recent pictures on slide 7 should give you some sense of the configuration and layout. As we have stated in the past, the relocation eliminates our prior capacity constraints in our service center and we are now prepared to support increased demand we're experiencing for on-demand parts. We expect to increase our printing capacity this year in Germany by approximately 50% compared to last year, and we should begin to see the benefits of this increased capacity in the second half of the year.

What is notable is that we shipped a record number of on-demand parts in this quarter. This demonstrates our ability to scale the business, and shows importantly that the market is accepting 3D printing for production.

Turning now to slide 8 and our first US facility near Detroit -- on the last conference call we announced our plans for our first 3D printing service center located in Canton, Michigan, outside of Detroit. The facility is extremely well-situated to serve the US automotive industry as well as a large number of potential customers in the Midwest region of the United States and Canada. At approximately 50,000 square feet, the facility will initially support 4 printers this year, which will consist of 2 sand printers and 2 plastic printers. It is an excellent facility in which we can grow and expand capacity over time. Since our formal announcement in March, we have received a lot of interest from new potential customers and have had several meetings with certain parties to discuss our capabilities and products which we believe will drive service business out of this facility.

We expect to have similar printing capacity to our new German facility by 2016.

Turning now to slide 9 please, this slide illustrates our focus on continued innovation and advancement in technology through ongoing research and development. We are currently in varying stages of developing new material sets including various casting materials, PMMA-based plastics, ceramics, silicon carbide, tungsten carbide, wood powder, and cement. This is extremely important to our growth and the opportunities that it creates. In fact, one of the systems that we sold in this quarter is dedicated to work with ceramic material.

If you turn now to slide 10, we want to show you an example of some of the truly amazing projects we have been working on recently that demonstrate the quality and capabilities of our technology. We believe this is a true differentiator for us. This particular example shows a picture of a house that we printed out of sand. The idea and design came from Austrian architect Professor [Idnam]. The house is a completely-printed unit including toilet, kitchenette and furniture, all from a 3D printer. Even though this is not a house with the normal dimensions, it can nevertheless raise the question of what kind of 3D printers can generate sand molds in these dimensions.

So, we used here a VX4000, which generated the 2 sand pods for the house, one piece at a time using the layer building method. In this case, the printer is actually a small standalone factory that produces components at the dimension of up to eight cubic meters, using a fully-automated process.

Architectural projects such as this house would be impossible to create using 3D printing technology other such printing systems. The VX4000 required a total of 60 hours to print the two house halves. Including everything, the printing costs for such a spectacular project totaled approximately EUR60,000. The small house weighs approximately two tons.

So finally, on April 16, we completed a follow-on offering where the Company offered 3 million American depository shares, ADS, and received net primary proceeds of approximately $41 million or EUR30 million from this offering.

We believe that our strong balance sheet positions us well for the long term and we see numerous opportunities to use our cash to advance and accelerate our growth strategies. With that said, we are prudent and diligent about how we deploy our capital with an emphasis of achieving attractive rates of return for the benefit of our stakeholders.

That brings me to the end of my part of the presentation. I will now turn the call over to Rudy. Rudy?

Thank you, Ingo. Good morning, everyone. I will now take you through the financials.

Turning to slide 12, our total revenues increased 15% to EUR2.7 million in Q1 2014, compared to EUR2.4 million in 2013. We experienced growth in both of our business segments. Gross profit and gross margin for the first quarter of 2014 were EUR1.1 million and 39.4% respectively, compared to EUR0.9 million and 38.2% in the first quarter of 2013.

The next slide 13 shows our segment reporting for the quarter. Systems revenue increased 9% to EUR1.3 million from EUR1.2 million as the Company sold a total of 2 new 3D printers in the first quarter of 2014 compared with one new printer and one used printer in the first quarter of 2013.

Systems revenue represented approximately 48% of total revenues in the first quarter of 2014 compared to 51% in the same quarter 2013.

Gross profit for our systems segment was EUR0.4 million in the first quarter of both 2013 and 2014, while gross margin decreased to 30.3% in the first quarter of 2014 from 35.5% in the first quarter of 2013. As Ingo noted, one printer sold in the quarter was to a research institute, which received a discount to our list price. This in addition to costs related to higher employee head count, contributed to the lower margin. As the business continues to grow over the coming quarters, we expect gross margin for the systems segment to be in the range of 40% to 45%.

Turning now to slide 14, service revenues increased 20% to EUR1.4 million compared to EUR1.2 million in the first quarter 2013, primarily due to a more favorable product mix. We are also pleased that we achieved this result with the relocation of our German service center or the (inaudible) most of the quarter.

Gross profits for our service segment increased to EUR0.7 million from EUR0.5 million in the first quarter of 2013 while gross margin increased to 47.8% from 41% in the last year's first quarter. The increase in gross margin was primarily related to a product mix partially offset by costs related to our segment head count as well as the impact of our long-term cash incentive plan.

Service gross margins affected by the sales mix and volume, parts printed with sand are generally less profitable than parts printed with plastics or PMMA. We expect service gross margin to remain in the range of 40% to 45% in the near term.

As Ingo noted earlier, demand for on-demand parts services remains robust and we expect to see meaningful increases in service revenues the second half of this year as we ramp up our capacity in our new German facility and simultaneously start production in our US facility near Detroit, Michigan, where we anticipate the first sale of on-demand parts will occur in the third quarter.

Now, move to slide 15, which provides an overview of the P&L for the quarter. Our selling expenses were EUR0.7 million the first quarter of 2014 compared to EUR0.4 million the last first quarter, an increase of over EUR0.3 million as we supported the increased level of demand for both of our businesses. Selling expenses associated with the long-term cash incentive plan were approximately EUR34,000.

Administrative expenses were EUR0.6 million in the first quarter of 2014 compared to EUR0.2 million in the first quarter of 2013. This increase was partially due to increased head count related to the pursuit for our growth strategy and costs associated with being a public traded company. Long-term cash incentive plan, allocated to administrative expenses associated with the long-term cash incentive plan were EUR17,000.

Research and development expenses increased to EUR0.8 million in the first quarter of 2014 from EUR0.4 million in the prior year period, as we continued to invest heavily in R&D with a number of active projects in various stages of development. R&D expenses associated with the long-term cash incentive plan were EUR47,000.

Operating loss was EUR0.6 million in the first quarter of 2014 compared to an operating profit of EUR0.2 million in the prior year period. Loss for the first quarter of 2014 was EUR0.7 million or EUR0.22 per share, as compared to a profit of EUR0.1 million or EUR0.05 per share in the first quarter of 2013.

Slide 16 shows an abbreviated balance sheet. At March 31, 2014, the Company had cash and equivalents of EUR7.8 million and approximately EUR20 million of short-term investments held in a bond fund. Total debt was approximately EUR3.5 million and weighted average shares outstanding were EUR3.1 million which is equalized to 15.6 million ADS. As Ingo mentioned earlier, we completed our follow-on offering where the Company sold 3 million ADS on April 16, which generated proceeds to the Company of approximately $41 million, or EUR30 million for strengthening our balance sheet.

We believe that our balance sheet positions us well for the long term.

Moving now on to slide 17, our outlook for the year. With respect to guidance we are reaffirming our revenue expectations for the year ended December 31, 2014 to exceed EUR18 million, which would constitute growth of more than 50%. We expect gross margins to be in the range of 40% to 45%. We expect the majority of our revenue growth to come from increased systems sales. Our backlog of 3D printer orders at March 31, 2014 and December 31, 2014 were EUR3.8 million and EUR2.3 million representing 6 and 4 3D printers, respectively.

As production and delivery of our printers is generally not characterized by long lead times, backlog is more dependent on the timing of customers' request deliveries. We estimate that the maturity of systems in our backlog at March 31, 2014 will ship prior to December 31, 2014. The increase in services revenue is expected to be more heavily weighted toward the second half of this year, as increased production capacity comes online at our new facilities in Friedberg, Germany and Canton, Michigan.

Finally now turning to slide 18, we are reiterating our long-term target operating model. We believe that we can continue to grow our revenues in excess of 50% over the next several years with gross margins in the range of 45% to 50%. Our long-term EBITDA and EBIT margin targets remain between 25% and 30%, and 10% to 15% respectively. We believe that our continued robust investment in R&D is the biggest factor that will help us to achieve these operating margins. We feel that we have leading technology in the market and we will continue to invest accordingly to maintain our position.

This concludes my formal remarks. With that, we will now open the call for your questions.

(Operator Instructions). Our first question today is coming from Troy Jensen of Piper Jaffray. Please proceed with your question.

Hey, thanks, gentlemen. Quick question maybe for Ingo to start with. Just on the sales pipeline, could you talk about -- you guys have a lot of new materials that you highlighted, a lot of new machines, a little bit more time as a public company with more awareness. When do you expect to see, or can you just talk, just generically, about the sales pipeline? And then maybe the opportunity in the US as you open up the Detroit facility?

So, thanks for that question, Troy. The sales pipeline consists out of printers, the mix of the printers is across the whole six platforms. The good thing is -- and I think we mentioned that also in the last earnings call -- that we have also the very last machine which we released in December last year, the VX2000, also has an order already in our backlog. So, it means that even if a product is pretty newly-released, we're getting a significant amount of publicity also on those products.

With respect to the new materials, as we stated we are working on a bunch of new materials. We expect at least one for release for this year. Beyond that, ceramics for instance is a materials set where we are closely working together with various customers and as stated before, one of the sales we did in the first quarter was dedicated to ceramics. So, despite the fact that we have no formal release of a materials set for ceramics done so far, we're already selling products. I think -- I hope this answers your question.

Yes, that was fair. How about just like the size or the magnitude of the funnel? When I talk to a lot of companies about the pipeline, they -- the sales process has the funnel and realistic opportunities and anything you can kind of help us out with, just like the growth rate you've seen in kind of opportunities or funnel?

So, we are working here on a lead list, and the lead list is constantly filling up with the increased number of salespeople and other representatives and partners. We are now having 35 partners on the globe dealing with our product. We have much better visibility and then also a longer lead list, so we are working against a very long lead list. I think Rudy has the exact number of the length, but it's at least 25 leads in a --

Perfect, okay, so just seeing an acceleration there. But okay, thanks, Ingo. How about --?

EUR25 million, I got the number here. So that's why I'm waiting. So, EUR25 million in total for this lead list.

All right, perfect, okay. And how about a quick one for Rudy. Can you just help us out with quarter OpEx? So, last quarter in December at least, when we saw the big step function in OpEx, I guess I assumed that that was kind of the run rate going forward with some pickup as you continued to invest in these strategic initiatives. We saw a drop this quarter in OpEx. Can you just help us out with like the EUR18 million-plus that you're talking about for revenues? What's the associated OpEx here, and how does it ramp quarterly here? What happens as we light up Detroit on the OpEx side?

In the last earnings call, we spoke about the OpEx development. We said that we want to -- that we plan to invest more if possible, so if we have more opportunities to invest in R&D, marketing and sales, we do so. And as well in the last earnings call, we said that we're focusing on growing our headline number and focusing on gross margin. EBIT and EBITDA is always in focus, but if we have achieved to invest more, we do it.

And as said, I don't give guidance on the SG&A and R&D spending, but the level you see now in our Q1 is what you can more or less expect to the growing for the remaining year. The reduction in Q1 is as well partly driven to the long-term cash incentive plan. I think the long-term cash incentive plan in Q4 as we described it in the last earnings call, was I think almost EUR900,000 and I -- in the last earnings call I said it might be EUR150,000. I think we are slightly above EUR150,000 -- I think it's EUR155,000 or so. That is a reduction, and I think the secondary as well was cheaper than the IPO which partly as well was a driver.

Okay, all right, understood. Well, keep up the good work, and good luck.

Thank you.

Thank you. (Operator instructions) Our next question is coming from Rob Stone from Cowen and Company, please proceed with your question.

Hi guys, I wanted to touch on service margins a little bit. You mentioned it varies with mix because of the sand versus plastic parts. Should we expect to see an impact on service margins as the new capacity comes on, particularly when you start up the US facility in Q3?

Actually, we gave guidance on the gross margin in the range of 40% to 45%, and what we saw here in Q1 now in the range of 47% is as said, related to product mix. We don't give guidance on the individual service center, whether it's Europe or the US, but it might -- it's always if you do a ramp-up, it might have an impact on your gross if you don't have the full utilization. But we gave guidance in respect of want to achieve a gross margin in services in the range of 40% to 45% for the full year, and that's what we're going to say at that time, in respect of guidance, gross margins and services.

I wasn't expecting you to break out the margins by business unit of course, but it seems like maybe you could be towards the lower end of the range or something in Q3 just because as you said, lower utilization. Another question Rudy, if I may -- in the other operating income and expense, you had a fair-sized benefit this time from revenue recognition related to sale and leaseback transactions. What's left in terms of sale and leaseback stuff to be recognized now going forward?

Hang on a moment, actually, I think we (inaudible). The remaining sale and leaseback contracts are three, actually, and those three we I think at least we let them run for the next 18 months. So, our sale and leaseback transaction, there's a minimum run time. We did the deal for 60 months and the first time when you can terminate it is after 36 months. So, and whenever we had an option to terminate those, we did.

So it probably runs at the similar lower level for the next six quarters or so, and then you might have (multiple speakers)?

Yes. Yes.

Finally, a balance sheet question, if I may. The days sales outstanding were up a bit versus the fourth quarter. Is that a seasonal or timing of shipments impact?

One second. That's just probably because of the quarter, maybe you saw there is nothing which can be seen as a change in our business model, or it's not -- it's -- I don't have a comment on that. I think that's -- I wouldn't take it serious.

A question for Ingo on R&D projects. Can you say how many different projects are in process right now?

So, it's a bunch of projects. We state 50 -- some of them are bigger, some of them are smaller. Main focus for the moment is mature development.

If you do release -- you're planning one new material to be formerly released this year. Is that something that hits probably in the second half, or can you say when we might see that?

Absolutely, so we are quite, quite good with several materials, on the development, is well advanced. However, before we release a new material we want to be sure that on every normal conditions of operations, such a material brings the relevant performance. So, before we don't have that data secured, we don't release. So, you should expect to have a proper release probably before the big shows in the fourth quarter.

Great, thanks for taking my question.

You're welcome.

Thank you. Our next question today is coming from Ken Wong, from Citigroup. Please proceed with your question.

Hey guys, how's it going? Ingo, you mentioned EUR25 million on that lead list. When you look at the composition of the customers, is that a lot of new customers or is that really just -- some of your old customers that are really expanding their capacity. Just maybe a little color there would be great.

The good news here is, Ken, and thank you for that question. Good news is that we are winning new customers through the channels, so through the expanded channel. Customers we haven't seen before, they are starting talking about investing into services and trying to make their own mind on the machines, and yes. This confirms our strategy with our integrated business model to act through services and systems to provide proper marketing [or there] into new segments and new customers.

Got you. And then Rudy, just building a little bit on what Troy was asking, on the spend should we expect that when you guys have to open a new facility that there's a significant cost, that typically comes with that? I mean, just kind of thinking back to maybe your past experiences. I mean, you guys are going to open a brand new facility in the US. Do we -- is there a lot of G&A and sales and marketing and things of that nature that typically will go with that, that we haven't seen in the current run rate yet?

Actually we for sure, it's always the case that if you do a new ramp-up that there are initially more costs, but have in mind that a lot of costs doesn't accrue because we have the headquarter in here. We don't have HR departments in the US, for example. We don't have an independent marketing department in the US. People are supported out of Europe, out of our headquarters. So, we believe that we can do that ramp-up in a very I would say from a price point of view or from an investment point of view, on a very good level. So, we're very focused on adding the printing equipment, hiring the people, we -- this week we've -- I think we're very close to have an additional MD on board. We have the salespeople on board, so everything is very focused and is that -- there's a huge benefit of being a public company, so they have -- the businesses know us where we're talking to already, so we had service revenues with them through our European facility and we believe that we can do the ramp-up on a good cost base or investment base.

Got you, that's great detail. And then the last thing, you guys mentioned, you guys have moved into your European -- the expanded European facility. Was there any uplift in the services revenue this quarter from that, or was it purely product mix?

So, we are currently working out of the new facility as that -- the machines we are using, these are the existing ones. The new ones we are currently building, they are not online yet. So, the additional capacity comes in the -- we expect in the next weeks coming online and then burning in the machines, providing more and more capacity with them, will bring us to the estimate. What we already stated, that we see that in the upcoming months.

Okay great, thanks a lot, guys.

Thank you.

Thank you. Our next question today is coming from Richard Berman from Oppenheimer. Please proceed with your question.

Good morning. My question is based around just top-line growth of printer sales. This past quarter you sold two printers and you have four pending in delivery throughout this year. What are you projecting as far as new sales for this year just on the printers? New sales for next year? And how are you going to attain that kind of growth?

Could you be so kind -- it's Rudy. Could you be so kind to repeat the question again, to really get it, what you are --

Sure. My question is, you've already delivered on two printers this year and you have four more sales pending for this year. What's your growth rate? What are you looking to sell as far as printers, realistically, in 2014-2015? I know the service business is doing great, but I was just looking for more volume on the printer side.

Okay. So, the backlog, I just can give you the backlog by May 15 consists out of 7 printers. We -- that's a part of the answer I'd like to give to you. Ingo mentioned our lead list. We're working on a quite substantial lead list. The lead list is feeded through our service customers, so we know them for quite a while. It's not the case that they just -- they come out of nothing. We have an existing relationship with them, the service revenue with specific customers is growing, and it -- with several clients it reached a level where we talk about putting a system in. The main markets for the materials sets we see today is as mentioned several times, the foundry industry. In there we put in either sand printers or our plastic printers. We launched a new materials set for sand called [Finol] which is quite attractive, and definitely will give us the growth rates which we expect.

I guess to rephrase my question a different way, it seems to me that over a period of time the sales lead time will be progressively less, people are going to understand the materials, understand how the printers work. Are you guys targeting, let's say, another 10 printers sold this year? And are you projecting another 20% on top of that next year? I mean, it seems like the business is growing but the printer sales seem to be kind of miniscule, and I was just wondering are you looking with a realistic target, to sell let's say 10 or 15 or 20 printers next year? Or is that not a fair question?

Actually -- no, no, for sure it's a fair question. We didn't give guidance yet for 2015, but we said that we believe that we can grow the business by 50% over the next years. If you have an average printer sale in the range of EUR500,000 in your mind then it probably ends up with this number. We have in mind that we add additional materials sets, so today we mainly work with two, or we do business with our two materials sets. We're working on concrete, where we achieve very nice results. Ingo addressed the ceramic materials sets, and therefore we strongly believe that we can achieve for the growth rates in those segments in services and systems, we're working on additional service centers which we said during the last earnings call and during the road show. We are addressing Asia. So, overall we -- from what we know today, we are quite confident to achieve our growth rates in both segments.

Okay, thank you.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management at this time.

So, this is Ingo, and once again thank you for your interest in voxeljet. It's 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. So, thank you again for your participation in today's call and talk to you in the next call. Thank you very much.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.