Voxeljet AG (VJET) 2015 Q1 法說會逐字稿

Greetings, and welcome to the voxeljet first-quarter 2015 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Anthony Gerstein, Director of Business Development and Investor Relations for voxeljet. Please go ahead, sir.

Thank you, operator, and good morning, everyone. With me today are Ingo Ederer, voxeljet's Chief Executive Officer, and Rudy Franz, voxeljet's Chief Operating Officer and CFO.

Yesterday, after the market closed, voxeljet issued a press release announcing its first-quarter results for the period ended March 31, 2015. The release, as well as the accompanying presentation to this conference call, is available in the investor relations section of the Company's website at voxeljet.de\EN.

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

Thank you, Anthony, and good morning, everyone. Thank you for joining us on the call today. I'm going to give a brief overview of our results for the quarter and then update you on the status of our strategic initiatives. Rudy will then provide a more detailed review of our financial results for the period and will discuss our guidance for 2015, which is unchanged. We will then open the call up your questions.

Turning please to slide 4 of the slide presentation and summary of our highlights for the first quarter. First, total revenues more than doubled over the prior year period, with significant increases in both business segments. Second, we generated positive cash flow from operating activities; and, third, we successfully implemented a new ERP system in January 2015.

Now, looking at each of these points in greater detail. For the quarter, total revenues increased approximately 104% to EUR5.6 million from EUR2.7 million last year. System revenues increased nearly 150% to EUR2.8 million from EUR1.3 million in the first quarter of 2014. We sold four printers in the quarter, which included two used and refurbished systems and two new systems compared to two new systems in the last year's same period.

Used and refurbished systems generally have a lower attributable gross margin than new systems, which contributed to a lower overall gross margin in this segment in this year's quarter. Additionally, one of the two new systems we sold in the quarter was a beta machine, which is essentially the first machine of a production series and was sold to a customer at a discount. This also contributed to the segment's lower margin.

Services revenues in the first quarter increased 94% to EUR2.8 million from EUR1.4 million in the last year's same period. The increase was the result of growth at our service center in Germany and contribution from our subsidiary in the UK. Our subsidiary in the US began printing on-demand parts for customers in January using one printer, and consequently its revenue contribution was not significant to our first quarter's results. We now have three printers operating in that facility.

Overall, I'm pleased with our performance. Customer interest and quoting activity remains strong in both business segments and the outlook for printer sales is positive based on our backlog, which are approximately EUR2.6 million at March 31, 2015. We have been experiencing a lot of interest and activity in the US market. We think this is because we now have a direct operating presence in the United States through our subsidiary near Detroit, as well as the strengthening US dollar, since we sell our printers in Europe. Both of these are positives for us.

Our cash management during the quarter was good, as we generated EUR0.7 million of cash from operating activities and finished the quarter with nearly the same amount of cash as at the end of 2014.

We successfully implemented a new ERP system across all of our subsidiaries in January 2015, which facilitates the next step of growth. Our finance team did a great job achieving this, and the next step is to implement an ERP module regarding material and warehouse management. This will further strengthen our supply chain and provide even an greater confidence of our financial controlling procedures.

Turning now to an update of our strategic growth initiatives on slide 6. We are confident about our strategic direction and continue to execute on our plan, as outlined in previous calls.

Turning please to slide 7. As previously said, expansion of our German headquarters last year has been very favorable as we increase both services and systems production capacity. Services revenues in Germany increased 30% in the first quarter of 2015 compared to the first quarter of 2014.

On the next slide, number 8, in October 2014 we established our subsidiary in the UK through the acquisition of Propshop, which primarily sells to the film and entertainment industry, with 3D printing and scanning services. It's basically another service center and we have a lot of opportunities to increase utilization there in different industrial markets in the UK.

In January 2015, we began printing on-demand parts at our service center in the US, near Detroit, which is shown on slides 9 through 11. The facility is planned to have similar printing capacity as our German facility by the end of 2016. We recently held our second customer seminar there and had great attendance. We expect the Detroit service center to grow revenues progressively throughout the year with the installation of additional printers, including a VX4000, towards the end of this year. Our next service center locations will likely be in Asia. Specifically we are looking at both India and China and we expect to make some announcements later this year.

The next driver to our growth strategy on slide 12, is our focus on continued innovation and advancement in technologies for ongoing research and development in the areas of materials, components and printers. To be more specific, in the area of materials, we are improving both existing and new material sets to improve the quality of printing and also increase the adoption of the technology by expanding the customer base and addressable markets.

An example of this is Phenolic-Direct-Binding, PDP, for sand applications; applications which are discussed in detail on the last conference call. With respect to components, an example of our efforts here would be related to the optimization of our printer technology and other associated technology -- technical equipment to improve the overall printing focus. And with respect to machine development, we offer one of the industry's broadest portfolios of printers for industrial and commercial production. Our initiative here is to standardize and offer uniform quality across all our systems. Overall, our focus on research and development will strengthen our position in the industry and contribute to our long-term future growth.

Turning now to slide 13, please. Our expanded sales and marketing presence will increase our market penetration and facilitate the adoption of our technology. We have been successful adding many new people, or agents, and we receive inquiries nearly every week from parties interested in working with us. That brings me to the end of my part of the formal presentation. I will now turn the call over to Rudy. Rudy?

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

Turning to slide 15, total revenues increased 104% to EUR5.6 million in Q1 2015 from EUR2.7 million in Q1 2014. Gross profit and gross margin in the quarter were EUR1.9 million and approximately 34%, respectively, compared to EUR1.1 million and 39% in the last year's quarter.

The next slide shows our segment reporting for the quarter, slide 16. System revenue increased 115% to EUR2.8 million in the first quarter of 2015 from EUR1.3 million in last year's quarter. We sold four printers in this year first quarter compared to two printers in last year's same period. As Ingo already stated, two of the systems were used and refurbished printers, and one of the two new systems was a beta machine which we sold to our customer at a discounted price.

Systems revenue represented 50% of total revenues in the first quarter of 2015 compared to 48% in last year's quarter. Gross profit and gross margins for our systems segment in the quarter was EUR0.8 million and 27%, respectively, compared to EUR0.4 million and 30% in last year's same period. Gross margin in the systems business was negatively impacted by the product mix, which we discussed already. Separately, higher costs related to our increased headcount as we pursue our growth strategy also contributed negatively to our margins.

We anticipate that gross margin in the systems segment will improve as we begin to see increased segment revenues and leverage the prior investment in our business. As our business continues to grow over the coming quarters, we expect gross margin in the systems segment to be in a range of 40% to 45%, consistent with the outlook we've given in the past.

Slide 17, service revenues increased 94% to EUR2.8 million in the first quarter of 2015 compared to EUR1.4 million in the same quarter of 2014. The increase was due primarily to a revenue contribution from our subsidiary, voxeljet UK, which contributed [EUR912,000 managed] for services. We also continue to benefit from the expansion of our service center in Germany, with average revenue increased nearly 30% compared to last year's first quarter.

Revenue contribution from our US facility, which began printing on-demand for us in Germany, was not material to our quarterly results. Gross profit for our service segment increased to EUR1.1 million in the first quarter of 2015 from EUR0.7 million in the first quarter of 2014.

Gross margin decreased to 40% from 48% in the last year's quarter. The decrease in gross margin was related to increased headcount costs in [budget] of our growth strategy. As of March 31, 2015, 34 people were employed in our service segment compared to 16 at March 31, 2014, an increase of more than 100%. Product mix and services in the first quarter of 2015 was less favorable compared to the first quarter of 2014.

Looking now through the rest of the income statement on slide 18. SG&A expenses were EUR3.0 million in the first quarter of 2015 compared to EUR1.3 million in last year's quarter. This increase was primarily due to increased headcount and costs associated with being a public-traded company. Our marketing efforts continue to expand as we have increased headcount and attended several shows and fairs.

Research and development expenses were EUR1.6 million compared to EUR0.8 million in last year's quarter as we continue to support a number of active projects in various stages of development. Operating loss was EUR1.5 million in the first quarter of 2015 compared to an operating loss of EUR0.6 million in the prior year period. Total comprehensive loss for the quarter was EUR1.8 million or EUR0.49 per share compared to a comprehensive loss of EUR0.7 million or EUR0.22 per share in the prior year's quarter.

Turning now to slide 19, which shows the rest of the balance sheet items. At March 31, 2015, the Company had cash and cash equivalents of approximately EUR7.9 million and short-term investments held in five bond funds of nearly EUR40 million. Total debt at March 31, 2015, was approximately EUR3.3 million, and the weighted average shares outstanding for the quarter was 3.7 million, which equates to EUR18.5 million of ADSs.

We believe that our balance sheet positions us well for the long-term and we have been diligent with our cash management. As Ingo stated, cash from operating activities in the quarter was EUR0.7 million.

Moving on to slide 20 and our revenue guidance for the year, which is unchanged. For the full year 2015, revenues are estimated to be in a range between EUR23 million and EUR24 million. The primary drivers of anticipated revenue growth are expected to be increased global systems sales; continued service revenue growth at our facility in Friedberg, Germany; contribution from Voxeljet of America, which began operating in January 2015; and the full-year's contribution from voxeljet UK.

Based on these factors we expect services revenue growth to outpace systems revenue growth in 2015. With respect to our operating expenses for the year, we expect SG&A spending in the range of EUR11 million and EUR13 million, and for R&D spending to be approximately EUR6 million to EUR8 million. CapEx spending for 2015 should be in a range of EUR5 million to EUR7 million.

This concludes my formal remarks. And with that, we'll now open the call up for your questions.

(Operator Instructions). Troy Jensen, Piper Jaffray.

Congrats on the really nice quarter, gentlemen.

Thank you, Troy.

Maybe I'll just start with Ingo. You guys mentioned the beta system sold in the quarter. I guess I didn't know of any new machines you're developing and that would be shipping beta units. Could you just explain a little bit more what this beta system was?

Hi, Troy. Thank you for this question. As we don't specifically name what customer and what system it was, I can leave you with that, that it was one of the reasons we introduced the machine.

Why would it be considered a beta? Is it just working on product or material development, or --?

What we are usually doing is we have those initial machines in our own services department to start learning with them and we have other -- the first initial customers which are getting those machines, we sell them as a beta machine.

All right, understood. And then how about with respect to the Detroit facility. You're talking about similar square footage exiting 2016 as your German facility. Would you expect contribution from that service bureau to be equivalent to what the German facility is doing right now?

We expect that the phase there will ramp up accordingly to the capacity increase. And as we stated, we want to see the similar capacity, printing capacity, as in our German facilities here, so the expectations are clear.

Okay. Then a last question, kind of two-part, and then I'll cede the floor. But can you just give us a sense for when you expect to see multisystem orders from one customer? And maybe any traction you're getting with your continuous platform. Thanks.

We already -- if that's the question, we already sold the continuous printers. We have installations out there. We are collecting data from these installations. I think for the moment we are in line with the expectations we have on that system. And to see multiple installations at a single site, I think everything is in progress there. We are into a discussion about several installations, different places where we see multiple installations. It's just a matter of time.

Perfect. Keep up the good work, gentlemen.

Rob Stone, Cowen and Company.

I wanted to ask, with respect to the backlog, if you could provide any color on expected timing of a delivery of the systems in backlog. I recognize that revenue doesn't happen until customer acceptance, but just some sense of over what time period the systems in backlog should be delivered? And then what the order pipeline looks like, since your backlog, at least in euros, was the lowest level it's been for a while.

So, the lead time for our systems is generally in between six months. So, it means you can definitely see then a certain number of this backlog invoiced within the next two quarters. The question is, well, what is our view on the future business? We are working against a lead list, which is a pretty good [feel]. So we are quite confident we'll reach our numbers. All the discussions are good. So it's despite other companies, we don't see any decrease in interest in big platforms. The opposite is the case. So we are quite fine with that. We are quite pleased.

Great. I have a couple of expense related questions for Rudy, if I may. The first one is did you have any one-time effects in the quarter related to implementation of ERP? And then also if you could just walk through the detail on the other expense/income item, which was higher than the run rate that we've seen in recent quarters. Thanks.

So first, we implemented the ERP system already in Q4 and all related costs were in our Q4 numbers. In Q1 we had very little numbers from external resources, means the implementation company. So that was not heavily affected. The increase in SG&A is primarily related to the growth of the business in Q1. Have in mind, we operate out of three locations now here in Friedberg, in Canton, and in London. And as well have in mind that Ingo said that the service center in the US contributed very little in Q1 to the revenue and gross margin, but the costs were there. That are the prime drivers, so more people, more facilities. And I guess there is nothing more to add.

Yes, Rudy, I understand the increase in SG&A and R&D because of your increased activities in several locations. My question was actually on the EUR1.25 million net income item, but below the R&D and SG&A? If you could --?

That is I would say almost EUR1 million as we stated in our 6-K. It's related to foreign currency transactions.

Okay. So that's essentially a one-off for this quarter?

That's a one-off for the quarter.

Okay, thank you.

Ken Wong, Citigroup.

Ingo, several of your peers have noted demand softness in the market. And I guess I just wanted your take on what you guys are seeing? It sounds like you said that there's not much of a demand shift in large platforms, but just in terms of the verticals that you guys cater to, are you guys seeing any pullback?

As you know, we are active in the automotive industry and the foundry industry and other industrial markets like aerospace. It's actually the aerospace market is extremely picking up. So actually we are completely fine. Out of all of the sectors we've got good results and good prospects.

Got you. So I guess you guys also cater a little bit to the energy sector from what I recall. Are you seeing any weakness in the oil and energy sector?

Actually, no. Interesting point is that with one energy sector may be slowing down, another energy sector is going up. So we have maybe the oil a bit going down, but the nuclear is going up. So everything is fine. And energy is needed, so we are okay.

Got you. That sounds fantastic. And then, second, you guys mentioned the phenolic binders there as an area of potential growth going down the line. Are you guys starting to see good customer adoption here? Or when would you expect to see an uplift in terms of the usage of PPD?

Thank you for this question. So, we are working on the machines which are prepared for delivery in Q4. We are already trending here with that material profile for customer service. So for the moment everything is contracted, so you will see first installations in Q4 this year.

Got you. And the last one for Rudy. You guys had pretty good headcount in 2014. As we look to 2015, now that you've got the US built out and you guys have taken on Propshop, how should we think about headcount growth into the year?

So currently we run on approximately 210 colleagues. That's plus/minus, and I would say by the end of the year we believe that we have in the range between 240 and 250 people in our group.

Okay, perfect. I will pass it along. Thank you, guys.

(Operator Instructions). Ananda Baruah, Brean Capital.

Thanks, guys. Congratulations on a solid quarter. And thanks for taking the questions. I have just a few, if I could. First is, both Ingo and Rudy, mix was a bit of a theme this quarter. It sounds like there was some mix shift both in systems and in services. Could you give us a sense of what you anticipate mix to be like in both of those segments as we move through the year? And maybe if you could give us particularly -- well, not particularly, but incrementally and [serially] what you expect the mix to look like both in Friedberg and in Canton as we go through the year? And then I have a follow-up.

The first question I'd like to answer that we expect service revenue slightly higher than system revenues in 2015.

Ananda, you were asking about the mix in each segment; is that what the question was?

That's correct yes. And then for services, what the parts look like in Friedberg versus parts in Canton.

We don't talk about the individual mix. I'll just say that the two segments were both -- we believe that systems revenues are slightly higher than -- service revenues are slightly higher than system revenues.

Okay, ending for the full year?

Into -- we just talk about 2015.

And then, guys, how should we think about service gross margins for the balance of the year? Rudy, you made comments about what -- about the expectation for the systems gross margins for the balance of the year, but how about on the service margin side?

So, gross margins, if you talk about gross margins in systems, by selling more printers and dividing the cost through more printers, the gross margin will go up. So, we believe over the year, over the next quarters, we'd see a better gross margin than now, and can divide the current spending across more printers. In respect of service gross margin, we believe that we have a good chance of seeing a margin in the range of 40% to 45%, as indicated.

As Ingo stated in his script, was that the mix or the product mix in the previous quarter was not as favorable. And you saw this over the previous quarters, that gross margin in the service segment are between 40% and 48%, so our target currently is 40% to 45%. Sometimes it's above that, sometimes it's below. And long-term, 45% to 50%, so it's unchanged.

I think the more revenue that you generate, the more predictable; we can discuss this. But currently it's still an up and down, but I think it's a good corridor. You know there's a ramp up phase in the US. We have also a slight ramp up in the UK; adding more systems there. And this had impact on the gross margin. So for each individual running entity, I think we are quite fine if it runs at a certain capacity. So you should expect some improvement later this year.

And then just this the last one for me. You guys, very strong cash for the quarter, this quarter. I believe previously, considered a -- I guess anecdotal [borrowings], which got -- reach cash flow positive at some point in 2016. Do you think you could have a chance to be cash flow positive this year, given the strong start to the year? And you saw systems ramp and services ramp ahead of the --.

We didn't give guidance on cash flow. We just repeated -- we gave guidance on our revenue expectation, and we gave guidance on SG&A and R&D spending and CapEx spending. I -- with those numbers, I think all of us can do the math. I don't believe that we can guide it to a positive EBITDAR. As said, our target is to achieve this in 2016, but not in this year. I think that would be too ambitious.

All right, guys. Thanks a lot, and congrats again.

Jason North, Jefferies.

Are you still expecting second half revenues to be 55% to 60% of full-year revenues?

We didn't give guidance on how the split is, but usually we see more revenues in the second half of the year. And currently, as said, I just can repeat this, we believe we have a very good chance of fulfilling our guidance. And a printer more in Q2 could change that we have pop up in 2000 -- I mean with respect of revenue distribution. And if it moves to Q3 then it's probably 45/55 or 40/60. I just -- we tried to talk about that we -- our guidance, and we affirm our guidance for the year.

Okay. And the order book, are any of the ones in there used systems? And then any type of timing you can give us in terms of the rebound for the systems' gross margin?

Currently there is no used system in the backlog. We plan to do at least another used system in this year, but that's the only one in the remaining quarters because we don't have any used systems available. And the second part of your question, I couldn't get it. Could you please repeat it?

In terms of you expect the systems' gross margin to rebound; any sense of when that would occur?

Absolutely, we believe that we can rebound and we can -- we should see a better gross margin over the year, as said before, by assembling more printers and selling more printers, we have a better number to divide the costs to. Therefore we believe the gross margin will increase over time.

Okay. And last one here is looking at the ASP, or as you calculate it, just taking your order -- your shipments divided by your systems revenues. It looks like your ASPs were actually okay, even though two of the systems were used. If you could just discuss how you managed to get such a good ASP number.

The average sales price still is the same, and as said, on the used system they are occasionally in our quotas. And we try to optimize our used sale business, just operating printers a year or one and a half years longer in our service center, and then sell them. And I think if you do this and be more careful, then we see as well better gross margins on the used systems. So there's a very good demand for used systems, therefore we sometimes take it out earlier of our service center.

We plan to operate a system now at least three years in our service center and then refurbish them and take them out. And then we should reach at least a gross margin of 40% on a single used printer, which is then a lot better. But in the past year we were not able to optimize this, but now we are in a better position maybe slightly optimize our used sale business.

Great, thank you.

Brandon Wright, Stephens Inc.

Just a quick one on the guide. Given the nice top-line results and optimistic end market outlook in backlog, just curious about your thought process behind keeping the guide in place. Is this just erring on the side of conservatism? And then kind of a follow-up on that: what is the FX environment that's baked into the guide here? Thanks.

So just on the FX, there is no material consideration for FX, since the time we gave it to now. It's the same as it was originally.

Got you.

First point coming back to the guidance, we did a proper planning last year, and we believe there's a very good chance of achieving our guidance. And we don't want to increase guidance or want to lower guidance currently. We believe that we have a good chance of achieving our guidance. And we don't want to be conservative or overoptimistic. We try to be realistic. Currently, it looks very good to us and we execute our business model.

Sounds good. Thanks, guys.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

So again, I'm very pleased with our progress. I think we are off to a very good start in 2015. We have achieved a lot since our IPO 18 months ago. There's a great momentum in our business and we are well-positioned to deliver on our [results], and be the leader in our technology for the long-term.

I believe we have the right peoples, the right foundation and the right structure, all of which gives me the confidence that we can take this Company to the next level. Thank you again for your participation in today's call and we look forward to speaking with you again in August when we report our results for the second quarter figures. Thank you.

Thank you, too. Have a good day.

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.