Voxeljet AG (VJET) 2015 Q4 法說會逐字稿

Greetings and welcome to the voxeljet fourth-quarter and full-year 2015 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Johannes Pesch, Manager of Investor Relations and Business Development. Thank you, sir, you may begin.

Thank you, operator, and good morning everyone. With me today are Dr. 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 fourth-quarter and full-year financial results for the period ended December 31, 2015. The release as well as the accompanying presentation for this conference call is available in the investor relations section of the Company's website at voxeljet.de.

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 statement 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 now like to turn the call over to Ingo Ederer, Chief Executive Officer of voxeljet.

Thank you, Johannes, and good morning everyone. Thank you for joining us on our year-end earnings call today.

I'm going to give a brief overview of our results for both the fourth-quarter and full-year 2015 and then update you on the state of our strategic initiatives. Rudy will provide a more detailed review of our financial results for the period and will discuss our guidance for 2016. We will then open the call up for your questions.

So please let's turn to slide 4 and 5 of the presentation and begin with the highlights for the fourth-quarter and full-year 2015. For the quarter, total revenues increased approximately 19% from EUR6.9 million to EUR8.3 million.

We are proud to say that this was a record for our quarterly revenue. This confirms that we are heading in the right direction with our strategy and efforts.

System revenues increased 15% to EUR4.9 million from EUR4.2 million in the fourth quarter of 2015. We sold nine printers in the quarter compared to seven in last year's same period.

Customer interest and quoting activity remained strongly globally with notable strength from the US through our subsidiary voxeljet America. The outlook for printer sale is positive based on our backlog which reached a level of approximately EUR5.6 million on December 31, 2015, representing nine printers. As of March 31, 2016 our backlog was approximately EUR6.1 million.

Our lead list for systems which consist of potential customers sales for which we expect to receive a purchase order in the future, usually within a 12-month period, also remained strong. So in combination our backlog and our lead list give us the confidence that we can fulfill our long-term sales target for systems.

Service revenues in the fourth quarter increased 26% to EUR3.4 million from EUR2.7 million in last year's same period. This was primarily due to the revenue contribution of our subsidiaries and continued revenue growth from the capacity expansion of our service facility in Germany.

Our capacity expansion has enabled us to significantly increase both the volume and the number of shipped parts. Steady orders for both on-demand sand parts and plastic parts highlight the growing acceptance of 3D printing for production.

For the year 2015 total revenues were EUR24.1 million. This was an impressive increase of nearly 49% over the revenues in 2014.

System revenues increased 23% to EUR11.1 million from EUR9.1 million in 2014 as we sold 18 printers for the year compared to 14 printers last year. This creates additional opportunities for us to generate recurring revenues through the sale of consumables, spare parts and maintenance. Services revenues increased 82% to EUR13 million from EUR7.1 million last year primarily due to the revenue contribution of our subsidiaries and continued revenue growth from the capacity expansion of our service facility in Germany.

Slide 6 highlights the acceptance of our technology. Revenues both in our systems and service department have been growing strongly and consistently since the IPO.

We are well on track and are strongly executing on the growth story we laid out in our public offering disclosure. The revenue development over the last years proved that there is an increasing demand for our technology which meets expectations and enjoys a high market acceptance.

Turning to slide 8, I would like to highlight our focus on executing our strategy. As you can see we deliver results.

I'm very pleased with our performance. The fourth-quarter 2015 closed a year of strong operating performance. We not only overachieved our revenue guidance with total revenues of EUR24.1 million but also met our SG&A and R&D cost targets.

We maintained our focus on attracting and retaining a strong workforce for our growing operations. We introduced a group-wide metrics organization to standardize processes and facilitate communication and cooperation in our growing global organization. Internal experts provide the whole organization with the expertise and ensure optimal results. To further drive efficiencies in our core operations and to be well prepared for our future growth we professionalized our IT infrastructure by implementing SAP as a group-wide ERP system.

We reached a very significant milestone in November 2015 when we delivered our 100th 3D printer. At the end of the year we had a base of 107 installed printers. This proves that customers value our products and that 3D printing technology is gradually making its way into more industries and more companies are deciding to purchase their own machines.

The building up of our Service Center in the US in Detroit, Michigan is further progressing. The facility is state-of-the-art with room to grow. With a delivery of VX4000 the end of 2015 which is now up and running we continue to increase our service capacity in Detroit.

It gives us the opportunity to produce both very large parts and also high volumes of parts and sand for which we believe there is significant demand. We expect the Detroit Service Center to grow revenues progressively throughout the year. Like in Freiburg the Service Center in Detroit is a showroom for customers who start out with services and graduate to buying a system.

Having reviewed the financial performance of the voxeljet UK and its specific market environment, namely the firm entertainment and merchandising industry, we decided in October 2015 to streamline the operations and started to restructure the business. This was finalized in December 2015.

Voxeljet UK now focuses its activities solely on pure part printing services and selling our high-speed large-format 3D printers to industrial and commercial customers. We believe that they streamlined voxeljet UK fits better with our global business model and our long-term strategic targets.

Moreover, we took strategic initiatives to pursue opportunities in the Asian industrial 3D printing market. In December 2015 we announced our joint venture partnership with Meimai in China. Our long-standing relationship with the principles of Meimai makes them the ideal local partner for us to establish a direct operating presence in the biggest foundry market on the globe.

Their experience with our printers coupled with their existing customer base and relationships with end-users of industrial 3D printing applications in China is a great benefit. Voxeljet China is headquartered in the city of Suzhou near Shanghai and is expected to begin providing on-demand parts services from a temporary facility in the second quarter of 2016. We are in the early planning stages for a larger facility which is expected to be similar in size to voxeljet's existing service facilities in Germany and the United States.

In December 2015 voxeljet India was established in Pune, a large automotive and manufacturing center near Mumbai. We plan to establish a service center for manufacturing on-demand 3D printer molds within the next 18 months. This gives voxeljet a meaningful presence in the second largest foundry market on the globe.

While the integration of our Asian subsidiaries is still in the early stages we see great promise. We are excited about the new prospects and very much looking forward to the opportunities ahead.

For 2016 one of our financial targets is to reach a neutral to positive EBITDA for the full year. In addition, we plan to increase our system assembly capacity and add a new R&D center in Germany. This new R&D hub that will further strengthen our position as an innovation leader in the field of 3D printing.

We also aim to expand our phenolic direct binding process across our machine portfolio. I will discuss these topics in more detail later on in my presentation.

This leads me to the slide 9 to summarize our strategy 2020. First and foremost, we successfully strengthened our core by implementing a new ERP system. The system streamlines our internal processes and provides a more consistent method for routing and tracking the flow of requests and information. This increase in visibility is particularly relevant as we continuously expand our operations on a global scale.

Second, the introduction of a matrix organization will greatly increase the efficient exchange of information within the organization. The partners work closely together and communicate with each other frequently to solve issues directly. These efficient lines of communication will further enhance our productivity across all our departments and will allow for quick decision-making. This is particularly important in the global and fast-moving industries we are operating in.

Last but not least, with EUR34 million liquidity on hand we are in a position to drive our strategy and fuel our growth as planned. Consequently, we are well prepared for the opening up of future markets and the scale up of our operations which paves the way for generating above average growth in the future.

Turning to slide 10, I will review the scale-up of the production space at the voxeljet headquarters in Germany. Expansion of our German headquarters has been very favorable as we increase both services and systems production capacity.

In the area photograph you can see the existing office building on the service center as well as the location of the new R&D center which will be established in a building currently used for systems assembly. Systems assembly will move into a new building. The picture also shows the new office building and the new systems assembly.

We financed the new facilities in Freiburg by means of loan agreements with Kreissparkasse Augsburg in the aggregate amount of EUR4 million. We expect construction to commence shortly without any disruptions to our day-to-day operations.

Turning to slides 11 and 12, I'm very happy and excited to introduce you to the managing directors of our subsidiaries. As mentioned previously attracting skilled individuals who deliver outstanding results and share our passion for 3D printing is not only of critical importance, it's a precondition for our future success. With David, James, Tianshi and Nidhi we are very confident that we have found exactly that.

In summary taking a look at slide 13, you can get a sense of our global sales and marketing presence. At the end of 2015 we had more than 30 employees in our sales and marketing team and more than 20 sales agents or partners who represent us in 40 countries around the world. This increases our market penetration and facilitates the adoption of our technology.

This leads me to the next part of the presentation, the technology update starting on slide 14. Another driver of our strategy is our focus on continued innovation and the advancement in technology through our ongoing research and development. Our focus here will strengthen our position in the industry and contribute to our long-term future growth.

Looking at slide 15, our innovation can be broken down into the three categories: materials, components and machines. As we have discussed in the past, 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 market.

With respect to components, an example of our efforts here would be related to the optimization of our printer technology and other associated technical equipment to improve the overall printing process. 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 of our systems.

This leads me to the next section of the presentation and the phenolic direct binding process starting on slide 16. On the materials side we have introduced a new binder system, phenolic resin, mainly for foundry applications. It achieves high strength, excellent accuracy and detail as well as superb casting results in aluminum but also in iron and steel.

Another significant advantage, all unprinted sand can be reclaimed. As a result operational costs are lower than those of competing systems.

We have introduced this material set on our VX1000 and VX2000 platforms. Make sure to watch our latest video on the phenolic direct binding process at the YouTube link given below.

Customers have shown great interest in this material and we installed several systems already with more to come. We have included several additional slides in this section of the presentation to illustrate this process further.

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 will now take you through the financials.

As Ingo said we completed the repositioning of voxeljet UK on November 30, 2015 and associated one-time noncash charges of EUR2.7 million were included in our results. So I will provide the numbers excluding the charges as well in my comments.

Turning to slide 23, our total revenues increased 19% to EUR8.3 million in the fourth quarter compared to EUR6.9 million in the last year's fourth quarter. Gross profit and gross margin in the quarter were EUR1.7 million and approximately 20% respectively compared to EUR3 million and 43% in the last year's fourth quarter.

We recognize that inventory impairment charge within cost of sales of EUR1.1 million related to the repositioning of voxeljet UK. Excluding this one-time effect our gross profit and margin would have been EUR2.7 million and 33% which was negatively impacted by the general financial performance of our subsidiary in the UK.

The next slide shows our segment reporting for the quarter. On slide 24, systems revenue increased 15% to EUR4.9 million for the fourth quarter of 2015 from EUR4.2 million in the last year's fourth quarter. We sold six new printers and three used and refurbished printers in this year's quarter compared to seven new printers in the last year's same period.

Systems revenue represented 59% of total revenue in the fourth-quarter 2015 compared to 61% in last year's fourth quarter. Gross profit and gross margin for our systems segment in the quarter was EUR2.0 million and 41% respectively compared to EUR1.8 million and 43% in last year's same period.

As you know, the margin is affected by product mix. Used printers generally carry a lower gross margin than new printers and hence contributed to lower overall gross margins. We expect gross margin from the systems segment to be in the range of 40% to 45% consistent with the outlook we have given in the past.

On slide 25, service revenue increased 26% to EUR3.4 million in the fourth quarter of 2015 compared to EUR2.7 million in the last year's same quarter. Gross profit for our service segment was negative EUR[0.3] million in the fourth quarter of 2015 and included an inventory impairment charge of EUR1.1 million related to the repositioning of voxeljet UK.

Excluding the charge, gross profit and margin were EUR0.7 million and 22% compared to EUR1.2 million and 44% in last year's fourth quarter. Gross profit and margin services for the group was mixed with margins at our facility in Germany above the group level as demand for sand and plastic parts remained strong. This was offset by the lower gross profit of our subsidiaries in the United States and the United Kingdom, both of which we expect to improve progressively throughout the current year as a result of our strategic repositioning of voxeljet UK and the continuing scale of our operation of voxeljet America.

Looking now to the rest of the income statement on slide 26, SG&A expenses were EUR3.1 million in the fourth quarter of 2015 and included impairment charge of EUR0.7 million related to the repositioning of voxeljet UK. This compares to EUR2.5 million in the last year's fourth quarter.

Research and development expenses were EUR0.8 million compared to EUR1.3 million in last year's fourth quarter. The decrease is related to the termination of certain non-core R&D projects at voxeljet UK as part of the strategic repositioning. We continue to invest in core R&D in Germany with a number of active projects in various stages of development which strengthens our leadership in technology.

Slide 27 shows our operating income prior to giving effect to the restructuring of voxeljet UK. The takeaway is that excluding losses of approximately EUR2.4 million from impairment charges related to the repositioning of voxeljet UK operating profit would have been slightly positive in the fourth quarter of 2015 compared to an operating loss of EUR0.5 million in the prior-year period. This is a significant achievement as we focus the Company on profitability.

Net loss for the quarter was EUR2.4 million or EUR0.65 per share compared to a net loss of EUR0.7 million or EUR0.17 per share in the prior-year period. On an ADS basis net loss was EUR0.13 per ADS compared to a net loss of EUR0.03 per ADS in the fourth quarter of 2014.

You can see on slide 28 to 31 of the presentation we have provided a similar review for the full-year period. Slide 32 shows selected balance sheet items. At December 31, 2015 the Company had cash, cash equivalents and short-term investments in bond funds totaling EUR34 million.

Total debt at December 31, 2015 was approximately EUR2.4 million and weighted average shares outstanding for the quarter were 3.72 million which equates to 18.6 million ADSes. We believe that our balance sheet positions us well for the long term.

Moving now onto slide 33 and our revenue guidance for the year. We expect to achieve revenues between EUR28 million and EUR30 million in 2016. Gross margin is expected to be between 40% and 42%.

SG&A spending is expected to be in the range of EUR10 million to EUR11 million and R&D spending to be approximately EUR4 million to EUR5 million. EBITDA is expected to be neutral to positive. This implies depreciation and amortization between EUR3 million and EUR4 million.

CapEx spending for 2016 should be in the range of EUR12 million to EUR13 million which primarily consists of ongoing investments in our global subsidiaries as well the construction of two new buildings at our complex in Germany to support increased production capacity. Our first quarter ended yesterday and our preliminary revenue guidance for the first quarter of 2016 is revenues in the range of EUR5 million to EUR5.5 million.

We will release our financial results for the first quarter of 2016 after the closing of the financial markets on Thursday, May 12, 2016 and hold the conference call and webcast to review the results for the quarter on Friday, May 13, 2016 at 8:30 a.m. Eastern time. This concludes my remarks and with that we will now open the call up for your questions. Operator?

(Operator Instructions) Troy Jensen, Piper Jaffray.

Thanks for taking my question, gentlemen, and this is Austin Bohlig on behalf of Troy. My first question probably for Rudy would be I'm just looking at gross margins, just wondering just with the dip in Q4, how should we expect for that to recover in Q1 and maybe directionally throughout the year given the fact you guys reiterated your gross margin target for the full year? And then I have a follow-up.

I would expect gross margin for services in a range which we have seen in Q3 last year so it definitely will recover. And as we guided we expect gross margin about 40% in services and as well in our system segment over the full year. You saw in Q4 we had a one-time effect where we incurred costs for the repositioning of our UK business and Ingo as well as me explain them in detail in the presentation.

Okay, great. Thank you. And then I'd say the next one would be on the new technology front.

I know you guys talked about materials. Just wondering if we should be expecting anything in 2016 regarding new systems to be introduced?

We have a full pipeline of R&D projects as laid out with the focus on the three items materials, components and equipment. We have some of those in the very early stages, some of them are in final stages before a broader release. For the moment it's not visible that we have a broader product release for this year.

Okay. Well congrats on the quarter and good luck in 2016.

Thank you.

James Medvedeff, Cowen.

Hi, good afternoon. So the first question that I have is on there was a total of EUR2.356 million of charges and inventory adjustments and so forth. But not all of that is called out in the press release.

There's EUR1.068 million in COGS or cost of goods sold, EUR380,000 in sales and EUR471,000 which consisted of two items in other expense and there's EUR435,000 missing. Can you say where that is?

I recommend to go into our notes. There we described it in detail. And if you have additional questions we can take it out later on.

Okay. The follow-up question to that is so the run rate for operating expenses when we back all those out it seems very low. It's under EUR3 million, and just curious how it got to be so low and what would cause it to go back up next year or this year?

As stated in my guidance or in our guidance we believe that we are pretty good positioned. And we increase where it's necessary and again I just would like to reflect our guidance.

Okay, and just one more if I could. The backlog as of March, you gave EUR6.1 million number. How many units does that represent?

We don't disclose that.

Okay, thank you.

Ken Wong, Citigroup.

Hey guys, when we look at your guide in 2016, can you give us a sense for where you think the capacity for your US facility will end up and maybe a sense of how it was when you guys closed out Q4 of this year?

So the full capacity in our US operation by end of 2016 -- I think you did not attend the -- you asked at the analyst meeting, Kenneth, the VX4000 you saw in operation. And besides the existing printers the two sand printers and three plastic printers we for sure will add between one and two more sand printers. And as I said a couple of quarters ago we believe that by the end of 2017 we should nearly have the capacity like in our German facility.

Perfect. And then second, Ingo, you guys talked about a new systems facility out in the Freiburg area. Should that be completed by 2016 and then what do you think, like how much additional systems capacity do you think you have relative to what you have today?

So this facility will be is planned to be operational by end of the year and it will give us enough space for the next at least five years. So you know our plan is to grow consistently so you can expect what this means in terms of capacity.

Ben Hearnsberger, Stephens.

Hey, thanks for taking my question. This is Brandon in for Ben.

Just real quick on the 2016 sales guide it's a little below the long-term operating model of 25% to 30%. When can we expect to get back closer to this type of growth? Thanks.

In the current market environment we feel quite comfortable with the growth which we are indicating. You know we are not a software Company, we are a hardware Company and it always takes a while to ramp up facilities.

We have a long-term growth model and there might be years where we grow 25% and there might be years where we grow 30% or 20% or sometimes 40%. With the guidance we have given as said we feel comfortable for 2016 and early 2017 we're going to give guidance for 2017.

Understood. And then on the OpEx in 2016, so you're calling for reduced on absolute dollar. Is this -- should we think about this for 2017 as well or is this kind of just a 2016 aberration if you will?

I think we reached a pretty good level in SG&A currently and going forward it might grow but definitely not on a level, and that's what I said in the last quarter already, not on a level which we have grown SG&A spending since 2014 and 2015. R&D expense is the same. I think we're going to grow beyond gross margin but to achieve our long-term targeted operating margin we have to grow gross profit faster than SG&A and R&D and that's what we're starting with.

Understood. Thanks for taking my questions.

(Operator Instructions) Saliq Khan, Imperial Capital.

Hey, good morning guys. A couple of quick questions for you. First one being is given voxeljet India and the work that Nidhi is doing out there, what does that market opportunity look like for you and over the years how big can this become as a are part of the overall pie of voxeljet?

As Ingo said, we are in a early stage. We started the operation and within the next 18 months we plan to have a Service Center in place comparable in a first stage to probably half the size here in Germany.

Long term we see a significant potential in both markets, India and China. I don't want to predict what level it can reach in our group but we see great potential in those markets.

And as you take a look at the overall global slowdown that's out there right now within the capital goods shipments, is that impacting your outlook for 2016? Or do you feel like the work that you're doing out in China or India or the cost cutting stuff that you guys are working on is going to be able to largely offset any headwinds?

So for the moment we see good acceptance and all the good opportunities for us just our printers in Asian markets. So China is a significant, we show significant demand for our machines.

And I think as you have seen in the past from us, Korea for instance and other Asian markets are very important for us. So that's why the step in China was a logical step for us to come closer to our existing clients and address all the new customers.

Then, guys, are you seeing, during 2016 are you seeing any sort of an adverse impact from the slowdown within the energy sector at all?

Well, of course the demand for parts, cast parts in the energy sector is slowing down. However, we see other industries picking up. For the moment we are not highly dependent on energy and oil-based industries.

So that's why I can't really complain. Business is very strong in both segments.

Perfect. And guys, one last question for you then I will hop back in the queue. Given the focus that you have on strengthening the core and scaling up the service centers, over the years how are you going to work towards preventing costs from ballooning?

Excuse me, can you please repeat your question?

Sure. The focus that you guys have had on strengthening the overall core business, scaling up the Service Center, you talked a little bit more about R&D and HR work as well, how are you going to prevent the overall cost from ballooning, from increasing?

I apologize. I still didn't get you.

Sure, not a problem. So a lot of the initiatives within the strategy 2020 that you guys have been talking about, it appears to me that there might be an increase in overall costs.

Sure your revenues are going to go up as well. I'm just trying to better understand what things are you going to do to make sure your costs don't increase as rapidly as some may envision?

So the assumption is that we can keep costs with a smaller -- as Rudy said with a smaller growth rate than the revenue contribution from the new markets. And as you see in the investment in the new facilities, they should pay back in very short term, so we are quite confident to be well positioned in that respect. The prime driver definitely is revenue as we discussed, but as well we have to carefully watch our spendings beyond gross profit because you always earn money if you are careful with your spending.

Perfect. Ingo and Rudy really appreciate it, guys. Thank you.

Jason North, Jefferies.

Yes, I just want to look at the Q4 services margin real quick here. Was that mainly down because of the Americas? You had the VX4000 installed and it wasn't -- you still had revenues up sequentially I assume in the services business in Americas for Q4.

Thanks for this question Jason. The gross margin was not down because of this because we installed it and took it into operation end of 2015 and early 2016.

The prime driver were the UK business affected gross margin overall below still the US is in a growth mode, it affected it and that turned out to be in the 33% overall margin. But as I said we are very confident with the growing demand in the US, with the refocusing of the UK business, with pretty strong activities in Europe that we see gross margins back on track and on a level where we guided.

Okay, and then for the just clarify the earlier comment, you think the Q1 gross margin will be similar to Q3 2015?

We currently are doing our work and therefore we gave guidance only on numbers and the overall guidance for gross margin for 2016 is between 40% and 42%. It might be that Q1 is below and other quarters are above. But as I said we just closed the books yesterday and we want to do our work and going to give detailed numbers in our earnings call.

Okay. And for the full-year 2016 are you still targeting 30 printers to be sold?

We did not disclose the number of printers but we are still on track with achieving revenues or aiming to achieve revenues in the range of EUR28 million to EUR30 million.

And then last one here, it looks like when you have the charges for Q4 coming off that Q1 for OpEx will be the bottom for the year and then it may ramp up little bit. And then obviously would be within your full range targets for the year, is that how we should think about it, that Q1 is the bottom then up a little bit from there?

That's fine. Agreed.

All right, thank you, guys.

Mr. Ederer, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you very much, operator. So 2015 was a year of strong performance and of a transition as we invested and positioned the business for the future. We are very pleased with our progress and the milestones we have achieved and we are off to a very good start in 2016.

We plan to improve our results in 2016, driven by continued emphasis on growing our subsidiaries and unrelenting focus on R&D and by increasing our market penetration through our sales and marketing operations. Our organization now employs more than 220 people with operations in five countries which compares to approximately 100 employees with operations only in Germany at the time of the IPO.

We believe we are well on track to achieve what we have said we would, there is great momentum in our business and we are well positioned to deliver on our results and be the leader in our technology. Rudy and I want to thank all our colleagues and the team members.

To sum up, we are confident that we have the right talent, the right strategy and the right assets to drive long-term, sustainable growth for our investors. Thank you again for all your participation in today's call and we look forward to speaking with you again in May when we report our results for the first quarter of the current business year. Thank you very much.

Thank you, bye-bye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect our lines at this time.

Thank you for your participation. Have a wonderful day.