Voxeljet AG (VJET) 2017 Q1 法說會逐字稿

Greetings, and welcome to voxeljet's First Quarter Financial Results Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Johannes Pesch, voxeljet's Director of Investor Relations and Business Development. Thank you, Mr. Pesch. You may begin.

Thank you, operator, and good morning, everyone. With me today are Dr. Ingo Ederer, voxeljet's Chief Executive Officer; and Rudi Franz, voxeljet's Chief Financial Officer.

Yesterday, after the market close, voxeljet issued a press release announcing its first quarter financial results for the period ended March 31, 2017. 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.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 now like to turn the call over to Ingo, Chief Executive Officer of voxeljet.

Thank you, Johannes, and good morning, everyone. I want to thank everybody for joining us today. I just came back from RAPID Show in Pittsburgh this year, and I'm really excited about the development in our industry. We saw more exhibitors and more visitors than ever and had a great attendance at our booth.

Before we start, I would like to remind those who might be new to our company about voxeljet's core business model shown on Slide 4.

In our Systems segment, we manufacture and sell industrial-grade, high-speed, large-format 3D printing systems geared towards mass production of complex models and modes. In our Services segment, we operate these systems in facilities around the world to offer affordable on-demand access to our technology. This proprietary technology is reshaping the ways things are made and is truly disruptive to the traditional methods of manufacturing.

Let's start with the formal part of the presentation. I will begin with an overview of the first quarter results. Rudi will then provide a more in-depth view of our financials and our outlook for the second quarter of 2017. Following his comments, we will be happy to take your questions.

Our first quarter was in line with our expectations and builds upon the key strategic and operational initiatives we have undertaken to continue to drive improvement in our business. Most importantly, we have made tremendous progress against many of our strategic growth initiatives and organizational initiatives that will provide a path for continued success. These efforts have continued as we entered 2017, and I'm excited to also discuss these actions already completed in the first quarter that results to further strengthen our business model and market position.

We continue to strongly execute on our Strategy 2020 and are excited about the growing number of opportunities around the world. We are driving towards a bigger, better, more focused voxeljet group. Over the last 6 months, we have taken action on all our strategic properties -- priorities. Our priority objective has been and continues to be to return voxeljet to sustainable above-market growth.

Let's turn to Slide 5 of the presentation and begin with the highlights for the first quarter 2017.

Revenue for the quarter was EUR 4.5 million, which represents a 7% decrease compared to last year's first quarter. Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts, as well as maintenance, decreased 39% to EUR 1.7 million in the first quarter of 2017 from EUR 2.8 million in the last year's first quarter. We delivered 2 new printers in this year's first quarter compared to 3 new printers in last year's first quarter. The number of printers we sell is still relatively small, which means each sale has a significant impact. This explains the high volatility in revenues in this business segment. As we progress and sell more units, this segment will become more predictable. Also, it is important to understand that with every additional system we sell, we generate long-term aftersales opportunities. For example, there are materials used in operation, maintenance, contracts and spare parts. As of now, we have a systems backlog of roughly EUR 5.3 million (sic) [EUR 4.3 million]. This compares to a backlog of EUR 3.8 million at the end of last year, which represents an increase of almost 40%.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, increased 36% to EUR 2.8 million in the first quarter of 2017 from EUR 2.1 million for the same quarter last year. This was mainly due to higher revenue contribution from our German and U.S. operations. The increase is also attributable to the revenue contribution from our Chinese operation, which was established during the second quarter of 2016.

I would like to highlight that we -- while we were able to grow Services revenues quite significantly, we also managed to achieve much better gross margin of 43%. We almost doubled our absolute gross profit in this segment. This is a great achievement and in line with our long-term target.

Slide 6 summarizes the results. I want to highlight 2 points.

First, looking at the breakdown by geography, revenues in the U.S. significantly increased by more than 2,000 basis points in the first quarter of 2017. Compared to last year's period, this was offset by a decline in EMEA as well as Asia. Please keep in mind this is, to a large extent, driven by printer sales in the respective regions and, therefore, quite volatile. Going forward, our global footprint, which further increased stability by balancing revenue streams, provide new opportunities for growth and ultimately help us attain sustainable success.

Our primary focus in 2017 is to further strengthen our sales and marketing programs to continue our growth path. Consequently, looking at the composition of our operating expenditures, this translates into an increase in selling expenses of 587 basis points to 31% of sales. We have made and continue to make investments in our sales organization, with a focus on sales management, sales and marketing automation tools and sales training. We hired 9 additional colleagues in our sales. Our enhanced sales management team will -- key to sales excellence as they are on point to coach and mentor our frontline sales team, especially in our subsidiaries.

To give you some more details, our sales team are now investing more time in developing key account plans. They will be going wide and deep among our existing and future customer base. Through colleague referrals, use of webinars and on-site visits, we are developing relationships with key decision makers. We will continue to leverage marketing automation tools and data analytics to drive improved productivity. One example here is the focus on driving further increased quoting activity.

Regarding administrative expenses, our spending is mainly driven by public listing requirements like fees for auditors and lawyers. In addition to that, we continue to invest in our IT infrastructure. Going forward, this will help us to automate processes to look at our cost structure very differently and ultimately save costs.

Regarding research and development, we saw an increase of 621 basis point to 33% of sales. To meet the priority of outperforming the market, we continue our program of investment in innovative, higher-knowledge content, materials and technologies.

Other operating expenses are largely related to changes in the valuation of intercompany loans granted to our subsidiaries in the U.K. and the U.S.

Turning to Slide 7. I would like to update you on the status of our facilities and the progress we have made.

In Germany, we are currently moving our Systems team into our new and increased production facility. As mentioned in previous calls, this is a state-of-the-art facility which is already equipped for the demands of future machine generations. This is really exciting as it prepares us well for future growth.

I'm pleased with our continued progress in Services. Our operational execution was strong as we recovered nicely, and we expect this trend to continue. To take a specific example, the auto industry is doing comparably well. Nearly all major OEMs and their suppliers are announcing projects for modernizing and upsizing their capacities. We expect the whole industry will be increasing its investment in the coming years. This is, to a large extent, triggered by the emphasis on reducing fuel consumption through light-weighting. This means that there is a growing demand for pieces with complex geometries in large quantities ideally suited for voxeljet's 3D printing technology.

In the U.S., we met a steady increase in demand with installing additional 3D printing equipment. We are pleased with the progress we are making. The opportunities truly are exciting.

In the U.K., our team is in the final stages of preparing its move to the new facility. With this, we will further diversify our revenue generation potential by adding new phenolic direct bind printing systems. Also, we have negotiated preferable rental terms for the new facility, which will optimize our cost structure.

China is ramping up nicely. Please keep in mind we are the -- at the moment operating out of an intermediary facility. The plans for the new facility are finalized, and we expect construction to begin later this month. Like with our other subsidiaries, we start to benefit from our local presence as we see a steady increase in deal flow. This also applies for our operations in India.

Slide 8 illustrates our increased footprint in Germany.

Turning to Slide 9 and the market update. You have seen this slide in previous calls, and I'm showing it again as it nicely illustrates the opportunities we have in front of us. This time, I would like to focus on China and India.

The process of technology catch-up is evident in many emerging countries and is a key driver of our growth in the segments we are operating in. China, for example, is already among the largest consumers and producers of machine tools. We expect China to maintain its lead as domestic demand expands and traction as a production base for export to the rest of the world continues to increase. We expect to benefit from this trend by our local presence and are already seeing first results.

The next years will be really exciting as we continue to leverage our key competitive advantages highlighted on Slide 10 and strongly execute on our Vision 2020 summarized on Slide 11.

With that, I would like now to turn the call over to Rudi.

Thank you, Ingo, and good morning to everyone, I would like to begin by providing financial details and adding some additional context to our results before discussing our outlook for the rest of 2017.

When we issued our 2017 financial guidance back in January, we noted that roughly 40% of our full year earnings would likely be generated in the first half of 2017. Our first quarter came in as expected, and we anticipate significantly improved performance as we progress through 2017.

Turning to Slide 12. Our total revenues slightly decreased 7% to EUR 4.5 million in the first quarter compared to EUR 4.9 million in the last year's first quarter. Gross profit and gross margin in the quarter were EUR 1.6 million and appropriately 35% compared to EUR 1.3 million and 27% in last year's first quarter.

The next slide shows our segment reporting for the quarter. On Slide 13, revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, decreased 39% to EUR 1.7 million for the first quarter of 2017 from EUR 2.8 million in last year's first quarter. We sold 2 new printers in the first quarter of 2017 compared to 3 new printers in last year's same period. Systems revenues represented 37% of total revenues compared to 57% in last year's first quarter.

Gross profit and gross margin for our Systems segment in the quarter were EUR 0.4 million and 21%, compared to EUR 0.7 million and 25% in last year's same period. As utilization picks up, we expect gross margins from the Systems segment to be in the range of 40% to 45%. Consistent with the outlook we have given in the past, we continue to invest in improved systems, implement best practice in inventory and supply chain management and continue to improve our communication and coordination in our engineering and manufacturing team. Cost absorption in our factories will continue to improve, and it should lead to more positive margin outcome in product sales in the years [forward]. Our goal is simple: Deliver solutions that solve our customers' problems.

On Slide 14, Services revenues increased 36% to EUR 2.8 million compared to EUR 2.1 million in last year's first quarter. This was mainly due to higher revenue contribution from our German and U.S. operation, while the China is ramping up nicely and starting to contribute. Gross profit for our Services segment increased to EUR 1.2 million in the first quarter of 2017 from EUR 0.6 million in the first quarter of 2016. The gross profit margin for this segment increased to 43% compared to 31% in last year's same period. This was mainly due to high utilization rate in the first quarter of 2017. As stated in previous calls, utilization is key to realizing better gross margins. I would like to highlight that we almost doubled our absolute gross profit in this segment.

Looking now to the rest of the income statement on Slide 15.

SG&A expenses were EUR 2.6 million in the first quarter of 2017. This compares to EUR 2.3 million in last year's first quarter. The increase is mainly due to higher personnel expenses related to an increase in headcount of 9 compared to the first quarter of 2016. We continue to monitor our operating expenditures carefully.

Research and development expenses were EUR 1.5 million compared to EUR 1.3 million in last year's first quarter. As Ingo highlighted, we continue to invest in core R&D in Germany to maintain our position as a technology leader in 3D printing.

Operating loss was EUR 2.4 million in the first quarter of 2017 compared to an operating loss of EUR 3.1 million in the comparative period in 2016.

Net loss for the quarter was roughly EUR 2.4 million or EUR 0.65 per share, compared to net loss of EUR 3.1 million or EUR 0.84 per share in the prior year's quarter. On an ADS basis, net loss was EUR 0.13 per ADS compared to a net loss of EUR 0.17 per ADS in the first quarter of 2016.

Slide 16 shows selected balance sheet items. At March 31, 2017, the company had cash, cash equivalent and short-term investments in bond funds of roughly EUR 90 million. Total debt at March 31, 2017 were EUR 6.6 million. Weighted average shares outstanding for the quarter were EUR 3.72 million, which equates EUR 18.6 million ADSs.

We continue to see opportunities to improve working capital performance, cash flow and our cash conversions likely in 2017. I remain comfortable with our cash balance and overall liquidity position. We believe that our balance sheet, with an equity ratio of roughly 80%, positions us well for the long term.

Moving now on to Slide 17 and our revenue guidance for the quarter and full year.

For the second quarter of 2017, we expect revenues in the range of EUR 5.5 million to EUR 6.5 million. Full year 2017 revenue remains unchanged and is expected to be between EUR 26 million and EUR 28 million with gross margins above 40%. SG&A spending is expected to be in the range of EUR 9.25 million to EUR 10.25 million, and R&D spending to be approximately EUR 4.75 million to EUR 5.75 million.

Depreciation and amortization expenses are expected to be between EUR 3 million and EUR 4 million. EBITDA is expected to be neutral to positive in 2017.

CapEx spending for 2017 should be in a range of EUR 8 million to EUR 9 million, which primarily consists of ongoing investments in our global subsidiaries.

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

(Operator Instructions) Our first question comes from the line of Ken Wong with Citi Group.

In terms of just the printer business, it's a little lighter this quarter than, I guess, we were expecting. Can you just maybe touch on kind of what happened there? And as we think about the full year guidance, is printer mix going to be close to 60% like we saw last year? Or how should we be modeling that?

Okay, Kenneth, thank you for this question. As I lined out in my presentation, the printer sale is always a bit volatile since we are not completely controlling whether printer is sold in the quarter or maybe sold in the next quarter. Basically, we are fine with the printer business as it develops, so it could happen that we would have the option to recognize another printer in the first quarter which slipped over to the second quarter. So this is one of the effects I can refer to. And I would say the outlook based on the -- also the backlog we have is extremely positive. So the -- when you ask about the contribution from the printer sales, we still see above -- in the range of 60% to 40% in Services. You should expect a different percentage for the further quarters of this year.

Got it. That's very helpful. And then second, the German Services -- I mean, well, the German business overall was very strong. As we look to kind of second quarter and beyond, is that an area where we can continue to see a good amount of improvement?

So what we currently see is that the demand for our products is extremely well accepted. The demand is there. We continue operating on an extremely high level here in Germany, and I don't see reasons why this should surprisingly stop. So I think we have a good outlook for the year. And usually, we have maybe a slowing down in the summer and then a much better fourth quarter. So develop something good from -- expect something good from this year.

Got it. And then last thing for me. In terms of your high-speed sintering system, you guys obviously showed off some printed samples at RAPID, and you guys may potentially start to talk a little more from that. So are you guys working with any customers on application sets for that particular product at this moment?

Yes, we already have installed systems out, which are in a kind of a pre-alpha phase, and we're exchanging information. Yes, absolutely.

Our next question comes from the line of Rob Stone with Cowen and Company.

I wanted to follow up on the Systems outlook as well in terms of how you're thinking about sort of preplanning for a stronger Systems business in the subsequent quarters. I know in the past you've, for example, prepositioned some inventory so that you were able to ship faster. Can you comment, for example, on what the lead time is by which you would need to receive an order in order to get it as built, shipped and recognized this year?

Thank you for the question, Rob. We currently have approximately EUR 9 million in work-in-progress, which positions us pretty good for shipping on relative short notice. I would say within a quarter, we easily can ship a VX1000 and install it if we're going to receive the order. Overall, the build time for printers still is, I would say, 4 to 5 months, and then you always have the question where does it go to -- if it goes to Asia, it [sits] on -- about U.S. Customs clearance, et cetera. But with the current work-in-progress, with the forecast which we have, I feel quite comfortable we'd work through our guidance as we have indicated.

Okay. I also wanted to follow up a little bit on the Services business. And you already covered Germany. Can you say what it is that's driving the significant improvement in the U.S.? I mean, I guess part of it is just the natural evolution of having had the U.S. operation in place long enough so -- to build the business. But can you give us a sense of sectors or applications, which of your platforms is driving the Service Bureau strength in the U.S.?

So we have there a relatively good installed base in PMMA, and the demand for PMMA is extremely good. This is, let's say, within our expectations since we know that there is a strong demand in U.S.A. for investment cast patterns, and this is mainly driven by aerospace and also space industries. And we -- I think we can contribute here with unique properties of our product. And with that, we got more experienced and the customer is getting more experienced, so the demand grows. So we are really proud to see that, and it means that we can now fulfill what we have thought about. And we have prepared the market extremely good for this...

Our investment cast in the market is prepared pretty good in the U.S. I think our competitors did a great job in previous years. And with our printers, we really fulfill industrial needs in respect of operating costs and [participate] quite nicely.

That actually leads exactly into my next question, which is how you're thinking about the competitive environment, at least recognizing that additive manufacturing has a bunch of different verticals by technology. But at least as regards to the part of the markets that you play in, so how do you think about competition at the moment?

So competition is -- always has ideas strengthening the position because it's in a race, and if you have nobody running with you, you don't have a need to run. So we see that positive. In general, I would say in our sand business, we have one competitor outside you already know. And of course, the much bigger competition is coming from traditional methods. So we are still here developing the market together with our competitor. I think it's enough opportunities for both and probably also for upcoming companies getting into the field. In the PMMA area, we are relatively alone on the additive side. I think we have here a unique position within the group of additive manufacturing suppliers. As Rudi already mentioned, the market was well preferred by another technology where we give, I think, a much better position to our clients. And of course, there are also traditional methods out which we are competing with. So in general, I would say the competitive landscape has not changed in the past years and also not now. We feel very comfortable on this, and we are also -- feel comfortable with the progress we made with our new products. So I think we are well positioned.

Okay. And then I wanted to ask about seasonality in the Services business. You talked about the traditional summer slowdown, which I would expect to be the typical pattern for your European operation. But as you're growing quite strongly in the U.S. and starting to see a contribution from China, do you think that a more diversified geographic mix is likely to change the seasonal pattern?

Of course. You are addressing the right point, which are, for instance, the new year in China, which takes place in February, has a higher impact for them. As well, probably we don't see there a slowdown in August. So this is -- of course, it's true. So we have a mix of different slowdown periods over our subsidiaries, and this will probably balance out.

So not to put words in your mouth, but that suggests that -- maybe less of a seasonal Q3 impact than you would have seen in prior years.

Well, for this year, probably we -- still, the German operations is contributing the majority of sales. So let's see, let's see. But the -- with the further development of the company and the subsidiaries, it will flatten out.

(Operator Instructions) Our next question comes from the line of Troy Jensen with Piper Jaffray.

This is actually Nick Johnson dialing in for Troy. He's on a flight right now. I had a question. And Troy was at the RAPID booth that you guys held, and there's a new high-speed sintering machine. Can you update us on when the product will be introduced and generally available?

So we -- as we already announced, we will show this product initially on form next -- this year. We will present this as announced, which will -- our beta program, and it is very likely that it's generally available in the first or second quarter 2018.

Next, this product will most likely have a different end user versus what you guys have for your sand casting customers. So we're curious about your go-to-market strategy. Will you build out your sale force or build out a channel partner program to sell it? I'm curious about your go-to-market strategy there.

The interesting point here is that we see a certain demand for this particular product from one of our core segments, which is the automotive industry. What is also maybe of interest for you is that additive manufacturing in an auto OEM will be usually controlled by a group which controls all additive manufacturing, so means they have a single point of access. So this makes it relatively easy for an initial stage to step in with that product. But in the end, you are right, we need to diversify probably our sales channel a bit to get this product in the market.

Our last question is, what type of materials do you expect to be available for this -- the HSS product?

We will initially show it with a polyamide, and it's very likely that it will also come with a TPU-based material. So it's a kind of a tough material. And we have other materials under research for the moment. The good thing is a relatively open platform with an open technology. Means that it's very likely that we have in short term other materials to come.

Our next question comes from the line of [Howard Carzel], private investor.

Gentlemen, could you shed a little light on the strategy in China and what your manufacturing capabilities are?

Thank you for this question. So we see there a strategic approach from our side by developing the market with our own service center. So we develop the market with a presence in the Shanghai area, a strong service center with a broad platform of machines. We have also a sales team there, which covers some part of the country also for machine sales. And of course, we have partners outside of our company which were controlled for sales out of our subsidiary.

Thank you. Mr. Ederer, there are no further questions at this time. I'll turn the floor back to you for final remarks.

Thank you.

We entered 2017 with great momentum and a strong focus on executing on our Strategy 2020. This will help us to continue to achieve our goals and to generate sustainable long-term value to our shareholders. We will rigorously leverage all our strengths, our global presence with a highly talented and motivated team, our leadership in 3D printing technology and our in-depth market knowledge. The opportunities all around the world are great, and we are ready to take them. I would like to thank you -- our investors for their continued interest and support and our employees for their dedication and commitment to delivering world-class product and service to our customers every day. Thank you very much. Have a good weekend.

Thank you, and have a good weekend.

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