Voxeljet AG (VJET) 2017 Q3 法說會逐字稿

Greetings and welcome to voxeljet AG Third Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Johannes Pesch. Thank you, 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 closed, voxeljet issued a press release announcing its third quarter financial results for the period ended September 30, 2017. The release as well as the accompanying presentation for the 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. We are hitting on all cylinders just like we said we would and are really proud of the progress we have made, launching new products and continuing to grow our business in new areas. It has been particularly exciting to see how research project turned into new products that can support critical demanding applications and address the challenges that are most important to our customers. I would like to remind those who might be new to our company about voxeljet's core business model and our unique positioning summarized on Slide 4 and 5.

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 such systems and several facilities around the world to offer affordable, on-demand access to our technology. This proprietary technology is reshaping the way things are made and is truly disruptive to the traditional methods of manufacturing. Slide 6 highlights our operational footprint, we are a truly global acting company.

Let's start with the formal part of the presentation. I'm going to begin by providing some highlights for the third quarter and then spend some time discussing our portfolio advanced technologies, Rudi will then provide a more in-depth view of our financials and our outlook for the fourth quarter of 2017. Following his comments, we will be happy to take your questions.

We are pleased with our strong quarter and believe that our results mark progress on both improving our go-to-market efforts and on our long-term goal of reaching profitability. To highlight this, if you exclude non-cash foreign exchange effects largely resulting from the change in valuation of intercompany loans, we achieved a positive EBITDA of roughly EUR 0.14 million in the third quarter.

Let's turn to Slide 7 of the presentation and begin with the highlights of the third quarter 2017. Revenue for the quarter was EUR 7.4 million, which represents a 51% increase compared to last year's third quarter. I would like to step back for a moment and remind you that this quarter was our second strongest quarter since our IPO in 2013 in terms of revenues and a record quarter in terms of gross profit. As mentioned in previous calls, our approach will remain focused around the work that we can win at margins that represent the value that we deliver. Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance increased 63% to EUR 4.2 million in the third quarter of 2017 from EUR 2.5 million in the last year's third quarter. We delivered 3 new and 3 refurbished printers compared to 3 new printers in last year's third quarter. As of now, we have a Systems backlog of roughly EUR 3.2 million, our sales pipeline is well filled at present and we continue to work hard to turn these prospects into orders. (inaudible) put the highest emphasis on managing our sales funnel and are investing a significant amount of our time into monitoring the progress of our colleagues all around the world. Thanks to our cloud-based CRM tools, this happens in real-time, our service and maintenance team is working on the same platform, so we always see the full picture.

Our gross profit and gross profit margin increased sequentially from the [fourth quarter of 2016]. To put this into perspective, absolute gross profit increased 60% from EUR 2 million in the third quarter of 2016 to EUR 3.2 million in the third quarter of 2017.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers increased 38% compared to the same period in 2016. As mentioned in previous calls, utilization is key to achieving better gross margins. This is exactly what we delivered this quarter with gross margins in our service segment of [above 50%] and we are following the right path.

Slide 8 summarizes the results, I want to highlight 2 points. First, looking at the breakdown by geography, revenues in EMEA significantly increased. This was offset by a decline in Asia and the U.S., but please keep in mind, this is to a large extent driven by printer sales in the respective regions and therefore quite volatile. We recently signed off on several deals in Asia featuring our largest printing systems. In the U.S., we finalized a deal with a leading aerospace company. Going forward, the expansion of our global footprint will further increase stability by balancing revenue streams, continue to provide new opportunities for growth, and ultimately help us attain sustainable success.

The future of the group will be built on its strong position in Europe, the success of its international expansion strategy, the growth potential of existing products, and the introduction of innovative products, in line with our role as a technology leader in the field of 3D printing.

Second, looking at operating expenses. Our selling expenses increased significantly, which is strongly correlated to our growth in revenues and the associated incentive scheme. In addition to that, we have made and continue to make investments in our sales organization for the long-term with a focus on sales management, sales and marketing, automation tools and sales training with a strong focus on execution.

Our enhanced sales management team is key to sales excellence as they are on point to coach and mentor our front line sales teams, especially in our subsidiaries. The increase in administrative expenses is related to legal fees for the preparation of the shelf registration filing on August 14 this year. In addition to that, we continue to invest in our SAP system. The implementation project has been progressing on track and on budget. As previously discussed, this project among others improves business analytics, inventory management, purchasing and production and will lead to enhanced overall productivity.

Turning to Slide 9, we are committed to reduce spending to 30% of revenue by 2020 as we expect to continue to rationalize our marketing and sales programs and generate significant leverage in our G&A functions. We are making great progress; total spending was down 56% year-over-year in the third quarter. At the same time, we are executing with operational discipline and expect to generate significant leverage from higher revenue growth with continued investments in our key priorities and strengths, summarized on Slide 10.

These USPs are strongly aligned with the growing trend for higher performance products across all of our end-use markets. Our printing systems are modular, versatile, and highly scalable and therefore uniquely positioned to support critical demanding applications and address the challenges that are most important to our customer.

Turning to Slide 11, an update on our research and development activities in general and recent product announcements in detail. We believe that the next step change in industry performance will come from developing complete and integrated technology systems, which will redefine end-to-end workflows and [complex] hardware and software components. Our commitment to technology leadership is stronger than ever as can be seen by how we have advanced our technology strategy during the downturn of the last year. We are now ready to capitalize on the investments in close collaboration with our customers, it is quite simple innovation-fueled growth. We are really excited about our recent product announcements as they feature more advanced and higher knowledge materials and technology. With high speed sintering, we will be entering the thermoplastics market with the ability to directly manufacture end-use products with properties and qualities similar to or even better than Selective Laser Sintering, HP's Multi Jet Fusion or injection molding. HSS parts can directly be used for functional applications in automotive, industrial equipment, and even consumer goods. We will initially launch this product on a specialized VX200 HSS platform and are already working on larger systems for mass manufacturing. We have included a link to a video, which explains the process in detail on Slide 12.

This brings me to Slide 13 and the general business update. Here, I would like to highlight 2 points. First, we successfully concluded the construction of and moved into 2 new buildings in Germany, an additional state-of-the-art production facility and new office premises at our campus in Friedberg. This is really exciting as it prepares us well for the future growth. Second, James Reeves, our Managing Director of voxeljet U.K. and his team did a great job of moving the current operations into a new and larger facility approximately 1 hour north of its previous location on time and on budget. We have already installed first HSS in PPB systems and are excited about the new possibilities. We have included pictures and the link to a facility tour on Slide 14.

The next milestone in terms of expanding our global footprint will be the opening of our new roughly 5,000 square meters facility in China. We are on schedule and plan to start to move in [mid next year]. Meanwhile, we continue to operate out of our intermediate facility, Tianshi Jin, Managing Director of voxeljet China keeps us closely updated about the construction progress with great pictures, one of which you can see on this slide.

Turning to Slide 15 and a summary of our growth strategy, which remains unchanged. As mentioned in the last call, we focus on developing a culture of accountability and continue to raise expectations. We will not accept mediocrity. With this, I would like now to turn the call over to Rudi. 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. Turning to Slide 16, our total revenues increased 51% to EUR 7.4 million in the third quarter compared to EUR 4.9 million in last year's third quarter. Gross profit and gross margins in the quarter were EUR 3.2 million and 44% compared to EUR 2 million and 41% in last year's third quarter.

The next slide show our segment reporting for the quarter. On Slide 17, revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance increased 63% to EUR 4.2 million for the third quarter of 2017 from EUR 2.5 million in last year's third quarter. We sold 3 new and 3 refurbished printers compared to 3 new printers in last year's same period. Systems revenue represented 56% of total revenues compared to 52% in last year's third quarter. Gross profit and gross margin for our Systems segment in the quarter was EUR 1.6 million and 38% compared to EUR 1 million and 40% in last year's same period. As utilization picks up, we expect gross margin from the Systems segment to be in the range of 40% to 45%, consistent with the outlook we had given in the past. Cost absorption in our factories will continue to improve, in our new facility and it should lead to further improvement margin outcome. As mentioned during the last call, we are committed to driving efficiencies in every function with a continuous improvement mindset.

On Slide 18, Services revenues increased 38% to EUR 3.2 million compared to EUR 2.3 million in last year's third quarter. This was mainly due to higher revenue contribution from our subsidiaries in China and the U.S. Gross profit for our service segment significantly increased to EUR 1.6 million in the third quarter of 2017 from EUR 1 million in the third quarter of 2016. This is mainly due to the increase in revenues. The gross profit margin for this segment increased to 51% from 43% in last year's third quarter. This is a great achievement.

Turning to Slide 19, I would like to highlight our positive adjusted EBITDA. As Ingo mentioned at the beginning, this marks a milestone in our company's history. We're making good progress toward our goal of delivering sustainable value to our shareholders.

Looking now to the rest of the income statement on Slide 20. SG&A expenses were EUR 3 million in the third quarter of 2017. This compares to EUR 2.4 million in last year's third quarter. As Ingo mentioned, the increase is strongly linked to the increase in revenues. Research and development expenses were EUR 1.1 million compared to EUR 1.5 million in last year's third quarter. Operating loss was EUR 0.9 million in the third quarter of 2017 compared to an operating loss of EUR 3.5 million in the comparative period in 2016. Net loss for the quarter was roughly EUR 1 million or EUR 0.26 per ordinary share compared to a net loss of EUR 3.5 million or EUR 0.94 per ordinary in the prior year's period. On an ADS basis, net loss was EUR 0.05 per ADS compared to a net loss of EUR 0.19 per ADS in the third quarter of 2016. We have provided the same presentation for the 9 month period ended September 30, 2017 on Slides 21 through 24.

Slide 25 shows selected balance sheet items. At September 30, 2017, the company had cash, cash equivalents and short-term investments and bond funds of roughly EUR 13.5 million. We continued our inventory rationalization efforts and ended the quarter with inventory of EUR 9.4 million. Through our near-term focus on inventory, we have established an internal team to help better manage inventory levels without impacting our competitive edge in regards to product availability standards. It is important to understand that we gained much better visibility on this and other topics since we successfully implemented the corresponding SAP modules for warehouse management and purchasing towards the end of last year. As we ramp up production, we remain focused on lean principles and are working closely with our supply base to reduce lead times and raise production levels. Our focus is to get products to customers quickly, but also efficiently.

We remain comfortable with our cash balance and overall liquidity position. As you might have seen, we have signed off on a loan of up to EUR 25 million with the European Investment Bank. The loan is part of a joint initiative launched by the European Investment Bank Group in cooperation with the European Commission under Horizon 2020. Horizon 2020 is an EU research and innovation program with roughly EUR 80 billion of funding and is geared towards breakthroughs, discoveries and world-firsts by taking ideas from the lab to the market. This is a great milestone for our company and will add additional firepower to our research and development initiatives in the years to come.

Total debt at September 30, 2017 was EUR 7.9 million. Weighted average shares outstanding for the quarter was 3.72 million, which equates to 18.6 million ADSs.

Moving now on to Slide 26 and our revenue guidance for the quarter. For the fourth quarter of 2017, we expect revenues in the range of EUR 8 million to EUR 10 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. Adjusted EBITDA is expected to be neutral-to-positive for the second half of the business year 2017. CapEx spending for 2017 should be in the 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 will now open the call for your questions. Operator?

(Operator Instructions) Our first question is from Troy Jensen from Piper Jaffray.

So quick, just to start off on the core business and I want to go to maybe some of the new products after that, but starting first on the Systems side, can you talk about just what is in the pipeline? Ingo, in your comments you seemed pretty upbeat on kind of the tone of the business right now. I know historically we've talked about multi-unit orders from one customer, just curious if that might be some of the enthusiasm you have on regarding the pipeline?

As you know, we are working on [leadless] which includes customers in the different prospect levels. So this is quite full. We are quite pleased with the development in this. Most of these customers are new and fresh customers. They are seeking industrial grade solutions from us in all our areas. The backlog is filled with latest systems already -- as a product, means the large printers, we have -- happily we have also gathered the order for our VX4000, for instance. So we are quite pleased with that. In general, I would say the market mood picks definitely up and especially in some business areas like automotive industry, we are seeing that our 3D printing method is seen as a potential manufacturing method and as you already mentioned with the outlook of having multiple system sales into that area. It has not taken place yet, but we are fully sure that this will take place in near future.

Okay, perfect. And then, next, sticking with the core business, but on the Services side, I mean it looks to me and correct me if I'm wrong, but maybe all geographies for you guys are improving and growing on a year-over-year basis. I'm just curious to know if you have conviction on that piece of the business also kind of sustaining this good growth?

Absolutely, absolutely. As you can see from the numbers and what we already said during the presentation is that we have a growth -- significant growth rate here in our European area, which is quite nice to see, because we had also difficult times a year ago. It has really picked up, but we also see good growth and good acceptance in our U.S. subsidiary, in China as well. So, it turns out to be a very good economic time for us and customers seeking the products we deliver.

Okay, perfect. So then switching gears to the new stuff now, so high speed sintering, pretty confident we're going to see it next week at Formnext. Wondering if you could kind of talk at all, just kind of timeline here for the launch and general availability?

Yes, well, we are really looking forward to the product announcement next week. As far as we currently see from the press release and reaction on that, there is definitely significant demand for such a system. Let's see what happens next week and the talks about this product, and of course we are moving forward with our development of a larger system, more production oriented system, which can bring really key advantages to our customers. So I'm pretty excited about this and I think the opportunities are really in front of us. Let's see what happens next week.

Okay. Just maybe to press you a little bit on it, I mean do you think you'll be able to sell some units in 2018 and I guess I'm assuming first units sold will be beta sites that are converting into revenues. And then also on this topic for high speed sintering, do you expect to launch it as a service also or will you just be selling the printers?

Of course, we take advantage of our ability to have service centers around the globe and of course, it makes sense to act here in a similar way as we did with our other technologies. So we are planning to equip all our services centers with the technology to do provide of course, a kind of sales support, marketing support, but also making business with it. So as you heard me saying, our U.K. facility has already an HSS printer and we are looking forward to deliver those printers also to our U.S. entity and also to our Chinese entity. And talking about sales, of course, we have planned sales for 2018. Don't ask me for the exact numbers, but they will definitely contribute to our sales next year and as we are progressing with the technology, we see probably more and more sales.

Okay. Last question, I'll cede the floor, but to that comment about revenues from this contribution. I mean do you still expect no deterioration in your core business, right? So what you guys do in high speed sintering should be additive to the numbers that we're thinking about or have published right now for next year?

Absolutely. The good news for the moment is that even our core business is picking up, so we have increased the rate of adoption in our core business and we have additional business from our new technology.

Our next question is from James Medvedeff from Cowen & Company.

I wanted to ask a little bit more about the fourth quarter. Did you say that the backlog today is EUR 3.2 million? I know the [ending] the quarter at EUR 2.2 million.

Yes.

And so it's stands right now at EUR 3.2 million?

Yes.

And do you include refurb machines in backlog?

Backlog is independently [built] from the age of the system, yes, but in the current backlog is, no used systems, only new printers.

So the kind of the question that I'm trying to get to is, what gives you the confidence that the [$9 million] or so of revenue? What's the visibility on that in Q4?

Have in mind that we have a recurring business out of our service center business and we currently believe that the economy remains stable. We have a recurring revenue out of our systems meaning consumable spare parts maintenance and the remaining portion of revenues in Q4 should come out of backlog and printers where we currently are under discussions. So we have sufficient work-in-progress available to support clients and therefore, we gave guidance in respect of revenues between EUR 8 million to EUR 10 million.

Okay, thanks. The Services gross margin 50.5% in the quarter, congratulations, that's fantastic. I believe you mentioned that has a lot to do with utilization, correct?

Yes.

So the question is, is that type of margin, now that you hit the [$3 million plus] a quarter run rate. Is that sort of margin something we should count on in the future?

We did not change guidance on our gross margin expectations. We stick with the gross margin expectation above 40% and for 2018, we're going to give guidance by mid-February. I think we announce this quite soon when we have our next analyst meeting and then we talk about guidance for 2018. Currently, the guidance for gross margin is unchanged.

Okay. I have one final question and it's on the EBITDA, so to be breakeven or slightly positive in the second half implies not much of EBITDA in Q4, correct?

Yes.

So what I'm struggling with is, is there a big negative foreign exchange expectation in there or -- I mean with [EUR 9 million] of revenue and these types of gross margins, it seems like EBITDA should be looking a lot stronger than breakeven?

We stick with the wording which we have given and do not give any more detail in respect of EBITDA expectation in Q4. We strongly believe that there is a good chance to be EBITDA positive in the second half of the year and I do not disagree with what you have said, but I want to stick with what we have given out as guidance.

Our next question is from Ken Wong from Citigroup.

I think one of the more impressive things that I saw in the results, Europe was a source of strength in what typically is a seasonally weak quarter. I guess one, just what are you seeing from Europe? Why do you feel that level is potentially sustainable?

If you look at the more general economic situation here in Europe, most of the areas of fully booked. So if you look at the automotive industry, it's running on full utilization or full capacity since almost a year or so. Then we have aerospace really picked up a lot. We have general industries like machining and machine tools, they are all full. The issue is -- here when we talk about issues, it's not the market, it's more or less the resources, resources for getting parts, human resources. So everything is for the moment really, really hard on the line and it seems from the talks we have with clients and customers that there is no change, no short-term change visible. So that's why we are quite optimistic for our numbers, also for the next year and hopefully, we can keep that.

Got it and then, I know you guys wanted to talk more on HSS, high speed sintering down the line, but maybe just thinking about kind of the investments that you need to make there, the go to market, just wondering how does that change? You guys have historically targeted the foundries and autos. I'm just wondering if the customer set is different enough that you think you might have to change how you go about selling your printers and services?

So absolutely we have made our mind on that and the good thing is that one of our core customer area which is automotive has probably similar contact points for the foundry business as with the plastics business. So we are already relatively good connected with the relevant people. So it seems to be a relatively smooth entrance for us with our HSS in the automotive industry. It will be interesting with other industries. Therefore, we are looking forward to have our first talks on Formnext next week to see how that is going and we will make our further strategy for the market entrance into the other industries when we finalize our thinking on the outcome of the Formnext.

Got it and then Rudi just -- I know you guys aren't really commenting on fiscal year '18 and beyond yet, but as I just think about spending, I mean this last year you guys have done a really good job of dialing down your OpEx. Just wondering kind of just at a high level, how we should think about the pace of spending with a bunch of new products coming online and you guys continuing to expand into new regions, is there a good framework for how we should project out our numbers on that end?

As said before, we did not publish guidance yet for 2018 based on what we see, we are in the middle of our planning session. We don't want to increase our SG&A and R&D spending significantly. They for sure [will grow] SG&A in specific by growing revenues because in marketing and sales, for example, we show shipping, packaging and agency spending on -- as said, we'll be more detailed in our analyst meeting in February on SG&A and R&D spending. Don't expect a significant increase. There will be an increase, but as Ingo spoke about, we had one slide where we spoke about optimization of our spendings, in respect of revenue and our target in 2020 is 30% total spending of revenue. That's what we are targeting and therefore we have to be quite selective with increasing spending. So there will be increases but on a very selective basis.

Our next question is from James Medvedeff from Cowen & Company.

I wanted to ask about capital spending, it's [about $2 million] year-to-date and I think you said EUR 8 million to EUR 9 million for the full year. That would imply sort of [EUR 6 million] in the fourth quarter. What's that being spent on?

Capital spendings were higher -- I think I recommend to dig deeper into our cash flow statement. This year, we invested quite a bit in our new facility here in Germany. That is part of the investment as well, we invested in subsidiaries in the service center and what we see in Q4 is probably very little, I think most of the spendings more or less happened. And I recommend to read our cash flow statement.

Maybe we can take that offline and gives a little more -- dig into that a little more.

Yes.

Thank you, this concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

So thank you. Our goal of becoming a critical supply chain partner and solutions provider is gaining traction and our initiatives with solutions-oriented customers have never been more exciting. We are benefiting from the diversity of our product portfolio. Also the accomplishments to date are not worthy, we are far from done and we are excited about continuing the path to unlocking our potential and fulfilling our vision to be the technology leader in additive manufacturing. We have a great deal of confidence in our long-term value proposition and are excited to demonstrate to you, our shareholders, the increased operating leverage and earnings power that we believe exists in our business. So thank you for all your attention and we are looking forward to seeing you next week at Formnext.

Bye-bye. Safe travel to all who visit us.

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