Voxeljet AG (VJET) 2017 Q4 法說會逐字稿

Greetings, and welcome to voxeljet AG Fourth Quarter and Full Year 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 fourth quarter and full year financial results for the period ended December 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 on this Good Friday. This year marks the fifth anniversary of -- since our IPO in 2013. Before I start, I would, therefore, like to remind those who might be new to our company about our strategy.

Turning to Slide 7. We started, nearly 20 years ago, as a spinoff from Technical University, Munich, with a clear vision in mind: to replace conventional production by constantly pushing technology boundaries. Today, I can say that we have made significant progress in this regard, and we are quite optimistic that large OEMs and Tier 1 suppliers start using multiple of our 3D printing systems in their production.

Turning to Slide 8. This vision translates into a powerful strategy with clear mission statement.

Slide 9 highlights our unique selling propositions, which 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 advance, new challenges that are most important to our customers.

Our integrated business model is summarized on Slide 10. 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, which are summarized on Slide 11, 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.

Let's now start with the formal part of the presentation. I will begin with an overview of the fourth quarter and full year results. Then I will offer a review of our significant accomplishments in 2017, which have positioned the company well to strengthen our top line growth and to offer our customers expanded services this year and beyond. Next, I will highlight our growth drivers for the coming years. Rudi will then provide a more in-depth view of our financials and our outlook for the first quarter and full year 2018. Following his comments, we will be happy to take your questions.

Overall, I'm pleased with our results for 2017. When I look back at the plan that we have made at the time of our IPO in October 2013 and at our performance at the end of 2017, then I can conclude we are on track, both from a financial and from a strategic perspective. From a financial perspective, we have signed 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 and the Horizon 2020. Horizon 2020 is a new 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.

Strategically, we want to bring our 3D printing technology into fully automated mass manufacturing. Throughout 2017, we have made significant progress towards this target, and I am incredibly enthusiastic about this solution in our lineup. In 2018, we will continue the execution of our strategy, so you can reasonably expect more innovations and more partnerships. But at this stage of our company's evolution, I would also like to emphasize another important layer to the execution of our strategy. The long-term success of our company must not only be measured by the quantity of our innovations, but also by our ability to bring these to their full potential. This holds especially true for our Systems segment, which did not yet deliver the results we're expecting. In the current calendar year, we therefore intend to spend significant time and effort on the many initiatives and collaborations that we have developed over the last several years into bringing these fully to fruition.

Let's turn to Slide 12 of the presentation and begin with the highlights for the fourth quarter 2017. Revenue for the quarter was EUR 6.1 million and basically flat compared to last year's fourth quarter. I will explain the reasons for this in a minute. Revenues from our Systems segment, which includes revenue from selling 3D printers, consumables and spare parts as well as maintenance, decreased 20% to EUR 3.1 million in the fourth quarter of 2017 from EUR 3.9 million in the last year's fourth quarter. We delivered 4 printer in this year's fourth quarter compared to 6 in last year's fourth quarter. We had everything in place to ship at least 2 more printing systems to Asia and another printing system to South Africa. Since we did not receive the necessary down payment, we canceled shipment. As of now, we have a systems backlog of roughly EUR 4.4 million.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers increased 27% to EUR 2.96 million in the fourth quarter of 2017 from EUR 2.3 million for the same quarter last year. We truly start to benefit from our global footprint, and we see a steady increase in demand for our products all around the world. Looking at gross profit in this segment, I would like to highlight the following. While we are able to grow revenue in this segment by 27%, we also grew absolute gross profit by 59% to EUR 1.4 million from EUR 0.9 million in the fourth quarter last year. The gross profit margin in this segment increased to 47% from 37% in last year's fourth quarter. As mentioned in prior calls, utilization is key to achieving better gross margin.

Turning to Slide 13. Revenues for the full year 2017 increased 4% to EUR 23.2 million from EUR 22.3 million in 2016. If we break this down, we can see a healthy growth in Services revenues of 25%, while revenues from our Systems segment decreased by 12%. Looking at gross profits for the full year. We increased absolute gross profits by 36% to EUR 9.4 million from EUR 6.9 million for the same period last year. This equates to a gross profit margin of 40%, which is well within our guidance range. This is a great achievement. Our approach will remain focused around the work that we can win at margins that represent the value that we deliver.

Slide 14 summarizes the results. I want to highlight 2 points. First, looking at the breakdown by geography, revenues in U.S. and Europe increased by 656 and 417 basis points in 2017 compared to last year's period. This was offset by a decline in Asia as the result of the reasons mentioned earlier. Our operation in the U.S. reached profitability in the last year's quarter -- in the last quarter of 2017, which is a great achievement. Each of these geographic regions obviously react differently, but we are gaining traction. From a go-to-market initiative perspective, we continue to add application engineering and key account management in all our subsidiaries. This will provide a new opportunity for growth and ultimately, helps us attain sustainable success.

Second, our research and development spendings amounted to 24% of sales, with the result that we were, once again, well above the industry average during the reporting year. This is done with a clear focus in mind. We want to replace conventional production and bring our technology into fully automated mass manufacturing. In the next minute, I will highlight some of our key innovations and give a glimpse into what you can expect in the years to come.

Moving to Slide 15. I would like to give you an update on the recent operational highlights. In the U.K., we successfully moved our operation to a new and larger facility, approximately 1 hour north of its previous location. In anticipation of an increasing demand, we invested in the new facility by adding HSS, polyamide and PDB sand printing capacity. We are very happy with the results.

We've tailored a VX1000 printing system for U.K.-based Johnson Matthey to jointly develop ceramic 3D printing capabilities to produce unique and innovative solutions. With this technology, it is possible to produce complex and porous components with high printing resolutions, excellent surface quality and strength, while enabling geometries not possible with other technologies. Such parts are suitable for variety of applications, including medical, automotive and aerospace.

In Germany, we successfully concluded the move into 2 new buildings: an additional state-of-the-art production facility and new office premises at our campus nearby Munich. In China, we are nearing completion of a new large-scale production facility, primarily for the on-demand production of printed parts for our customers. Going forward, this footprint will also give us the option to assemble parts of our printing systems in China. In doing so, we expect to lower the production cost of our printing equipment. We are highly committed to identifying cost-saving potential in each and every platform. With that, we intend to increase our total addressable market, especially in Asia. In India, we installed the first PMMA-based printing system at our customer 1 hour north of Mumbai. This customer uses our technology to create complex patterns for investment casting.

U.S. is doing great, as it has reached profitability in the fourth quarter of 2017. We keep adding capacity, especially for our PDB printing line. We expect that recent accomplishments, like the sale of a PDB system to Danko Arlington, the American Foundry Society's Metalcaster of the Year, of the multiyear volume contract with the TEI for printed sand will both create a strong pull effect for our technology. voxeljet U.S. really serves as the benchmark for our other facilities around the globe.

Turning to Slide 16, and what we believe represents our total addressable market. I would like to focus on the industrial usage and give you my interpretation of the data. We can see that 1/3 of our potential customers are currently not implementing 3D printing technology. Another 29% are experimenting with it and 25% do prototyping only. Taken together, let's called them Group 1. They represent roughly 85% of our potential customer base. Group 1 is characterized by an early level of maturity and their needs are ideally suited for our on-demand business segment. They can satisfy their sporadic demand very cost efficiently by ordering services. As mentioned earlier, this group is growing and is growing quickly, which can be seen by a 25% increase in our Services revenue in 2017. Keep in mind, in the Services segment, we operate our 3D printers in several facilities around the world and offer affordable, on-demand access to our technology.

To echo what I said in earlier calls, the transition to 3D printing requires organizational changes on our customer side, because it changes their supply chain setup. An important purpose of our Services segment is to support and educate our customers in this journey. Together with selected premium customers, we are engineering some of the best innovations in our history to enhance their value proposition and make ourselves indispensable. We are evolving business models to match changing customer needs and market realities, and we are constantly looking for ways to improve our overall performance. Once a customer reach a certain level of maturity, we will try to convert it into a systems customer. We track the maturity of our customers in our SAP-based, CRM system live and on a global scale.

Looking at Group 2 of about 50% of our potential customers, they tend to be using 3D printing in production at various lot sizes. This group is characterized by a high level of maturity. This customer segment, which comprises, for example, international automotive or aerospace OEM, which targets multiple system sales, and prerequisite here is a high degree of automation of downstream processes. Our goal of becoming critical supply chain partner and solutions provider is gaining traction. We continue to expand our sales teams around the world by investing in sales leadership, additional application engineers and training. To complement this, we focus on education of our channel partners to ensure true global coverage.

Slide 17 describes our 3 pillars for organic growth: infrastructure, internationalization and innovation, and gives a glimpse into what is next to come. We expect to install first prototypes of our so-called VJET X solution platform for the fully automated mass production of complex parts later this year. VJET X is geared towards the high-end OEMs and offers significantly increased performance with fully automated processes. As always, we are never satisfied and will continue to build on our strong foundation. Every day is a new opportunity to embrace change, accelerate our thinking and deliver for the market and for our customers. By true persistence, continued investment in R&D and continuous innovation, the advancements of today go well beyond what we might have expected (inaudible) applications are widening in size and scope.

Turning to Slide 18. We are truly positioned for success. As I look forward from where we are, I see a journey with significant upside, driven by running our business better, leveraging the strengths of our unique portfolio and unlocking value where it makes sense. I'm highly confident in our ability to execute on this.

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

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

Turning to Slide 20. Our total revenues decreased 2.7% to EUR 6.1 million in the fourth quarter compared to EUR 6.3 million in the last year's fourth quarter. Gross profit and gross margin recorded at EUR 2.4 million and 40% compared to EUR 1.3 million and 20% in last year's fourth quarter. While revenues were flat year-on-year, we achieved significant margin expansion, as we doubled our gross profit margin in line with our guidance. As we head into the next year, we look forward to accelerating our business by focusing on the work that we can win at margins that represent the value that we deliver.

The next slide shows our segment reporting for the quarter. On Slide 21, revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, decreased 20% to EUR 3.1 million for the fourth quarter of 2017 from EUR 3.9 million in the last year's fourth quarter. As Ingo mentioned earlier, we had everything in place to ship at least 2 more printing systems to Asia and another system to South Africa. Since we did not receive the necessary down payment, we canceled shipment. We sold 4 printers in this year's fourth quarter compared to 6 printers in last year's same period.

Systems revenue represented 52% of total revenues compared to 63% in last year's fourth quarter. Gross profit and gross margins for our segment in this -- in the quarter was EUR 1 million and 34% compared to EUR 0.4 million and 10% in last year's same period. And so far, there's an increase in fixed cost that's required for further development of systems, the percentage of portion of sales and administrative cost and gross profit will decrease along with increasing business volume, resulting in significantly increased margin. More generally speaking, as utilization picks up, we expect gross margin from the Systems segment to be in the range of 40% to 45%.

On Slide 22, Services revenues increased 27% to EUR 3 million compared to EUR 2.3 million in last year's fourth quarter. Our Services gross profit increased to 46.8% in the fourth quarter of 2017 from 37.4% in last year's same quarter. This is a great achievement and highlights we are following the right path. The strong increase in gross profits, together with an only moderate rise in selling, general, administrative expenses had a positive impact on our target to reaching profitability.

Looking now to the rest of the income statement on Slide 23. SG&A expenses were EUR 3.5 million in the fourth quarter of 2017. This compares to EUR 2.8 million in last year's fourth quarter. We continue to monitor our operating expenses carefully. The increase of administrative expense was mainly related to higher expenses for the preparation of several financing activities. The majority of our selling expense were personnel expenses and distribution expenses, like freight and commissions for sales agents. The increase was largely due to higher personnel expenses, mainly related to higher headcount in this function.

With regard to our manufacturing operations, we are developing -- deploying lean manufacturing in 2018, and we are taking a hard look at our balance sheet and continue to work on areas, such as inventory reduction, to improve cash flow and return on investment -- invested capital. While all those initiatives will have their instant payoff, they will certainly pay dividends over the long run, and we are pleased with the progress we have made on our retention rate going forward.

Research and development expenses were EUR 1.6 million in the fourth quarter compared to EUR 1.8 million in the last year's fourth quarter. As Ingo highlighted, we continue to invest in core R&D in Germany with a number of active projects in various stages of development with a clear focus in mind to replace conventional production. Operating loss was EUR 2.6 million in the fourth quarter of 2017 compared to an operating loss of EUR 2.9 million compared to the period in 2016. Net loss for the quarter was roughly EUR 2.5 million or EUR 0.66 per share compared to a net loss of EUR 2.96 million or EUR 0.8 per share in the prior year's period. On an ADS basis, net loss was EUR 0.13 per ADS compared to a net loss of EUR 0.16 per ADS in the fourth quarter of 2016.

We have provided the same presentation for the full year period and ended December 31, 2017, on Slide 24 through 27.

Slide 28 shows selected balance sheet items. At December 31, 2017, the company had cash, cash equivalent and short-term investment and bond fund of roughly EUR 22 million. Total debt at December 31, 2017, was approximately EUR 17.6 million. Weighted average number of shares outstanding for the quarter were 3.72 million, which equates to 18.6 million ADSs. We believe that our balance sheet positions us well for the long term.

Since December 2017, we are proud to have the European Investment Bank as a strong partner on our side to support projects that make a significant contribution to growth, employment, regional cohesion and environmental sustainability in Europe and beyond with the special focus on highly innovative companies. EIB is the Bank of the European Union and is owned by the 28 member states. The project appraisal itself was carried out by the bank's teams of engineers, economists and financial analysts in close cooperation with us.

Moving now onto Slide 29 and our revenue guidance for the quarter and full year. Full year 2018 revenue is expected to be between EUR 28 million and EUR 30 million, with gross margins expected to be above 40%. SG&A spending is expected to be in a range of EUR 11 million to EUR 12 million, and R&D spending is expected to be between approximately EUR 5 million to EUR 6 million. Depreciation and amortization expenses are expected to be between EUR 3.75 million and EUR 4 million. CapEx spending for 2018 is projected to be in the range of EUR 5.5 million to EUR 6.5 million, which primarily consists of ongoing investments in our global subsidiaries. Adjusted EBITDA, which excludes the impact of foreign exchange valuation, is expected to be neutral to positive in 2018.

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 (sic) [Robert Stone] with Cowen and Company.

Was that Rob Stone at Cowen? So I wanted to ask, first of all, I thought I heard you make a comment, Ingo, about the backlog of system orders or pipeline since the end of the year, and I didn't quite catch what you said. And of course, one question that comes to mind is, do you expect, at some point, to eventually capture those 3 orders that weren't able to be finalized in Q4? And sort of how does the Systems pipeline look at the moment?

Well, while we don't disclose details about the contractual development in -- with those customers, [we'll be aware] -- I can say that we are still believing that we can deliver those systems later and later this year. So they are not lost.

Okay. And other activity in the meantime?

Well, what do you mean with that? So we, of course we...

I thought in your prepared remarks, you said something about backlog since the end of the year, since we're now out to...

It's full for the almost...

The current backlog is developing fine, Rob. We -- by end of the quarter, we're showing EUR 4.4 million backlog. And as Ingo said, we're expecting to get the 3 printers to the clients during the year. Having said this, we are very conservative in respect of giving equipment to clients if we did not receive down payments or necessary documents. Over time, we will teach that, that is the better way instead of running then later on after the money.

Sure. Yes. No, the EUR 4.4 million figure was the one I didn't quite catch in the prepared remarks. And that's as of the end of Q1, right?

Yes.

Okay, great. Then my other question is for Rudi. So operating expenses came in for the fourth quarter quite a bit higher than we were modeling. And you mentioned some of the things that were in there. I'm wondering if some of that was onetime or episodic. So should we be expecting a lower run rate for OpEx in Q1? Based on the midpoint of your guidance, one would expect OpEx to be running somewhere in the EUR 4 million, EUR 4.5 million a quarter, as opposed to the EUR 5.1 million in total that you had in the fourth quarter of '17.

So first answer to your question. The increase in Q4 were primarily due to higher legal fees and other consulting fees related to the financing with EIB. Secondly, you can expect a lower total SG&A spending, because of -- we don't expect to have such onetime investment in Q1.

Okay. And my last question is for Ingo. So you mentioned something about the voxeljet X fully automated platform which, on the slide, shows up as coming into full production in a couple of years' time. So is this standing up the first prototypes within your facilities? Or what's happening in the near term in terms of milestones with VJET X?

Well, you can expect that we are starting development for products like this not with a specific demand from customers. So having said this, I can, for this moment, not disclose more details. But this is definitely something we do plan for a production line for a specific customer. And it could be a groundbreaking technology for many others.

(Operator Instructions) Now we have Troy Jensen from Piper Jaffray.

Maybe, Ingo, I think you said in your prepared remarks, I think you talked about increasing some demand initiatives. Could you just kind of update us on kind of what those initiatives will be to drive better growth for you guys?

So currently, we see a quite diverse development in different areas. So the casting applications, especially in the sand area, gearing towards implementation in mass manufacturing. So this is a very nice development for us. Especially, the OEMs are looking for 3D printing as a production solution, which is, I think, now bringing us to the point in time what we really anticipated, means the breakthrough of this technology for production terms. We see a good adoption in the plastic area with, I would say, a steady, steady growth line for the equipment we have and increasing demand for our HSS solution, which is a clearly good signal for the later development of this product.

Okay. Shifting gears here, looks like U.S. did really well for you guys. China was, obviously, a problem. But can you just give us an update on the German automotive market and your thoughts for what '18 will look for that vertical?

Well, the automotive market, despite some trouble with diesel-fuel engines, is still good. The companies are developing new products, especially in the hybrid and electric area. This brings new parts and new challenges for them where we can definitely help and bring solutions. I think that's why all the automotive manufacturers are trying to implement 3D printing in their production lines. And I think our solution, especially in the casting area, can help them to bring down costs also for lower quantities and specialized vehicle engines. So in this respect, I think it's all in the right direction. What is other good news is that those companies are willing to invest into 3D printing.

Okay, right, understood. And my final question just would be, looking at the second half of last year, your guys' tone and commentary was very upbeat, but then the execution we just saw was not that great. Was the difference just these 3 printer sales, or was there any other kind of surprises in the quarter?

Well, if you look at the numbers, 3 printers and you know our printers are high-priced equipment. Three printers could make a big difference in the numbers. And I think when we talked, we had clearly in mind that we have those deals in pocket, which not happened, as we said. So I think there is nothing else in between. And if you look at the growth rates we achieved in the Services, so it was quite disappointing for us not to get the full picture we had in mind with the 3 printers we didn't get.

I think, in addition to what Ingo said, I think, we -- with those 3 printers, in addition, we definitely would have shown a positive second half 2017. From an operational point of view, I must say, we're meanwhile, quite lean, very straightforward and you see that on the gross profit, we can deliver on our service business on a global basis, so China is catching up as well as the U.K. And the Systems segment is still lacking, if you don't get the printers in show. Therefore, we don't show gross profits above 40%. But as soon as we reach those targets, showing gross profits on that level, shouldn't be a problem. So I'm -- we're very positive about the overall development.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

So wrapping things up here, I'm excited about both of our group progress and our prospects and we're competing aggressively for our $12 trillion addressable market, the largest opportunity in our history with lots of room to grow market segment share. And some of our segments, we are facing new or resurgent competitors, in other segments, we are the new competitor. But in all cases, competition will bring out the very best in our company. Our investments in pipeline of innovation positions us to lead for the years to come. So thank you for joining us today and we look forward to seeing you at the RAPID Show in April, and to speaking with you again next quarter.

Bye-bye. Have a great Easter.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.