Voxeljet AG (VJET) 2018 Q1 法說會逐字稿

Greetings, and welcome to the voxeljet AG First Quarter 2018 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, Director of Business Development and Investor Relations. 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 first quarter financial results for the period ended March 31, 2018. 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.

This year marks the fifth anniversary since our IPO in 2013. Before we start, I would like to remind those who might be new to our company about our strategy.

Turning to Slide 6. 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 technological 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 7. This vision translates into a powerful strategy with a clear mission statement and values.

Slide 8 highlights our unique selling propositions, which are strongly aligned with the growing trend for higher performance products across all of our end-use markets.

Slide 9 shows some of these products and selected customers.

Our printing systems are modular, versatile and highly scalable and therefore are uniquely positioned to support critical demanding applications and address 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 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 review of our financial and our outlook for the second quarter of 2018. Following his comments, we will be happy to take your questions.

2018 is off to an excellent start with the best quarter in both Services revenue and gross profit in our company's history. We see these main metrics as leading indicators of the ongoing strength of our industrial 3D production technology. Our goal is becoming a critical supply chain partner and solutions provider and is gaining traction. As downstream processes become more automated, we are confident that this will be -- translate into significantly improved Systems revenue.

We are currently tracking more than 200 systems-based opportunities worldwide with a high demand for PDB sand printing, especially in U.S.

We are driving towards a bigger, better, more focused voxeljet group. Over the last 6 months, we have taken action on all of our strategic priorities. Our priority objective has been and continues to be to return voxeljet to sustainable above market growth.

Let's turn to Slide 12 of the presentation and begin with the highlights for the first quarter 2018.

Revenue was EUR 5.1 million, which represents a 12% increase compared to last year's first quarter. I would like to highlight that while revenue is up 12%, gross profit increased 43% to EUR 2.3 million or 45% of revenue, which is well within our guidance range provided in February 2018 and mainly due to significantly improved utilization rates in our Services segment. This is a great achievement and in line with our long-term target.

Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance decreased 19% to EUR 1.4 million in the first quarter of 2018 from EUR 1.7 million in last year's first quarter.

We delivered 2 used and refurbished printers in this year's first quarter compared to 2 new printers in the last year's first quarter. We are working hard to convert more opportunities into orders. As of now, we have a Systems backlog of roughly EUR 4.8 million. This compares to a backlog of EUR 2.8 million at the end of last year, which represents an increase of roughly 70%.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, had a record-high quarter. Revenue increased 30% to EUR 3.7 million in the first quarter this year from EUR 2.8 million for the same quarter last year. It is particularly positive that we continue to reap rewards from our global production footprint.

Across the board, all of our production sites located in Germany, the U.S., U.K. and China contributed to sales growth, and we will continue to add additional printing equipment to meet the rising demand.

The revenue increase in the U.S. was exceptionally good. In the U.S., we continue to strengthen our cooperation with companies at the forefront of technology, for example, from the space exploration industry. They are using our PMMA process to create large patterns, which are used to cast titanium parts at significantly lower costs than, for example, with laser sintering. In addition to that, the outlay for certification is significantly lower, as our process complements long-established best practices, good features.

Slide 13 summarizes the results. When looking at operating expenses, I would like to highlight 2 points. First, the increase in selling expenses is mainly due to higher personnel expenses resulting from higher headcount in Germany and the U.S. We remain focused on our growth strategy, which includes expanding our sales team around the world, investing in sales leadership and by hiring additional sales and engineering colleagues. In addition to that, we focus on educating our channel partners to ensure true global coverage. Second, a fast pace of innovation fuels growth and keeps rivals at a safe distance. Consequently, we continue to invest a significant amount of our resources into research and development.

Turning to Slide 14. The target is clear, to increase our total addressable market. Our approach here is threefold. First, optimizing existing products by intelligent innovations to reduce costs and improve [wear] properties and ease of maintenance.

Second, develop new solutions for existing markets. The prime example here is the VJET X, which is essentially an advanced material set coupled with a new printer layout and automation equipment for extreme performance geared towards high-end OEMs. This is a joint development project for our turnkey solution. This solution starts with automated job box loading and unloading by means of a conveyor belt. Robotic systems will then take care of post-processing activity like [listed] printed models and forms out of the job box, cleaning them and putting the fully finished models and forms on a conveyor strip for subsequent processes like casting.

Third, developing the new solutions for new markets, examples here are related to our HSS and ceramic activities. Taken together, these efforts are aimed at securing our role as technology leader in binder jetting and will ultimately help us attain sustainable success.

Turning to Slide 15, and a summary of our market potential and customer segmentation. You have seen this overview before and we will show it again as it helps to answer 2 of the questions we are frequently asked by investors. So let's go through them one by one.

The first question relates to the potential of 3D printing and the outlook for growth. Here our answer is clear. The potential for industrial 3D printing is huge and the market is growing, although not as quickly as many anticipated. Since industrial 3D printing will replace conventional production, there is evidence it faces a lot of resistance from established technologies and best practice supply chain. To overcome these obstacles, it's needed to have a supporting ecosystem.

In the case of 3D printing, the ecosystem is fairly complex and includes, among others, material suppliers, software preparation tools and post-processing services. During the last year, we have seen some significant catch-up taking place.

It is important to understand that there are various technologies competing for market share, each with its distinct advantages and disadvantages. Some of these technologies received a lot of attention and capital recently like, for example, direct metal printing by laser sintering or the binder jetting of metal powder.

While these technologies may be good for small series production, we do not see them capable of true industrial production for a variety of reasons. Laser is too slow and cost prohibitive, while binder jetting of metal powders faces some issues with sintering the green parts in the furnace, especially for larger and more complex parts.

The second question relates to voxeljet and why we do not sell more printers. Looking at the industrial uses section on the right side of this slide, 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 call that group 1. They represent roughly 85% of our potential customer base.

Group 1 is characterized by early level of maturity and their needs are ideally suited for our on-demand business segment. They can satisfy their sporadic demands very cost efficiently by ordering services. As mentioned earlier, this group is growing and is growing quickly. As they mature and understand the benefits of our technology better, they graduate into a system sales opportunity.

Looking at group 2 or about 15% of our potential customers, they tend to be using 3D printing in production in very large sizes. This group is characterized by a higher level of maturity. Taken together, we address roughly 40% of our customer base as systems-based opportunities. Within those, 2/3 are very CapEx sensitive and cash restricted, especially in Asia Pacific. To address this, we focus on optimizing the production costs of our equipment by redesigning parts of our printers. Reduced machining time is critical in keeping production costs lower.

Furthermore, we are exploring options to manufacture and assemble parts of our systems in our new state-of-the-art facility in China. We conducted first quality inspections and the results are very promising.

The remainder, 1/3 of our potential systems customers or 12% of our total customer base, have no problems with CapEx spending. These are the big automotive or aerospace OEMs, where we target multiple system sales. But they do have a problem with singular, nonintegrated printers with the high labor costs associated to post-processing. A (inaudible) is a high degree of automation downstream processing. To address this, we are developing VJET X.

Let's turn to Slide 16 and an update on our growth strategy, which remains unchanged since our IPO. The following sections present and briefly describe the priority areas broken down by the 3 strategy pillars: relentless innovation, focused internalization (sic) [focused internationalization] and scalable infrastructure.

I would like to start with relentless innovation. In HSS, we reduced the layer time of our VX200 platform by 50% by means of a software update. The scale-up to a larger platform is ongoing, and we are making good progress. We are actively working with several multinational companies from various verticals, including sports equipment and consumer goods on the development and qualification of new materials. Our strategy is simple, qualify new materials in paid-for development projects and make sure it works in our VX200 platform, which was specifically designed for this purpose. Then when our production systems become available, mass commercialize it. This approach resonates well with our customers and the results are frankly outstanding. VJET X is printing and we expect process prototypes later this year.

Regarding internalization (sic) [internationalization], the construction of our new facility in China is almost complete and we are very much looking forward to the opening ceremony. Meanwhile, we have resumed plans to start a service center in India and are actively exploring various options for an opening early next year.

In infrastructure, we are in the final testing phase for SAP-based planning for on-demand business segment. A unique ID will be assigned to every printed model using a barcode, making it possible to track the progress of each customer order in detail. Once implemented, it will ensure more efficiency in our own operations.

Slide 17 summarizes our track record in these 3 categories.

Looking at Slide 18, we are truly positioned for success. While our actions and investments in the go-to-market are ongoing, we have made significant progress and we believe we are on the right track to continue to drive growth and improve execution worldwide. I believe the overall demand for our technology is greater than it has ever been.

Our priorities (inaudible) for our technology is greater than it has ever been.

Our priorities this year remain on execution, improving efficiency and introducing disruptive new products to drive customer shifts to 3D production.

With that, I would like 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 2018.

Our first quarter came in as expected, and we have entered 2018 well positioned to deliver growth and increase profitability as we continue to execute on our strategic priorities.

I just came back from visiting large customers in China, and I'm delighted about -- by the many discussions that we are having with so many different players in a broad variety of industries.

As Ingo mentioned, we are seeing that the effective adoption or conversion to 3D production not only requires important investment but also very important transformational shifts in our customers' ecosystem.

The gross profit development for this quarter was remarkable and sustainable driven by sales growth and our focus on higher-margin products. I would like to highlight that while top line growth was 11.5%, gross profits improved 43.4% making it the best first quarter in our company's history in terms of gross profit. 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.

Turning to Slide 20. Our total revenues increased 11.5% to EUR 5.1 million in the first quarter compared to EUR 4.5 million in last year's first quarter. Gross profit and gross margin in the quarter were EUR 2.3 million and 44.9% compared to EUR 1.6 million and 34.9% in last year's first quarter. This is well within our guidance range provided in February 2018.

The next slides show 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 18.8% to EUR 1.4 million for the first quarter of 2018 from EUR 1.7 million in last year's first quarter.

We sold 2 used and refurbished printers in the first quarter of 2018 compared to 2 new printers in last year's same period.

Systems revenue represented 27.2% of total revenues this quarter compared to 37.4% in last year's first quarter.

Gross profits and gross margins for our Systems segment in the quarter was EUR 0.4 million and 31.2% compared to EUR 0.4 million and 20.9% in last year's same period.

As utilization picks up, we expect gross margin from the Systems segment to be above 40% consistent with the outlook we have given in the past. We continue to invest in improved systems, implement best practices in inventory and supply chain management and continue to improve our communication and coordination between our engineering and manufacturing teams.

Cost absorption in our factories will continue to improve and it should lead to more positive margin outcome in product sales as the year progresses. Our goal is simple; deliver solutions that solve our customers' problems.

On Slide 22, Services revenues increased 29.6% to EUR 3.7 million compared to EUR 2.8 million in last year's first quarter, making it the best quarter in Services revenue in our company's history. This was mainly due to a higher revenue contribution from our German operation and an increasing contribution from all our subsidiaries.

Gross profit for our Services segment significantly increased to EUR 1.8 million in the first quarter of 2018 from EUR 1.2 million in the first quarter of 2018. The gross profit margin for this segment increased to 50% compared to 43% in last year's same period. This is mainly due to a higher utilization rate. As stated in previous calls, utilization is key to realizing better gross margin.

Looking now to the rest of the income statement on Slide 23. SG&A expenses were EUR 3 million in the first quarter of 2018. This compares to EUR 2.6 million in last year's first quarter. The increase is mainly due to a higher personnel expense in our sales function resulting from higher headcount in Germany and the U.S., while administrative expenses remained on the same level.

Research and development expenses were about EUR 1.6 million compared to EUR 1.5 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 2.3 million in the first quarter of 2018 compared to an operating loss of EUR 2.4 million in the comparative period in 2017. Net loss for the quarter was roughly EUR 1.6 million or EUR 0.42 per ordinary share compared to a net loss of EUR 2.4 million or EUR 0.65 per ordinary share in the prior year's quarter. On an ADS basis, net loss was EUR 0.08 per ADS in the first quarter of 2017 (sic) [2018] compared to a net loss of EUR 0.13 per ADS in the first quarter of 2017.

Slide 24 shows selected balance sheet items. At March 31, 2018, the company had cash and cash equivalents and short-term investments and bond funds of roughly EUR 21 million. Total debt at March 31, 2018 was EUR 17.4 million. Weighted average of ordinary shares outstanding for the quarter was 3.72 million, which equates to 18.6 million ADSs.

We continue to see opportunities to improve working capital performance, cash flow and our own cash conversion cycle in 2018. I remain comfortable with our own cash balance and overall liquidity position. We believe that our balance sheet, with an equity ratio above 60%, positions us well for the long term.

Moving now onto slide 25 and our revenue guidance for the quarter and full year.

For the second quarter of 2018, we expect revenues in the range of EUR 5.25 million to EUR 7.5 million (sic) [EUR 7.25 million]. Full year 2018 revenue remains unchanged and 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 the 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.

Adjusted EBITDA is expected to be neutral to positive in 2018. Adjusted EBITDA excludes the impact of foreign exchange gains or losses on the intercompany loans granted to subsidiaries.

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.

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

(Operator Instructions) Our first question comes from the line of Rob Stone with Cowen & Company.

Services result was certainly very strong. Could you comment a little bit on how you see the run rate of revenue going forward? Was there anything unusual in the strength this time? And we've talked a little bit about seasonality in the past when the business was primarily driven by the cadence of operations in Europe, where you typically have a summer slowdown in Q3. But now that you're having a greater contribution from your global subsidiaries, if you could provide any update on how to think about seasonality that would be great.

Thank you for this question, Rob. Seasonality still is there, but as well, what we see is that our subsidiaries are growing, and therefore, we can show a quite good first quarter. The gross profit as well is primarily driven by utilization and have in mind we staff the facilities with quite some equipment, which now turns out to be in full use, which really helped to improve our gross profit. Going forward, we see pretty good -- as I said, a pretty good start and that should help us to grow as well our Services segment as indicated and the Systems segment is still, I would say, lumpy. But nevertheless, we have a good backlog, good prospects, and in specific for Q2 and Q3, I'm very positive.

Yes, that was actually going to be my next follow-up, Rudi, was on the Systems. Backlog went up quite a bit sequentially and I was going to ask in relation to that, so did inventory. So does all of that point to sort of finished goods in the queue that are ready to be recognized fairly soon?

That is our plan, yes. It depends. On the System side, you recognize that we gave quite a range for the second quarter, EUR 5.25 million to EUR 7.25 million. There is a huge equipment in the installation phase and we currently don't know whether we can sign off end of Q2 or early of Q3. Therefore, we have the corridor. But there's quite some equipment in our inventory, which we'll move out.

Okay. A question for Ingo with respect to VJET X. You mentioned that you're printing now and prototypes will be installed later this year. Will that be at one of your service centers or are you going with prototypes out to customer sites?

So in that respect, the 2 answers are right. So we are -- of course, we need to have prototype machines further down the road in our own Services segment to learn more about this technology, but we also expect an order for a beta installation.

Okay. So the first customer beta installation would be later this year and that would be part of Systems revenue.

Well, we are not sure whether we can recognize revenue for this year. But in the end, of course, we expect revenue for such a system.

Our next question comes from the line of Troy Jensen with Piper Jaffray.

Let's start with Rudi, just on the gross margins, I guess, surprisingly strong given you guys sold a couple of refurbished machines this quarter. Just wondering if your outlook for kind of gross margins feels better now than it did starting the year. I know you reiterated the 40% plus gross margin guidance for the year, but do you feel kind of incrementally better on the business? And why was it so much better this quarter?

Thank you, Troy. I think on the Services segment, it always depends on utilization rate. And this quarter, we simply had a pretty good utilization rate compared to the assets, which we have in operation. And have in mind, if you seed a facility with new equipment, you don't utilize the equipment by day 1 once you have it activated. So I think Q1 and, as well, Q2 and Q3 should deliver pretty good gross profit. But we currently see no reason to increase that. I think we said in Services the gross profit above 45% is always doable. But there's, to us, no need to increase it above 50%. We feel quite comfortable with the range of saying Services segment above 45% and overall 40%. The gross profit in the Systems segment, used printers as well. I think we negotiated pretty good terms. The printers had a good fair value for being sold out so -- and that were the main drivers. I think just some good things happened, which helped us to improve the gross profit. And as well, I think that's a fair point from Ingo, consumables as well were pretty good in that quarter. You can't predict when clients order, but in Q1, we definitely received a pretty good inflow from consumable orders as well.

Okay, perfect. How about on the materials side, guys, can you just give us an update on kind of what's in the pipeline? Any kind of new introductions that could be meaningful for you guys?

We have a variety of materials for certification qualification in HSS, among others is, of course, various polyamides. We have polypropylene, we have TPU-based materials. So there's a lot going on. It is not really good for the moment or not possible to say something specific, but I guess, we will have a bunch of qualified materials by the end of the year. On the ceramic side, we're doing various tasks with customer materials, for instance, silicon carbide and so on. And we have our own ceramic material set also under development, which we hope we can release by end of the year. On the sand side, I think the PDB is still extremely powerful material system for the metal casting industry. We try to improve that and, as well, the inorganics, which begin to gain traction. Here in Central Europe, it's a very important material set since most of the foundries are currently using inorganics to save pollution and to have a better environmental footprint.

All right. How about, historically, pricing has been an issue in the industry. Have you seen better -- as severe pricing as we've seen in the past?

Well, the pricing on Services, you mean?

Yes, exactly.

So I think we stayed since a while on a price level and see no pressure on the pricing maybe as we did in prior years. But that doesn't mean that we are able to increase pricing. So I think it's a stable system for the moment, no movement. Customers are happy with the service -- for instance, with the quality of the service. I think this is one of the main drivers why we are so good for this moment and have extremely good demand for our on-demand part service.

Yes. In addition to what Ingo said, we invested quite a bit in our sales team, in the customer service team to really keep the consulting level and the customer education on a high level. And it's not only printing good, it's definitely, as well, advising customers in the right method, thought process, et cetera. And I think in that topic, we do pretty good.

There are no further questions at this time. I would like to turn the call back over to Ingo for any closing remarks.

Thank you very much. So through persistent investments, R&D and relentless innovation, the advancements of today go well beyond what we might have expected and the applications are widening in size and scope. We now see a rapidly evolving market maturity in terms of acceptance and adoption of our technology as evidenced by increasing traction across our Services segment. We enter 2018 with great momentum and a strong focus on executing on our strategic targets. We have developed a scalable foundation on which to extend our leadership as the builder of the digital economy and we expect our forward momentum to deliver a strong 2018. The opportunities all around the world are weighed and we are ready to take them. Thank you very much.

Thank you very much. Have a good weekend or good day -- or rest of the day. Bye-bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.