Voxeljet AG (VJET) 2018 Q3 法說會逐字稿

Greetings, and welcome to the voxeljet AG Third Quarter 2018 Conference Call (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to Johannes. Please go ahead, sir.

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, 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.

Since this is the first conference call since our follow-on offering, I would like to take this opportunity to warmly welcome our new shareholders who have come onboard in the last month. Innovation is part of the DNA of voxeljet. We have created an exciting and forward-thinking culture where we are constantly evolving and improving our ability to deliver the best experience for our customers. Major focus of ours is in the consistent investment in advancing our technology to reach profitable growth. We have talked before about how innovation enables our strategic accomplishments and provides us with an ongoing competitive advantage. It would take an enormous amount of time, human capital and funding to replicate our latest innovations, like VJET X, providing us with a very real barrier to entry.

Looking at top line and the progress we have made through the strategic launch of new products and how this positions us for the long term, we are happy with the results for this quarter. However, looking at bottom line, there is still a great deal to be done based on our current results. At this stage of our company's evolution, I would, therefore, like to emphasize the most important layer to the execution of our strategies: profitable growth. The long-term success of our company will not only be measured by the quantity of our innovations, but also by our ability to bring these to their full potential.

Our primary focus for the next quarters, therefore, is to reach a path to sustainable and profitable growth. We have made great progress towards this target. We are very confident our new products would increased sales and are currently implementing programs to optimize our cost structure further to reach profitable growth.

The agenda for profitable growth can be broken down into a few action areas: first, turn emerging markets into the core business with specific products and market strategies and tap the efficiency potential lurking within the product costs along the entire value chain; second, continue to make use of the market opportunities with existing products, taking advantage of the volume markets in Europe, North America and Asia; and third, expand our total addressable market through innovative product and service packages; fourth, drive fascination in additive manufacturing solutions through the market-relevant innovations, which we believe will become state-of-the-art manufacturing methods and ultimately, help us obtain profitable growth.

Today, and on future calls, we want to take you further behind the scenes to talk more about new product capabilities we have developed and how each better positions us to win over the long term and how each contributes to profitable growth. The opportunities are vast both in our direct and our indirect product portfolio. And I'm extremely excited about how our new products expand our total addressable market.

With indirect metal parts from our OEM solution, VJET X, the most productive additive manufacturing platform to date, we believe to be on the forefront of a significant shift of conventional production to serial additive manufacturing. With advanced material combinations for direct parts from High Speed Sintering and the large production platform being launched in 2019, we see us in a position to unlock new customer groups. To develop and commercialize such innovations is precisely the reason why I started this company 20 years ago.

Turning to Slide 5. We started nearly 20 years ago as a spin-off from Technical University of Munich with a clear vision in mind: to replace conventional manufacturing by constantly pushing technological boundaries. Today, the leading technology companies from the automotive and space exploration industries are our customers. Our proprietary technology is used to create parts, which are flying in space.

Our integrated business model is summarized on Slide 6. Our Systems segment where we manufacture and sell industrial-grade, high-speed large-format 3D printing systems geared towards mass production of complex models and molds. In our Services segment, we operate these systems to -- in 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.

Turning to Slide 7. This vision translates into a powerful strategy with clear mission statement and core values. This vision statement we have shared throughout the year represents who we strive to be every day and essentially how we operate across all aspects of our business as we build this company for the long term. We differentiate ourselves from the competitors by building -- by build size, material diversity and speed in our proprietary additive manufacturing technology made through serial production.

Please turn to Slide 8 for an overview of our operations. With more than 500,000 liters of monthly printing capacity at currently 4 service centers, we believe we are the world's largest provider of on-demand printing capacity. We use this key competitive advantage to push the adoption of our technology and drive the sale of our 3D printer platforms all around the world. What I'm saying is our service centers are our best marketing engine for future Systems sales.

Slide 9 shows our global sales network and production footprint. As you can see, we have reached an established position in all major markets in Europe, the U.S. as well as China and India. We continue to expand our sales team around the world by investing in sales leadership, additional application engineers and training. To complement this, we focus on educating our channel partners to ensure true global coverage.

On Slide 10, we have summarized some of the applications of our products and selected customers. Over the last 20 years, we have been working with leading customers from a variety of industries to produce parts that cannot be produced in any other way with traditional methods or -- of manufacturing. In the automotive sector, for example, we support the manufacturing of the most complex engine components like cylinder heads or turbochargers.

Let's turn to Slide 11 and start with the formal part of the presentation. I will begin with an overview of the third quarter results. Rudi will then provide a more in-depth view of our financials and our outlook for the fourth quarter of 2018. Following his comments, we will be happy to take your questions.

Revenue was EUR 7.1 million, which represents a decrease of 4% compared to last year's third quarter. We are very excited about our growing backlog for 3D printers, which is up 14% from the end of the second quarter. Based on our backlog, the fourth quarter has the potential to become the best quarter in the company's history based on revenue.

Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, decreased 10% to EUR 3.7 million in third quarter of 2018 from EUR 4.2 million in last year's third quarter. We delivered 3 new printers compared to 3 new and 3 refurbished printers in last year's third quarter.

Gross profit margin for this segment decreased to 32% in third quarter of 2018 compared to 39% in third quarter of 2017. This was due to lower gross profit margin contribution from our aftersales activities, mainly spare parts and maintenance. The gross profit margin contribution related to the sale of 3D printers was almost unchanged.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, increased 4% to EUR 3.4 million in this year's third quarter from EUR 3.2 million for the same quarter last year. We truly start to benefit from our global footprint and gain traction with new processes. In the U.S., for example, the demand for PDB parts is especially strong, and we are fully booked there.

Gross profit margin for the Services segment decreased to 33% in the third quarter of 2018 compared to 47% in third quarter of 2017. The decrease is largely related to lower gross profit contributions from our -- from Germany due to a larger portion of sales with longer lead times, which generally have lower margins. In addition to that, personnel expenses increased as we hired additional people.

Slide 12 summarizes the results. We feel great about the momentum of our global subsidiaries and U.S. was again performing exceptionally well. In Asia, we sold one of our larger Systems to a client in Indonesia.

Looking at operating expenses, our selling expenses mainly increased due to the increase in headcount, although we incurred relatively high-delivery costs associated with the selling of the system to a client in Indonesia in the third quarter of 2018.

Our commitment to technology leadership is stronger than ever as can be seen by our continued investment in R&D. Obviously, there is VJET X and the new HSS platform and materials, which I will discuss in detail in a minute. But there's more as you might have seen from the press release earlier this month or in person here at the formnext show in Frankfurt, we have launched our new S-line of printers with VX1000-S operating on inorganic binding material. While VJET X was developed for the extreme performance 10x faster than previous models and with full automation equipment for an automotive giant in Germany, Model S is still 5x faster than previous models and also operates on the new inorganic binding material. We are collecting orders for this new type of printer for deliveries mid-2019. This is very exciting, and we are looking forward to the feedback from our customer. It is fair to say they have been waiting for this kind of printer for quite some time. Administrative expenses are largely driven by our ongoing costs related to being a public companies, including legal and substantially auditing fees.

Turning to Slide 13. Our addressable market is potentially huge with a significant growth potential as additive manufacturing takes a larger and larger share from traditional manufacturing. As mentioned in my opening remarks, it is particularly rewarding to see how our new product offerings increased our total addressable market. With the X, we will have, as we believe, the only OEM-ready solution for serial additive manufacturing, which is capable of replacing conventional manufacturing. With the S, we offer generally available entry option into additive serial production, for example, to suppliers of such OEMs. With direct parts from HSS, we are looking completely new markets like the sports equipment sector.

Let's turn to Slide 14 and the summary of our growth initiatives. Our growth strategy entails 3 main points and is centered about reaching profitability. First, we introduce advanced and fully automated additive manufacturing solutions that address client needs for on-demand production. This allows us to sell multiple systems to individual companies. Second, we are developing new technologies and materials, which give our machines wider applications for new and existing customers. Finally, we are entering new markets such as sporting goods like shoes, household goods and automotive interiors.

Let's now turn to Slide 15 and an update on VJET X. This is, without a doubt, the most important product launch to date at voxeljet. This new solution is a game changer for the whole industry. Here are some quick facts. VJET X is 10x faster than previous models, is fully integrated into automated pre and postprocessing and is operating on environmentally friendly materials. Together with our partners, who are experts from the chemical and currently automation industries, we have developed this solution for a leading German carmaker. Competition for this project was fierce, and we are very excited to have come out on top.

The new technology allows for the production of highly complex water jacket cores at high speed, which are used in light metal casting processes. A water jacket is a liquid-filled casing surrounding a device, typically out of light metal, having intake and outlet vents to allow a liquid to be pumped through and circulated. Water jackets are needed for the precise temperature management in not only internal combustion engines, but also electric motors, inverters and battery systems. Efficient temperature management improves overall vehicle performance.

Slide 16 summarizes recent improvements in the performance of our binder-jetting technologies indirect metals. Indirect metals means printing a mold pattern or core, which is then used in a casting process to produce the actual metal part. The casting process has been refined over thousands of years and is geared towards high throughput at low cost and consistent quality. Our hybrid approach, therefore, leads to an unmatched scalability potential by combining the best of the 2 products: freedom of design through additive manufacturing in combination with established best practices for metal parts production.

On the left side of this slide, you can see the job box of our VX1000 printer, which equals roughly 300 liters in volume. To print such a box, it takes approximately 20 hours -- 21 hours with the standard printers. If the parallel recoating operator is installed the layering unit, then the printers then moves simultaneously. This time is reduced by 1/3 to 15 hours. On the new S-line of printers, this time is again reduced further by more than 60% to only 5.7 hours, thanks to larger printers and fast and parallel movement of the Xs. The X features another almost 80% improvement as compared to the S, which makes it positive to print 300 liters in only 1.3 hours. This innovation featuring our next-generation printers and recoating units will be made possible by our 20 years of research and expertise in precision mechanics, microfluidics and materials science.

Of these numbers, it should become obvious what we mean when we say we believe there to be no other additive manufacturing technology capable of replacing conventional manufacturing.

Let's turn to Slide 17 and an update on direct parts from High Speed Sintering, which we have entered via thermoplastic market. This innovation gives us the ability to directly manufacture and use products with properties and qualities similar to or better than selective laser sintering, HP's Multi Jet Fusion or injection molding. We are really excited about the speed we see and the qualification of new materials for our High Speed Sintering processes. In less than 9 months, we were able to qualify various grades of polymer powders and are successfully printing several types of several plastic polyurethane. We are also working on some very customer-specific materials, including polypropylene, which is one of the most widely used plastic materials in the world. PP features extremely interesting properties and addresses a broader set of applications. We are successfully printing PP on our smaller VX200 HSS Systems.

In addition to the recent launch of new materials for HSS, we have doubled the speed of our commercially available VX200 platform by reducing the layer time to only 20 seconds. This great achievement comes with easier unpacking and homogeneous texturing of the printed parts and expands the possible application of HSS products, for example, the automotive or sporting goods industry. These improvements are the direct result of the ongoing development of large HSS production systems. We expect to make this new product commercially available towards end of 2019.

Slide 18 summarizes our value proposition. Our commitment to technology leadership is stronger than ever as can be seen by how we have advanced our research and development strategy during the last few years. We have now started to capitalize on these investments. It is quite simple, innovation fuels growth. We believe we are on our way to reach profitable growth.

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

Thank you, Ingo, and good morning to everyone.

I would like to begin by summarizing the recent follow-on offering that was launched after the close of the third quarter. I will then provide financial details before discussing our outlook for the rest of 2018.

Obviously, there's never good timing for small company like ours to raise capital. Having said this, there's a great momentum here, and we are fully energized by the first order of VJET X. As Ingo mentioned, this is certainly the most innovative product we had launched so far.

We are very confident that VJET X truly is a game changer and will become the benchmark for productivity in serial additive manufacturing. We are convinced this will help us reach sustainable and profitable growth. In conjunction with the capital increase in October, we were -- where we issued the main tranche in early November when the underwriters exercised their over-allotment option, we have issued an aggregate of 5 million to 5.8 million new ADSs at a price of $2.57 per ADS for a total gross proceeds of roughly EUR 12.5 million.

Ingo and I participated in the capital increase by purchasing an aggregate of 233,462 ADS. The company has received the proceeds from the capital increase less the underwriting discount, commissions and offering expenses. We plan to use the net proceeds for general corporate purposes, including the commercialization of our new products.

Turning to Slide 20. Our total revenues slightly decreased 3.6% to EUR 7.1 million in the third quarter compared to EUR 7.4 million in the last year's third quarter. Gross profit and gross margin in the third -- in the quarter were EUR 2.3 million and 32% compared to EUR 3.2 million and 42.7% in last year's third quarter.

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 9.8% to EUR 3.7 million for the third quarter of 2018 from EUR 4.2 million in last year's third quarter. We sold 3 new printers in the third quarter of 2018 compared to 3 new and 3 used and refurbished printers in last year's same period. System revenues represented 52.6% of total revenues this quarter compared to 56.2% in last year's third quarter. Gross profit and gross margin for our Systems segment in the quarter was EUR 1.2 million and 32% compared to EUR 1.6 million and 38.9% in last year's same period.

On Slide 22, Service revenues increased 4.4% to EUR 3.4 million compared to EUR 3.2 million in last year's third quarter. For the first 9 months of this year, revenue in this segment is up 20% compared to the same period last year. This is a great achievement and highlights that we are on track to reach our goal of 25% growth in this segment. Gross profit for our Service segment decreased to EUR 1.1 million in the third quarter of 2018 from EUR 1.5 million in the third quarter of 2017. The gross profit margin for this segment decreased to 33% from 47.4% in last year's same period. The decrease in our Service segment is largely related to lower gross profit contributions from Germany due to a larger portion of sales with longer lead times, which generally have lower margins. In addition to that, personnel expense had increased as we hired additional people.

Looking at the rest of the income statement on Slide 23, SG&A expenses were EUR 3.5 million in the third quarter of 2018. This compares to EUR 3 million last year's third quarter. The increase was mainly due to higher personnel expense resulting from the buildup of our sales force, especially in Germany compared to last year's third quarter. In addition, delivery cost increased this quarter due to the release of shipping expenses related to the sale of one of our larger 3D printers to a client in Indonesia. Administrative expenses were EUR 1.5 million for the third quarter 2018 compared to EUR 1.4 million in the last year's same period. The increase in administrative expenses is mainly related to higher personnel expenses. Research and development expenses were EUR 1.7 million compared to EUR 1.1 million in last year's third quarter. As Ingo highlighted, we continue to invest in core R&D in Germany to maintain our position as a technology leader in additive manufacturing to reach profitable growth. Operating loss were EUR 2.8 million in the third quarter of 2018 compared to an operating loss of EUR 1 million in the comparative period in 2017. This was primarily related to a decrease in gross profit for the reasons mentioned earlier and higher R&D expense. Net loss for the quarter was roughly EUR 3.8 million or EUR 0.20 per ADS in the third quarter of 2018 compared to a net loss of EUR 1 million or EUR 0.05 per ADS in the third quarter of 2017.

Slide 24 through 27 provides the same information for the 9 months ended September 30, 2018.

Slide 28 shows selected balance sheet items. At September 30, 2018, the company had cash, cash equivalents and short-term investments and bond funds of roughly EUR 13 million. Total debt at September 30, 2018, was EUR 17.3 million. This includes EUR 10 million from the venture debt facility from the European Investment Bank for highly innovative European companies. Weighted average ordinary shares outstanding for the quarter was 3.72 million, which equates to 18.6 million ADSs.

We continue to see opportunities through improve working capital performance, cash flow and our cash conversion cycle in 2018. I remain comfortable with our cash balance and overall liquidity position. We believe that our balance sheet positions us well for the long term. During the preparation of our consolidated interim financial statement for the 3-month and 9-month periods ended September 30, 2018, the company became aware that the margin within certain intra-group transactions has not been properly eliminated on the consolidation process, resulting in immaterial misstatement of cost of sales to the company's consolidated financial statement. This immaterial misstatement was corrected, and restated line items from our prior full financial statements are summarized in our earnings release. We evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that it did not have a material impact on nor require amendment of any previously filed financial statements.

Moving now on to Slide 29 and our revenue guidance for the quarter and full year 2018. We reaffirm full year guidance, expect for full year adjusted EBITDA. For the fourth quarter of 2018, we expect revenues in the range of EUR 9.5 million to EUR 10.5 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 EUR 5 million and EUR 6 million. Depreciation and amortization expenses are expected to be between EUR 3.75 million and EUR 4.0 million. Adjusted EBITDA for the fourth quarter of 2018 is expected to be neutral to positive. 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 up for your questions. Operator?

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

Maybe first for Ingo, the big automotive win that you had this quarter. I wondered if you could help us out with the time line of this deployment? And maybe what are some of the milestones that are going to be needed for you guys to go from 2 machines to 5 machines to 20 machines at this account?

Well, as you have seen from the press release, currently, we got a frame over, totaling in 5 units with an initial call for 2 units. The 2 units we are talking about, they will be delivered and installed next year. And we are, let's say, very, very sure that the call for the other units, probably, shortly after the full implementation of these machines. So the plan for this automotive OEM is to have the full production capacity in 2020.

In 2020. And full production capacity being the 5 machines or the 20 machines?

This is the -- what I'm saying is about the 5 machines. Of course, the 20 machines...

The 5 machines by 2020.

The 20 machines is the outlook. If we capture the performance as required and then turning the result over to other product lines.

Okay. Understood, and congrats on the win. And sounds like it's something you guys have been working on for a long time. But switching gears here to High Speed Sintering update. Could you give us just an update or any sense on like the number of machines shipped? And maybe which applications that you think are really going to hit first with this new product?

So the good thing is here that even the smaller platform already gains interest in the market. So we have several orders for machines and already we have installations out. Some of them are quite good leads. We have among them automotive OEMs, and we have also orders from sports goods manufacturers here in -- so it means the -- I think the industry is catching up our solution, and it's going forward. Especially with the latest upgrade with the increased speed, we see more customers interested in this particular solution. And, of course, the main interest is directed towards the bigger platform, which we indicated to display on next year's or next.

Yes. Okay. So Ingo, I know I have asked this in the past, but just would love to get an update on it, like the go-to-market strategy for High Speed Sintering. I mean, the customers are clearly going to be different than your casting -- sand-casting customers or different application probably at a lot of the same customers. But thoughts on go-to-market, will you guys be building out a direct sales force to kind of go after this? Or are you using indirect partners?

Well, this is still underdevelopment. Currently, we believe that we can address this market through our own resources, but we also are looking around what kind of capabilities and possibilities we may have through partners. So this is still under -- let's say, under discussion. I think with the current setup, we are quite fine. I think we can address for the moment interesting applications, interesting markets, interesting customers, as you heard me saying, but it could be that we go also other ways through strategic partnerships in future.

Okay. Understood. And how about that 2 questions for Rudi. First one, can you just let us know what we should model for the share count now with the new issuance?

The total outstanding shares are 24 -- how much is it?

Plus 30%.

It's more like 30%, Troy. I'll send you the correct number over after the call.

Okay. All right. Perfect. And then Rudi, just while I got you, too. I know you explained a little bit on the gross margin impact here kind of down year-over-year below what we thought. Can you explain once again what caused the gross margins to come in where they were?

I think the gross margin impacts, as we laid out in the script, are primarily to personnel -- higher personnel expenditures and the product mix as well. What we have seen here in the German service center activity is an exchange of printheads for our large format printers. And we can't -- we have to book them right away into cost of goods sold even if they hold for 15, 16 months. We are not allowed -- amortize them over time. And if you exchange 3 large printheads in 1 quarter, which happened that time, that hits you as well in your profitability. I think going forward, we try to improve that and to be -- and don't get to hit in 1 quarter. But this time, we couldn't avoid it. We discussed it and we simply had to exchange printheads and to book it accordingly. The total numbers of the share -- 1 second. I have it here, the total number of shares is 24,180,000 ADSs.

(Operator Instructions) If there are no further questions, I'll turn the floor back over for any further or closing comments.

Thank you. At this point, we would like to remember a special colleague, loving family man, tireless innovator, successful entrepreneur and overall, our great friend, David Tait, Managing Director of voxeljet America, passed away last night after suffering from short serious illness. He lived a consequential life and leads a lasting legacy. He was instrumental in building our voxeljet America, has established successful partnerships with some of the most exciting companies and most importantly, has put the right people in the right jobs. Rudi will take over the MD position temporarily until Michael Dougherty, who David selected as his successor, will take over. Michael joined us in August this year and has already assumed managerial tasks. David truly was integrity and class personified. Our thoughts and prayers are with his family. Thank you.

Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.