Voxeljet AG (VJET) 2018 Q4 法說會逐字稿

Greetings, and welcome to the voxeljet AG Fourth Quarter and Full Year 2018 Financial Results Conference Call. (Operator Instructions) Please note this conference is being recorded.

I would like to turn the conference over to your host, Mr. Johannes Pesch, Director of IR and Business Development. 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, 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, we will take you through some highlights of 2018 and provide context on how we believe we are well positioned for profitable growth.

This year, voxeljet is celebrating its 20th anniversary, and we're looking back at a multitude of exciting projects. We basically started in a garage in Munich. Meanwhile, products made with our technology are flying in space. And we are engineering with VJET X, a unique additive manufacturing solution for true additive mass production. With direct parts from High Speed Sintering, we have successfully expanded our addressable market. In our indirect part segments, we addressed the need of our customers for production-ready solutions and start to commercialize high performance products, like VJET X and VJET HSS.

In our direct parts segment, we have successfully entered the market for direct and functional parts with High Speed Sintering, we built on the knowledge we have accumulated in the development of VJET X and HSS to accelerate the commercialization of large direct parts production platform.

Turning to Slide 7. Although today is the same as it has been 20 years ago, we want to establish a new manufacturing standard. As pioneers in technology, we've put high emphasis on relentless research and development with a clear focus in mind to expand our total addressable market for new and improved products and applications. The vision statement we 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 successfully raised additional funds in October last year, because we believe we are in a unique position and have to accelerate to seize the opportunity we have in front of us and expand our addressable market through new products and applications. We are already assembling the first VJET X units and are working with high priority on the larger HSS platform. The HSS production solution, combined with the new materials should be a game-changing combination.

Looking at Slide 8. This vision translates into a powerful strategy with clear mission statements and core values summarized on Slide 9. We are committed to executing the core pillars of our strategy, holding ourselves accountable for performance and investing in our business for long-term growth.

Slide 10 highlights our unique selling propositions, which are strongly aligned with the growing trend for higher performance products across all of our end-use markets. We differentiate ourselves from competitors by build size, mature diversity and speed. Our printing systems are modular, versatile and highly scalable and, therefore, uniquely positioned to support critical demanding applications and address the challenges and needs that are most important to our customers.

Looking at Slide 11 and our integrated business model. In our equipment segment, we manufacture and sell industrial grade high-speed large-format 3D printing systems geared towards mass production of complex models, modes and direct parts. In our services segment, we operate these systems in facilities around the world to offer affordable on-demand access to our technology.

Slide 12 shows our global sales network and production footprint. As you can see, we have reached an established position in all major markets in Europe, U.S., and as well as China. 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 educating our channel partners to ensure true global coverage.

On Slide 13, we have summarized the additive manufacturing market as we see it. On Slide 14, you see some of the potential applications of our product and selective customers. Over the last 20 years, we have been working with leading companies from a variety of industries to produce parts that cannot be produced in any other way with traditional methods of manufacturing. In the automotive sector, for example, we support the manufacturing of the most complex engine components, like cylinder heads or turbochargers to improve engine and overall vehicle performance. Meanwhile, we are also printing, for example, battery casings for optimized heating and cooling in electric vehicles. Let's start with the formal part of the presentation. I will begin with an overview of the fourth quarter 2018 and full year results. Then, I will offer a review of our significant accomplishments in 2018, which we believe have positioned the company well for profitable growth. Next I will update you on the sales of VJET X and compare our hybrid solution to direct-metal printing. Rudi will then provide a more in-depth view of our financials and our outlook for the first quarter and full year 2019. Following his comments, we will be happy to take your questions.

Turning to Slide 15. We had a very strong fourth quarter for both financially and strategically, implementing several long-term drivers. Our business continues to perform well, reaching 40% year-over-year growth. We had significant new customer wins, both domestically and internationally. In fact, we have sold more printers in this quarter than in the last 4 quarters combined. In October last year, we received the first order for our OEM solution, VJET X. Industries we sold our machines into during the quarter included each of our primary targets, like automotive, aerospace and general engineering. We also sold machines to research and educational institutions.

Regarding materials, we sold printers operating on advanced materials like ceramic powders, printed ceramic components can provide considerable benefits like freedom of design over conventionally-made ceramics and can be used, for example, as filters or catalyst carriers in the chemical industry. Many intermediate and end products in the chemicals industry can only be produced with the help of catalysts. Furthermore, we found other interesting applications for our matures in highly complex concrete casting. One recent example was the project we did with the ETH in Zurich. The picture of this project can be seen on one of our earlier slides.

In addition to that, we shipped several HSS systems for direct parts and are currently installing a specifically tailored VX200 at a large multinational company in the U.S. This MNC operates in an industry we have not been able to address with our indirect printers. This is really exciting news as it expands our addressable market considerably. We are working with high priority on the larger HSS production systems. The large production solution will incorporate feedback we have collected from these 200 customers and will likely be similar in size to VX1000.

Backlog for systems increased 23% compared to last year's fourth quarter. This is excellent news and in combination with the record number of printers sold in this fourth quarter, very encouraging. To remind you, we define backlog as firm orders for 3D printers. As the recurring revenue portion continues to grow, we are well positioned to enjoy the more predictable growth that recurring revenue will provide us with.

Turning to Slide 16. Revenue for the quarter increased 40% to EUR 8.6 million. This is a new record in terms of revenue, and so far the best quarter for printer sales. Revenues from our systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, increased 67% to EUR 5.2 million in the fourth quarter of 2018 from EUR 3.1 million in last year's fourth quarter. We delivered 10 new and 2 refurbished printers compared to 1 new and 3 refurbished printers in last year's fourth quarter.

Revenues from our services segment, which focuses on the printing of on-demand parts for our customers, increased 12% to EUR 3.3 million in the fourth quarter of 2018, from EUR 2.1 -- EUR 2.9 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.

Gross profits and systems were impacted by a different product mix of systems sold. We sold a higher number of smaller 3D printers, which usually generate lower gross profit margins compared to our bigger platforms. Gross profit and gross profit margin related to consumables, spare parts and maintenance, slightly improved quarter-over-quarter.

Although we are continuously expanding our IP, because when you have IP, you have a gross margin, and that is precisely the reason why our R&D investments are very important. Gross profits in services were partly impacted by onetime effects, like the installation of new printers. Remember, we have to fully expand such costs at once and cannot spread it across the expected lifetime. Germany contributed higher gross profit margin due to a better utilization rate.

Turning to Slide 17. Revenues for full year 2018 increased 12% to EUR 26 million from EUR 23.2 million in 2017. If we break this down, we can see a healthy growth in services revenues of 80%, while revenues from our systems segment increased by 6%. Looking at gross profits for the full year, absolute gross profit was essentially flat, but relative gross profit decreased for the reasons mentioned earlier.

Slide 18 summarizes the results. We expect our R&D investments to have a high return for us. We can develop products that carry gross margins above the company average, and we can diversify with those technologies in a wide variety of applications. We are a technology-led additive manufacturing company, and these investments will continue to strengthen our position as a leader in the global AM industry.

Looking at Slide 19, and our product pipeline. The momentum we are driving is grounded in strong product innovation. We are increasing the pace of new concepts and bringing a new discipline to how we manage the life cycle of our innovation. As mentioned in the beginning, we are a technology company, whose mission is to establish a new manufacturing standard. The foundation for our success will always be an inspiring and innovative product. This is how we drive distinction in the marketplace, and this is a competitive advantage under any market condition. While our organic investment remains a primary engine for growth, we may partner with other industry players in the investments that accelerate our life cycle value strategy and strengthen our vertical capabilities like, for example, it was the case with VJET X.

In October 2018, using more than 20 years of research and expertise in precision mechanics, for microfluidics and material science, we have collected the first order for VJET X that will bring binder-jetting to a new level, The new solution features a unique next-generation printer and recoating unit with incredible speed and extreme overall performance. One of the most important elements in our strategy for growth is increasing our new product revenue, focusing especially on the businesses where we believe demand is growing and is potentially significant. For fiscal 2019, we project revenue from new products to fuel approximately 35% of systems revenue. For fiscal 2020, we project this number to be around 50%.

Looking at Slide 20, and an overview of our indirect and direct printing processes. We are actively building a portfolio of innovations in additive manufacturing that impacts the entire spectrum of all processes. Our goals are ambitious and we have high standards. Our mission is to leverage automation to deliver amazing new products, act more responsively while being more sustainable and cost-efficient. And we have had some great success.

Turning to Slide 21, and some quick facts on the most important product launched through voxeljet. This picture was taken in our facility in Friedberg. On the right side highlighted, you can see a test cell of VJET X. This is a special [one-off] cell with restricted access rights, and we cannot show any detail. Here, our partners and we operate and fine tune VJET X and parts of the automation equipment for the mass production of a critical engine component. We are really busy with the assembly of the first VJET X unit and expect to install first units at the automotive OEM in the next month.

To remind you, VJET X features a next-generation printer and recoating unit for extreme performance. The layer time of this system is more than 10x faster as compared to previous models. The inorganic materials processed when printing the complex cars are fully environmentally-friendly, which means there are no fumes during the subsequent casting. The whole set up is geared for serial production, I am fully convinced there's no way to achieve even remotely close levels of efficiency in terms of performance and costs, if you try to replicate this output with direct metal printing.

Slide 22 summarizes some of the previously disclosed commercial terms of the deal with the German automotive OEM and shows the picture of what such a car can look like.

On Slide 23, we have summarized some of the highlights of this year.

Looking at Slide 24 and our expected gross net for profitable growth. First, turn emerging markets into the core business, with specific product and market strategies and tap the efficiency potential lurking within 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.

Third, expand our total addressable market through innovative product and service packages. And fourth, drive demand for additive manufacturing solutions through market relevant innovations, which we believe will become state-of-the-art manufacturing methods and ultimately help us sustain profitable growth.

While this quarter's success was broad-based and we are pleased with our momentum, we know we have even more opportunities ahead. As we have described before, a key focus that will create separation for us over the long term is our expertise in IT and binder-jetting for additive manufacturing. Ultimately, it is about becoming more productive at the scale.

Our outlook, as I look forward from where we are, I see a journey with significant upside, leveraging the strength of our unique portfolio and unlocking value where it makes sense. I am highly confident in our ability to execute on this.

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

Thank you, Ingo. Good morning, everyone. We remain committed to increasing our levels of profitability and increasing sales. We are closely managing discretionary expenses while maintaining investments that will drive future profitable growth, and I think we are striking the right balance.

Our pipeline for potential future printer sales as well as sales with sales opportunities in various phases of completion, and we continue to work hard to turn these prospects into orders. We put the highest emphasis on managing our sales pipeline as accurately as possible and are investing a significant amount of our time into monitoring the progress of our colleagues all around the world.

Such and other information are collected through our cloud-based SAP system, and we use this information to plan and build our guidance. While we are making significant progress, as you can see by the number of printers we sold this quarter, business is still lumpy and extremely difficult to predict with a high level of accuracy and -- on a quarterly basis.

I will now take you through the financials in more detail. Turning to Slide 26. Our total revenues increased 40% to EUR 8.6 million in the fourth quarter compared to EUR 6.1 million in last year's fourth quarter. This makes the fourth quarter of 2018 the best quarter in terms of revenue since we started 20 years ago, which is a very encouraging development and a great achievement for the group organization. Gross profit and gross margin in the quarter was EUR 2.9 million and 33% compared to EUR 2.6 million and 43% in last year's fourth quarter. I will explain the reasons for this when we look at the individual segments.

The next slide show our segment reporting for the quarter. On Slide 27, revenues from our systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, increased 67% to EUR 5.2 million for the fourth quarter of 2018 from EUR 3.1 million in last year's fourth quarter. We sold a record of 12 printers in this fourth quarter compared to 4 printers in last year's same period.

Systems revenues represented 61% of total revenues compared to 52% in last year's fourth quarter. Gross profit and gross margin for our segment in the quarter was EUR 1.7 million and 32% compared to EUR 1.3 million and 42% in last year's same period. This decrease was primarily related to the product mix of printers sold in the fourth quarter of 2018. We sold printers of smaller platforms, which usually generate lower gross profit margins compared to our larger platform. We project gross margins of about 40% going forward, especially as new products are being launched. In addition to that, we are looking at options to assemble some parts of our printers in our new facility in China to decrease production expenses.

On Slide 28, services revenue increased 12% to EUR 3.3 million compared to EUR 2.9 million in last year's fourth quarter. Services gross profits decreased to 36% in the fourth quarter of 2018 from 43% in last year's same quarter. This decrease is mainly due to the expenses associated with the routine replacement of several printers in the fourth quarter of 2018 in our U.S. subsidiary. The German service center contributed higher gross profit margins due to higher revenues and the better utilization rate. Gross profit contribution from voxeljet U.K. remained almost unchanged. We do not expect Brexit to have a significant impact on our business as we produce in the U.K., for the U.K.

Looking now on the rest of the income statement on Slide 29. SG&A expense was EUR 3.4 million in the fourth quarter of 2018. This compares to EUR 3.5 million in last year's fourth quarter. We continue to monitor our operating expenditures carefully. At the same time, we are executing with operational discipline and generating leverage from higher revenue growth. Our selling expenses were down, while revenues were significantly up, as we rationalize our marketing and sales programs and start to generate leverage in this function.

The majority of our selling expenses were for personnel expenses and distribution expenses, such as freight, commissions for sales agents. Administrative expenses mainly included personnel expenses and service consulting fees. The auditing fees doubled to roughly EUR 1 million as we are no longer an emerging growth company and are in the process of designing, implementing, and operating the control and procedure documents as required by The Sarbanes-Oxley Act of 2002.

With regard to our manufacturing operations, we continue to deploy lean manufacturing and are taking a hard look at our balance sheet and work on areas such as inventory reduction to improve cash flow and return on investment capital. We remain focused on rationalization of our cost structure, preserving our valuable liquidity and growing to keep all of our options open. We will constantly reassess the path and if necessary make adjustment to ensure that we are achieving the right balance of growth and spending. While not all of those initiatives will have that instant payoff, we will certainly pay dividends over the long run and we are pleased with the progress we have made so far.

Research and development expenses were EUR 1.56 million in the fourth quarter compared to EUR 1.57 million in the last year's fourth quarter. I think we highlighted, we continue to invest in core R&D in Germany with a number of active projects with a clear focus in mind to establish a new manufacturing standard.

Operating loss was EUR 2 million in the fourth quarter of 2018 compared to an operating loss of EUR 2.5 million in the comparative period last year. Net loss for the quarter was EUR 0.3 million or EUR 0.01 per ADS compared to a net loss of EUR 2.2 million or EUR 0.12 per ADS in the prior year same quarter. We have provided the same presentation for the full year period ended December 31, 2018 on Slide 30 through 33.

Slide 34 shows selected balance sheet items. At December 31, 2018, the company had cash, cash equivalents and short-term investments in bond funds of roughly EUR 20.3 million. Total debt at December 31, 2018 was approximately EUR 17.2 million. Weighted average number of shares outstanding for the quarter were EUR 3.94 million, which equates to EUR 19.7 million ADS. Current shares outstanding are EUR 4.83 million, which equates to EUR 24.18 million ADS, 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, which supports projects to make a significant contribution to growth, employment, regional cohesion and environment sustainability in Europe and beyond, with a special focus on highly innovative companies. The EIB, it's the Bank of The European Union, is owned by the 28-member states. The project appraisal itself was carried out by the Bank's key most engineers, economists, and financial analysts in close cooperation with us.

Moving now in Slide 35, and our revenue guidance for the quarter and full year. Full year 2019 revenue is expected to be EUR 27 million to -- and EUR 30 million, with gross margins expected to be above 40%. SG&A spending is expected to be in the range of EUR 12 million to EUR 12.5 million, and R&D spending is expected to be between approximately EUR 5.5 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 2.0 million to EUR 2.5 million, which primarily consists of ongoing investments in our global subsidiaries.

Adjusted EBITDA, which excludes the impact of foreign exchange regulations, is expected to be neutral to positive for the second half of 2019. Revenue for the first quarter of 2019 is expected to be in the range of EUR 5 million and EUR 5.5 million. Slide 36 summarizes our project at long-term operating model. This concludes my remarks.

And with this, I will now open the call up for your questions. Operator?

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

This is Allan Verkhovski on for Troy Jensen. Can you guys talk about how the partnership with the large European automotive company is going?

This is Ingo. So the project is performing well according to the plan currently. As I said, in the call, we are currently assembling the first units for delivery in the upcoming months. So far, everything is on track and we hopefully see successful implementation of the systems by the end of the year.

Great. And just speaking in terms of targets. Is the larger format printer for HSS still on target for release to be in November or late 2019 this year?

Yes, that's still the plan to show this machine in a first prototype version on a major show here in Europe, this year.

And lastly just my last question would be, if you guys have any observations or any new material things that you've been picking up around the competitive environment?

Well, we have a full pipeline of R&D projects also concerning new materials. Not everything we are currently investigating is ready for the public. But be sure that we have very interesting things in the pocket, which we will release shortly.

(Operator Instructions) There are no more questions. I would like to turn the conference back over to management for closing remarks.

Thank you. So wrapping things up here, I am excited about both our progress and our prospects. At voxeljet, it is our mission to establish a new manufacturing standard. We are thrilled with our momentum through the launch of VJET X. We remain on the offensive identifying and attacking opportunities to evaluate our game and build on our momentum with new product launches and ensure that we deliver sustainable, profitable, capital efficient growth over the long term. In 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 and pipeline of innovation positions us to lead for the years to come. Thank you for joining today's call and we look forward to seeing you at the RAPID Show in May and to speaking with you again next quarter. Thank you.

Thank you. Bye-bye.

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