Materialise NV
Q2 2021 Earnings Call Transcript

Published: 29 Jul 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Materialise Q2 2021 Financial Results Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Ms. Harriet Fried of LHA. Ms. Fried, please go ahead.

[Harriet Fried:]

Thank you for joining us today for Materialise's quarterly conference call. With us on the call are; Fried Vancraen, Founder and Chief Executive Officer of Materialise; Peter Leys, Executive Chairman; and Johan Albrecht, Chief Financial Officer.

[Peter Leys:]

Thank you, Harriet and thank you everyone for joining us today. You can find the agenda for our call on Slide 3. As the first item on our agenda, I will summarize the highlights of our financial results for the second quarter of 2021. Then, I will pass the floor to Fried, who will give you more insights into our current intentions with respect to the use of the proceeds that we raised earlier this month. After that, Johan will walk you through our second quarter numbers in more detail. Finally, I will come back and give you some observations about what we currently believe the rest of the year may bring. And when we've completed our prepared remarks, we will be happy to respond to any questions that you may have. So, let's turn to Slide 4, which summarizes the highlights of our financial results. Quarter-over-quarter, our revenues grew 33% to EUR 50.7 million, and our adjusted EBITDA more than doubled to EUR 6.9 million. These results are, we believe, excellent. Of course, the second quarter of 2020, the benchmark was the quarter in which our business as a whole suffered the most from the COVID-19 crisis. As a result, while the comparison between last year's and this year's second quarter remains very relevant. It may provide the less insights into our current performance than the insights that quarter-to-quarter comparisons provide in more normal circumstances.

[Fried Vancraen:]

Thank you, Peter. Indeed, we intend to allocate the bulk of the proceeds we raised to the key growth drivers that we discussed at length during our last earnings call. And let me briefly reiterate what these are. First, we will continue to invest in the expansion and innovation of our two market-leading horizontal software platforms, Magics and Mimics. The Magics platform, as you know, enables users of AM technology to be more productive, more cost efficient and more sustainable. The sales of our Magics flagship product remains strong throughout and better than Mimics and show again considerable growth in Q2.

[Johan Albrecht:]

Thank you, Fried. I'll begin with a brief review of our consolidated revenue on Slide 6. As a reminder, when we refer to sales in our presentation, we mean revenues plus deferred revenues. Also please note that, unless otherwise stated, comparisons in this call are against our results for the second quarter of 2020. Like Fried said earlier, because the second quarter of 2020 was very significantly impacted by the COVID-19 crisis, that sometimes referred to 2019 to make the figures more comparable.

[Peter Leys:]

Thank you, Johan. If you could kindly turn the page to Slide 13. And before opening the floor to questions, we would like to try and give you some insights in what we currently believe the remainder of 2021 may bring. We currently see a positive, albeit fragile and fairly diverse global trend of businesses gradually recovering from the pandemic crisis. Assuming that this strength continues in the right direction over the next few months, we currently expect our consolidated revenues for the entire year 2021 to exceed the level that they reached in 2019, which was close to EUR 197 million. We also see a likelihood of our revenues come to close to EUR 200 million. This would represent a growth compared to 2020 between 15% and 17%. As is traditionally the case for our business, we expect that the majority of the revenues of the second half of this year will come from a particularly strong fourth quarter. As our revenues grow, we intend to increase our operational expenses accordingly with a view to accelerating our growth in the near future, fully in line with what we explained earlier. Therefore, we currently believe that adjusted EBITDA for the full year 2021 will reach up to EUR 25 million. And with this, I would like to conclude our prepared remarks. So, operator, please go ahead and open the call to questions.

[Operator:]

Thank you. Our first question will come from Jason Celino with KeyBanc. One moment, please go ahead.

[Jason Celino:]

Hi, thanks for taking my questions.

[Peter Leys:]

Hey, Jason.

[Jason Celino:]

You know, for my first one, you know, when you say the recovering end markets is happening, you know, more swiftly than expected. Now, that's definitely good to see but maybe from a linearity perspective, how did this develop, you know, through the quarter? Was it more immediate or is just the confidence from the quarter as a whole?

[Fried Vancraen:]

Yeah and of course, we cover multiple markets and overall the trend is - has been positive throughout the quarter. Certainly as our numbers show in Medical, we have seen a continuous increase in sales. But that was also true for Software. The only market that is still relatively unstable is the Automotive market, which is no longer suffering from COVID we assume, but as many of you know, is suffering from supply chain problems and is still in a very unstable phase.

[Jason Celino:]

Okay. And then for my second question, you know, as it relates to the to the commentary for the end of the year, you know, you mentioned that you could exceed, you know, 2019 you know, revenue levels, but as it relates to the Manufacturing segment, is this also a segment that could exceed 2019 levels? Thank you.

[Peter Leys:]

Jason, as you see the past report as also in this quarter. I mean, we have continuously and also strategically been growing, in particular, our Software and Medical segments. And while Manufacturing has recovered, and we expect that it will continue to recover, but we do not expect that the mix between the three segments in 2021 will be the same as the mix that it was in 2019. I mean, as a result of the continuous exercise of our strategic priorities, we do expect that Software and, in particular, Medical will represent more important parts of the overall revenues.

[Jason Celino:]

Great, thank you. Appreciate the color.

[Peter Leys:]

Sure. Thank you.

[Operator:]

Our next question will come from Troy Jensen with Lake Street Capital. Please go ahead.

[Troy Jensen:]

Hey, gentlemen, congrats on the nice results.

[Peter Leys:]

Hey, Troy. Thank you.

[Fried Vancraen:]

Thank you, Troy.

[Johan Albrecht:]

Thank you.

[Troy Jensen:]

And so I guess I got a few questions here. I guess so in with digital manufacturing, it seems like you know, this past quarter or this you know, first half of this year has been a surge in interest rate and we've seen in Shapeways fathom and fast radius kind of all enter this market via Sfax. And really, they're just doing 3D printing and CNC and injection molding and they have some software right to automate that. And just curious your guys' thoughts. I mean, I know you're huge in 3D printing, I'm assuming you've got CNC and injection molding with ECT. And is this digital manufacturing or just manufacturing in general for you guys a segment an area that you think is going to be the growth driver?

[Fried Vancraen:]

Well, Troy we really are fundamentally a 3D printing company and we intend to remain very focused on key core 3D printing applications, the meaningful applications as we have said so many times, which means that we do not intend to substantially broaden our scope to CNC machining and other conventional manufacturing technologies with digital source on top of it. So, I think there we differentiate in strategy from the companies you mentioned earlier.

[Troy Jensen:]

Okay. Great staying in 3D space, I get it. And then software competition or Peter were you going to say something? Sorry. Right, I'll take down. So -

[Fried Vancraen:]

As the numbers show and - yeah, that is only a 5% revenue increase in our Software segment, but this high 24% sales increase in our segment due to the deferred revenue that are associated with our recurring income flows. So we put the cash in already, but yeah, we have to spread it over the license periods, periods this means show that our software is still highly appreciated by our existing customer base where we see very high renewal rates. And on top compared to the same period last year, we more than doubled the amount of new users, which shows that our software is still high in demand and is not experiencing at this moment very negative effects from competition.

[Troy Jensen:]

And so, Fried, I guess want to dig into that a little bit. I think it kind of have my question in there. But if you just look at software competition, it seems like that's kind of picked up. Fried I think you said dendrite and HP is kind of snuggling up together. You know, Shapeways is going to try to offer you know, kind of their software package to customers, your revenues on software has been flat, you know, December, March and June, I get your comment, you know, deferred revs grew, right. So sales are growing, but any concerns on some of these new entrants and competing, you know, more effectively, you'll see?

[Fried Vancraen:]

Well, Troy we always have to be very respectful for competition and we have been so for now over 30 years, because we have always experienced competition. But we do believe that especially those new players have quite some hurdles to take. I do think they are very ambitious in addressing a very broad scope of software solutions which is hard to build up. And yeah, again, while we - do we have respect for their offerings and know that we have to be careful to yeah, swiftly accommodate with the new trends in the software industry. We believe we have a very solid base, we shouldn't be too afraid of competition.

[Troy Jensen:]

Got you, very perfect. One last question I don't see the floor for either Peter or Johan. But I guess I'd just be curious on your thoughts in Q3 specifically. I mean, we've got typically it's the seasonally slower quarter, right, especially more in Europe you know offsetting that, you know, we've got, you know, just kind of the just general recovery happening. So, you know, I get the big Q4 you know typically happens, but your thoughts on sequentially what Q3 could look like?

[Peter Leys:]

Yeah, thank you, Troy. I think it is a good question and when we articulated our guidance, we really wanted to emphasize that we expect Q4 that is not just traditionally the strongest quarter but also in terms of continuous sequential growth and further recovery, we see that more happening also in Q4 than in Q3. So we do expect to meet the EUR 200 million mark that we set there as an ambition that will mainly come from the fourth quarter, which basically means that you should not expect much growth from Q2 to Q3.

[Troy Jensen:]

Perfect. Thanks, guys. Keep up the good work, gentlemen.

[Johan Albrecht:]

If I can add maybe some - one more point to that, Troy is that, if you look at the guidance that Peter has given that does not include the effects of the Group of deferred revenue from maintenance and license fees, if - even if the - the Q4 is the traditional best quarter season on a seasonal basis, we also have there the effect of the Group of sales that we don't - that we cannot recognize as revenue here, but we expect also significant growth on that perspective.

[Troy Jensen:]

Thank you -

[Operator:]

And I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Peter Leys for any further remarks.

[Peter Leys:]

Thank you, operator. Thanks again to all of you for joining us today on the call. We obviously look forward to continuing our dialogue with you through investor conferences or in one-on-one virtual meetings of our calls. We will have a physical representation at Rapids in Chicago this year where Phits plans to be present. If you want to talk to Phits or other company representatives at Rapids, and have not yet reached out to us, then please feel free to do so. Thank you again and goodbye for now.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.