voxeljet AG
Q1 2019 Earnings Call Transcript

Published: 18 May 2019

[Operator:]

Greetings, and welcome to the voxeljet AG First Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Johannes Pesch, Director of Investor Relations. Thank you. You may begin.

[Johannes Pesch:]

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, 2019. 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.

[Dr. Ingo Ederer:]

Thank you, Johannes, and good morning, everyone. Thanks for joining us today for our first quarter call. We are very pleased with our strong start to 2019. As you have heard us consistently saying, our goal is to deliver solid financial and operational performance and also advancing innovation, which will help us to establish new manufacturing standards. During the first quarter, we demonstrated our ability to deliver growth while also executing on our long-term strategies. Let's turn to Slide 5. This year, we are celebrating our 20th anniversary and are looking back at the multitude of exciting projects. You will remember, we basically started in the garage unit and fast-forward today, products made with our technology are flying in states and we will be implementing with VJET X, a unique additive manufacturing solution for true mass production. In our indirect part segment, we addressed the need of our customers for production-ready solutions and start to commercialize high performance products such VJET X and HSS. In our direct part segment, we have successfully entered the market for direct and functional parts with High Speed Sintering. We have build on knowledge we had accumulated in the development of VJET X and HSS to accelerate the commercialization of large direct parts production platform. The HSS production solution combined with [indiscernible] should be a game-changing combination. Turning to Slide 6. Our goal today is the same as it has been 20 years ago. We want to establish a new manufacturing standard. As pioneers in technology, we 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. On Slide 7, we have highlighted 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 8 and our integrated business model. In balances long with short sales target and helps us to maintain close relationships with our customers. In our equipment segment, we manufacture and sell industrial grade high-speed large-format 3D printing systems geared towards mass production and -- of complex models, modes and direct parts. The primary target for this segment is to sell largely multi-system contracts. In addition to that, we put a high emphasis on after sales activities. In our services segment, we operate these systems and facilities around the world to offer affordable on-demand access to our technology. The primary target for this segment is to sell large multi-year volume contracts. Slide 9 shows our global sales network and production footprint. As you can see, we have reached and established position in all major markets in Europe, U.S. 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 10, we see some of the potential applications of our products 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 the overall vehicle performance. Meanwhile, we are also printing, for example, battery casings for optimized heating and cooling in electric vehicles. Let's turn to Slide 12. It has been approximately 7 weeks since our fourth quarter 2018 earnings call. In that call, on March 29, we had articulated the reasons for our optimism as we looked at several midterm activities that we believe validate our product adoption in the market. With a strong first quarter with results that confirmed that, we are so excited about our potential to establish a new manufacturing standard. The shifts we have made to our business and our people focus on the 3 core areas, innovation, direct and speed are igniting the next phase of growth and profitability for voxeljet. It's typically restated we expect to see the following

[Rudi Franz:]

Thank you, Ingo, and good morning, everyone. Our aim is to deliver long-term value for our shareholders through attractive growth, stronger margins and optimal development of capital. Our full attention remains firmly in driving operational execution to deliver these outcomes whilst managing the transformation. I would like to begin by providing financial details and adding some additional context of results before discussing our outlook for the rest of 2019. We have entered 2019 well positioned to deliver growth and increase portability as we continue to execute in our strategic priorities. I just came back from visiting large clients in India, and I am delighted about many discussions that we are having with so many different players in the broad variety of industry. As Ingo mentioned, I believe the demand for our solutions is as high as it probably has ever seen. I'm particularly excited about the upcoming launch of the large 5D printer in production test on later this year. Turning now to Slide 18. Our total revenue increased 10.2% to €5.6 million in the first quarter compared to €5.1 million in the last year's first quarter. Gross profit and gross margin in the quarter were €1.9 million and 34.4% compared to €2.1 million and 42.2% in last year's first quarter. This is mainly related to lower gross profit margin contribution from the services segment. The reason here is twofold. First, is the lower utilization rate in the German service center, primarily as a result of lower demand from French customers. Second, we incurred higher depreciation expenses at our U.S. facility as additional 3D printers were added to meet the growing demand. The gross margin on our systems segment has improved as utilization is picking up. The next slide show our segment reporting for the quarter. On Slide 19, revenues from our systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, increased 75.6% to €2.4 million from €1.4 million in last year's first quarter. This is excellent news. As mentioned in prior calls, the improving revenue portion from our population of 3D printers continues to grow. The reason is twofold as well. First, we sell more printers, and second, we focus on after sales activities. Therefore, we believe we are well positioned to enjoy the more predicable growth of such recurring revenues that provide us with -- we sold 2 new and 1 used refurbished printer in this first quarter compared to 2 used and refurbished printers in last year's same period. Systems segment represented 43.4% of total revenue this quarter compared to 27.2% in last year's first quarter. Gross profit and gross margin from our systems segment in the quarter was €0.8 million and 34.3% compared to almost €0.4 million and 27.7% in last year's same period. As utilization picks up, we expect gross margins from systems segment to be about 40% consistent with the outlook that we have given in the past. It is important to understand that the individual printers' gross margin contribution can already be about 50%. We continue to invest in improved systems, implement best practices in the inventory and supply chain management and continue to improve our communication coordination between our engineering and manufacturing team. Cost absorption in our factories still continues to improve and it should lead to more positive margins outcome in product sales as the year progresses. Our goal is simple, deliver solutions that solve our customers' progress. On Slide 20, services revenues decreased 14.3% to €3.2 million compared to €3.7 million in the last year's first quarter. The decrease is mainly due to a lower utilization rate in the German service center primarily as a result of lower demand from French customers. This was partly offset by higher demand in the U.S. and China. We are optimistic to recover some of the losses over the next month. The top line outlook, of course, remains dependent on the underlying economic condition. We'll be likely monitoring our market and consistent dialogue with our customers. Generally, the market remains stable. Gross profit for our services segment decreased to €1.1 million from €1.8 million in the first quarter of 2018. This was mainly due to the lower utilization rate of the German service center for the reasons mentioned earlier. To meet the growing demand in the U.S., we continue to add additional 3D printers. As a consequence, depreciation expense increased. Looking now to the rest of the income statement on Slide 21. SG&A expenses was €3.1 million in the first quarter of 2019. This compares to €3 million in last year's first quarter. If we break this down, you can see that selling expenses decreased by 4%, but top line grew by 10%. This is good news. Administrative expenses increased as our ongoing costs related to being a now public company increased. Research and development expenses of €1.7 million or 31% of revenue. A large proportion of R&D expenses are related to VJET X and the upscale of new processes as Ingo highlighted earlier. Why do we continue to invest such high amounts into R&D while we could easily be profitable? We entered simple because we see a unique opportunity in front of us to establish a new manufacturing standard. We entered tester standard and become the leader in the field of additive manufacturing. We expect this to ultimately help us achieve manyfold growth and profitable and thereby, creating sustainable shareholder value. Operating loss was €1.9 million in the first quarter of this year compared to an operating loss of €2.4 million in the comparative period in 2018. While all of our growth initiatives had had instant payoff, we expect them to pay dividends over the long run. And we are pleased with the progress we have made in our trajectory going forward. Net loss for the quarter was roughly €2.8 million or 58% per ordinary share compared to a net loss of €1.7 million or €0.46 per ordinary share in the prior year's quarter. On an ADS basis, net loss was €0.12 per ADS in the first quarter of 2019 compared to a net loss of €0.09 per ADS in the first quarter of 2018. Earnings per share was significantly impacted by the noncash expense shown in financial results from the revaluation of the derivative financial instrument related to the Horizon 2020 venture debt program from the European Investment Bank. Prior to giving effect to this revaluation, loss per ADS would have been €0.09 in the first quarter of 2019 compared to €0.14 in the first quarter last year. Slide 22 shows selected balance sheet items. At March 31, 2019, the company had cash, cash equivalents and short-term investments and bond funds of roughly €18.7 million. Total debt on March 31, 2019, was €21.9 million. Total debt consists of €20.5 million of long-term liabilities, which includes €10 million from EIB Horizon 2020 venture debt program and €4.3 million of lease liabilities as a result of initially applying the IFRS 16 standard. These lease liabilities were previously classified as operating leases. Weighted average ordinary shares outstanding for the quarter were 4.836 million, which equates to €24.18 million ADSs. We continue to see opportunities to improve working capital performance, cash flow and our cash conversion cycle in 2019. I remain comfortable with our cash balance and overall liquidity position. We believe that our balance sheet with an equity ratio above 50% positions us well for the long term. Moving now on to Slide 23 and our revenue guidance for the full year, which remains unchanged from our last earnings call. For the full year 2019 revenue, we expect to be -- to achieve between €27 million and €30 million. The gross margin is expected to be about 40%. SG&A spending is expected to be in the range of €12 million to €12.5 million. And R&D spending is expected to be between €5.5 million to €6 million. Depreciation and amortization expenses are expected to be between €3.75 million and €4 million. CapEx spending for 2019 is projected to be in the range of €2 million to €2.5 million, which primarily consists of ongoing investments in our global subsidiaries. Adjusted EBITDA, which excludes the impact of foreign exchange valuation, is expected to be neutral to positive for the second half of 2019. Revenue for the second quarter 2019 is expected to be in the range of €5 million to €5.25 million. On Slide 24, we have summarized our projected long-term operating model. This concludes my remarks. And with that, we will now open the call for your questions. Operator?

[Operator:]

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Troy Jensen with Piper Jaffray.

[Troy Jensen:]

Ingo, maybe I'll start with you. In your prepared remarks, you talked about high-speed sintering being game changing, if I heard it correctly. I just want to know what your expectations are for game changing? I mean is this -- if you could talk just the insight into how this could help, like, kind of the revenue growth possibility? Or just kind of quantify some of this would be helpful.

[Dr. Ingo Ederer:]

Well, actually as we said before, the machine we are planning to establish is a production-type equipment with unrivaled performance. And we are also planning to include at least some of the post-processing automation, which we currently develop together with partners with VJET X solutions. So that's why we say this is game changing because the primary customers we're talking to, they're seeking whole production solution.

[Troy Jensen:]

And can you just talk about just the build envelope versus the competitor in High Speed Sintering? Is the interest is build envelope or the proprietary?

[Dr. Ingo Ederer:]

The build envelope is surely one of the differentiation points. But I think the overall productivity of the system together with the possibility for automation makes it a unique solution.

[Troy Jensen:]

And then just remind us of timing. So I know you're going to launch the system but as far as revenue is starting to materialize for the bigger production platform. When do you think that hits the income statement?

[Dr. Ingo Ederer:]

So actually you know we targeted to show the first machine by end of the year on the major trade show here in Germany. And we intend to show the first [indiscernible] in beginning of next year. So it is very likely that you'd see us recording revenue already next year for this type of solution.

[Troy Jensen:]

Okay. But how about... go ahead.

[Dr. Ingo Ederer:]

Rudi? Go ahead.

[Rudi Franz:]

Sure, as may I add a point, Troy. As we have laid out in the call, we have sold already various systems to large multiple organizations. I talk about HSS and the demand for a larger platform is pretty huge. And therefore, we expect once we have launched the platform we can collect additional orders quite easily.

[Troy Jensen:]

Okay. Good. Good luck with that. How about Rudi for you, I know you hit it on some of your prepared remarks, but services were down on a year-over-year basis. I guess I'm assuming, I've heard from others that European automotive vertical is kind of weak. But can you just touch on again why you thought services were down on a year-over-year basis?

[Rudi Franz:]

So services overall developed quite nice. The only market where we have seen a significant decrease was the French market. All other markets performed very nice, including the U.S., China and as well Germany. Germany, for sure, we have a lot of discussions with clients that the projects were moved. But we could see the pipeline with new clients. Main driver for the decrease is the French market. The French market really hit at us. And I believe that market should recover over the next month. And we should come back to growth levels even in the India region again.

[Troy Jensen:]

Okay. And last question for me. And I apologize if you said this in your prepared remarks. But can you give us a status update on the big partnership with the European automotive company?

[Dr. Ingo Ederer:]

Rudi, why don't you go ahead?

[Rudi Franz:]

Yes. I think this is a question for me. So the VJET X is currently on the first implementation of jobs in our factory. And we are planning to ship the first unit in a couple of weeks. One of those units on -- for display on the GIFA show in June. I don't know whether you'll come.

[Troy Jensen:]

Yes, I won't be there. But I will see you guys next week in Detroit. And wish you the best.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Ederer for closing remarks.

[Dr. Ingo Ederer:]

So through persistence, investments, R&D and relentless innovation, the advancements of today go well beyond that 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 the deal with the automotive OEM or this quarter's multi HSS systems related to another MNC. We enter 2019 with great momentum and a strong focus on executing our strategic targets. We have developed a scalable foundation on which to extend our leadership position in industrial 3D printing. The opportunities are all around the world always and we are ready to take them. Thank you for joining today's call, and we are looking forward to seeing many of you next week in Detroit at the RAPID Show. Thank you very much.

[Operator:]

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.