Q1 2022 Materialise NV Earnings Call
Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Today's conference is scheduled to begin shortly please please continue to standby and thank you for your patience.
[music].
Good day and thank you for standing by welcome to the Q1 2020 to materialize financial results Conference call. At this time all participants are in a listen only mode at the speaker's presentation there'll be a question and answer session to ask a question during that session you will need to press star one on your.
Telephone please be advised that today's conference is being recorded and if you require any assistance during the call. Please press star zero.
I'd now like to hand, the conference over to your host today Ms. Harriet Fried Ms. <unk> you may begin.
Thank you everyone for joining us today for Materializes quarterly conference call with Us on the call <unk> founder and Chief Executive Officer of Materialise, Peter Leys, Executive Chairman and Johan Albrecht Chief Financial Officer.
Today's call and webcast are being accompanied by a slide presentation that reviews, Materialises strategic financial and operational performance for the first quarter of 2022.
To access the slides if you haven't already done. So please go to the Investor Relations section of the company's website at Www Dot materialized Dot com. The earnings release issued earlier today can also be found on that page.
Before we begin I would like to remind you that management may make forward looking statements regarding the companys plans expectations and growth prospects among other things.
Forward looking statements are subject to known and unknown certainties, uncertainties and risks that could cause actual results to differ materially from the expectations expressed.
Including competitive dynamics and industry change any forward looking statements, including those related to the company's future results and activities represent managements estimates as of today and should not be relied upon as representing their estimates as of any subsequent date.
Management disclaims any duty to update or revise any forward looking statements to reflect future events or changes in expectations.
A more detailed description of the risks uncertainties and other factors that could impact the companys future business or financial results can be found in the Companys. Most recent annual report on form 20-F filed with the SEC.
Finally management will discuss certain non <unk> measures on today's call. A reconciliation table is contained in the earnings release and also at the end of the slide presentation.
With that introduction I'd like to turn the call over to Peter Lee Go ahead. Please Peter.
Thank you.
And thank you everyone for joining us today.
You can find the agenda for our call on slide number three.
The first item on the agenda I will summarize the highlights of our financial results for the past quarter, and then I will pass the floor to Pete who will give you more context about the upcoming launch of our call.
Form at rapid.
After that Johan will walk you through our first quarter numbers in some more detail.
And finally I will come back to give you. Some brief observations about our current view on what the near term future may bring.
When we have completed.
Third remarks, we will be happy to respond to any questions that you may have.
So, let's turn to slide four which summarizes the highlights of our first quarter results.
We are pleased to report first quarter revenue of almost 53 million Euro.
Up 16% from the first quarter of 2021.
And driven by growth in all three segments and particular in Materialise manufacturing.
So and not and importantly, deferred revenue from maintenance and license fees increased by almost 3 million Euro.
Underscoring the strong sales performance in both our medical and software segments.
Our adjusted EBITDA for the quarter increased by approximately 2% to $5 4 million Euro and included the negative impact of our continued investments in link <unk>.
With these highlights I would like now to give the floor to fleet, who will walk you through the <unk> platform.
The floor is yours.
Good morning, and good afternoon, everyone.
While Gil.
Given the excellent and consistent performance.
Our manufacturing and medical segments would normally deserves some attention from me in this goal.
I wanted to focus fully on the launch of our new software products at rapid in mid May.
I am proud that the full launch of Magics 26.
You can place as planned.
Despite the war in Ukraine that a large portion of the development team is located.
After a week the stabilization.
One really escaping from the danger zone.
Our collaborators picked up the work again.
And diligently worked to the booth.
So that weekend.
It's an exciting and stable product.
Our customers.
The biggest innovation in message 26 is the incorporation of the Siemens, but a solid good.
This opens an entire range of new opportunities to our users.
They can make more adjustments to the original design files using gas operations doing.
The visibility of the filings.
On top of some productivity improvements for specific products. It has the advantage that the adjusted design data getting remain compatible with the BLM systems.
Easiest to used for post processing steps.
C&C milling operations.
Of course.
There are several additional new features which further enhances the productivity for our users such as a serious <unk>.
The nesting speeds increase.
However.
I'm most excited about alone.
You bet.
Platform.
On slide five.
As material.
We have heard over and over again.
There are different manufacturing and medical.
Section lines that the secret of a successful and profitable production line based on AAM is not an exception of material or a flawless.
The delivered three D printed finished parts.
That simply does not exist.
Despite all marketing claims.
Hardware manufacturers.
The success.
Defense on the skillful integration of design optimization, well controlled material conditioning.
And the process control.
And diligent execution of a wide variety of both processing techniques by well informed planners and operators.
The human factor in the success of fluently operating AAM production line cannot be underestimated.
But it does imply.
The huge risk and dependence on a limited number of knowledgeable experienced technicians.
The era of the great resignation.
That is one of multiple reasons why materialize is launching its goal.
Platform.
The EM platform provides an environment with skilled operators can be supported by a variety of collaborating software tools that increased efficiency.
It is a customer owned.
Platform.
That ensures that a good amount of the knowledge of the process vendors and operators can be captured.
Stuart and automated.
Central.
<unk> platform is the data Lake.
The structures of the information and secure access baidu right stakeholders.
First.
The collaborate this of the owner of the production line need access to a lot of the data and function of the skills and at <unk>.
But certain portions of the data can also be interesting for discipline is of Princess and both processing machines.
Insured and maintenance and proper machine functioning.
A qualitative data Lee is the basis for increased learning.
By data analytics, driven by the process blenders or artificial intelligence that can accelerate the learning.
Around the OEM data Lake is a variety of software tools that.
Ensure that Atlantica plan do check act or lowered cycle.
This.
Goldman to pro.
Election environment.
Can be performed in endless self reinforcing loops.
These tools cannot only for materialize and lead treaty.
Although we provide a comprehensive and integrated toolset.
But as it is a fully open system. They can also come from external providers.
We will announce the first external partners on the <unk> platform and traffic.
The data Lake.
And used by the different software tools that are needed to run a digital AAM production line.
It starts with the data input whether the storefront software.
That is fully launched at rapid gains in fuel efficient data input for internal and external AAM service operations.
Small and large companies.
Of course, it is also possible to directly link with existing ERP systems, such as dose from AP.
And three D printing is mainly economical in small cities or in one of a kind manufacturing conditions.
Ability to build first time right.
Paramount for economic success.
Therefore.
The importance of the tools that can be used in the planned phase cannot be underestimated.
It is here.
Materialise has a huge legacy with metrics and all of these modules such as automated support generation nesting simulation until.
We announced a new generation of tools for even more in depth preparation of bars in certified manufacturing environment with a new process a few of them.
And then another product launch.
We announced commercial availability as a threat.
Another launch is about the new workflow automation solutions.
That contribute to improved planning productivity.
Reducing the human factor drastically in the planning phase.
Consistent execution is key.
Key in the dual space and insured by the manufacturing execution system that can interact in a very human centric way with all the hardware and software tools that constitute the production lines.
That is precisely what linked treaty has created in a world of structured open base.
And this is now enhanced with additional components such as the build processes from materialized.
And again, we allow third parties.
Thanks to the software the data generated through the process.
Production space can be Vince.
<unk> data lake for constant monitoring and analysis.
Which brings us in the Czech face.
We have quality control is done with a variety of tools such as Penn side benches CMS measurements.
Metallurgical analysis tools.
And also dose generate data.
Data that needs to be saved and linked to what happened in the manufacturing process.
Bringing all this data together in the.
<unk> data Lake offering.
The opportunity for intense learning.
In order to optimize the process both for the optimal economic performance and minimum.
Environmental impact.
Our experience with artificial intelligence algorithms that serve the people setting up and operating the AAM production lines.
Hollister learning, while also consolidating the process knowhow in the data management system.
Given its user base comprehensive tool.
And experience <unk>.
Your line.
Neatly positioned to accelerate the use of <unk> production lines, and we will demonstrate the concept of traffic.
We hope to see you all.
And let me now pass the call to Johan.
Thank you Felipe.
I'll begin with a brief review of our consolidated revenue on slide six.
As a reminder, when would you purchase sales in our presentation, we mean revenues plus deferred revenues.
Also please note those numbers otherwise stated all comparisons in this call are against our results for the first quarter of 2021.
Revenue grew in all three segments in total by 16, 3% to 53 million Euro and excluded the positive effect will be increased deferred revenue.
Our software segment grew by 3% materialized political increased 13% and revenue manufacturing growth three members 26%.
This segments revenue from software products represented 31% over total revenue.
On slide seven you can see the dotcom.
Adjusted EBITDA grew by 2% to $5 million 443000 Bureau.
No.
Q4, 2031 earnings call, we mentioned that we would significantly increase investments in our growth businesses in general and ordering three deep.
<unk> in particular.
We believe this continued efforts with contribution to accelerated growth in the coming years.
This quarter's adjusted EBITDA also includes expenditures to support and relocate our Ukrainian employees, who have almost all continued working for us.
Please note that the higher cost of energy was offset by an improved usage of capacity and production efficiency gains.
As a result, our gross profit margin as a percentage of revenue increased 60 basis points to 54, 5%.
Slide eight summarizes the results of OMA to utilize software segment, which includes results opening treaty.
<unk> sales increased by almost 10% driven by an increase of recurring revenue from both our existing product lines and the addition opening through the program.
As a result of the deferral of a significant amount of sales revenue grew two 6%.
One 5 million Euro.
EBITDA was $1 9 million euro compared to $3 4 million and included the effect of our significant investments ending treaty.
Moving now to slide nine you will see the computerized medical continue growing at.
At a solid double digit pace.
Boosted by medical software sales grew by 27% Rev.
Revenue from medical devices solutions grew 12% driven by partner sales.
Adjusted EBITDA amounted to $3 2 million Euro.
EBITDA margin decreased to 17, 6% as the combined effects of continued investments in people and R&D to sustain our growth and new business lines.
And of the higher portion of revenue in our sales help complex implants of medical devices.
Now, let's turn to slide 10 for renewed review of the Q1 performance of our Materialise manufacturing segment.
Revenue grew 26% to $24 1 million Euro both our core manufacturing business lines, and our new accelerated growth business lines grew by more than 20%.
<unk> sales order intake looks promising for the revenue over the next few months.
Our robust revenue growth and improved gross profit margin resulted in a solid $2 6 billion Euro adjusted EBITDA representing Tom.
Of revenue.
Slide 11 provides the highlights of our income statement for the first quarter.
Gross profit margins grew to 54, 5% from 53, 9%.
Operating expenses increased $4 4 million euro or 17, 2% to 29 8 million with.
We significantly invested in our growth businesses, including linked treaty, especially in R&D and sales and marketing increased by almost 20%.
G&A increased 11, 8%.
These operating expenses also included the impact over our internal digital transformation project, whose first phases are expected to go live during the fourth quarter of 2022.
As a result of these elements. The group's operating result was positive $49 in judo compared to 219000 in last year's period.
Financial income for Q1 was 376000 judo compared to a net loss of $4 1 million in Q1 2021, when we have a $3 2 million euro impaired with costs.
The profit for the quarter increased to 127000 jewelry compared to a net loss of $3 6 million put in 2021 period.
Now please turn to slide 12 for a recap of balance sheet cash flow highlights.
The unbilled or first quarter of 2022, our balance sheet remains strong.
<unk> per month to 169 6 million euro compared to $196 million at December 31, 2021 to decrease included the effect of a call option exercise full acquiring 100% of the shares will clean treaty.
Borrowings position decreased by $5 6 million euro to almost 94 million euro with $21 million over the short term.
Total deferred revenue amounted to 42 8 million euro as compared to $38 3 million as of.
And last year.
Cash flow from operating activities for the first quarter of 2022 was 11.1 million euro compared to $4 2 million for the 2021 period this quarter, our operating cash flow consistent EBITDA of $5 2 million Euro while our working capital.
Leased four nine.
One 9 million Euro.
Capital expenditures for the quarter to $3 5 million Euro.
<unk> Peter.
Thank you Johan.
Encouraged by our good results of the first quarter, including the solid order intake of our manufacturing segment.
And further encouraged by the continued strong performance of our Materialise collaborators who are currently working in extremely difficult circumstances in both Ukraine and Shanghai.
We maintained our guidance for the full year.
At the same time however.
We are very much aware that the future is less certain today than what it was during our previous call just two months ago.
The continuing lockdowns and important economic centers in China.
And the escalating aggressive invasion by Russia and Ukraine.
Do have an impact on our people in these jurisdictions.
<unk> also negatively affect the global economy, including in terms of inflation availability of energy resources and supply chain disruptions.
It is possible that over the course of 2020 to our operations and results will be more impacted by the circumstances that what has indicated until to date.
We will continue to monitor and manage this delicate and unfortunately unstable situation as closely as we can.
And intend to continue to evaluate and update our outlook.
During our next quarterly call.
This concludes our prepared remarks. So operator, you can go ahead and open the call to questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Standby as we compile the Q&A roster.
Our first question comes from Jacob Stephan.
At Lake Street capital.
Your line is open.
Hey, guys. Thanks for taking my questions.
Just looking at the Cowen platform. It what are some of the cross selling opportunities you kind of see there and maybe if you could.
Quantify what percent of your software customers would be looking at this platform.
Well.
It is.
Clear that core platform.
Yes.
Pat first of all for several of our new <unk>.
Software tools.
Okay.
Operator.
In coordination.
To the OEM platform.
Yes.
As you indicate very well.
Cross selling will be possible.
Extensive user base of matches.
We expect that.
Specialty dose customers that operate a larger amount of machines will be interested in this.
In this platform.
Luckily materialize its position as the absolute leader.
With magic in the data preparation for largest.
Additive manufacturing service.
This organizations, both as external service bureaus or internal service bureaus in larger companies.
So we are very hopeful that reserve.
Reach.
Yes.
The potential amount of.
Yes.
The top layer of our of our customers.
Assume that.
The real interest is coming from from 20% approximately of the user base.
Okay great.
Maybe just based on the Russia, Ukraine conflict I remember a lot of the software engineers were kind of base in Ukraine do you have any.
Maybe early thoughts.
Product launch could be delayed a little bit or.
I guess what are your thoughts there.
As we indicated.
Yes.
The product launch is at this moment not delayed.
But.
We even managed to get all of the new components.
For full launch ready.
Rapid.
On top of.
The magic.
At the same time.
We want to make.
They add that this is the first version of the platform and that's still a lot of fun.
The development will be needed.
We will be able to deliver.
Yes.
Yes.
As of July .
Systems, although in general the implementation of such a system will take.
Lower from the customer side.
Okay. That's helpful.
Maybe just switching to gross margin quickly.
It looks like it was down a little bit sequentially you guys have some software sales in that deferred revenue.
Were counted as revenue in the quarter, but.
You expect that to tick up from 54.
In this quarter.
It's a kind of seasonality effect that we have into the first quarter in general in the first half year.
And this will also look to you already mentioned in our call.
Fourth quarter is that we expect.
With the growth.
Copeland withdrawals of B as we usually see in the second half of the UN and more in particular in the fourth quarter.
Okay great.
Great.
This quarter is that particularly we also are seeing.
Sure.
In this quarter, particularly more recurring sales, where you have higher deferred effect.
I guess, a temporary element that we don't see the same extent quarter after quarter.
Okay. That's helpful.
I'll hop back in the queue. Thanks for taking my questions.
Thank you.
Thank you.
Our next question comes from Noelle Dilts of Stifel.
Your line is open.
Hi, guys and thanks for taking my question.
Lastly, well hi, so it looks like first quarter results were sort of in line with your expectations based on your commentary in the presentation, obviously, a little bit below the street.
On the last call you mentioned that you have sort of expected.
<unk> and the growth business to pick up in the back half of the year. It looks like maybe they were a little bit higher than we expected could you maybe talk about the cadence of how youre thinking about the investment.
The growth businesses as we move through 2022 and into 2023.
Well thank you.
Basically there is no change in plan.
So we.
The investments that we anticipate are basically and people.
So recruitment takes place, yes, we have been able to onboard quite a few people already in the first quarter.
But we stick to our plan to continue to to regroup recruit fairly aggressively.
And still expect that that will continue to weigh.
On our EBITDA in the coming quarters.
Okay great.
And then could you maybe dive.
A little bit more deeply into what youre seeing in manufacturing on the industrial side and market perspective, but maybe what you are seeing particular strength versus maybe markets that are a little bit weaker.
Hello.
Actually in manufacturing.
Experience a very good strong market at the moment.
A lot of quote requests.
Yes.
We have no.
Not only.
Very good revenue in Q1, but we also had a very strong order intake in Q1.
Which normally should reflect in the strong performance of the manufacturing in Q2 as well.
Despite.
Walk in.
Despite the fact that that has for instance.
In fact on some plans of the gourmet gifts in Europe .
Due to the supply chain is interrupted.
But also some.
Supply chain interruptions from from China, We see this time.
<unk>.
Yes.
The product development.
So really continuing in the automotive sector.
We have a strong performance.
All of our <unk>.
Manufacturing activities.
Yeah.
Okay. Thank you very much I appreciate it.
Thank you. Thank you.
Our next question comes from Jason Celaeno of Keybanc.
Your line is open.
Alright, Thanks for taking my question.
Hey, Jason.
So nice to see.
Factoring segment.
The pre pandemic revenue level.
Im a little curious from a growth perspective.
How much of this is attributed to maybe.
Some of the higher inflation or higher prices.
Yes.
Yes.
We will not deny that there is.
A limited inflation effect, but.
I would qualify it as limited.
There definitely is a strong demand in the market at the moment.
Which allows too.
Really.
Good business at this time.
Okay, perfect and then.
Alright.
We mentioned in our comments as well.
Energy prices have pricing, whether they were offset by the capacity usage and productivity and efficiency gains.
The total Halloween to cope with that.
And to compensate inflation increase.
Okay perfect. Thank you and then I'm curious on the.
The strong order volume that you saw in the.
Quarter.
Any.
<unk> on whats driving that strength.
If it's maybe.
Some customers trying to get ahead of.
Potential increases inflation later in the year or or potential.
Supply chain disruptions.
Curious on any thoughts there.
Yes.
There'll be honest.
Thank you.
A key driver that people anticipate higher prices late in the year.
We are in a business, where there is a lot of on demand.
Factoring.
Small synergies in real.
On demand.
Prototypes I would say.
So.
I really think that the.
Economy.
Yes.
Yes.
The very slow years of new developments in in many sectors that division a new wave of.
New product.
Largest new product developments of which.
<unk> manufacturing sector.
And it's prototyping segment, but also in small certified manufacturing sales production in which we are very active is taking advantage.
Okay perfect. Thank.
Thank you for the color.
Okay.
Thank you Jason.
Yeah.
Thank you.
And again to ask a question you will need to press star one on your telephone. Please go to your question. Please press the pound key.
Our next question comes from Gregory Ramirez of Bryan Garnier.
Your line is open.
Yes, hi.
Thank you for taking my questions a couple.
A couple on my side.
The first one just to come back on the team.
Yes.
TRP triage between.
Inflation and project you could see gains.
Just wondering.
Okay.
Which points.
Would you be above.
Sure Mike.
Activity gains.
Let's take care of what's here sort of worst case scenario.
Can you imagine venture Petrov made some worst case scenarios for instance, if you're referring to.
Sure sure sure.
Okay narrowed GE next year.
Probably you can hedge yourself on that.
Price so.
Tricia can you just share, but what about next year.
So could you I mean.
Elaborate a bit on the <unk>.
The different moving parts.
Power materials, which would be involved.
Take the situation under control.
Second question is regarding the manufacturing business.
Could you.
Gives you a bit more details I would say on.
The state of the demand by industry.
What was it.
Alta performing.
The vision.
By industry and just the last question.
You're saying that your contribution.
<unk> revenue resistance.
For sure the renewal but could.
Could you just.
Give us.
Information about.
Without the impact.
Okay software I think issue.
Can I take the first question.
Related to inflation.
Of course, Gregory we don't have a crystal ball, we do not know what will happen in the next years, depending the whole situation in Ukraine, and the rest of the world will evolve.
We have seen the effects in Q1 of <unk> as we mentioned, we compensated by the gains in production efficiencies.
We think that based on what we see in the markets looked further escalate in the next few quarters, we will see that energy costs will be significantly.
Significantly more expensive than what we have seen in the past years, but we monitor that and we also try to mitigate.
But looking into our contracts with the energy providers looking for alternatives and to fix to a certain extent.
<unk> already so we have at least for this year.
I'm not going to say comp first put the three believes that.
Can keep the costs under control the other cost of course in terms of inflation.
No. They are still flying we also know that certain costs will increase with as we look down together also results sales teams to.
To compensate for.
The clients what to look for.
Focus on the phone.
<unk> points.
The insulation portion.
On them.
I'll pick their own manufacturing.
Asking what segments.
<unk>.
Manufacturing client base.
Performing divest.
There I can say that.
<unk>.
Okay.
Actually the situation is good.
All over.
The spectrum.
We mentioned last year already that.
We saw a positive evolution in.
For us the important markets.
Yes.
Industrial equipment.
Medical instrumentation.
And this has continued and we see even.
This year is.
Stronger.
Our presence in this market, which is important because it is our assessment.
Yes.
Let's call it our highest pricing.
I kept but at the same time.
Sure.
We haven't been.
Operating in this kind of calls for many quarters about the slow.
Take.
Automotive sector.
At least.
Yes.
On the site of the new product development.
<unk> now.
Good performance of the automotive sector as well.
<unk> allows us to bid on.
On the interesting projects in that sector.
Your final question Gregory related to the impact of the consolidation of <unk> in our.
The numbers as of January one 2022.
As you know we decided because it is not material no longer provides.
Separate numbers for <unk>, but we did give.
The results that link to the reported at the end of 2021.
<unk>.
Just to allow you to make a better assessment based on that in terms of revenue.
The linked to the business linked to any business.
Similar.
And in terms of contribution to costs.
We are as we had announced actually increasing our efforts there.
So.
The existing negative impact with the existing.
Business is even further influenced negatively if you want on the short term by an increased investment on our site.
I hope this this.
Response to the three questions that you posed Gregory.
Yeah. That's good thank you.
Sure.
Sure.
Thank you.
And I see no further questions in the queue I will turn the conference back to Peter Leys for closing comments.
Thank you Chris and thank you again, thank you all for joining us today.
We look forward as always to continuing our dialogue with you through investor conferences or in one on one virtual meetings or calls.
And if you'd like to schedule a meeting with fleet at the upcoming rapid.
In the U S. Then please feel to reach out and we will try to accommodate any requests that you may have.
Pleasure.
Thank you and goodbye for now.
This.
Today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
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