Q3 2023 Materialise NV Earnings Call

[music].

Okay.

Good day, and thank you for standing by.

Welcome to the Q3, 'twenty twenty-three materialize financial results conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one one on your telephone.

You will hear an automated message advising your hand is way.

To withdraw your question. Please press star one one again.

Be advised that today's conference is being recorded.

I would now like to hand, the call over to our first speaker for today, Let me please introduce Harriet fried of L. H H.

Thank you for joining us today for materialize This quarterly conference call.

This on the call are free on crime, founder and Chief Executive Officer of Materialise, Peter Leys, Executive Chairman and Kuhn Bachus, 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 third quarter of 2023 to.

To access the slides if you've not already done. So please go to the Investor Relations section of the company's website at Www Dot materialized dotcom.

The earnings press release issued earlier today can also be found on that page.

Before we get started I'd like to remind you that management may make forward looking statements regarding the companys plans expectations and growth prospects among other things.

These forward looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed in.

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.

More detailed description of the risks and uncertainties and other factors that may impact the companys future business or financial results can be found in the company's most recent annual report on form 20-F filed with the SEC.

Finally management will discuss 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 I'd like to turn the call over to Peter Leys Go ahead. Please Peter.

Thank you <unk> and thank you everyone for joining us today.

As always you can find the agenda for our call on slide number three.

First I will summarize the highlights of our financial results for the third quarter of this year.

Then our bonds the floor immediately to cool.

We'll go through our third quarter numbers in more detail and after that.

Rich will give you some insights on the dynamics of the changing landscape of additive manufacturing software.

And also on the exciting upcoming changes within our company materialize.

Finally, I will come back and explain what we believe the rest of the year will bring.

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 four which summarizes the highlights of.

The previous quarter.

In the third quarter of 2023.

Recorded $16 1 million Euro in revenues, which represents a growth of 3% compared to last year's periods and this in spite of the difficult.

Economic circumstances.

Our adjusted EBITDA for the quarter increased by 55% to $7 9 million euro compared to $5 1 million Euro last year, representing an EBITDA margin of 13, 1%.

Our net results for the quarter amounted to 4 million euro or seven cents per share.

And with that I would like to now pass the floor to <unk>.

Thank you Peter.

Good morning, or good afternoon to all of you on this call.

Begin with a brief review.

Consolidated revenue on slide five.

Please note that unless stated otherwise all comparisons in this call are against our results for the third quarter of 2022.

As mentioned by Peter revenue increased three 2% to $60 1 million Euro.

Over the past several months less favorable market conditions, mainly impacted our manufacturing segment, which decreased by 4%.

Operator: Good day, and thank you for standing by.

While our software segments remained stable.

Operator: Welcome to the Q3 2023 Materialise Financial Results Conference Call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Our medical segment on the other hand.

It's double digit revenue growth and grew by 13%.

Deferred revenue from software licenses and maintenance fees carried on our balance sheet amounted to $40 1 billion at the end of September.

Presenting a decrease of $2 7 million euro compared to the end of 2022.

Still up by $1 7 million compared to September of last year.

As you can see from the graph right materialized software accounted for 18% of our total Q2 revenue Materialise medical for 40% and Materialise manufacturing for 42%.

Operator: I would now like to hand the call over to our first speaker for today.

Harriet Fried: Let me please introduce Harriet Fried of LHA. Thank you for joining us today for Materialise's quarterly conference call.

Moving on to slide six you will see that our consolidated adjusted EBITDA numbers for the third quarter of 2020.

Harriet Fried: With us on the call, our free run crown, founder and chief executive officer of Materialise, Peter Leys, executive chairman, and Koen Berges, chief financial officer. Today's call and webcast are being accompanied by a slide presentation that reviews materialises strategic, financial, and operational performance for its third quarter of 2023. To access the slides, if you've not already done so, please go to the Investor Relations section of the company's website at www.materialise.com. The earnings press release issued earlier today can also be found on that page.

Consolidated adjusted EBITDA grew by seven two to $7 9 million Euro representing an adjusted EBITDA margin of 13, 1%.

Compared to $5 1 million Euro of adjusted EBITDA for the same period last year, which is an increase of almost 55%.

Despite the more moderate revenue growth this quarter, you were able to significantly improve our profitability.

Through our continued focus on scaling the effective cost control.

At the same time, we continued R&D investments in our growth businesses.

Harriet Fried: Before we get started, I'd like to remind you that management may make forward-looking statements regarding the company's plans, expectations, and both prospects among other things. These forward-looking statements are subject to known and unknown 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 management estimates as of today and should not be relied upon as representing their estimates as of any subsequent day.

Slide seven summarizes the results of our Materialise software segment.

Software revenue remained stable at $10 8 million Euro.

While recurring revenue from maintenance contracts and renewed licenses, including Korea subscription fees increased by 10%.

Revenue from nonrecurring sales on the other hand decreased 18%.

Selecting our continued transition to recurring business model.

Adjusted EBITDA for the third quarter increased significantly.

$4 2 million Euro.

Harriet Fried: 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 and uncertainties and other factors that may impact the company's future business or financial results can be found in the company's most recent annual report on Form 20F filed with the SEC. Finally, management will discuss non-IFRS measures on today's call. A reconciliation table is contained in the earnings release and also at the end of the slide presentation.

Last year to $1 8 million in Europe. This year, representing an improved adjusted EBITDA margin of 16, 5%.

Moving on then to slide eight you will see that the Materialise medical continues growing at a solid double digit pace of more than 13%.

With revenue increase coming both from medical software and for medical devices.

Software revenue grew by 10%, while our medical device business expanded by an aggregate of 50%.

Just ddos amounted to $7 1 million compared to $4 8 million Euro last year, resulting in improved adjusted EBITDA margin of 29, 4%.

Peter Leys: With that, I'd like to turn the call over to Peter Lase. Go ahead, please, Peter. Thank you, Harriet, and thank you everyone for joining us today.

Peter Leys: As always, you can find the agenda for our call on slide number three. First, I will summarize the highlights of our financial results for the third quarter of this year.

Now, let's turn to slide nine for an overview of the Q3 performance of our Materialise manufacturing segment.

Peter Leys: Then, I will pause the floor immediately to who will go through our third quarter numbers in more detail. And also that.

As mentioned earlier revenue decreased three 8% to $25 1 million Euro.

Harriet Fried: Fried will give you some insights on the dynamics of the changing landscape of adaptive manufacturing software, and also on the exciting upcoming changes within our company materialise.

Mainly due to a general slowdown the prototyping market.

Adjusted EBITDA for the quarter drops to $1 1 million euro representing an EBITDA margin of four 3%.

More challenging market conditions impacted the segment's revenue and gross margin.

Peter Leys: And finally, I will come back and explain what we believe the rest of the year will bring. When we've completed our prepared remarks, we will be happy to respond to any questions that you may have.

On the other hands with contained indirect costs and continued investments in our motion and eyewear business lines as planned.

Peter Leys: So let's turn to slide four, which summarises the highlights of the previous quarter. In the third quarter of 2023, we recorded 60.1 million euro in revenues, which represents a growth of 3% compared to last year's periods, and this in spite of the difficult economic circumstances. Our adjusted EBIDA for the quarter increased by 55% to 7.9 million euro compared to 5.1 million euro last year, representing an EBIDA margin of 13.1%. Our net results for the quarter amounts to 4 million euro or 7 cents per share.

Slide 10 provides the highlights of our consolidated income statement for the third quarter.

Gross profit margin increased to 56% compared to 55% last year.

Continued cost focus helped us to further reduce our operating expenses by $1 4 million euro or four 2%.

While sales and marketing and general and administrative expenses decreased respectively by 8% and 4%. We continued investing in increased R&D expenditures by 2%.

As a result of these factors. The group's operating result was positive at $2 3 million compared to a negative $1 3 million Euro last year.

Net financial income for Q3 was positive with $1 3 million Euro <unk>.

Koen Berges: And with that, I would like to now pass the floor to Koen. Thank you, Peter.

Including currency exchange gains of $4 6 million Euro in addition to growing interest income on our cash deposits, which are more than offsetting the interest cost on outstanding loans.

Koen Berges: Good morning or good afternoon to all of you on this call. I'll begin with a brief review of our consolidated revenue on slide five. Please note that unless stated otherwise, all comparisons in this call are against our results for the third quarter of 2022. As mentioned by Peter, revenue increased 3.2% to 60.1 million euro over the past few months, less favorable market conditions mainly impacted our manufacturing segment, which decreased by 4% while our software segment remains stable.

Net profit for the quarter significantly increased to 4 million euro or seven euro cents per share compared to a net profit of $1 4 million Euro two euro cents per share last year.

Okay.

Now please turn to slide 11 for a recap of our balance sheet and cash flow highlights at.

At the end of the third quarter of 2023, our balance sheet remains strong cash reserves amounted to 134 million euro while our borrowings position further decreased to $66 2 million Euro.

Koen Berges: Our medical segments, on the other hand, continued its double digit revenue growth in group by 13%. The third revenue from software licenses and maintenance fees carried on our balance sheet amounted to 40.1 million euro at the end of September, representing a decrease of 2.7 million euro compared to the end of 2022, but still up by 1.7 million euro compared to September of last year. As you can see from the graph on the right, materialized software accounted for 18% of our total fuel to revenue, materialized medical for 40%, and materialized manufacturing for 42%.

Resulting in an improved net cash position of $67 7 million Euro.

Cash flow from operating activities for the third quarter of 2023 decreased to $8 1 million euro compared to $3 8 million last year.

Mainly driven by strong EBITDA.

Working capital increased only slightly over the quarter by $1 3 million Euro.

Capital expenditures for the quarter amounted to $3 9 million Euro and included the completion of the new metal printing facility in the U S that we discussed in our previous earnings call as.

Koen Berges: Moving on to slide six, you will see that our consolidated adjusted EBDA numbers for the third quarter of 2023. We consolidated adjusted EBDA through by 7, grew to 7.9 million euro, representing an adjusted EBDA margin of 13.1%. Compared to 5.1 million euro of adjusted EBDA for the same period last year, which has an increase of almost 55%. Despite the more moderate revenue growth is quarter, we were able to significantly improve our profit bill, to continue to focus on scaling effects and cost control.

As well as further investments in the new active clients.

Also this quarter, none of our capital expenditures.

There are no finance.

And with that I'd like to hand over to fleet.

Thank you Glenn.

Good morning, or good afternoon to all of you listening to this call.

The steady bottom line performance.

Even in a quarter that discussed the economic.

The conditions of our industrial activities were unfavorable.

Firms.

Build to last nature of materialized.

In 1990, my wife, and I found it materializes.

Koen Berges: At the same time, we continued R&D investments in our growth businesses. Like seven, summarizes the results of our materialized software segments. Software revenue remains stable at 10.8 million euro, while recurring revenue from maintenance contracts and reviewed licenses, including co-EM subscription fees increased by 10%. Revenue from non-recurrent sales on the other hand decreased 18%. Reflecting our continued transition to recurring business model. Adjust EBITDA for a third quarter increased significantly from 0.2 million euro last year to 0.1.8 million euro this year, representing and improved adjusted EBITDA margin of 16.5%.

By a desire to make use of <unk> printing.

And to make a difference with this technology.

Its applications.

So could contribute to a better and healthier world.

Thanks to many people around us all over the world.

That started sharing the dream.

To build a sustainable organization.

Colt materialized.

I noted in addition, a company that executes step by step.

On this mission of creating a better and healthier world.

We are proud of the results we achieved through relentless focus on meaningful applications of <unk> printing.

We are proud of the thousands and thousands of products, we upped improve through prototyping.

Koen Berges: Moving on then to slide eight, you will see that the materialized medical continued at growing as a solid double digit pace of more than 13%. The revenue increase coming both from medical software and from medical device solutions. Software revenue grew by 10% while our medical device business expanded by an aggregate of 15%. Adjust EBITDA amounted to 7.1 million euro compared to 4.8 million euro last year, resulting in improved adjusted EBITDA margin of 29.4%.

And we are proud about the thousands and thousands of patients we made to help you with patient specific instruments and implants.

And the best news is that the journey, we started will be continued in a sustainable way.

And the Bill to lost context. This means that we have to embrace change.

Preserving the core mission and values of materialize.

And we are in front of significant changes.

Both in our environment in the markets that we serve and the top management structure of materialize.

Koen Berges: Now let's turn to slide nine for an overview of the Q3 performance of our materialized manufacturing segments. As mentioned earlier revenue decreased 3.8% to 25.1 million euro, mainly you to a general slow down the prototyping markets. Adjusted EBITDA for a quarter dropped to 1.1 million euro representing EBITDA margin of 4.3%.

Let me address both aspects.

First.

The market.

And technology fundamentals.

While I continue to believe that three D printing is a slower evolution.

In some circumstances of the resolution are changing.

For many years.

The necessity of TD printing as a manufacturing technology was questions Martin.

Koen Berges: More challenging market conditions impacted the segments revenue and gross margin. On the other hand, we contained indirect costs and continued investments in our ocean and iron business lines as planned. Slide 10 provides the highlights of our consolidated income statement for the third quarter. Gross profit margin increased to 56% compared to 55% last year. Continued cost focus helped us to further reduce our operating expenses by 1.4 million euro or 4.2%. While sales and marketing and general administrative expenses decreased respectively by 8.4%, we continued investing and increased R&D expenditures by 2%.

Why would you choose three D printing was a key question to answer in order to build successful operations.

But today most companies.

Industrial sectors are convinced about the benefits that three D printing Cambrian.

That question has shifted to how can three D printing contribute to my success.

Am materials and printing processes.

<unk> technical fit.

In a multitude of applications.

But still need to be scaled to economic prosperity.

How to scale it.

Koen Berges: As a result of these factors, the group's operating result was positive at 2.3 million euro compared to a negative 0.3 million euro last year. Net financial income 43 was positive with 1.3 million euro including currency exchange gains of 4.6 million euro in addition to growing interest income on our cash deposits which are more than offsetting the interest costs on outstanding loans.

In a large extent related to the successful development of digital banking bullish for the business processes and the use of companies in general and for AAM production lines in particular.

Is that the scalability of three D printing currently hit another roadblock.

In the Ninety's and early 2000.

Koen Berges: Now profit for the quarter significantly increased to 4 million euro or 7 euro cents per share, compared to a net profit of 1.4 million euro or 2 euro cents per share last year.

Marketable partnership between Intel and Microsoft often referred to as winter played a pivotal role in propelling the compared to the industry to new Heights.

It provided a standard platform for hardware and software.

Koen Berges: Now please turn to slide 11th for the recap of balance sheet and cash draw highlights. At the end of the third quarter of 2023, our balance sheet remains strong. Cash reserves amounted to 134 million euro, while our borrowing's position further decreased to 66.2 million euro, resulting in an improved net cash position of 67.7 million euro.

Window established stable in ammonia ecosystem.

And despite occasional concerns regarding competition. This interoperability led to rapid search in software development.

Internet finance is range of applications.

It helped a robust user experience ushering.

Koen Berges: Cash flow from operating activities for the third quarter of 2023 increased to 8.1 million euro, compared to 3.8 million euro last year, mainly driven by a strong EBDA. Working capital increased only slightly over the quarter by 0.3 million euro.

Yeah.

Yes.

Yes.

Fast forward.

Date.

And we.

And I didn't escape cinematic dividend.

It's real.

And a myriad of platforms.

Their faces operating systems cloud computing providers Iot devices and more.

Koen Berges: Capital expenditures for the quarter amounted to 3.9 million euro, and included the completion of the new metal printing facility in the U.S, that we discussed in our previous earnings call, as well as further investments in the new active plants. Also, this quarter, none of our capital expenditures were externally financed.

This diversity offers users a wealth of options and flexibility, but it also introduces complexity and escalated costs.

In the context of <unk> printing.

Inherently digital technology this complexity can be particularly problematic.

Wilfried Vancraen: And with that, I'd like to hand over to Fritz. Thank you, good morning or good afternoon to all of you listening to this call. A steady bottom line performance, even in a quarter where the economic conditions of our industrial activities were unfavorable, confirms the build to loss nature of material.

The company's industry do blending industry must commit resources to ensure that their printers and accompanying software.

Our compatible with an area of devices operating systems and file formats.

Did.

Does not only cost to incur costs.

But also divest resources that could otherwise be channeled into innovation and growth.

Wilfried Vancraen: In 1990, my wife, Bill and I founded materialized, driven by a desire to make use of 3D printing and to make a difference with this technology. Its applications, we thought, could contribute to a better and healthier world. Thanks to many people around us, all over the world, that started sharing the dream, we were able to build a sustainable organization called materialize. An organization, a company that executes step by step on this mission of creating a better and healthier world.

And as such this complexity may hinder growth of the three D printing industry.

Interoperability and compatibility are Paramount.

And as a consequence, the advent of distributed manufacturing is delayed.

With our heavy investment in corium.

Our digital manufacturing platform <unk>.

Materialise has risen to meet these challenges.

Putting manufacturers and open software platform to manage scale and standardize their production workflows.

Our gross integrate supply chain and diverse environments.

Wilfried Vancraen: We are proud of the results we achieved through relentless focus on meaningful applications of 3D printing. We are proud of the thousands and thousands of products we helped improve through prototyping. And we are proud about the thousands and thousands of patients we made healthier with patient specific instruments and implants. And the best news is that a journey we started will be continued in a sustainable way. In a build to loss context, this means that we have to embrace change while preserving the core mission and values of materialize.

The vertical doesn't materialize the medical segment in particular demonstrates our good digital backbone from patient data open surgical planning to automated design using advanced tools in a global context.

Enable us to scale.

Economically.

We demonstrate it can happen personalized with respect for patient privacy.

In the cloud.

Also in June with the legal requirements of many different countries.

Wilfried Vancraen: And we are in front of the significant change, both in our environment, in the markets that we serve, and the top management structure of materialise. Let me address both aspects. First, the market and technology fundamentals. While I continue to believe that 3D printing is a slow revolution, design, and some circumstances of the resolution are changing. For many years, the necessity of 3D printing as a manufacturing technology was questioned by many. Why would you choose 3D printing?

I believe the slow evolution will continue.

And the theater lives will continue to play a leading role in this evolution.

The guidance of our new CEO.

We hit the <unk>.

Does that.

They get the joined materialized in 2016 with many years of experience in companies like Johnson, <unk> Johnson and uncertainties.

Already under her belt.

She took over the general management of the Materialise Medical segment from me at this time.

Over her tenure at the helm of Materialise medical.

She has grown this segment to become the most profitable.

Wilfried Vancraen: It was a key question to answer in order to build successful operations. But today, most companies and industrial sectors are convinced about the benefits that 3D printing can bring. Their key question has shifted to how can 3D printing contribute to my success. AMaterials and printing processes have proven their technical fits in a multitude of applications, but still need to be scaled to economic prosperity. The how to scale is in a large extent related to the successful development of digital backbones for the business processes and the user companies in general and for AM production lines in particular. It is there that the scalability of 3D printing currently hits another road road.

Of all the company segments today.

We are confident that under her leadership.

<unk> will continue its strength.

Build to last company.

But it hits it will provide continuity.

S over the last seven years, she delivered ample proof that you could guide her management team in delivering value to patients and other stakeholders in the medical device companies and hospitals.

In addition.

During all those years. She was an active member of the Executive Committee that she will lead from the first of January 2024 onwards.

In the Executive Committee, she will be able to rely on the stable team.

It has been in the operational leadership of materialize for many years.

We strongly believe that Bridget.

Executive Committee will continue to bring innovation innovative solutions due to materialize customer base.

Wilfried Vancraen: In the 1990s and the early 2000s, the remarkable partnership between Intel and Microsoft often referred to as Wintel played a pivotal role in propelling the computer industry to new heights. It provided a standard platform for hardware and software. Wintel established a stable and harmonious ecosystem and despite occasional concerns regarding competition, this interoperability led to rapid search in software development in an expensive range of applications. It helped robust user experience, ushering in data piece, and it was fast forward today.

She will provide an inspiring work environment that fosters personal growth to their employees.

Peter Hill than I have been preparing in coordination with the board for.

The current transition.

We are convinced that the renewed but highly experienced executive committee.

We'll be well placed to deliver value to the shareholders.

Basis.

And I will also remain closely connected to the strategic positioning of materialized as nonexecutive members of its board.

Well I will take over the presidency from created less.

Wilfried Vancraen: And we see at the night that this gave a dramatic difference. It's a real character by a mere yet of platforms, interfaces, operating systems, cloud computing providers, IoT devices and more. This diversity offers users a wealth of options and flexibility, but it also introduces complexity and escalated costs. In the context of 3D printing and inherently digital technology, this complexity can be particularly problematic. The company in the 3D printing industry must commit resources to ensure that their printers and accompanying software are compatible with an array of devices operating systems and file formats.

And I want to take this opportunity to thank Peter.

This formidable contributions to materialize.

It is thanks to Peter that's materialized was able to enter the U S stock market.

We have been able to fulfill all the legal requirements consistently.

Wilfried Vancraen: This does not only cost to incur costs, but also diverse resources that could otherwise be channels into innovation and growth. And as such, this complexity may hinder growth of the 3D printing industry, where interoperability and compatibility are paramount. And as a consequence, the advent of distributed manufacturing is delayed.

Our presence on the stock market has been an integral part of our strategy to operate as an independent platform and solutions provider in the many different markets that additive manufacturing cancer.

But British contributions go much further.

He has been instrumental to the performance of materialized, keeping the balance between our healthy financial performance and the diligence in execution of projects that contribute to our mission.

I believe that all of you who regularly participate in these quarterly calls.

That's appreciated.

The fourth driver, but also humorous communication that has become a trademark for materialize in its investor relations.

And I was certainly count on his continued input as I take over the presidency of the board.

As board members.

And I will be traveling the world in support of materialize in the years to come.

Wilfried Vancraen: With our heavy investment in Koen, our digital manufacturing platform, Materialise has risen to meet these challenges, offering manufacturers an open software platform to manage, scale and standardize their production workflows across intricate supply chains and diverse IT environments. The verticals of materialise, the medical segment in particular, demonstrates our good digital backbone from patient data over surgical planning to automate a design using advanced IT tools in a global context enables to scale AM economically. We demonstrate it can happen personalized with respect for patient privacy. In the cloud, also in tune with the legal requirements of many different countries.

Representing the company at major sales and industry events.

We remain committed to the value of that materialize will bring.

Build to last company to society.

Look forward to seeing some of you in just a few days at format.

Then we will have the opportunity to discuss.

The future in more detail.

Let me now pass the call back to Peter.

Thank you. Thank you so much fleet.

Yeah.

Currently.

With respect to our financial outlook, we continue to expect our full year revenues to be between 255 and 260 million euros.

And this in spite of the more challenging macro economic conditions that we're in.

When we reported our first quarter results in April.

We increased as you may remember the expected range of adjusted EBITDA for 2023 by 10% to.

Wilfried Vancraen: I believe the slow AM revolution will continue and materialise will continue to play a reading role in that revolution under the guidance of our new CEO, Brigitte DeVet.

Through an amount between 2008 and 32 million Euro.

To date.

We are maintaining that increased EBITDA guidance.

This concludes our prepared remarks.

Wilfried Vancraen: Brigitte joined Materialise in 2016, with many years of experience in companies like Johnson and Johnson and Assertis, already under her belt. She took over the general management of the materialise medical segment from me at a time. Over her tenure at the helm of materialise medical, she has grown this segment to become the most profitable of all the company segments today. We are confident that under her leadership, materialise will continue its tracks as a built-to-lost company.

This actually also concludes.

Our active participation in the quarterly calls with the Investor community.

I would like to thank everybody on the other side of the call.

The constructive relationship that we have built over the last decade.

It has been a pleasure and honor.

To engage in dialogues with you.

About one of my it and hopefully also your favorite topics the execution of the mission and vision of materialize.

Together with its fifth and Hilton I will continue to serve materialized and to support it gets it and the entire executive management team.

As a member of the board.

Wilfried Vancraen: Brigitte will provide continuity as over the last seven years, she delivered ample proof that she could guide her management team in delivering value to patients and all other stakeholders in the medical device companies and hospitals. In addition, during all those years, she was an active member of the executive committee that she will lead from the 1st of January 2024 onwards, in the Executive Committee she will be able to rely on the stable team that has been in the operational leadership of Materialise for many years.

I have full confidence.

But in this new constellation.

Materialized remains in good.

Safe and in novel Defense.

And with that operator.

I would like to open the call to questions.

Thank you at this time, we will conduct a question and answer session.

As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Or withdraw your question. Please press star one one again.

Please standby, while we compile the Q&A roster.

Okay.

Wilfried Vancraen: We strongly believe that Brigitte and her Executive Committee will continue to bring innovative solutions to the Materialise customer base. She will, as well, provide an inspiring work environment that forces personal growth to the employees. Peter Hill and I have been preparing in coordination with the board for the current transition. We are convinced that the renewed but highly experienced Executive Committee will be well placed to deliver value to the shareholders. Peter Hill and I will also remain closely connected to the strategic positioning of Materialise as non-executive members of his board, where I will take over the presidency from Peter Leys.

Yeah.

Okay.

Our first question comes from the line of Jacob Stefan from Lake Street Capital Markets. Your line is now open.

Okay.

Thanks Peter.

I just wanted to congratulate you guys on.

What you built in.

You guys have accomplished.

Forget I want to congratulate you on the new role as well look forward to working with you.

I just wanted to touch on kind of the medical device market.

Are the trends that youre seeing and.

If you could kind of help us think about what does the pipeline look like over let's say the next 12 months.

Hum.

Jayson Jacob sorry.

We see.

Robust demand for our.

Personalized instruments.

Wilfried Vancraen: And I want to take this opportunity to thank Peter for his formidable contributions to Materialise. It is thanks to Peter that Materialise was able to enter the US stock market and that we have been able to fulfill all the legal requirements consistently. Our plans on the stock market has been an integral part of our strategy to operate as an independent platform and solutions provided in the many different markets that additive manufacturing can serve.

Got it.

And in implants of course.

Hum.

We believe that we will be able to continue closing interesting contracts with medical device manufacturers.

At the same time.

The medical device industry is also a little bit yeah.

Affected by the current.

Economic situation.

Wilfried Vancraen: But Peter's contributions go much further. He has been instrumental to the performance of Materialise keeping the balance between a healthy financial performance and the diligence in execution of projects that contribute to our mission. I believe that all of you who regularly participate in these quarterly calls have appreciated the forthright, but also humorous communication that has become a trademark for Materialise in its investor relations. And I will certainly count on its continued input as I take over the presidency of the board.

And it's being careful in its investments.

Wait a little bit on the growth.

Of our software activities in medical.

It's.

Yeah.

It's not dramatic but at the same time it's.

It is.

Little bit going a little bit slower than we expected in the beginning of the year. When if you remember we were a little bit performing so it's a it's still a balanced view at the moment.

But we definitely hope that.

The economic activities for the medical device companies.

Wilfried Vancraen: As board members, Hill and I will keep traveling the world in support of Materialise in the years to come, representing the company at major sales and industry events. We remain committed to the value that Materialise will bring as a build to lost company to society and look forward to seeing some of you in just a few days at four weeks.

Pick up again.

Okay.

And maybe just in addition to your kind of the med device.

And then Implantables you know are there any other markets that you would kind of point to as areas of strength.

Or that are showing increasing interest in the medical segment.

In the medical segment Yeah.

Wilfried Vancraen: Then we will have the opportunity to discuss the future in more detail.

We have gone a couple of applications.

We are starting to bring to the market.

Peter Leys: And let me now pass the call back to Peter. Thank you. Thank you so much, Frit. Currently, with respect to our financial outlook, we continue to expect our full-year revenues to be between 255 and 260 million euros, and this in spite of the more challenging macroeconomic conditions that we are in. When we reported our first quarter results in April, we increased, as you may remember, the expected range of our adjusted EBDA for 2023 by 10% to an amount between 28 and 33 million euros. Today we are maintaining that increased EBDA guidance.

Uh huh.

Relating to for instance, mineralogy.

There.

We see.

Also opportunities for the personalization, especially in the context of human <unk>.

Judy.

And which we launched earlier this year our solution.

So personalization.

There is a fundamental tendency in.

In the medical device sector.

In which as you know we are well pleased with our complete platform of research tools later on solutions to support the rollout of the <unk>.

Personalized approaches.

Peter Leys: This concludes our prepared remarks. This actually also concludes my active participation in the quarterly calls with the investor community. I would like to thank everybody on the other side of the call for the constructive relationship that we have built over the last decade. It has been a pleasure and an honor to engage in dialogues with you about one of my and hopefully also your favorite topics, the execution of the mission and vision of Materialise.

In different surgical disciplines.

Okay.

Got it.

And maybe just on the software side.

Is there anything you can talk about that would help us.

Quite kind of quantify what percent of your customers are still kind of.

Nonrecurring revenue.

So how much is kind of walk to.

Convert over to recurring.

K Cup, let me take that one.

In our software revenue about 30% is a smell of nonrecurring and recurring part represents currently about 70% of our revenue.

Peter Leys: Together with Frit and Hilda, I will continue to serve Materialise and to support Brigitte and the entire executive management team as a member of the board. I have full confidence that in this new constellation, Materialise remains in good safe and innovative hands.

Gradually going up quarter after quarter.

Okay, Great that's very helpful.

That's all the questions I had.

Best of luck going forward here and congrats again guys.

Thank you Jacob.

Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Operator: And with that operator, I would like to open the call to questions. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Please stand by while we compile the Q&A roster.

Please standby for our next question.

Our next question comes from the line of Troy Jensen of Cantor Fitzgerald Troy. Your line is now open.

Hey, gentlemen, a big day today.

Detroit, Yes. It is.

Is that life is full of challenges.

Right.

For both of us for all of Us here.

Also wanted to say congratulations to treat and held up for all you guys have done for the industry. It's been fantastic working with you guys. So a preview I understand youre still going to be the executive chairman, but not the president.

Jacob Stephan: Our first question comes from the line of Jacob Stefan from Lake Street Capital Market. Your line is now open. Thank you for your day, Peter. I just want to congratulate you guys on what you built and what you guys have accomplished. And Brigitte, I want to congratulate you on the new roles well, look forward to working with you. You know, I just want to touch on kind of the medical device market.

And Peter you're just going to be a board member and no longer.

Active.

Well.

Troy actually I will be non executive chairman of the board so that will become our biggest separation between our board and the Executive Committee.

In the past these are rich people base inhibitor and myself, who are both in the board and in the Executive Committee.

Jacob Stephan: You know, what are the trends that you're seeing? And if you could kind of help us think about, you know, what does the pipeline look like over, let's say the next 12 months? Well, Jacob, sorry, we see real robust demand for our personal life, instruments and guides. And implants, of course. And we believe that we will be able to continue closing interesting contracts with medical device manufacturing. At the same time, the medical divide industry is also a little bit affected by the current economic situation and it being careful in its investments and that waits a little bit on the growth of our software activities in medical.

The governor rounds of materialized.

A little bit, but we see this as the next.

Step in the growth of the.

Yeah.

Sure.

Of the company.

Now what you guys will be missed thanks for all you've done.

Quick questions, where you guys are linked three D. I just wanted to get an update on where you guys are with kind of cloud based software and your thoughts on kind of.

That segment of the business.

Yeah.

Uh huh.

Yeah.

We continue.

Continue to invest in.

A couple of companies pick up the.

The cloud based solutions that we offer.

At the same time.

That is what my key comments.

The industry read about.

And we are confronted with the installation of the cloud environments in the business to business context.

It's actually a more difficult sale.

Just the winter.

Wintel based as I said.

The software programs.

Jacob Stephan: It's not dramatic but at the same time it is going a little bit slower than we expected in the beginning of the year when if you remember whether we were overperforming so it's still a balanced view at the moment but we definitely hope that the economic activities for the medical device companies will pick up again. Okay and maybe just in addition to kind of the med device and implantables, you know are there any other markets that you would kind of point to as areas of strength or you know are that are showing increasing interest in the medical segment.

One on the on a laptop.

Because those cloud environments are so different.

Uh huh.

The good thing is that we are really having our API our libraries.

There are compatible and that can be deployed in different server or cloud settings.

The bad thing is that of course, it requires a more intensive investment from our side in order to support all of those platforms.

And that's bad.

We are confronted with.

Some delays and some.

Issues in order to roll out.

More platforms.

But what is even more important is that companies are adopting what choices they have to make.

Jacob Stephan: In the medical segment, yeah we we have a couple of applications that we are starting to bring to the market relating to for instance phenomenology where we see also opportunities for the personalization especially in the context of tumor surgery in which we launched earlier this year a solution. So personalization is a we are well placed with our complete platform of research tools and later on solutions to support the rollout of the personalized approaches in different surgical disciplines.

In the economic environment that is not that favorable.

No doubt.

Uh huh.

A reason to postpone.

Okay understood Alright, then how about a question for Ken.

Can you just touch on deferred Rouse guys maxed out here at about $43 million or was that a couple of quarters sequentially declined I guess.

I would assume deferred continues to grow with our with the software is offerings, but.

Just could you help us out on that.

Your statement is correct Detroit, we did see.

Deferred revenue going down in the in the third quarter also in the in the second quarter.

But you have to take into account that there is a timing effect, though included in these numbers. If you look historically at our differed revenues numbers you will you will notice that we typically build up the fluids revenue in the first and the last quarter of the year and typically in the second quarter you see a depletion.

If you look if you compare to current number two.

Jacob Stephan: And you know maybe just on the software side, is there anything you can talk about that would help us you know kind of quantify what percent of your customers are still kind of you know that non-recurring revenue. So how much is kind of left to you know convert over to recurring.

End of the year, there is indeed to decline.

$7 million.

But if you if you're on the other hand compared to where we were in September of last year and take a full year cycle and they are still an increase.

About $1 seven.

Alien.

That being said the depletion in the third quarter was a bit higher than we than we anticipated and that is in our belief linked to the current economic situation.

Jacob Stephan: Jacob let me take that one. In our software revenue about 30% is now non-recurring and the recurring part represents currently about 70% of our revenue and it's gradually going up quarter after quarter. Okay great that's that's very helpful.

I think there's plenty of attention point desk as we move now into the fourth quarter, we should see.

Looking back at historic trends, the deferred revenue pick up again.

Understood guys. Congrats on really solid results given what we've seen from some of the other companies in this space here.

Jacob Stephan: That's all the questions I have. That's a lot going forward here and you can grab it again guys. Thank you Jacob.

Jacob Stephan: Bye.

Congrats to you and I look forward to seeing you guys next we can listen in Frankfurt.

Operator: Thank you. As a reminder to ask a question you will need to press star 1-1 on your telephone and wait for your name to be in. Now. Please stand by for our next question.

Excellent Troy will see you then.

Right.

Thank you. This now concludes the question and answer session.

I'd now like to turn the call back over to Peter Leys for closing remarks.

Thank you operator, and thank you all again for joining us on the call.

Troy Jensen: Our next question comes from the line of Troy Jensen, of Panther Fitzgerald. Troy, your line is now open. Hey, gentlemen, a big day today. Hey, Troy. Yeah, it is. Life is full of changes. It's certainly. It's certainly it's for both of us, right? For all of us here. Yeah, I also want to say, congratulations to Frieden Hill, but for all you guys have done for the industry. It's been fantastic. We're going to get it.

As we are entering the transition phase.

I would like to close this call bye.

Symbolically handing the floor to creditor.

Thank you Peter.

And good morning, or good afternoon to all of you.

I very much look forward to continuing the dialogue with all of you as of 2024.

Troy Jensen: So, for you do understand, you're still going to be the executive chairman, but not the president. And Peter, you're just going to be a board member and no longer active. Well, Troy, actually, I will be no executive chairman of the board, so there will become a bigger separation between our boards and the executive committee. In the past, we were with three people, Peter Hill and myself, who were both in the board and in the executive committee. So, the governance of materialise will change a little bit, but we see this at the next step in the growth of the maturity of the company.

Together with corn to investor conferences or one on one.

Virtual meetings or calls.

Upcoming fall next in November will hopefully give the chance to already meet some of you in person.

Thank you and goodbye for now.

Goodbye.

Hi.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Troy Jensen: Well, you guys will be missed. Thanks for all you've done, but I'll put a couple of questions where you guys link 3D.

Troy Jensen: I just let me get an update on where you guys are with kind of cloud-based software and your thoughts on kind of that segment of business. Well, we continue to invest and see a couple of companies pick up the cloud-based solutions that we offer. At the same time, that is what my key comments on the industry were about is we are confronted with a situation that the cloud environment in a business-to-business context is actually a more difficult sale than just the, yeah, window-based, as I said, software programs that run on a laptop because those cloud environments are so different.

Troy Jensen: And the good thing is that we are really having our APIs, our libraries that are compatible and that can be deployed in different server or cloud settings. The bad thing is that of course, it requires a more intensive investment from our site in order to support all those platforms. And that's where we are confronted with, yeah, some delays and some issues in order to roll out more platforms, but what is even more important is that companies are doubting what choices they have to make, and in the economic environment that is not that favourable, Dowd is a reason to postpone. Understood.

Troy Jensen: All right, then, how about a question for Koen?

Koen Berges: Can you just touch on deferred routes? Did you guys maxed out here at about 43 million and we've had a couple quarters sequentially, then it's declined? I guess I've just seen deferred continues to grow with the software's offerings, but it's going to help us out on that. Yeah, your signature is correct. Troy, we did see our deferred revenue going down in the third quarter, also in the second quarter, but you have to take into account that there is a timing effect, though, included in these numbers.

[music].

Koen Berges: If you look historically at our deferred revenues, numbers, you will notice that we typically build up the first revenue in the first and the last quarter of a year. Typically, in the second and quarter, you see a depletion. So if you compare the current number to the beginning of the year, there is indeed to decline to 0.7 million. But if you on the other hand, compared to where we were in September of last year and take a full year cycle, then there's still an increase of about 1.7 million.

Koen Berges: That being said, the depletion in the third quarter was a bit higher than we anticipated, and that is in our belief links to the current economic situation. And it's only an attention point as we move now into the fourth quarter, where we should see looking back at the historic trend, the deferred revenue pick up again.

Troy Jensen: Understood. Well, guys, you can grab this really solid results, give them what we've seen from some of the other countries in the space here. So, um, congrats to you, and I look forward to seeing you guys next week, and I'm in Franklin. Excellent, Troy. We'll see you then. See you. Thank you.

Operator: This now concludes the question and answer session.

Peter Leys: I would now like to turn the call back over to Peter Lay's for closing remarks. Thank you, operator, and thank you all again for joining us on the call.

Brigitte DeVet: As we are entering the transition phase, I would like to close this call by symbolically handing the floor to Brigitte. Thank you, Peter. And good morning or good afternoon to all of you. I very much look forward to continuing the dialogue with all of you as of 2024, together with coon through investor conferences or one on one virtual meetings or calls. Upcoming for next in November will hopefully give the chance to already meet some of you in person.

Brigitte DeVet: Thank you, and goodbye for now. Goodbye. Bye. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you. Peter Leys, Peter Leys, Harriet Fried, Jacob Stephan, Wilfried[inaudible][inaudible] Peter Leys, Peter Leys, Peter Leys, Peter Leys,[inaudible] Peter Leys, Peter Leys, Peter Leys, Peter Leys,[inaudible] Peter Leys, Peter Leys,[inaudible] Peter Leys, Peter Leys,[inaudible] Peter Leys, Peter Leys, Harriet Fried, Jacob Stephan, Alexander Craeymeersch,[inaudible]

[music].

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