Q2 2024 Materialise NV Earnings Call
[music].
Okay.
Good day, and thank you for standing by and welcome to the Q2 'twenty 'twenty four materialize financial results conference call. At this time, all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session.
Speaker Change: I'll ask a question during this session you will need to press star one on your telephone.
Speaker Change: We'll then hear an automated message advising your hand as rates to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your first speaker today.
Speaker Change: Harriet fried of Allergan area.
Good morning, and thank you for joining us today for Materializes quarterly conference call with us on the call. Our Pirquitas did that Chief Executive Officer, and Crooned vouchers Chief Financial Officer.
Speaker Change: Today's call and webcast are being accompanied by a slide presentation.
Speaker Change: Abuse, Materialises strategic financial and operational performance for the second quarter of 'twenty 'twenty four.
Speaker Change: 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 Dot com.
The earnings press release that was issued earlier today can also be found on that page.
Before we begin I'd like to remind you that management may make forward looking statements regarding the company's 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.
Speaker Change: Including competitive dynamics and industry change any.
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.
Speaker Change: 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 company's 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 at the end of the slide presentation.
Speaker Change: With that introduction I'd like to turn the call over to he took the bet go ahead. Please greta.
Thank you Harry and good morning, and good afternoon, and thank you all for joining us today.
Speaker Change: You can find the agenda.
Speaker Change: For our call on slide three.
Speaker Change: First I will summarize the highlights of our financial results for the second quarter of 2024.
Speaker Change: And I will take you through some of the progress we've made in realizing our strategic priorities over the last couple of months and after that.
<unk>: I will pass the floor to <unk>, who will go into our second quarter numbers in more detail.
Finally, I will come back and explain what we expect the remaining months of 2024 to Britain.
<unk>: When we've completed all remarks, we'd be happy to respond to questions.
<unk>: Now looking at our key results for the second quarter 2024 summarized on page four I'm very pleased to announce that he performed strongly in all of our business segments and once again delivered profitable results this quarter.
<unk>: Looking at this quarters results.
We realized record quarterly revenue.
Speaker Change: $68 8 million.
Growing more than 6% compared to an already strong second quarter of 2023 and with growth in all segments.
We realized a gross margin of 57% in the second quarter, which is up from the first quarter of this year and in line with the comparable period of 2023.
Speaker Change: This solid performance enabled us to increase our adjusted EBIT to $3 9 million, representing five 6% of revenue while intensifying our investments in particular in R&D.
We generated a net profit of $3 9 million or seven years that's for sure.
Our net cash position at the end of the second quarter evolved to $67 5 million.
Speaker Change: Oh, I hope a $3 million from the beginning of this year.
Speaker Change: Quinn will elaborate further on these results in his remarks later in this call.
Moving now to slide five.
I am very pleased that again, we made progress in our strategic priorities and achieved critical milestones, including the expansion in new market segments, and the introduction of new technologies.
First of all we announced the acquisition of a company specializing in AI driven simulation technology with structural heart intervention.
Speaker Change: This acquisition will create growth opportunities in the medical segment and is an important milestone in our journey towards mass personalization.
The cardiovascular market.
Speaker Change: Structural heart market in particular is one of the markets, we would be targeting with our personalized solutions.
Structural heart disease, such as heart valve diseases pose.
Speaker Change: The substantial medical and economic change.
Speaker Change: They are the leading cause of cardiovascular illness and death worldwide.
Presently 47 million people are affected by heart health diseases, and this number continues to rise.
Speaker Change: By 2030, the global annual costs linked to the adverse outcome are expected to reach 70 billion USD.
Speaker Change: In the last two decades.
Speaker Change: Dimensions in structural heart, that's moved from open surgery to minimally invasive approaches repairing or replacing heartfelt catheters.
Speaker Change: This created a need for better visualization and planning of the intervention.
Speaker Change: Based on our Sweeny modeling and design capabilities, we developed and launched our mimics planner for structural heart into the interest in 2019.
Speaker Change: This tool offers clinicians and interactive solution to plan and prepare that puts you well.
Speaker Change: For example by taking certain measurements to choose the right size of the device.
And plan to how to best access to evolve that needs to be replaced without blocking any important structures.
Speaker Change: This makes the procedure more precise and efficient well ultimately enjoying better outcomes and safety for patients. Thanks to this personalized approach.
Speaker Change: The integration of the ups into our family of cardiovascular solutions is a natural progression of our mission in the structural heart space.
She also predicted stimulation technology complements Oh I'm in explorer.
Speaker Change: Adding advanced stimulation the predictable medical devices like heartfelt will interact with an individual patients unique I'm not to me.
Speaker Change: Integrating the field technology and domain Explainer will enable clinicians to plan, but taking anatomical measurements.
Speaker Change: And to stimulate the impact of the placement of the device, thereby enhancing the outcome of the procedure.
Speaker Change: I expect this acquisition to accelerate our strategy in the cardiovascular space.
Speaker Change: We'll certainly continue to update you on further progress in this space.
Speaker Change: The second highlights I'd like to spend some time on is the partnership with anthem that we announced at Rapids in June.
Speaker Change: This partnership will create opportunities for us to tap into the market operating cereal and she starts.
Speaker Change: And sometimes there's a lot of powerful new implicit modeling hurdle.
Speaker Change: And corresponding file format that can characterize highly complex high performance geometry, and a fraction of the size of traditional Amish baseballs.
Speaker Change: Our high performance product designs created an end up requiring time consuming translations for building preparation and production.
Speaker Change: [noise] materializes Nextgen build processor is a configurable software that translates larger income tax Treaty design falls into three principal instructions optimizing and managing the three D printing process from start to finish.
Speaker Change: By integrating and tops designs till midyear.
Speaker Change: Materialise Magics and next generation build processors do you see.
Speaker Change: Designs can be easily transferred natively to materialize metrics for fast high quality build preparation and splicing.
Speaker Change: Allowing manufacturers to accelerate the entire design for manufacturing process and enable the production of exports.
Speaker Change: It's impossible to predict.
Speaker Change: This is a significant development because the comp trends towards more complex larger three D. Printing vault is posing challenges it jumps up all sides and processing time.
Speaker Change: This in essence created a barrier for our industry and limited further growth.
Speaker Change: The collaboration between materialize and socks, Massachusetts area by enabling the processing of complex large design.
Speaker Change: And rapid.
Speaker Change: As an example, we showed the Sweden printed to Linda has produced for Watford.
Speaker Change: Global leader in innovative technologies and lifecycle solutions in the marine and energy markets.
Speaker Change: On its journey to enable carbon neutral shipping and energy production.
Speaker Change: Slot exploring innovative design to optimize the cooling before cylinder head.
Speaker Change: Keeping a 60% weight reduction compared to the original design.
Speaker Change: This new design also allowed the integration of the tenants subsystems into the final component, reducing assembly complexity and improving in performance.
Speaker Change: Previously the design complexity involved so I hope this innovative design made it impossible to really bring the bot using conventional our skills and technologies.
Speaker Change: Oh about combining and Pops design software with Materialise magics and Nextgen.
Speaker Change: Based on emphasis modeling it that's become impossible to three D printed book.
Speaker Change: We will now start onboarding customers in an early access program with Nikon SLM solutions being the first early access partner in this program.
Speaker Change: Now this partnership is an example of the type of collaborations our industry needs to unlock its full potential in the coming years.
Speaker Change: And this brings me to the third highlight.
Speaker Change: But it is an initiative to enhance industry wide collaboration.
Speaker Change: In my first six months as CEO I have urged the industry to unite in removing the remaining obstacles to three D printing adoption.
Speaker Change: Advancing our industry is possible, but to unlock the full potential we need collaborations.
Speaker Change: The collaboration with <unk> that I just talked about is one example of how together we can enabled industry growth.
Speaker Change: And there are many other ways to collaborate.
Speaker Change: In April we brought a large school bus industry stakeholders and customers together and our headquarters to discuss specific calibration ideas.
Speaker Change: The response was overwhelmingly positive.
Speaker Change: Very encouraged to push ahead with the various initiatives.
Speaker Change: Undoubtedly talk more about later this year.
Speaker Change: Now who will take you through the detailed financial results by segment.
Bridget: Thank you Bridget.
Bridget: Good morning, or good afternoon to all of you on this call.
Speaker Change: I'll begin with a brief review of our consolidated revenue on slide six.
Speaker Change: As a reminder, please note that unless stated otherwise all comparisons in this call are against our results for the second quarter of 2023.
Speaker Change: In this year's second quarter total revenue increased six 2% to $68 8 million Euro.
Speaker Change: Which is pretty good already indicated the highest quarterly revenue we have ever realize.
Speaker Change: We can report growth in all three of our business segments.
Speaker Change: Our medical segment turned in another very strong performance and increased its revenue by 13%.
Speaker Change: In spite of continued challenging market conditions impacting manufacturing and further conversion of our software business model also our manufacturing our software segments. Each grew by 2% in the second quarter.
Speaker Change: As you can see in the graph on the right side of the page Materialise manufacturing accounts now for 43% Materialise medical for 41% and Materialise software for 16% of our total revenue during the second quarter of 2024.
Speaker Change: Over the first half of 2024, we generated over 132 million euro of revenue.
Speaker Change: Which is one 3% above the strong first half of 2023.
Speaker Change: While we were still behind last year after the first quarter.
Speaker Change: The amount of deferred revenue on our balance sheet coming from software license and maintenance fees amounted to almost 44 million euro at the end of June 2024.
Speaker Change: On slide seven you'll see our consolidated adjusted EBIT and EBITDA numbers for the second quarter of this year.
Speaker Change: Consolidated adjusted EBIT increased to $3 9 million euro compared to minus $1 6 million euro for the corresponding period of 2023 and.
Speaker Change: In spite of significantly increased R&D investments this year, mainly in our medical and software segments.
Speaker Change: Our adjusted EBIT margin was five 6% compared to minus <unk>, 9% last year.
Speaker Change: Consolidated adjusted EBITDA for the second quarter amounts to $9 2 million euro increasing from $4 8 million in 2023.
Speaker Change: The adjusted EBITDA margin reached 13, 4% compared to seven 3% the prior year.
Speaker Change: It should be noted however that the second quarter of last year included the effect from an adverse arbitration awards, which amounts to minus $5 2 million Euro which was not the adjusted and the reported numbers at a time.
Speaker Change: Over the first half of 2024, we have generated $6 5 million euro or adjusted EBIT and $17 3 million of adjusted EBITDA.
Speaker Change: Moving on to slide eight you will notice that the quarter's total revenue in our Materialise medical segment increased us at almost 13% building further on an already strong revenue in 2023.
Speaker Change: This continued solid growth was generated by increased revenue coming from medical devices and services sales and by higher recurring revenue for medical software, which grew respectively by 19, 7%.
Speaker Change: Within our medical devices and services activity, we grew both in direct any partner sales.
Speaker Change: As a result of topline growth and of cost discipline. The adjusted EBITDA for the medical segment grew to $8 2 million Europe with an adjusted EBITDA margin that increased further to 29, 1%.
Speaker Change: Over the first half of this year, our medical segment realized the revenue of $54 3 million euro or.
Speaker Change: By 10% from last year with an adjusted EBITDA of $16 1 million Euro representing 29, 7% of adjusted EBITDA margin.
Speaker Change: Slide nine summarizes the results of our Materialise software segment.
Speaker Change: Second quarter software revenue grew by almost 2%.
Speaker Change: The impact of our further transition to a cloud and subscription based business model was more than offset by tail winds in our preprint segments.
Speaker Change: Recurring revenue from software maintenance of license sales, including OEM increased by 5%.
Speaker Change: On the other hand nonrecurring non recurrent revenue decreased by 6%.
Speaker Change: Over 70% of the revenue in our software segment is now considered to be recurring.
Speaker Change: 10 for an overview of the performance of our Materialise manufacturing segment.
Speaker Change: Also in the second quarter manufacturing operated in a challenging market environment, which was mainly reflected in continued low prototyping demands.
Speaker Change: Nevertheless, we managed to grow revenue by 2% compared to the second quarter of last year.
Speaker Change: Fueled by strong growth in Arctic and certified manufacturing.
Speaker Change: Here, we posted stronger growth in our aerospace emetic strategic focus areas.
Speaker Change: In spite of the topline growth and further realization of operational efficiencies cost pressure and less consulting income to lower adjusted EBITDA of $2 4 million Euro.
Speaker Change: Presenting an adjusted EBITDA margin of eight 2%.
Speaker Change: Over the first half of this year, our manufacturing segment realized the revenue of $56 4 million Euro.
Speaker Change: With an adjusted EBITDA of $4 million.
Speaker Change: Representing 7% adjusted EBITDA margin.
Speaker Change: Slide 11 provides the highlights of our consolidated income statement for the second quarter of this year.
Speaker Change: Our gross profit increased to $39 2 million euro representing in gross profit margin of 57%, which is stable compared to 57, 2% realized in Q2 of last year.
Speaker Change: Direct cost increases were offset by efficiency gains and mix effects.
Speaker Change: Our operating expenses in the quarter increased by $3 5 million euro or 10% in aggregate with the largest increase coming from higher R&D R&D spend which grew by 17% compared to last year.
Speaker Change: R&D investments were mainly focused on mimics platform development in our medical segment, and I'm corium and our software segments.
Speaker Change: Net operating income in the quarter was positive at $1 2 million euro compared to a negative minus $4 5 million last year.
Speaker Change: As I mentioned previously last year included the impact of an adverse arbitration awards.
Speaker Change: As a result of all of these elements. The group's operating result in the quarter was positive at $3 8 million euro compared to the minus <unk> 6 million in last year's periods.
Speaker Change: In Q2, our net financial income amounted to 1 million Euro.
Speaker Change: Including the positive currency exchange result of $4 3 million Euro.
Speaker Change: Interest income of $1 2 million euro from our cash reserves more than offset the interest expense on a gradually decreasing financial debt.
Speaker Change: Income tax expense in the quarter amounted to roughly minus 1 million euro and offset the financially.
Speaker Change: All of this results once more in net profit for the quarter equaling $3 9 million euro representing seven euro cents per share compared to a net loss of minus <unk> 5 million euro or minus one euro cent per share for the corresponding 2023 periods.
Speaker Change: Now please turn to slide 12 for a recap of balance sheet and cash flow highlights.
Speaker Change: In the second quarter of 2024, our balance sheet remains strong.
Speaker Change: Our cash reserve at the end of the quarter amounted to $125 5 million Euro.
Speaker Change: Loan and lease repayments reduced our gross debt to below 58 million euro.
Speaker Change: The resulting net cash position at the end of the quarter was $67 5 million up by more than 4 million compare to the position at the beginning of this year.
Speaker Change: Compared to the end of last year, our networking capital was reduced by $4 8 million Euro mainly as a result of reduced trade receivables and slightly higher trade payables, the leather partly being impacted by the recent capex investment that we make on the new active plants.
Speaker Change: In spite of the recent field acquisition that will weigh on the Opex in 2024 and into 2025, given the integration costs and further investments in its product portfolio.
Speaker Change: This concludes our prepared remarks, operator, we're now ready to open the call to questions.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: 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 to withdraw. Your question. Please press star one one again.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Troy Jensen.
Speaker Change: Of Cantor Fitzgerald. Your line is now open.
Troy Donavon Jensen: Yes, hi, Thank you congrats on the nice results here were getting Kuhn.
Speaker Change: Thank you Troy.
Speaker Change: Hey, so a couple of questions. If you don't mind, so I want to start with the acquisition I guess it'd be speak curious on like the size of the organization and I'm, assuming that's pre revenues right now, but I'm just.
Speaker Change: This opex increases potentially because of the new head count or somewhere else it would be helpful.
Speaker Change: Okay.
Troy Donavon Jensen: Let me first for my end Troy It tried to answer on the financial side of the acquisition.
Speaker Change: As you know we have not disclosed the purchase price.
Speaker Change: We also agree that with the sellers, but I can confirm that the transaction will have no material impact on our net cash position.
Speaker Change: Nevertheless, assess but he explained coming months will require further cash outs from our side as we will be at.
Speaker Change: Accompanying field since it's pretty growth and as such we will support the further R&D investments and working capital needs stable half.
Speaker Change: The integration of Philips will initially have a limited negative impact on our EBIT.
Speaker Change: Which we expect to gradually decrease in the coming months and over 2025 by further growing its revenue.
Speaker Change: And by further implementing cost synergies, but at least on the coming quarters that will that will still have an impact.
Speaker Change: As the heat to set that we at least in this year. It will be able to think we can absorb within the guidance that we communicated earlier.
Speaker Change: Maybe why.
Speaker Change: One other element.
Speaker Change: And that might help you.
Speaker Change: Food is.
Speaker Change: <unk> is a growth company.
Speaker Change: So yes, as Quint said further investments required and as such as a small addition to our family, but an important one in terms of the strategic importance in this market.
Speaker Change: Yeah understood when the when this does start to revenue is just going to go into the medical business.
Speaker Change: Or would this be <unk>, yes, yes, absolutely.
Speaker Change: So they'll go into medical you're saying.
Speaker Change: Yes.
Speaker Change: Okay, and then can you remind I guess my question is on the software. So can you remind me how much of the medical business now is the software.
Speaker Change: Ooh figure it out right. If you look at the <unk>.
Speaker Change: It's around 30% of the total medical revenue that is related to software.
Speaker Change: Okay Perfect and then also on the <unk>. It was nice to see it grow so kind of stuck to me in that kind of $10 million to $12 million range, but I think you said, 70% of revenues now are recurring.
Speaker Change: Yes, I'd be curious has that been growing kuehne and do you feel like we're at a stage now at a point, where it can actually start to see growth in the terms of our business.
Speaker Change: That isn't that is indeed going up quarter after quarter step by step I don't think we are at the end of the of the journey. There. So we will continue to see that conversion to the recurring business model continue for at least a couple of quarters.
Speaker Change: Dolby if reached and that we will probably never get to 100% but.
Speaker Change: It will be a gradual journey.
Speaker Change: It's going to continue in that.
Speaker Change: Continued to impact our top line in the coming.
Speaker Change: Quarters couple of years are saying in that.
Speaker Change: The timeframe I think we need to.
Speaker Change: Alright understood.
Speaker Change: So it's a slow hearing with the others ask questions, but congrats on the nice results.
Troy Donavon Jensen: Thank you Troy.
Speaker Change: Yeah.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Jacob.
Speaker Change: Hmm.
Speaker Change: Stephan from Lake Street Capital markets. Your line is now open.
Stephan: Hey, guys. Thanks for taking my questions I'll add to the congratulations as well.
Speaker Change: The solid quarter.
Jacob: Thank you Jacob.
Speaker Change: I guess first starting off here.
Jacob: Large kind of year over year improvement in medical segment EBITDA can you just remind us.
Speaker Change: Q2 of 'twenty, three why why EBITDA margins were down.
Speaker Change: Just 11%.
Speaker Change: On the EBIT on the medical segment specifically.
Speaker Change: Yes, yes.
Speaker Change: That is the impact of the arbitration award that was granted against US I think in May of last year and that was.
Speaker Change: Processed in the medical results and then also in our consolidated numbers in the second quarter of last year.
Speaker Change: Okay got it thank you.
Speaker Change: And then next question you know manufacturing returned to growth here this quarter, but you know prototyping demand, it's kind of been the weak spot in that segment I'm, just wondering kind of what youre seeing.
Speaker Change: The prototyping segment after a month of Q3 here and maybe how we can think about.
Speaker Change: In the years that it's a gradual process during which we will continue to add.
Speaker Change: In the new building further machinery.
Speaker Change: So it's not a one step.
Speaker Change: Media impact that you will see is a gradual increase over the coming months in the period of one or two years.
Speaker Change: Okay.
Speaker Change: Very helpful.
Speaker Change: I will hop back in the queue, but congrats.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to breakeven and event CEO.
Speaker Change: Thank you.
Speaker Change: And thank you all for joining US today, we look obviously forward to continuing to dialogue with you as always through our Investor Conference. Our one on one meetings or the various calls and certainly please reach out to us. If you have any further questions. Thank you and goodbye this to you all.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].