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Edited Transcript of VJET earnings conference call or presentation 15-Nov-19 1:30pm GMT

Q3 2019 Voxeljet AG Earnings Call

Friedberg Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Voxeljet AG earnings conference call or presentation Friday, November 15, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ingo Ederer

voxeljet AG - Founder, CEO & Member of Management Board

* Johannes Pesch

voxeljet AG - Director of Business Development & IR

* Rudolf P. Franz

voxeljet AG - CFO, COO & Member of Management Board

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Conference Call Participants

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* Troy Donavon Jensen

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to voxeljet AG Third Quarter 2019 Financial Results Conference Call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Johannes Pesch, Director of IR and Business Development. Thank you. You may begin.

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Johannes Pesch, voxeljet AG - Director of Business Development & IR [2]

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Thank you, operator, and good morning, everyone. With me today are Dr. Ingo Ederer, Chief Executive Officer; and Rudi Franz, Chief Financial Officer.

Yesterday, after the market closed, voxeljet issued a press release announcing its third quarter financial results for the period ended September 30, 2019. The release as well as the accompanying presentation for this conference call is available in the Investor Relations section of the company's website at voxeljet.com.

During our call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance upon them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission.

With that, I would now like to turn the call over to Ingo, Chief Executive Officer of voxeljet.

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [3]

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Thank you, Johannes, and good morning, everyone. Thanks for joining us today for our third quarter call. From a big picture point of view, we are executing well on our key goals of driving our technology into series production. Our sales funnel looks good, pretty impressive and our colleagues all around the world are working hard to turn these prospects into orders.

Backlog for 3D printers reached a record level at the end of October, with approximately EUR 5.6 million, and the fourth quarter looks like it could be even better than last year's fourth quarter. What's even more important, this would mean we would become EBITDA-positive for the quarter. We are really proud of the progress we have made launching new product and continuing to grow our business into new areas. It has been particularly exciting to see how research project turned into new products that can support critical demanding applications and address the challenges that are most important to our customers.

Let's turn to Slide 4. This year, we are celebrating our 20th anniversary and looking back at the multitude of exciting projects. Remember, we basically started in a garage in Munich and fast forward today, products made with our technology are flying in space, and we are implementing with VJET X, an additive manufacturing solution, for true mass production.

In our indirect parts segment, we address the need of our customers for production-ready solutions and start to commercialize high-performance products like VJET X.

In our direct parts segment, we have successfully entered the market for direct and functional parts with high-speed sintering. We have built on the knowledge we have accumulated in the development of VJET X. The HSS production solution, combined with new materials, should be a game-changing combination. We are very excited to present the prototype for the first time to the public at the next week's Formnext show.

On Slide 5, we have highlighted our unique selling propositions, which are strongly aligned with the growing trend for higher performance products across all of our end-use markets. We differentiate ourselves from competitors by build size, material diversity and speed. Our printing systems are modular, versatile and highly scalable and therefore, uniquely positioned to support critical demanding applications and address the challenges and needs that are most important to our customers.

Looking at Slide 6, and our integrated business model. It balances long with short sales cycles and helps us to maintain close relationships with our customers.

In our Systems segment, we manufacture and sell industrial-grade, high-speed, large-format 3D printing systems geared towards mass production of complex models, molds and direct parts. The primary target for this segment is to sell multi-systems contracts. In addition to that, we put a high emphasis on aftersales activities and are already seeing positive results from these initiatives.

In our Services segment, we operate these systems and facilities around the world to offer affordable on-demand access to our technology. The primary target for this segment is to sell large multiyear volume contracts. We are in advanced talks with several parties for such volume contracts all across the world. In addition to that, offering service is a great cash flow positive marketing tool to convince customers to purchase 3D printers.

Slide 7 shows our global sales network and production footprint. As you can see, we have reached an established position in all major markets in Europe, U.S. as well as China. We continue to expand our sales teams around the world by investing in sales leadership, additional application engineers and training. To complement this, we focus on educating our channel partners to ensure true global coverage.

On Slide 8, you can see some of the potential applications of our products and selected customers. Over the last 20 years, we have been working with leading companies from a variety of industries to produce parts that cannot be produced in any other way with traditional methods of manufacturing. In the automotive sector, for example, we support the manufacturing of the most complex engine components like cylinder heads or turbochargers to improve engine and overall vehicle performance. Meanwhile, we are also printing, for example, battery casings for optimized heating and cooling in electric vehicles. We anticipate significant opportunities for revenue growth across our portfolio of solutions for the remainder of 2019 and beyond.

On the right side of this slide, you can see an illustration of our new large HSS printer. We are very excited to present this platform for the first time to the public at the Formnext show in Frankfurt next week. This is really exciting news as we expect the new HSS printer to expand our addressable market considerably. Besides VJET X, this project has the highest priority in our R&D and manufacturing teams.

Let's start with the formal part of the presentation. I will begin with an overview of the third quarter results. Rudi will then provide a more in-depth view of our financials and our outlook for the fourth quarter of 2019. Following his comments, we will be happy to take your questions.

Let's turn to Slide 10 of the presentation and begin with an overview of the third quarter 2019. Revenue for the quarter was approximately EUR 4.4 million, which represents a 38% decrease compared to last year's third quarter. It sounds more dramatic than it is, especially because we had an exceptionally strong third quarter last year, where we shipped our largest systems to clients in Asia.

Let's break it down. Revenue from our Systems segment, which includes revenue from selling 3D printers, consumables and spare parts as well as maintenance, decreased 56% to EUR 1.6 million in the third quarter of 2019 from EUR 3.7 million in last year's third quarter. We delivered 3 new printers in this year's third quarter compared to 3 new printers in last year's third quarter. While the revenue from the sale of 3D printers was lower as we shipped smaller systems, the revenue contribution from aftersales activities increased.

We see a record level of backlog for 3D printers. This is very exciting as we received orders for all of our 3D printer platforms from the smallest of VX200 to the largest of VX4000 for the fourth quarter this year. I would also like to highlight that the gross margin contribution from the sale of individual 3D printers is stable and above 40%, in line with the guidance corridor we have given in the past. This is offset by overhead functions like purchasing or management roles in the aftersales department, which are included in the gross margin reported in the Systems segment. We are currently identifying options to improve the overall margin of our Systems segment by reducing overhead costs. Basically, we are looking at everything which is not helping us to deliver a better product to our customers.

Revenue from our Services segment, which focuses on the printing of on-demand parts for our customers, decreased 17% to EUR 2.8 million in the third quarter this year from EUR 3.4 million for the same quarter last year.

Let's look at the drivers. Demand from customers in Germany was fairly stable. This was offset by a drop in demand from French and Italian customers, who are mainly active as suppliers to the automotive industry. Revenue contribution from our service center in the U.S. slightly decreased as a result of lower call-offs from a volume contract for printed sand parts. Revenue contribution from our Chinese service center more than doubled as compared to the same period last year, which is excellent news. Revenue from the U.K. market increased as well and was mainly driven by higher demand for sand printed parts. Keep in mind, these parts are printed in the German service center and then shipped to the U.K. At our facility in Milton Keynes in U.K., we operate 2 VX1000 printers and 2 VX200 HSS printers.

Following a full analysis, we decided to consolidate the whole European 3D printing production in the German headquarters and cancel the lease of the Milton Keynes production facility. This will help to reduce overall cost and should lead to improved gross profit margins by realizing economies of scale in the German service center. As a result, a one-off expense of EUR 0.3 million is included in the cost of sales for the third quarter. In the U.K., we plan to expand our sales team and focusing on selling 3D printed parts and 3D printers.

Let's turn to Slide 11. Here, we can see that order backlog for 3D printers increased 82% over the last 4 months. This is excellent news, and in combination with the start of the commercialization of new products planned for next year, very encouraging. To remind you, we define backlog as firm orders for 3D printers.

Slide 12 summarizes the results. By looking at operating expenses, I would like to highlight, to stay ahead of the curve, we followed the strategic decision, which remains unchanged since our IPO in 2013 to add new technology and capabilities to further strengthen our unique portfolio of 3D printing solutions. After all, we are a technology company. We have significantly invested in innovation over the past 3 years, and we are beginning to see the outsized returns that can be generated through incremental investments. To be clear, as revenue is growing, we plan to reduce related R&D spending and keep it more or less on an absolute level at where it is now.

A question where we are often asked is what do you do with all the R&D dollars? It is important to understand that we are working at the forefront of technology and are inventing solutions to complex technical problems. We use this knowledge to build actual industrial 3D printers, which can have the dimension of a small house. We are a technology company, and we will continue to strengthen our position as a leader in the global AM industry.

Let's turn to Slide 13. As an excellent result of many years of research, experimentation, design and redesign, our team has developed a new high-volume production solution 3D printer for high-speed sintering in the VX1000 HSS. On this slide, you can see immediately what differentiates us from our competitors. We believe we can build large and faster 3D printers than anyone else in the industry. The new HSS printer has an effective build volume of 248 liters. This is, as we believe, 6x more than the largest printer of our closest competitor, which is already using a printhead-based 3D printing technology. With this printer, we can mass produce direct parts, other plastics for sports equipment, consumer goods, electronics and similar end markets. Some customers, among them are big U.S. sports equipment OEM, visited us recently and already got a preview of the new VX1000 HSS high-volume production printer.

We are actively working with several multinational companies from various verticals, including sports equipment and consumer goods, on the development and qualification of new materials. We are making great progress. Our strategy is simple: qualify new materials in mostly paid-for development projects and make sure that it works on our VX200 HSS platform, which was specifically designed for this purpose. Then when the large VX4000 HSS becomes commercially available, mass commercialize it. This approach resonates well with our customers, and the results are frankly outstanding. We expect the HSS production solution combined with new materials to be a game-changing combination.

We will have this printer at our booth for next week's Formnext show in Frankfurt. We plan to make it commercially available towards the end of 2020, and we anticipate to start to collect orders at next week's show.

On Slide 14, you can see an HSS part printed with PEBA materials. PEBA is found in the sports equipment market for damping system components and outsoles of high end shoes. It is also widely used in the manufacture of electric and electronic goods, such as electronic device casings and components. PEBA can also be used to make textiles as well as breathable films or nonwoven fabrics.

On Slide 15, you can see a picture and a link to a video showing the massive process unit of VJET X in action. We build on this knowledge as we finish the development of the new HSS printer. The HSS production solution combined with new materials should be a game-changing combination.

On Slide 16, we have summarized answers we are frequently asked by investors. Regarding VJET X, the first 2 VJET X units are printing at the automotive OEMs facility in Germany. Together with our partners, we are currently improving the process after the 3D printing to ensure reliable part quality. We are optimistic to get this done in the near future and expect them to book revenue for the first 2 VJET X units early next year. We also expect to receive an order for additional VJET X units. We are being approached by the other OEMs and Tier 1 suppliers. We are very keen to learn more about VJET X and its application series production.

We are often asked about the impact of e-mobility and reduced CO2 emission standards on our business. This is a very legitimate question as roughly 40% of our revenue is related to the automotive sector. The trend to e-mobility, stricter regulations for CO2 emissions and improved fuel efficiency means 3 things. First, the demand for hybrid vehicles is growing. Hybrid vehicles need more parts and higher complexity than single internal combustion engines. Second, the demand for super-efficient ICEs with lower CO2 emissions is growing as a result of stricter environmental regulations. Such engines have higher energy densities and need better cooling devices, which can only be made with 3D printing. This also applies to new battery and electric engine housings for e-mobility. Just recently, we have presented a 3D-printed housing for an electric engine at eMove360. This is one of the largest shows for e-mobility. Third, lightweight materials and design have always been an important topic in product design across several industries. The concept has been most important in aviation, but also in industries, where large rotating parts, like, for example, rotor blades of wind turbines are key elements of product design, and in automotive driving, the dynamics are a major consideration. The use of lightweight materials will significantly grow across industries. While the lightweight share is currently highest in aviation, we expect that automotive is massively increasing the lightweight share to 70% by 2030. This means more complex geometries printed with 3D printers.

To summarize, the trend to e-mobility, lightweight, improved fuel efficiency and more complex hybrid engines is good for 3D printing companies in general and even better for voxeljet, in particular. With VJET X, we can provide a solution for cost-efficient series production of such metal parts.

On Slide 17, we have highlighted some impressions of the eMove360 show. On Slide 18 summarizes our expected road map towards profitable growth.

With that, I would now like to turn the call over to Rudi.

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Rudolf P. Franz, voxeljet AG - CFO, COO & Member of Management Board [4]

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Thank you, Ingo, and good morning to everyone. Our aim is to deliver long-term value for our shareholders through attractive growth and stronger margins and optimal deployment of capital. Our full attention remains firmly on driving operational execution to deliver these outcomes.

I would like to begin by providing financial details and adding some additional context to our results before discussing our outlook for the rest of 2019.

Overall, demand continues to be good, and we expect to enter into additional large-volume contracts for 3D printed parts. Just 2 weeks ago, we were in China, and we had excellent meetings with existing and new customers, both on the equipment and service center side. Going forward, as new 3D printing systems start to contribute to revenue growth, we are optimistic to balance out some of the fluctuations in our Systems segment. As our installed base of 3D printers is growing, the recurring revenue portion continues to grow as well. This brings us in a position to enjoy the more predictable growth that recurring revenue will provide with us.

Based on our fourth quarter backlog and the discussion we had with our customers over the last weeks, we expect to see a new record in revenue in the fourth quarter and, with that, become EBITDA positive for the fourth quarter.

Turning to Slide 20. Our total revenue decreased 38% to EUR 4.4 million in the third quarter compared to EUR 7.1 million in the last year's third quarter. As Ingo mentioned earlier, the decrease is mainly due to lower revenue from our Systems segment, as we sold smaller systems in this quarter. For the fourth quarter, our backlog includes orders for all of our platforms from the smallest VX200 to the largest VX4000. This kind of seasonality is not atypical for our business and is accentuated this year by an increased economic uncertainty, especially in the automotive and automotive-related industries.

Gross profit and gross margin in the quarter were EUR 0.9 million and 19.5% compared to EUR 2.3 million and 32.5% in last year's third quarter. The decrease was mainly related to lower gross profit contribution from the Services segment as a result of the restructuring of voxeljet U.K., where we booked a one-off expense of EUR 0.3 million. Gross margin contribution from individual printer sales is about 40%. Because smaller printers were sold this quarter, the absolute gross profit was too low to cover the overhead expenses. Next quarter, we definitely look different, and we are looking to add options to reduce overhead cost in this segment.

The next slide shows our segment reporting for the quarter. On Slide 21, revenue from our Systems segment, which includes revenue from selling 3D printers, consumables and spare parts as well as maintenance, decreased 56% to EUR 1.6 million from EUR 3.7 million in last year's third quarter. Again, this is due to the reasons mentioned earlier. We sold 3 new printers in this quarter compared to 3 new printers in last year's same period. Systems revenue represented 36.9% of total revenue this quarter compared to 52.6% in last year's third quarter. Gross profit and gross margin in the quarter was EUR 0.4 million and 22.6% compared to EUR 1.2 million and 32% in last year's same period.

The gross margin contribution of individual printers is above 40% and in line with the guidance we have given in the past.

On Slide 22, Service revenue decreased 17.1% to EUR 2.8 million compared to EUR 3.4 million in last year's third quarter. The demand from German customers was almost unchanged, but we have experienced a significant drop in demand from French and Italian customers in the automotive sector. Revenue in services from China doubled. The U.S. was slightly weaker as the call-off from a volume contract was softer. We are carefully monitoring our markets and are in consistent dialogue with our customers. In the U.K., we saw an increased demand for printed sand parts, which is really good news. Remember, we print these sand parts in Germany and ship to the U.K. It was not an easy decision, but we concluded to stop 3D printing production in the U.K. and to consolidate all European 3D printing production in Germany's headquarters. We expect this to lead to improved gross margins as we achieve economies of scale in our German facility. The U.K. team now focuses on selling 3D parts and 3D printers. Gross profit from our Services segment decreased EUR 0.5 million from EUR 1.1 million in the third quarter of 2018. This was mainly due to the one-off charge related to the restructuring in the U.K.

Looking now to the rest of the income statement in Slide 23. SG&A expenses were EUR 3.3 million in the third quarter of 2019. This compares to EUR 3.5 million in last year's third quarter. Research and development expenses were EUR 1.9 million or 42.6% of revenue, which is definitely too high. A large portion of R&D expenses are related to VJET X and the large HSS production platform, as Ingo highlighted earlier.

Operating loss was EUR 3.5 million in the third quarter this year compared to an operating loss of EUR 2.8 million in the comparative period in 2018. Net loss for the quarter was roughly EUR 3.9 million or EUR 0.80 per ordinary compared to a net loss of EUR 3.8 million or EUR 1.02 per ordinary share in the prior year's quarter. On an ADS basis, net loss was EUR 0.16 per ADS in the third quarter of 2019 compared to a net loss of EUR 0.20 per ADS in the third quarter of 2018. This is based on weighted average number of ADS outstanding of 24.18 million for the 3 months ended September of 2019. Compared to the last year's same period, the number of ADS outstanding was 18.6 million.

On Slide 27 -- 24 to 27, we have prepared the same financial metrics for the 9-month period ended September 30, 2019.

Slide 28 shows selected balance sheet items. At September 30, 2019, the company had cash, cash equivalents and short-term investments and bond funds of roughly EUR 13 million. Total debt at September 30, 2019, was EUR 21 million. Total debt consists of EUR 20 million of long-term liabilities, which includes EUR 10 million from European investment Bank, the EIB’s

Horizon2020 venture debt program, and EUR 3.8 million of lease liabilities as a result of initially applying the IFRS 16 standard. Lease liabilities were provisionally classified as operating leases. Weighted average ordinary outstanding for the quarter were 4.836 million, which equates to 24.18 million ADSs.

I remain comfortable with our cash balance and overall liquidity position. We believe that our balance sheet with an equity ratio of roughly 60% positions us well for the long term.

Moving now on to Slide 29, and our revenue guidance for the full year. Full year 2019 revenue is expected to be between EUR 24 million and EUR 27.5 million. As we discussed earlier in the call, we expect to see an increase in revenue in the fourth quarter based on our backlog and expected customers' demand. Equipment is available in the relevant regions and the name behind every deal. Gross margin for the fourth quarter is expected to be above 40%. SG&A spending is expected to be in the range of EUR 12 million to EUR 12.5 million, and R&D spending is expected to be between approximately EUR 6.5 million and EUR 7 million.

Depreciation and amortization expenses are expected to be between EUR 3.75 million and EUR 4 million. CapEx spending for 2019 is projected to be in the range of EUR 2.0 million to EUR 2.5 million, which primarily consists of ongoing investments in our global subsidiaries. Adjusted EBITDA, which includes the impact of foreign exchange valuation, is expected to be neutral to positive for the fourth quarter of 2019. Revenue for the fourth quarter 2019 is expected to be in the range of EUR 9.0 million and EUR 12.5 million. On Slide 30, we have summarized our projected long-term operating model.

This concludes my remarks. And with that, we will now open the call for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Troy Jensen with Piper Jaffray.

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Troy Donavon Jensen, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [2]

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Maybe first for Ingo. I was hoping we could dive a little bit more into the high-speed sintering product launch here. I guess I'd be curious of ASP range. I think you had already mentioned kind of the timing of the revenue ramp. But also just channels, will this be a product that's sold through direct sales? Or you'll be working with partners and resellers to sell the product?

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [3]

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Thank you, Troy, for this question. As you're heard me saying, this is the very exciting time so we present the prototype version of this machine. We name it prototype since we are facing a further development phase beginning next year. And we are planning to have a bidder program available for the end of next year with outside customers. So this means if we are good, then we see first revenue impact by the end of next year. If it takes a bit longer then probably in '21. We believe that this product will change some of the applications and industries in future. It has definitely the opportunity to help us dramatically in our growth. And we do address new markets.

So and this comes then to the next part of your question. What is the right channel for this product? I think we have, with our existing channel and our sales force, a fairly good access to the automotive industry. So this is something where we can market the product already. For sure, we are thinking about other segments and other verticals and also thinking about other channels to address these markets. And as you may have seen, recently, we changed our organization slightly, and we have introduced a new director solely for -- responsible for the HSS sales, which is James Reeves. So we are, I think, addressing this change in our approach very fairly. And we will look forward to have him helping us in finding the right way to market this product.

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Troy Donavon Jensen, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [4]

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Okay. And then I know you called -- I'm assuming Nylon 12 is probably the first material this launches with and now you've called out PEBA. Can you just highlight any other materials in the pipeline? Is elastomers possible or metals or green metals, I guess, I was thinking but just that and other materials?

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [5]

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So this is a machine, mainly -- and technology, mainly suitable for polymer materials. I know that competitors are also thinking about ceramics or metals with it. We don't see this for this moment. So we focus on polymers. I think there's also a broad enough market for the polymer side.

The PEBA is a very nice and interesting material set, especially for the sports goods industry. You will see us probably launching this product with a different material so the PA 12, the nylon, this is, of course, the most important widely used AM material in polymers. But I think we are also very nice and very good in the polypropylene, which is a very important material in other markets. So one of them will probably be the key material where we sell the machine with.

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Troy Donavon Jensen, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [6]

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Okay. And then maybe if you just switch to sand casting. I know you're talking a lot of the growth is on the high-speed sintering stuff, but I would just love to get your thoughts on what's going on in the sand casting market. Seems like it's been exceptionally weak for you and your competitor. And also, the European automotive vertical, it sounds like it's bleeding into other countries now, the weaknesses. Just wondering if you think it bottoms here and gets better in 2020.

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [7]

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Well, yes, the automotive sector currently in the general is suffering from low sales and uncertainty in the market. While on the other hand, they need to develop, due to regulations, different engine concepts like the e-mobility or more CO2-reduced combustion engines. So on the one hand, we see this short-term impact on our part sales, for instance, that we have lower demand for our services from our Services segment. On the long term, I expect even higher demand because they need to develop further, and they need to develop their new engine concepts. So I'm quite optimistic for probably the next year beginning -- maybe not the beginning, but the next -- the second half of next year should have already an upturn because they need to develop new concepts here.

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Troy Donavon Jensen, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [8]

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Yes, understood. All right, guys, well, good luck with the launch, and I'll see you in Germany next week.

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [9]

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Perfect. See you next week.

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Rudolf P. Franz, voxeljet AG - CFO, COO & Member of Management Board [10]

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Thank you, Troy. Bye-bye.

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Operator [11]

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We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [12]

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As you know, at voxeljet, it is our mission to establish new manufacturing standards. For metal parts, we have introduced VJET X last year and signed a deal with a leading German auto OEM. For functional plastic parts, we are thrilled to launch our new VX1000 HSS printer at next week's Formnext show. In short, we remain on the offense and are very excited about the opportunities ahead. We are fully committed to make this fourth quarter the best in our history so far in terms of revenue and to become EBITDA-positive for the quarter.

Thank you for joining today's call, and we are looking forward to seeing many of you at next week's Formnext show in Frankfurt. Bye-bye.

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Rudolf P. Franz, voxeljet AG - CFO, COO & Member of Management Board [13]

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Bye-bye. Good weekend.

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Operator [14]

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Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.