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Edited Transcript of VJET earnings conference call or presentation 8-May-20 12:30pm GMT

Q4 2019 Voxeljet AG Earnings Call

Friedberg Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Voxeljet AG earnings conference call or presentation Friday, May 8, 2020 at 12:30:00pm 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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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the voxeljet AG Fourth Quarter 2019 Financial Results Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Johannes Pesch, Investor Relations and Business Development. Please go ahead.

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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, voxeljet's Chief Executive Officer; and Rudi Franz, voxeljet's Chief Financial Officer.

Yesterday, after the market closed, voxeljet issued a press release announcing its fourth quarter and full year financial results for the period ended December 31, 2019. The release as well as the accompanying presentation for this conference call is available in the Investor Relations section of the company's website at voxeljet.com.

During our call, we may make certain forward-looking statements about the company's performance, including expectations, expectations on results from our current order backlog. 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, including the risks and uncertainties caused by the current COVID-19 pandemic and the resulting uncertainty in the global economy. 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. Good morning, everyone. Thank you for joining us on our earnings call today. We ended the year 2019 with a new record in quarterly revenues. In addition, order backlog for 3D printers is now at its highest level ever as we see strong order inflow from customers in primarily Asia during the first month of 2020. While we see this as a very positive news for the company, the continued spread of the COVID-19 virus has and may continue to disrupt our operations and supply chain. So far, we have been able to mitigate any significant disruption, but any significant delay or limit in the ability of customers to perform or pay could impact our performance and cause other unpredictable events. We continue to monitor the impact of COVID-19 and intend to make the decisions necessary to ensure the safest environment for our employees as well as protecting our business as best as we can under the circumstances.

Before we go into the details of the fourth quarter, let's quickly recap what we do. Turning to Slide 5. We are in the business for additive series production. We design, manufacture and sell high-performance 3D printing solutions for cost-efficient manufacturing. We have invested significantly into our IP portfolio over the last years and now hold over 420 patents and patent applications. Going forward, we expect to benefit from the increased demand for solutions for additive series production. We anticipate to commercialize 3D production sales with multiple 3D printers each and sell large volume contracts for 3D printed parts.

On Slide 6, we have summarized some key factors on our company and how these helped us to establish excellent relationships with blue-chip customers from various industries. We differentiate ourselves from our competitors by build size, mature diversity and speed. Our printing systems are modular, versatile and highly scalable and, therefore, uniquely positioned to support critical demanding applications and address the challenges and the needs that are most important to our customers.

Products made with our technology are flying in space, and we are engineering with VJET X, a unique additive manufacturing solution for the true additive series production. With direct parts from High Speed Sintering, we have successfully expanded our addressable market and are very excited about the launch of the new HSS printer scheduled towards the end of 2020.

Looking at Slide 7 and our integrated business model. With this integrated approach, we can capture business either as 3D printer sale or on-demand printing contract.

In the service segment, we operate our own 3D printers in 3 facilities around the world to offer affordable on-demand access to our technology. The barriers to entry are very low as customers just need to send in the 3D data, and we will print parts for them. That is a great and easy way for our customers to understand new business opportunities in 3D printing. The short sales cycles and services help us balance the typical long sales cycles in our Systems segment.

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. Systems revenue also includes recurring revenue from the sale of consumables, maintenance contracts, upgrades and other aftersales activities.

On Slide 8, we have summarized the additive manufacturing market as we see it. The opportunities are raised, and we believe we are ready to take them.

Slide 9 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 focus on educating our channel partners to ensure global coverage.

Let's start with the formal part of the presentation. I will begin with an overview of the fourth quarter 2019 and full year results. Then I will offer a review of our significant accomplishments in 2019, which we believe have positioned the company well for profitable growth. Rudi will then provide a more in-depth view of our financials and our outlook for the first half and full year 2020. Following his comments, we will be happy to take your questions.

Turning to Slide 11. We are getting grip on it. We had a very strong fourth quarter with a new record in both total and Systems revenue. We had significant new customer wins, both in Germany and internationally. What's even more exciting is the level of order backlog for 3D printers. At the moment, it stands at EUR 8.4 million. This is more than 2x higher than in previous quarters and an absolute record. Remember, we define order backlog for 3D printers as firms sign contracts from third-parties. This is excellent news and, in combination with the record number of printers sold in the fourth quarter of 2019, very encouraging. As the recurring revenue portion continues to grow, we are well positioned to enjoy the more predictable growth that recurring revenue will provide us with.

Turning to Slide 12. Revenue for the quarter increased 11% to EUR 9.6 million. This is a new record in terms of revenue, and so far, the best quarter for printer sales.

Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, increased 39% to EUR 7.3 million in the fourth quarter of 2019 from EUR 5.2 million in the last year's fourth quarter. We delivered 6 new and 5 refurbished printers compared to 10 new and 2 refurbished printers in last year's fourth quarter.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, decreased 32% to EUR 2.3 million in the fourth quarter of 2019 from EUR 3.3 million for the same quarter in 2018.

Revenue contribution from our service centers in the U.S. and China was stable quarter-over-quarter. We saw a significant drop in revenue from the European service center. The situation has improved over the first few months of 2020, thanks to one large order from a supplier to a leading U.S. electric carmaker.

Gross profits in Systems segment increased to 35% as a result of higher utilization in general and a different product mix. We sold larger platforms, which usually generate higher gross profit margins. Gross profit contribution from the sale of 3D printers was above 40% and from consumables above 50%. One of the reasons why we have invested continuously into our IP is that when you have IP, you have a gross margin.

We plan to improve the gross margin contribution from service and maintenance within our Systems segment by reducing head count.This program has started in February 2020 and should bring overall Systems margin back to above 40%, in line with the guidance we have given in the past.

Gross profits in Services were impacted by lower utilization in Europe and higher depreciation expense as we installed a 4000 (sic) [VX4000] printer in our U.S. service center in the third quarter of 2018.

Turning to Slide 13. Revenues for the full year 2019 decreased 5% to EUR 24.6 million from EUR 26 million in 2018. If you break this down, we can see a healthy growth in Systems revenues of 10%, while revenues from our Services segment decreased by 19%.

Looking at gross profits for the full year, the decrease is mainly due to the lower utilization of European service center, onetime expenses related to the restructuring in the U.K. and higher depreciation expense as additional equipment was installed in our U.S. service center at the end of the third quarter 2018.

Slide 14 summarizes the results for the fourth quarter 2019: America, stable; Europe, weak; and Asia, strong.

Looking at OpEx, we firmly believe that recent R&D investments will carry a high return for us as we commercialize new and upgraded products. The increase in administrative expenses is driven by onetime nonrecurring higher legal and auditing fees related to the extra loop we had to do with the auditors in connection with the EIB loan covenant.

Looking at Slide 15 and some of the underlying long-term market drivers. I would like to highlight some of them: First, 3D printing will become a mainstream technology for series production. This is exactly why we started the company 20 years ago and why we have invested a significant amount of time and resources into research and development. We are now reaching an inflection point and the number of parts that are actually going into production is increasing exponentially. Just take VJET X and the project with the automotive OEM as an example. In a few years from now, you will see a lot of OEMs, other suppliers and contract manufacturers that have scaled up considerably and have hundreds of these systems on their floor producing parts with long-term contracts for production.

I'm fully convinced that our hybrid approach for metal part production, the combination of 3D printing and materials used in conventional manufacturing processes has unique benefits as compared to other 3D printing technologies like binder jetting of metal powders or laser sintering. Keep in mind, specific AM materials like metal powders are much more expensive than materials used in conventional manufacturing processes easily by a factor of 10 to 15.

Second, the use of lightweight materials will significantly grow across industries. The share of lightweight materials is currently highest in aviation. And we expect that the automotive sector is massively increasing its use of lightweight components to increase mileage in conventional hybrid and electric vehicles. This is a huge opportunity for us.

Third, because most of AM machines are designed for prototyping and single-part production, they cannot be easily integrated into the shop floor. Integration requires machine controls that can be included seamless in the factory's manufacturing execution system and enterprise resource planning software. It does also require higher levels of automation to reduce manual work and comprehensive maintenance services, similar to those for other production machinery to reduce the number of costly production stops.

This means the integration of 3D printers into automated processes and workflows is critical. I believe we have gained a lot of knowledge in this area over the last years. Keep in mind, we are working with VJET X on the integration of next-generation 3D printers into mass manufacturing of mission-critical parts. We are not talking about gear knobs, control boxes or [cockpits].

This brings us to Slide 17 and our long-term growth drivers. In High Speed Sintering, or HSS, we combine the advantages of 2 existing additive processes, final part properties from selected laser sintering and high throughput from binder jetting. The development of the new production scale HSS printer is progressing as planned. The most critical step is to make sure to have a stable temperature across the build area. This becomes exponentially more challenging the larger the build area is. We believe we have found a clever solution for this problem and have filed IP accordingly. Now we are putting it all together to check if it works as anticipated.

Keep in mind, the new printer has a build volume of 250 liters, which should be 6x more than comparable products of our competitors. In addition, operating costs are low because only one ink is required, which means our customers save costs for consumables like detailing agents. We believe we can achieve high powder recycling rates with the HSS, which means non-sinter powder can be reused. This helps to reduce waste in production and keep operating costs lower.

With HSS, we increase our total addressable market significantly. We can now address new customer groups and applications, which we could not address with our existing solutions. This includes customer active in the manufacturing of sports equipment like shoes, speakers, automotive interiors and exteriors, sealings, gaskets, valves, grippers and other consumer products.

Let's turn to Slide 18. We were asked by a nearby hospital if we could print visors for shields to protect doctors in their fight against the coronavirus. In less than 24 hours, we delivered the first batch of visors. It should also be possible to produce valves for respirators and other similar components. Once the big production printer is available, it can be used to produce any such things in high quantities in a very short period of time.

Slide 19 shows an HSS part printed in PEBA material.

Let's turn to Slide 20 and an update on VJET X. In October 2018, we collected the first order for VJET X. The customer is a leading German carmaker. The first 2 VJET X units are printing at the OEMs facilities since June 2019. We did a lot of batch testing early on. Now we are fine-tuning the settings and, together with our partners, making sure the integration of the printer into pre- and post-processing is working properly. This is a very critical step. Because of the coronavirus situation, it is hard to estimate when this will be complete but we are making good progress.

On Slide 21, you'll find some impressions and a link to VJET X in action. To summarize, a key focus that will create separation for us over the long term is our expertise in IP and binder jetting for additive series production. Ultimately, it is about becoming more productive at scale. The advancements of today go well beyond what we might have expected and the applications are widening in size and scope.

As I look forward from where we are, I see a journey with significant upside, leveraging the strength of our unique portfolio and unlocking value where it makes sense. I'm highly confident in our ability to execute on this.

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. Good morning, everyone. We are making significant progress as you can see by the new record in revenues for the fourth quarter last year. What is even more important, one of our long-term goals always was to work against the higher-order backlog for 3D printer. This makes planning easier, gives us more visibility and helps us to optimize internal workflow. I'm very happy to say that current order backlog for 3D printers is EUR 8.4 million, 2x higher than in previous quarters. That is an outstanding achievement. Keep in mind, we define order backlog as firm orders for 3D printers from external parties. The increase is primarily due to large orders from customers in Asia.

Regarding the impact of coronavirus, we are monitoring the situation carefully and have taken additional steps to protect our people and to make sure we can continue with our production. For example, no external people are allowed to enter our 3D parts production center in Germany anymore, and it's mandatory to wear masks and gloves at our facilities.

For those employees who are able to perform their jobs remotely, we have implemented an initiative to promote telework and staggered work hours to ensure that our employees can continue to effectively perform the roles even if the COVID-19 pandemic continues to require protracted remote working. So far, this is where we are busy at the moment. However, some of our customers have stopped their production, and we expect to see the impact of this in our Service segment in the upcoming months. The uncertainty remains high, and we are adjusting to new situations as they come.

As you know, we signed a loan contract of up to EUR 25 million with the European Investment Bank at end of 2017. The loan is a part of the joint initiative launched by the European Investment Bank Group in cooperation with the European Commission under Horizon 2020. Horizon 2020 is a new research and innovation program with roughly EUR 80 billion of funding and is geared towards breakthroughs, discoveries and world-firsts by taking ideas from the lab to the market. The EIB is the bank of the European Union and is owned by 28 member states. The first tranche of EUR 10 million was disbursed at the end of 2017. And we're currently negotiating the terms for a drawdown of the next tranche of EUR 8 million. We're making good progress.

Our fourth quarter earnings call was rescheduled as today -- to today. And we needed to delay the filing of our annual report for the fiscal year 2019 as we had to do an extra loop with the auditor. In addition to that, our internal procedures were delayed by the impact of COVID-19. The additional auditing procedures were triggered by noncompliance with the financial covenant in the finance contract by the EIB.

Because of the travel restrictions imposed as a result of COVID-19, a lot of the work required had to be performed remotely, which caused delays in our financial reporting process. We have disclosed the details of the EIB covenant issue and the result of the Audit Committee's review of the issue in detail in the company's SEC filing. We believe that we have a very good relationship with EIB and resolved the EIB covenant issue. The EIB granted us a waiver and a grace period until 31st March 2021, and we secured the previously unsecured loan by which it being our first bank loan charged on parts of our property in Germany.

I will now take you through the financials for the fourth quarter and full year 2019. After that, we are happy to take your questions.

Turning to Slide 23. Our total revenues increased 11.4% to EUR 9.6 million in the fourth quarter of 2019 compared to EUR 8.6 million in the last year's fourth quarter. This makes the fourth quarter of 2019 the best quarter in terms of revenue since we started 20 years ago, which is a very encouraging development and a great achievement for the whole organization. Gross profit and gross margin in the quarter were EUR 2.9 million and 30.1% compared to EUR 2.9 million and 33.3% in last year's fourth quarter. If you break this down, Systems provided higher gross profit margins as it's still the larger platform. This was offset by a drop in Service gross profit as a result of lower utilization of the European service center and higher depreciation expenses in the U.S. service center.

The next slide shows our segment reporting for the quarter. On Slide 24, revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, increased 38.7% to EUR 7.3 million for the fourth quarter of 2019 from EUR 5.2 million in last year's fourth quarter. We sold 11 printers in the fourth quarter of 2019 compared to 12 printers for the same period in 2018. Systems revenue represented 76% of total revenues compared to 61% in last year's fourth quarter. Gross profit and gross margin of our Systems segment in the quarter was EUR 2.6 million and 35.3% compared to EUR 1.7 million and 31.6% in last year's same period. This improvement was primarily related to a different product mix. We sold more of our larger platforms. Larger platforms usually carry higher gross profit margins than smaller platforms. The gross margin contribution from individual printers was about 40%, in line with the guidance we have given in the past. Cost of sales in Systems include EUR 0.3 million with restructuring charges recorded in fourth quarter of 2019. We have set up volunteer program to reduce headcount in Germany and collected positive feedback. Out of this program, we expect yearly cost savings of EUR 1.2 million to EUR 1.4 million, starting to become noticeable in the fourth quarter of 2020.

On Slide 25, Services revenue decreased 31.6% to EUR 2.3 million compared to EUR 3.3 million in last year's fourth quarter. Services profit decreased to 13.4% in the fourth quarter of 2019 from 35.9% in last year's same quarter. While the service centers in the U.S. and China were almost stable, we saw a significant drop in revenues from the European service center. Low utilization in the European service center in combination with higher depreciation expense in the U.S. leads to the low gross profit margin in fourth quarter of 2019. We are taking measures to reduce fixed costs and are optimistic to bring the gross margin back to above 40% when utilization picks up again. During the first month of 2020, we have received a significant order for printed parts in Germany. This is probably the last individual order we had received for printed parts in 3 years. Our customer is a supplier to a leading U.S. electric carmaker.

Looking now to the rest of the income statement on Slide 26. SG&A expenses were EUR 4.4 million in the fourth quarter of 2019. It's compared to EUR 3.4 million in last year's fourth quarter. Administrative expenses mainly included personnel expenses as well as consulting fees. The auditing fees doubled to roughly EUR 1 million as we are no longer an emerging growth company and are in the process of designing, implementing and operating the control and procedure documents as required by the Sarbanes-Oxley Act of 2002.

The increase in SG&A expense was driven by onetime nonrecurring higher legal and auditing fees related to the extra loop we had to do with the auditors in connection with the EIB loan covenant. The majority of our selling expenses are personnel expenses and distribution expenses, such as freight and commissions for sales agents.

Research and development expenses were EUR 1.9 million in the fourth quarter compared to EUR 1.6 million in last year's fourth quarter. Most of R&D expenses is related to VJET X and the new HSS printer. Operating loss was EUR 3.2 million compared to an operating loss of EUR 2 million in the comparative period last year. The increase in operating loss is mainly related to onetime legal and auditing fees. Net loss for the quarter was EUR 3.6 million or EUR 0.79 per ADS compared to a net loss of EUR 0.3 million EUR 0.06 in the prior year's last quarter. In addition to the onetime higher legal and auditing fees, the increase in that was primarily related to a noncash finance income in the financial year of 2018 of roughly EUR 2 million. This noncash finance income in 2018 was the result of the reevaluation of the EIB's strategy for us. We have provided the same presentation for the full year period ended December 31, 2019, on Slide 27 through 30.

Slide 31 shows selected balance sheet items. At December 31, 2019, the company has had cash, cash equivalents and short-term investments in bond funds of roughly EUR 11.8 million. Total debt at December 31, 2019, was approximately EUR 21.2 million. Of this, EUR 19.9 million are noncurrent. Long-term debt includes EUR 10 million for the EIB's Horizon 2020 venture debt program, EUR 4.7 million of loan agreements for the new office and production facility in Friedberg and EUR 3.6 million of lease liabilities as a result of initially applied the IFRS 16 standard. These lease liabilities were previously classified as operating leases. Weighted average number of shares outstanding for the quarter were 4.836 million, which increased to 24.18 million ADS.

Moving now on to Slide 32 and our revenue guidance for the first half and full year. Full year 2020 revenue is expected to be between EUR 26 million and EUR 30 million with gross margin expected to be above 40%. SG&A spending is expected to be in the range of EUR 13 million to EUR 13.25 million. And R&D spending is expected to be between approximately EUR 5.75 million and EUR 6.25 million. Depreciation and amortization expenses are expected to be between EUR 3.75 million and EUR 4 million. Cash -- CapEx spending for 2020 is projected to be in the range of EUR 0.5 million to EUR 1 million, which primarily consists of ongoing investments in our global subsidiaries. Adjusted EBITDA, which excludes the impact of foreign exchange valuation is expected to be neutral to positive for the second half of 2020. Revenue for the first half of 2020 is expected to be in the range of EUR 8.5 million and EUR 11.5 million.

Slide 33 summarizes our projected long-term operating model.

This concludes my remarks. With that, I will now open the call for your questions. Operator?

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Operator [5]

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(Operator Instructions) There are no questions at this time. I will turn the call back over to Ingo Ederer for any closing comments.

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Ingo Ederer, voxeljet AG - Founder, CEO & Member of Management Board [6]

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Thank you. 2019 was a transformational year for voxeljet as we successfully laid the foundation for future growth. We have been deliberate in putting in place the original -- organizational structure and capability to realize our long-term potential. These were the right decisions for the business long term. But to be frank, the trade-off has been lower profitability in the short run.

Wrapping things up here, I'm excited about both our progress and our prospects. We are especially thrilled with the strong increase in order backlog for 3D printers and the momentum this created in our organization. We continue to monitor the impact of COVID-19 closely and will adjust to new situations as they come. At the moment, all our 3D parts production centers and 3D printer production are operational.

Thank you for joining today's call. And we look forward to speaking with you again in our next call, which we expect to take place in August for the 6 months ended June 30, 2020.

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Operator [7]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.