Voxeljet AG (NYSE:VJET) Q4 2017 Earnings Conference Call March 30, 2018 8:30 AM ET
Johannes Pesch – Director, Business Development and IR
Ingo Ederer – Founder & CEO
Rudolf Franz – CFO
Rob Stone – Cowen & Company
Troy Jensen – Piper Jaffray
Greetings and welcome to voxeljet AG Fourth Quarter and Full Year 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mr. Johannes Pesch. Thank you, you may begin.
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, 2017. The release as well as the accompanying presentation for the 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.
Thank you, Johannes, and good morning, everyone. I want to thank everybody for joining us today on this Good Friday. This year marks the 5th anniversary since our IPO in 2013. Before, I start, I would like to remind those who might be new to our company about our strategy.
Turning to slide 7, we’ve guided nearly 20 years ago as a spinoff from technical university in Munich with a clear vision in mind to replace conventional production by constantly pushing technology boundaries. Today, I can say that we have may significant progress in this regard and we are quite optimistic that large OEMs and tier one suppliers are moving multiple our previous operating systems in their production.
Turning to slide 8 this vision translates into a powerful strategy with clear mission statement.
Slide 9 highlights our unique standing propositions which are strongly aligned with the growing trends for higher performance products across all of our end-user markets. Our printing systems are modular, [growth] as well and highly scalable and therefore uniquely positioned to support critical demanding applications and advance the challenges that are most important to our customers.
Our integrated business model is summarized on slide 10. In our System segment we manufacture and sell industrial grade high-speed large format 3D printing systems due towards mass production and complex models and nodes. In our Services segment, we operate these systems and facilities around the world which are summarized on slide 11 to offer affordable on-demand access to our technology. This proprietary technology is reshaping the way things are made and is truly disruptive to the traditional methods of manufacturing.
Let’s now start with the formal part of the presentation. I will begin with an overview of the fourth quarter and full year results. Then I will offer a review of our significant accomplishments to 2017 which have positioned well the company to strengthen our top-line growth and to offer our customers expanded services this year and beyond.
Next, I will highlight our growth drivers for the coming years. Rudi will then provide a more in-depth view of our financials and our outlook for the third quarter and full year 2018. Following his comments, we will be happy to take your questions.
Overall, I am pleased with our results for 2017. When I look back at the plans that we have made at the time of our IPO in October 2013 and at our performance at the end of 2017, then I can conclude we are on track both from a financial and from a strategic perspective.
From a financial perspective, we have signed a loan of up to €25 million with the European Investment Bank. The loan is part of a joint initiative launched by the European Investment Bank Group in Cooperation with the European Commission and Horizon 2020. Horizon 2020 is an EU Research and Innovation program with roughly €80 billion of funding and is geared towards breakthroughs, discoveries and world-firsts by taking ideas from the lab to the market. This is a great milestone for our company and will add additional firepower to our research and development initiatives in the years to come.
Strategically, we want to bring our 3D printing technology into a fully automated mass manufacturing. Throughout 2017, we have made significant progress towards this target and I am incredibly enthusiastic about the solutions in our lineup.
In 2018, we will continue the execution of our strategy so you can reasonably expect more innovations and more partnerships. But it is essential for our company’s evolution, I would also like to emphasize another important data through the execution of our strategy. The long-term success of our company only be measured by the quantity of our innovations but also by our ability to bring these to their full potential. This holds especially true to our System segment, which did not yet deliver the results we are expecting. In the current calendar year, we therefore intend to spend significant time and efforts on the main initiatives and collaborations that we have developed over the last several years and to bring these fully fruition.
Let’s turn to slide 12 of the presentation and begin with the highlights for the fourth quarter of 2017.
Revenue for the quarter was €6.1 million and basically flat compared to last year’s fourth quarter. I will explain the reasons for this in a minute. Revenues from our Systems segment, which includes revenues from selling 3D printer, consumables and spare parts as well as maintenance, decreased 20% to €3.1 million in the fourth quarter of 2017 from €3.9 million in the last year’s fourth quarter. We delivered 4 printers in last year’s fourth quarter compared to 6 in last year’s fourth quarter. We had everything in place to ship 2 more printing systems to Asia and another printing systems to South Africa. Since we did not release the necessary down payment, we canceled shipment.
As of now, we have a Systems backlog of roughly €4.4 million. Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, increased 27% to €2.96 million in the fourth quarter of 2017 from €2.3 million for the same quarter last year. We truly start to benefit from our global footprint and receive a steady increase in demand for our product all around the world.
Looking at gross profit in this segment I would like to highlight the following. While we are able to grow revenue in this segment by 27%, we also grew absolute gross profit by 59% to €1.4 million from €0.9 million in the fourth quarter last year. The gross profit margin in this segment increased to 47% from 37% in last year’s fourth quarter. As mentioned in prior calls, utilization is key to achieving better gross margins.
Turning to slide 13, revenues for the full year 2017 increased 4% to €23.2 million from €22.3 million in 2016. If you break this down, we can see a healthy growth in services revenues of 25%, while revenues from our Systems segment decreased by 12%.
Looking at gross profit for the full year, increased absolute gross profit by 36% to €9.4 million from €6.9 million for the same period last year. This equates to a gross profit margin of 40%, which is well within our guidance range. This is a rate of achievement; our approach will remain focused around the work that we can win at margins that represent the value that we deliver.
Slide 14 summarizes the results, I want to highlight two points. First, looking at the breakdown by geography, revenues in U.S. and Europe increased by 656 and 417 [ph] basis points in 2017 compared to last year’s period. This was offset by a decline in Asia as a result of the reason mentioned earlier. Our operation in the U.S., which profitability in the last year’s quarter, in the last quarter of 2017, which is a great achievement. Each of these geographic regions obviously react differently, but we are gaining traction. From a go to market initiative perspective, we continue to add application engineering in key account management in all other subsidiaries. This will provide a new opportunity for growth and ultimately help us attain sustainable success.
Second, our research and development spending amounted to 24% of sales with the result that we were once again well above the industry average during the reporting year. This is done with a clear focus in mind we want to adjust conventional production and bring our technology into fully automated mass manufacturing. In the next minute, I will highlight some of our key innovations and give a glimpse into what you can expect in the years to come.
Moving to slide 15, I would like to give you an update on the recent operational highlights. In the UK, we successfully moved our operations to a new and larger facility approximately one hour north of its previous locations. In anticipation of an increasing demand invested in the new facilities by adding HSS, polyamide and PDB sand capacity. We are very happy with the results.
We have tailored a VX1000 printing system for UK-based Johnson Matthey to jointly development ceramic 3D printing capabilities to produce unique and innovative solutions. With this technology it is possible to produce complex and force components with high printing resolutions, excellent service quality and strength while enabling geometries not possible with other technologies. Such parts are due to a for a variety of applications including medical, automotive and aerospace.
In Germany, we successfully concluded the move into two new buildings. An additional state-of-the-art production facility and new office premises at our compass nearby Munich. In China, we are nearing completion of the new large-scale production facility primarily for the on-demand production of printed parts for our customers.
Going forward, this footprint will also give us the option to assemble parts of our printing systems in China. In doing so, we expect to lower the production cost of our printing equipment. We are highly committed to identifying cost saving potentials in each and every platform. With that, we intend to increase our total addressable market especially in Asia.
In India, we installed a first [tuner A] based printing system at our customer one hour north of Mumbai. This customer uses our technology to create complex pedals. U.S. is doing great and has reached profitability in the fourth quarter of 2017. We keep adding capacity especially for our PDB printing line. We expect that recent accomplishments like the sale of our PDB system to Danko Arlington of the Year of the multiyear volume contract with the TEI for printed sand will both create a strong pull effect for our technology. voxeljet U.S. really serves as the benchmark for our other facilities around the globe.
Turning to slide 16, in what we believe represents our total addressable markets. I would like to focus on the industry usage and give you my interpretation of the data. We can see that one third of our potential customers are currently not implementing 3D printing technology. Another 29% are experimenting with this and 25% who prototyping only. Taken together let’s call them Group, they represent roughly 85% of our potential customer base. One is characterized by an early level of majority and their needs are ideally suited for our on-demand System segment. They can satisfy that with added demand, very cost efficiently by ordering services.
As mentioned earlier, this group is growing and is growing quickly which can be seen by a 25% increase in our services revenue in 2017. Keep in mind, in the services segment we operate our 3D printers in several facilities around the world and offer affordable on-demand access to our technologies.
To echo what I said in earlier calls, the transition to 3D printing requires organizational changes on our customer side, because it changes their supply chain setup. An important focus of our Services segment is to support and integrate our customers in this journey. Together with selected premium customers, we are engineering some of the best innovations in our history to enhance their value proposition and make ourselves indispensable.
We are evolving business models to match changing customer needs and market realities and we are constantly looking for ways to improve our overall performance. Once the customer reaches a certain level of maturity, we will try to converting into a systems customer. We track the maturity of our customers in our S&P based CRM system live and on a global scale.
Looking at two of about 50% of our potential customers, they tend to be using 3D printing in production in very log sizes. This growth is characterized by higher level of maturity. This customer segment which comprises for example international automotive or aerospace OEMs is target multiple system sales and pre-requisite gear is high degree of automation of downstream process. Our goal of becoming critical supply chain partner and solutions provider is gaining traction. We continue to expand our sales teams around the world by investing in sales leadership, additional application engineered and train. To complement this, we focus on educating our channel partners to ensure a true global coverage.
Slide 17 describes our 3 pillars for organic growth. Infrastructure, internationalization and innovation and gives a segment into what is next to come. We expect to install first prototypes of our so called VJX Solutions platform for the fully automated mass production of complex parts later this year. VJX is geared towards the high-end orient and offers significantly increased performance with fully automated processes.
As always, we are never satisfied and we continue to build on our strong foundation, every day is a new opportunity to embrace change, accelerate our thinking and deliver for the market and for our customers. But through persistence continued investment in R&D and continuous innovation, the advancements of today go well by on what we might have expected in the application of widening in size and scope.
Turning to slide 18, we are fully positioned for success. As I look forward from where we are, I see a journey with significant upsides driven by running our business better, 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 like now to turn the call over to Rudi.
Thank you, Ingo. Good morning everyone, I now take it to the financials. Turning to slide 20, our total revenues decreased stood at 7% to €6.1 million in the fourth quarter compared to €6.3 million in last year’s fourth quarter. Gross profit and gross margin in the quarter were €2.4 million and 40% compared to €1.3 million and 20% in last year’s fourth quarter. Revenues were flat year-on-year, we achieve significant margin expansion as did our gross profit margin in line with our guidance. As we head into the next year, we look forward to accelerating our business by focusing on the work that we can win at margins that represent the value that we deliver.
The next slide shows our segment reporting for the quarter. On slide 21, revenues from our Systems segment which improved revenues from 7 3D consumables and spare parts as well as maintenance decreased 20% to €3.1 million for the fourth quarter of 2017, from €3.9 million in the last year’s fourth quarter.
As Ingo mentioned earlier, we had everything in place to shift at least two more printing systems to Asia and other printing systems to South Africa, since we did not receive the necessary down payments, we canceled shipments.
We sold 4 printers in this year’s fourth quarter compared to 6 printers in last year’s same period. Systems revenues represent 52% of total revenues compared to 63% in last year’s fourth quarter. Gross profit and gross margins for our segment in the quarter was €1 million and 34% compared to [€1.4 million] [ph] and 10% in last year’s same period.
In total, as an increase in fixed cost and supplies for further development of systems, the potential portion of sales and administrative costs and gross profit will decrease along with increase in business volume, resulting in significantly increased margins. More generally speaking, as utilization picks up, we expect gross margin from the Systems segment to be in the range of 40% to 45%.
On slide 22, services revenues increased 37% to €3 million compared to €2.3 million in last year’s fourth quarter. Our services gross profit increased to 46.8% in the fourth quarter of 2017 from 37.4% in last year’s same quarter. This is a great achievement and highlights we are following the right path.
The strong increase in gross profit together with an only moderate price in selling, general, administrative expenses had a positive impact on our target to reaching profitability.
Looking now to the rest of the income statement on slide 23, SG&A expenses were €3.5 million in the fourth quarter of 2017. This compares to €2.8 million in last year’s fourth quarter. We continue to monitor our operating expenses carefully. We increased our administrative expense that’s mainly related to our higher expenses for the preparation of several financing activities. The majority of our selling expense, personnel expenses and distribution expenses like freight and commissions for sales agents. The increase was largely due to higher personnel expenses mainly related to higher headcount in this function.
With regards to our manufacturing operations, we are developing and deploying lean manufacturing 2018 and we taking a hard look at our balance sheet and continue to work on areas such as inventory reduction to improve cash flow and return on investments on invested capital.
One of those initiatives will have the instant payoffs that will certainly pay dividend over the long term and we are pleased with the progress we have made on our treasury going globally.
Research and development expenses are €1.6 million in the fourth quarter compared to €1.8 in the last year’s fourth quarter. As Ingo highlighted, we continue to invest in core R&D in Germany with a number of active projects in various stages of development with a clear focus in mind to replace conventional production.
Operating loss was €2.6 million in the fourth quarter of 2017, compared to an operating loss of €2.9 million in the comparative period in 2016. Net loss for the quarter was roughly €2.5 million or €0.68 [ph] per share compared to a net loss of €2.96 million or €0.8 per share in the prior year’s period. On an ADS basis, net loss was €0.13 per ADS compared to a net loss of €0.6 per ADS in fourth quarter of 2016.
We have provided the same presentation for the full year period ended December 31, 2017 on slide 24 through 27.
Slide 28 shows selected balance sheet items here. December 31, 2017, the company had cash, cash equivalent and short-term investments and bond funds of roughly €22 million. Total debt at December 31, 2017 was approximately €17.6 million. Weighted average shares outstanding for the quarter was 3.72 million, which equates to 18.6 million ADSs. We believe that our balance sheet positions us well for the long-term.
Since December 2017, we are proud to have the European Investment Bank as a strong partner on our side to support projects that make a significant contribution to growth, employment, regional, question and environmental sustainability in Europe and beyond with a special focus on highly innovative companies. EIB is the Bank of European Union and is owned by the 28-member states. The project appraisal itself was carried out by the bank’s teams of engineers, economists and financial analysts in close cooperation with us.
Moving now on to slide 29, our revenue guidance for the quarter and full year. Full year 2018 revenue is expected to be between €28 million and €30 million with gross margins expected to be above 40%.
SG&A spending is expected to be in a range of €11 million to €12 million and R&D spending is expected to be between approximately €5 million to €6 million.
Depreciation and amortization expenses are expected to be between €3.75 million and €4 million.
CapEx spending for 2018 is projected to be in the range of €5.5 million to €6.5 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 2018.
This concludes my remarks and with that, we will now open the call for your questions. Operator?
Thank you. [Operator Instructions]. Our first question is from Rob Stone from Cowen & Company. Please proceed.
So I wanted to ask first of all, I thought, I heard you make a comment, Ingo about the backlog of system orders or pipeline since the end of the year and I didn’t quite catch what you said and of course one question that comes to mind is, do you expect at some point to eventually capture those three orders that weren’t able to be finalizing in Q4 sort of how does the systems pipeline look at the moment?
Well, while we don’t disclose details about the contractual development with those customers be aware that, I can say that we are still believing that we can deliver those systems later and later this year. So, they are not lost.
And other activity in the meantime?
Well, what do you mean with that? So, we of course…
In your prepared remarks, you said something about backlog since the end of the year. Since we’re now…
The current backlog is developing fine, Rob. By end of the quarter we’re showing total €4.4 million backlog. And as Ingo said, we expecting to get the 3D printers to decline during the years. Having said this, we are very conservative in respect of giving equipment to clients if it did not receive down payments or all necessary documents. Over time, we will teach that it is the better way instead of running then later on after the money.
Sure. Yeah, the €4.4 million figure was the one that I didn’t quite catch in the prepared remarks and that’s as of the end of Q1 right?
Okay. Great. And then other question is for Rudy. So operating expenses came in for the fourth quarter quite a bit higher than we were modeling. And you mentioned some of the things that we’re in here. I’m wondering if some of that was a onetime or episodic. So, should we be expecting a lower run-rate for OpEx in Q1? Based on the midpoint of your guidance, one would expect OpEx to be running somewhere in the €4 million to €4.5 million a quarter as appose to the €5.1 million in total that you had in the fourth quarter of ’17?
So. First answer to your question. The increase in Q4 was primarily due to higher legal fees and other consulting fees related to the financing with EIB.
Secondly, you can expect a lower a total SG&A spending because of we don’t expect to have such onetime investments in Q1.
Okay. And my last question is for Ingo. So, you mentioned something about the voxeljet X fully automated platform, which on the slide shows up is coming into full production in a couple of years’ time. So is this standing up the first prototypes within your facilities, or what’s happening in in terms of milestones with VJET-X.
Well you can expect that we are starting development for product like this not with the specific demand from customers. So, having said this, I can for this moment, not disclose more details. But this is definitely something we do planned for a production line for a specific customer and it could be a groundbreaking technology for many others.
[Operator Instructions]. Now have Troy Jensen from Piper Jaffray. Please proceed.
Hey. Maybe, Ingo, I think you said in your prepared remarks, I think you’ve talked about increases in demand initiatives. Could you just kind, an update us on what those initiatives could be for better growth for you, guys?
So currently we see a quite diverse development are in different areas. So, the casting applications especially in the hybrid and electric area gearing towards implementation and mass manufacturing. So, this is a very nice development for us. Especially, the OEMs are looking for 3D printing as a production solution, which is, I think, now bringing us to the point in time, what we really anticipated means the breakthrough of this technology for production terms. We see a good adoption in the plastic area with, I would say steady growth line for the equipment we have and increasing demand for our HSS solutions, which is clearly a good signal for the later development of this product.
Okay. Shifting gears here. Looks like U.S. did really well for you guys. China was, obviously problem. But can you just give us an update on the general automotive market and your thoughts for what ’18 will look for that vertical?
One of the automotive market despite some trouble with diesel-fuel engines, is still good. The companies are developing new products, especially in the hybrid and electric area. This brings new parts and new challenges for them where we can definitely help and bring solutions. I think that’s why all the automotive manufacturers are trying to implement 3D printing in their production lines. And I think our solution especially in the casting area can help them to bring down costs also for lower quantities and specialized vehicle engines. So, in this respect, I think it’s all in the right direction. What is other good news is that those companies are willing to invest into 3D printing.
And then my final question just looks at the second half of last year, you guys tone and commentary was very upbeat, but then the execution we just saw was not that great. Was the difference just these 3D printer sales or was there any other kind of surprises in the quarter?
Well, if you look at the numbers 3D printers and you know our printers are high price equipment. 3D printers could make a big difference in the numbers. And I think when we talked, we had clearly in mind that we have those deals and pockets, which not happened, as we said. So, I think there is nothing else in between and if you look at the growth rates we achieved in the services, so it was quite disappointing for us not to get the full picture we had in mind with the 3D printers we didn’t get.
I think in addition to what Ingo said. I think with those 3D printers in addition we definitely would have been shown positive second half 2017. From an operational point of view, I must say, we meanwhile, quietly, very straightforward and we see that in the gross profit, we can deliver on our services, on a global basis, so China is catching up as well in the UK. And the Systems segment is still lacking, if you didn’t get the printers in short. Therefore, we don’t show gross profit about 40%, but as soon as we reached those targets showing gross profit of that level shouldn’t be a problem. So, we are very positive about the overall development.
Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.
So ramping things up here. I am excited about both of our focus and our prospects. And we are competing aggressively for our $12 trillion addressable market. The largest opportunity in our history, with a lot of room to grow market segment share. In some of our segments we are facing new or resurgent competitors, in other segments we have the new competitor. But in all cases, competition will bring out the very best in our company. Our investments of and pipeline of innovation positions us to lead for the years to come. So, thank you for joining us today. And we look forward to seeing you at the RAPID in April. And to speaking with you again next question. Thank you.
Bye, bye. Have a great Easter.
This concludes today’s conference. You may disconnect your lines at this time. And thank you for your participation.
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