Johannes Pesch - Manager, IR & Business Development Ingo Ederer - CEO Rudolf Franz - COO & CFO

Troy Jensen - Piper Jaffray Robert Stone - Cowen & Company Kenneth Wong - Citigroup Saliq Khan - Imperial Capital Jason North - Jefferies

Greetings, and welcome to the voxeljet First Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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, Johannes Pesch, Manager of Investor Relations and Business Development. Thank you, Mr. Pesch, you may now 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 first quarter results for the period ended March 31, 2016. 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.

Thank you, Johannes, and good morning, everyone. Thank you for joining us on our earnings call today. I'm going to give a brief overview of our results for the first quarter and then update you on the status of our strategic initiatives. Rudi will provide a more detailed review of our financial results for the period and will discuss our guidance for 2016 which remains unchanged. Let's turn to Slide 5 of the presentation and begin with the highlights for the first quarter 2016. Our strong liquidity base of more than EUR32 million enables us to enjoy stable growth and long-term continuity. Revenue for the quarter was EUR4.9 million which was slightly below our guidance range. We received final acceptance from our customer for another printer for revenue of around EUR0.5 million since not all conditions for revenue recognition were meet, we booked revenues for that printer in April 2016. Systems revenues decreased 1% to EUR2.78 million from EUR2.82 million in the first quarter of 2015. Two of the three new printers we sold were equipped with the new Phenolic Direct Binding process; this highlights the acceptance of our technology and proves we are following the right path with our research and development activities. Customer interest in quoting activity remains strong globally with multiple strengths from U.S. and Asia for voxeljet America, voxeljet China and voxeljet India. The outlook for printer sales is positive based on our bank load which reached a level of approximately EUR5.4 million on March 31, 2016 representing eight printers. Our lead list for systems which consists of potential customer sales for which we expect to receive a purchase order in the future, usually within a 12-months period order remained strong. As this moment, we are following up on some very promising leads, particularly in Asia, the results of which are expect to announce in the coming quarters. In combination our backlog and our lead list gives us the confidence that we can fulfill long-term sales targets. Service revenues in the first quarter decreased 24.7% to EUR2.1 million from EUR2.8 million in last year's same period. The reason is two-fold; first, we experienced lower than expected services orders in the months of January and February 2016 from our key customers in the automotive industry. These lower orders were primarily due to macroeconomic headwinds in much of the world and continued currency weakness in the vast majority of our international markets. However, this trend has bottomed-out and we see our markets picking up again. This is exactly filed by above planned results for the month of March 2016. Second, we faced difficult year-over-year comparisons. The first quarter 2015 saw a record increase in services revenue with almost 100% growth, in line with the restructuring of voxeljet UK, we focused our UK business on selling printers and supplying on-demand parts. The drop in revenues is primarily due to the discontinued labor intensive post-processing activities as with our other subsidiaries we see the demanding trends in the right direction. With this in mind, I'm confident to reaffirm our full year 2016 revenue guidance. Let's turn to Slide 7 and 8. I'm proud to say that we now have a truly global active presence in the most relevant markets. The future of the group will be built on a strong position in Europe, the success of its international extension strategy, the growth potential of existing products and the introduction of innovative product in line with our role as a technology leader in 3D printing. Slide 9 summarizes our business model, demand from fan-casting molds and plastic models made with 3D printers has grown rapidly in recent years. Our services segment, we operate flagship service centers across the world to lower the barriers of entry for our customers and make them familiar with our technology. An increasing number is radiating now into buying a system. Thanks to our international footprint, our attractive business model and strong balance sheet, we have the resources to accelerate international growth. This year we will exhibit in more than 50 trade shows all around the world and this will consequently help pushing sales. Slide 10 highlights the acceptance of our technology revenues, both in our systems and services department has been growing strongly and consistently since the IPO. We are well on-track and are strongly executing on the growth story we laid out in our public disclosures. The revenue development over the last few years proves that there is an increasing demand for our technology which meets expectations and enjoys a high market acceptance. Turning to Slide 11, in the aerial photograph of our German facility you can see the existing office building and service center, as well as the location of the new R&D center which will be established in our building, currently used for systems assembly. The picture also highlights the new office building and new increased systems capacity. We are excited about the progress we have made and expect construction to be completed in early 2017. That brings me to the end of my part of the formal presentation. I will now turn the call over to Rudi. Rudi?

Thank you, Ingo, good morning, everyone. I'll now take you through the financials. Turning to Slide 13, our total revenues decreased 13% to EUR4.9 million in the first quarter compared to EUR5.6 million in the last year's first quarter. Gross profit and gross margin in the quarter were EUR1.3 million and approximately 27% compared to EUR1.9 million and 34% in last year's first quarter. The next slide shows our segment reporting for the quarter. On Slide 14, revenue from our systems segment which focused on the development, production and sale of 3D printers decreased 1% to EUR2.78 million for the first quarter of 2016 from EUR2.82 million in the last year's first quarter. Systems revenue also include our revenues from continued spare parts and maintenance. We sold three new printers in this year's quarter compared to two used and two new printers in last year's same period. Systems revenue represented 57% of total revenue in the first quarter of 2016 compared to 50% in last year's first quarter. Gross profit and gross margin for our systems segment in the quarter was EUR0.7 million and 24.9% respectively, compared to EUR0.8 million and 27.4% in last year's same period. As Ingo mentioned, we are ramping up our systems department to meet the continuously increasing demand. To give you some additional flavor, we increased our headcount in our systems department by 66% in less than 12 months. As utilization picks up, we expect gross margin from the systems segment to be in the range of 40% to 45%, consistent with the outlook that's given in the past. On Slide 15, service revenues decreased 25% to EUR2.1 million in the first quarter of 2016 compared to EUR2.8 million in the last year's same quarter. Gross profit for our service segment was EUR0.6 million in the first quarter of 2016. One of the main reasons for the lower gross margins of also slow start in the year, particularly in January/February 2016. However, this trend has bottomed-out and orders are picking up strongly. For example, we generated one of the highest amounts for order in Germany, in the U.S. voxeljet America set new records in booked revenues on a quarterly basis. Looking now through the rest of the income statement on Slide 16, SG&A expenses were EUR2.3 million in the first quarter of 2016. This compared to EUR3.0 million in last year's first quarter to decrease primarily due to the restructuring of voxeljet UK. Research and development expenses were EUR1.3 million compared to EUR1.6 million in last year's first quarter. The decrease is related to the termination of certain non-core R&D projects at voxeljet UK as part of its restructuring. We continue to invest in core R&D in Germany with a number of active projects in various stages of development, which strengthens our leadership and technology. Our operating loss of EUR3.1 million in the first quarter of 2016 was a result of lower gross profit contribution from both segments as well as a negative net impact from foreign exchange valuation amounting to kEUR721 compared to a positive net impact of kEUR824 in last year's same period. This was partially offset by lower operating expenses within the functions R&D, sales and marketing, as well as administration. Net loss for the quarter was EUR3.1 million or EUR0.84 per share, compared to net loss of EUR1.6 million, or EUR0.49 per share, in the prior year. On an ADS basis, net loss was EUR0.17 per ADS compared to net loss of EUR0.10 per ADS in the first quarter of 2015. Slide 17 shows selected balance sheet items. At March 31, 2016, the company had cash and cash equivalents and short-term investments in bond funds of more than EUR32 million. Total debt at March 31, 2016 was approximately EUR2.2 million and weighted average shares outstanding for the quarter was EUR3.72 million, which equates to EUR18.6 million ADSs. We believe that our balance sheet positions us well for the long-term. Moving now onto Slide 18 and our revenue guidance for the year; we expect to achieve revenues between EUR28 million and EUR30 million in 2016. Gross margin is expected to be between 40% and 42%. SG&A spending is expected to be in the range of EUR10 million to EUR11 million, and R&D spending to be approximately EUR4 million to EUR5 million. EBITDA is expected to be neutral to positive, this implies depreciation and amortization between EUR3 million and EUR4 million. CapEx spending for 2016 should be in the range of EUR12 million to EUR13 million, which primarily consists of ongoing investments in our global subsidiary, as well the construction of two new buildings at our companies in Germany to support increased production capacity. Our primarily revenue guidance for the second quarter of 2016 is revenues in the range of EUR6.5 million to EUR7 million. We expect to release our financial results for the second quarter of 2016 after the closing of the financial markets on Thursday, August 11, 2016, and host a conference call and webcast to review the results for the quarter on Friday, August 12, 2016 at 8:30 AM Eastern Time. This concludes my remarks. And with that, we'll now open the call for your questions. Operator?

Thank you. [Operator Instructions] Thank you. Our first question is from the line of Troy Jensen with Piper Jaffray. Please go ahead with your question.

Thanks guys. I guess really Ingo, to me, it seems like the biggest message from the call today is you guys seemed much less concerned about the economy or the macro than you did maybe three months ago at your Analyst Day?

Absolutely. So Troy, thanks for this question. As said during the call, we saw January and February lower business than our services segment. However the systems of business is mainly unaffected - this was mainly - and we see also in the services that definitely a much better business in the month of March and April as well, so this leads us to the conclusion that our core markets automotive, engineering and aerospace, they are doing quite well and the order activities are okay again.

So are you as enthused about the pipeline for system sales or service sales right now?

No, we don't disclose backlog for services. What I can say for systems we are quite happy with the backlog and we are in the lead besides the backlog so we are little optimistic and we have firm guidance. Since we do that we are confident we reach our sales targets.

You guys gave that guidance in the midst, January/February timeframe, super concerned about the economy. Also related to pipeline in Asia, can you gives us some detail what you are hinting out there?

What I can say is that since we are having our own subsidiary there in China, we have much better activity and better information about Chinese market. I think this will really lead and drive sales for this specific region and we see also strong interest from other Asian markets like Korea and other markets in that region so for the moment we see Asia as very important market for the system segment.

Okay. And then how about the thoughts on the US round? How's that traction going on in the facility here?

Excuse me could you repeat please?

Yes, the ramp and the traction you see in the US market from your facility here in Detroit?

Our Detroit facility developed well, so thanks to the team there. It's picking up. As you know it was a bit delayed in the beginning but now they are doing fine. They have a lot of printers there and they are filling the printers with business so we are quite pleased with the results. It’s okay, it's good.

Alright good guys, see you next week and good luck in Q2.

Thank you.

Our next question is from the line of Robert Stone with Cowen & Company. Please go ahead with your question.

Hi guys, a couple of questions relative to expansion plan. One, you noted is the impact on utilization versus your expanded capacity and head count in systems, where do you sit now in terms of headcount and investment capacity for this year versus what you might need to add and in other words, when might we see the benefit of growing into this capacity or do you still need to add or expect to add more heads through this year?

I think we reached a decent level already and as said during the call by increasing the headline, we should reach a nice profit of gross level already and with the current team we are able to fulfill production for this year.

Okay. And in the event that you see upside versus what your target are for the year, I know you are planning on moving into an even larger facility and that project is already underway and how do you feel about potential capacity in the existing facility? I realize heads may be the mirror but they are easier to add than floor space, so comment for potential room for upside.

So this is Ingo and we currently rent space around our headquarters here so we don't see restrictions in terms of floor space. What we do is we consolidate all these different places to a larger facility in the future which brings us our efficiency and lower cost than with the leading of production floor and we still have space to grow in. So we are quite happy with this situation and we don't see restriction in our capacity for this year.

Good. Then I had a couple of questions about the international expansion. Particularly the new activities in China and India. You had some challenges in getting the US operation started. As you look at the timelines described in the press release. Can you provide any more color in terms of how we should think of milestones in the new international subsidiaries and do you see in the meantime as you are getting setup for on demand part production already some benefit of your presence in terms of system leads and customer facing activities?

Well, I can tell you for instance our Chinese facility, the benefit here is that we established the company as a JV with our existing partner company so they are already active in dealing our machines and also providing services. This brings us in a different position than we started in the U.S. Means we have our ongoing business with them already and the team is already setup there. So this is a promising start and what we see currently is that they are generating revenues so from our perspective should go faster than the US so we are quite positive in that respect.

Based on the Indian facility and what we learned in India, and what we see in China, we decided to start India with the sales theme and bring everything in place. Even have SAP installed and train people on accounting features and in parallel operate demo systems in that facility, we should be able to operate the service center I say in India in the second half of 2017.

That's great. Thank you very much.

Thank you, Bob.

Our next question is from Kenneth Wong with Citigroup. Please go ahead with your question.

Good morning guys, when I look at the UK businesses [indiscernible] it feel like it sounded little more than you would have expected, is there any macro head you solved or was that all your process support?

Kenneth, sorry I have to say this, the line is pretty bad. Could you do me a favor to repeat your question, I couldn't get you.

Sure, I am wondering about the UK business, was there any macro or [indiscernible].

I'm going to repeat your question, you are asking whether in the UK business macroeconomics which, Kenneth? I will take him into the questionnaire later on and I suggest that we take Saliq Khan into the Q&A.

Yes, Saliq Khan please go ahead with your question.

Good morning Rudy, couple of questions for you, first one being is if we take a look at your overall employee headcount and how they grew roughly 6% year-over-year, predominantly will you be able to meet the demand that you have mentioned for your systems. However, even with the inclusion of that one system which you had talked about where the challenges of the revenue recognition, the year-over-year growth still seems lower than what I thought it should have been, what are you doing right now to be able to better train and also to improve the overall productivity. Will you be able to capture additional market share?

I must say, as such we are quite happy with the performance in Q1 and we work according to our business plan. We have a little flow in January as Ingo laid out. Overall, we are well on-track and we believe we can fulfill our full year guidance and 28 to 30 is sure a little lower than the growth last year but we have said we corrected our guidance for the growth of 2016-2017. And again, we feel quite comfortable with what we are doing and we see no reason why we.

The real thing I am thinking about is if you are serving your current customer base what are you finding in regards to personnel additional units over the next several quarters?

For the moment we are in introductory phase for a very important material which are laid out is the Finolex system. I think the first installation drive, the future installation in a better way. We are expecting much better sales and as you know we have full pipeline of different materials in the R&D which gives us also confidence that we get future products that also drives sales. So for the moment the feeling is we are quite okay, quite good positioned and the revenue target is clear. We are quite confident to reach the target this year and also the target for the upcoming years as we laid out in the previous call.

Based on the revenue guidance for Q2, first half year shows a revenue I would say 40% to 45% of total revenues for this year which is I would say okay, means the second half of the year should be a little higher than the first half. Again we feel pretty good on track currently.

Got it and one last question, one thing you mentioned early in the call today was you saw lower expectations you have for the service order from the automotive customers. This is a little bit different to what we are finding one of your competitors are saying right now where they saw pretty nice growth on the automotive side. Is this attributed your lack of effort on the automotive sales side or was there a different reason why the automotive customers purchased less from you this quarter than you anticipated.

Well, the automotive market, we serve mainly engine parts and powertrain parts. It's not completely comparable to maybe other parts, other industries supplying to the automotive industry. So you need to look at those specific cycles. I would say for this year January, February we had an unfortunate distribution of holidays in December. Usually if we have longer holidays than in other years it's clear that the preparation of data is specifically in the field of casting, it's not done that and this must be done in January. So this is a good reason for why the sales pick up so quickly than in March. So what we saying is that sales were low in January, February but everything picked up so I will not say its weakness in the automotive industry. I would say it's a onetime seasonal effect.

Got it. Thank you, both.

Okay. Thanks.

The next question is from the line of Kenneth Wong with Citigroup. Please go ahead.

Hey guys, hopefully it's better now, can you guys hear me now?

Yes, much better.

I was just asking about the UK market. Just wanted to know if there was any payback from customer demand there or macro weakness or was that all processing that was coming out of there?

No, I would say the market in the UK is good and we are focusing on selling printers and on the cart services. I would say that the unit is on track and we are working against a business plan and we are fine.

And then in terms of the year, when you guys were little violent, you saw things pick up but you reiterated for the full year, I am just wondering in terms of the trajectory, the German, UK, US, what's making up the difference in the Q1 shortfall?

The revenue contribution in the next three quarters from the US will pick up so that definitely is one driver. Ingo indicated pretty good results out of Asia, China is doing well. Indonesia as well, we see good leads out of Australia. I think growth will come out of the US and our system revenue should pick up. The rest is currently already well on track.

Okay. Great and then the last thing, you guys mentioned that with the printer, systems gross margins were down probably because of the similar printers, is that something that's specific to the printers or just a matter of ramp when you get the production of those up you should see gross margin pick up?

That will wash out because it's a new process. That's all but that should improve for the next quarter as Ingo said the first printers we shipped to that process, and we currently already see a performance in the right direction in the spectrum.

Okay, fantastic. Excellent guys.

Thank you, Kenneth.

The next question is coming from the line of Ben Hearnsberger of Stephens. Please go ahead with your question.

Thanks for taking my question. This is Brian [ph] for Ben. Just for India and China, what kind of revenue contributions we can expect throughout the year and what quarter would that impact the most?

I am sure you are aware of that we did not disclose individual revenue contribution for each of the center. We don't expect the significant specification of those two service centers. India will contribute to service revenues in second half of 2017. We might see printer revenue which we will then disclose in our 6-K. And in China as Ingo said we see some service revenues by the significant growth. We moved on in Q4 and Q1 next year. We don't want to go into more details until we disclose it on a regular basis.

Understood, and then on voxeljet US can you give us any sense, kind of percent of total service center sales coming out of there or like a ballpark, maybe capacity utilization there?

Again, we don't disclose those numbers in detail. What we can confirm is we are on track of renting out the capacity. I think we should have the same capacity of our German service center by next year. So we are well on track. We are adding printers when the utilization picks up and when we see we need more capacity which is already the case therefore we installed 1000 and fill it up. But all is on-track and we don't disclose information on such a detailed phase as you asked for.

Understood and on my last quick one, on the Phenolic binder printers you sold in the quarter, you mentioned these were lower margins. When can we expect these margins to pick back up from these machines, and once they get to a more normalized run-rate should we expect them to be higher or lower than legacy systems?

I would expect them on the same level then with other systems as Ingo said, it's a new process which we launched which we now shipped. And a very new product you see additional cost at the beginning but we currently, I think we have three or four in the field operating now and we are very comfortable that we can assemble and ship them on the same basis than our other printers and reach gross margin in the level where we see them for the other printers. So we are not worried, we faced this when we introduced other products in the past.

Got it. Thanks, guys.

Thank you.

Our next question is from the line of Jason North with Jefferies. Please go ahead with your question.

Looking at your full-year gross margin guidance and Q1 results, it seems high that starting Q2 gross margins will be above 40%, is that the right way to look at it?

Q2 definitely will significantly improve. I think based on the revenue guidance which we have given EUR 6.5 million to EUR 7 million that helps gross margin to improve. We didn't give any gross margin guidance for Q2 but you can expect gross margin being improved significantly.

And then looking at the full year CapEx guidance, are you still expecting EUR 12 million to EUR 13 million because the CapEx spend was pretty low in Q1?

We still expect it have in mind that one driver for CapEx spending is our new facility. We start with it and through our first invoices, and we would say 90% of those invoices should be accrued in 2016. 80 to 90 and the remaining investment will go into our own production. In China, in the US, as well as the UK and Germany too we feel currently pretty comfortable with it. It could be a bit lower over the year if we see that we don't need equipment in Q4 then we move into Q1 instead of Q2. It could be a million higher if we see that there is more launch in the service center.

Okay, great. And then, for the - looks like the printer ASP was higher than the last few quarters. Is that because of the new machines has higher ASPs or some other factor going on there?

First of all, we sold new printers, last year we sold two used printers and the product mix was pretty favorable for gross margin and that is simply because the Phenolic growth is kind of running on the base 1000 and the stage price on base 1000 is pretty good.

Do you expect ASP to go back to 650 or 750 level or?

We built a comfortable AAP of 500. Going forward long term is expected to be going to an addition 800 but currently we feel 500 pretty comfortable.

Okay, great. Thanks so much.

Thank you.

Thank you. And there are no additional questions at this time. I will turn the call back to management for further remarks.

Thank you. With more than EUR32 million of liquidity on-hand and an active presence in all of our major markets, we have successfully prepared our group from continuous growth. As mentioned previously, the future of the group will be built on a strong position Euro and with the success of its expansion strategy. The growth potential of the existing product and the introduction of innovative product in line strengthen our role as technology leader of 3D printing. We would like to improve our results in 2016 driven by continued emphasis on growing our subsidiaries and unrelenting focus on R&D and by increasing our focus on market penetration for sales & marketing operations. To sum up, we are confident that we have the right talent, the right strategy and the right assets to drive long term sustainable growth for our investors. Thank you again for your participation in today's call, we look forward to seeing you at next week's Rapid Show at Orlando. And look forward to speaking with you again in August when we report our results for the second quarter of the current business unit. Thank you.

Thank you. Have a good day. B'bye.

This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.