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 First Quarter 2018 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. It is now my pleasure to introduce your host, Mr. Johannes Pesch Director of Business Development and Investor Relations. 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 first quarter financial results for the period ended March 31, 2018. 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. This year marks the 5th anniversary since our IPO in 2013. Before, we start I would like to remind those who might be new to our company about our strategy. Turning to slide six, we started 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 technological boundaries. Today, I can say that we have made significant progress in this regard and we are quite optimistic that large OEMs and tier one suppliers start using multiple of our 3D printing systems in their production. Turning to slide seven, this vision translates into a powerful strategy with a clear mission statement and values. Slide eight, highlights our unique selling propositions which are strongly aligned with the growing trends for higher performance products across all of our end-use markets. Slide nine shows some of these products and selected customers. Our printing systems are modular, versatile and highly scalable and therefore are uniquely positioned to support critical demanding applications and address 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 geared towards mass production of complex models and modes. 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 start with the formal part of the presentation. I will begin with an overview of the first quarter results. Rudi will then provide a more in depth view of our financials and our outlook for the second quarter of 2018. Following his comments, we will be happy to take your questions. 2018 is off to an excellent start, was the best quarter in both services revenue and gross profit in our company’s history. We see these main metrics as leading indicators of the ongoing strength of our industrial 3D production technology. Our goal is becoming a critical supply chain partner and solutions provider and is gaining traction. As downstream processes become more automated, we are confident that this will be translated into significantly improved systems revenue. We are currently tracking more than 200 system sales opportunities worldwide with a high demand for PDB sand printing, especially in the US. We are driving towards a bigger, better more focused voxeljet Group. Over the last six months, we have taken action on all of our strategic priorities. Our priority objective has been and continues to be to return voxeljet to sustainable, above market growth. Let’s turn to slide 12 of the presentation and begin with the highlights for the first quarter 2018. Revenue was kEUR5.1 million which represents a 12% increase compared to last year’s first quarter. I would like to highlight that while revenue was up 12%, gross profit increased 43% to kEUR 2.3 million or 45% of revenue which is well within our guidance range provided in February 2018 and mainly due to significantly improved utilization rates in our services segment. This is a great achievement and inline with our long term target. Revenues from our Systems segment, which includes revenues from selling 3D printer, consumables and spare parts as well as maintenance, decreased 90% to kEUR1.4 million in the first quarter of 2018 from kEUR1.7 million in the last year’s first quarter. We delivered two units and refurbished printers in this year’s first quarter compared to two new printers in the last year’s first quarter. We are working hard to convert more opportunities into orders. As of now, we have a Systems backlog of roughly kEUR4.8 million. This compares to a backlog of kEUR2.8 million at the end of last year which represents an increase of roughly 33%. Revenues from our Services segment, which focuses on the printing of on-demand parts for our customer’s had a record high quarter. Revenue increased 30% to kEUR3.7 million in the first quarter this year from kEUR2.8 million for the same quarter last year. It is particularly positive that we continue to reap rewards from our global production footprint. Across the board, all of our production sites located in Germany, the U.S, U.K. and China contributed to sales growth and we will continue to add additional printing equipments to meet the raising demand. The revenue increase in U.S. was exceptionally good. In U.S. we continue to strengthen our corporation with companies at the forefront of technology, for example, from the space exploration industry. They are using our PMMA process to create large patterns which are used to cast titanium parts at significantly lower cost than for example with laser sintering. In addition to that, the outlay for certification is significantly lower as our process complements long established best practices procedures. Slide 13 summarizes the results. When looking at operating expenses, I would like to highlight two points. First, the increase in selling expenses is mainly due to higher personnel expenses starting from higher headcount in Germany and U.S. We remained focused on our growth strategy, which includes expanding our sales teams around the world by investing in sales leadership and by hiring additional sales engineering colleagues. In addition to that, we focus on educating our channel partners to ensure a true global coverage. Second, our fast pace of innovation fuels growth and keeps rivals at a safe distance, consequently, we continue to invest a significant amount of our resources into research and development. Turning to slide 14, the target is clear, to increase our total addressable market. Our approach here is threefold; first, optimizing existing products by intelligent innovations through reduced cost and improve [indiscernible] properties and ease of maintenance. Second, develop new solutions for existing markets. The prime example here is the VJET X which is essentially an advanced material set coupled with new printer layout and automation equipment for extreme performance due to our high end OEMs. This is a joint development project for turnkey solutions. This solution starts with automated dropbox loading and unloading by means of a conveyor belt. Robotic systems will then take care of post production activity, like listed printed models and forms out of dropbox, cleaning them and putting the fully finished models and forms on a conveyor sheet for subsequent processes like casting. Third, develop new solutions for new markets [indiscernible] related to our HSS and Ceramics activities. Taken together, these efforts are aimed at featuring our role as technology leader in Binder jetting and will ultimately help us attain sustainable success. Turning to slide 15, and the summary of our market potential and customer segmentation. We have seen this overview before and we’ll show it again as it has to answer two of the questions we are frequently asked by investors. So let’s go through them one by one. The first question relates to the potential of 3D printing and the outlook for growth. Here our answer is clear, the potential for investor of 3D printing is huge and the market is growing, although not as quickly as many anticipated. Since industrial 3D printing will replace conventional production, [there is] [ph] evidence which faces a lot of resistance from established technologies and best practice supply chain. To overcome these obstacles, it’s needed to have a supporting ecosystem. In the case of 3D printing, the ecosystem is fairly complex and includes among others, mature supplier, software preparation tools and post-processing services. During the last year, we have seen some significant catch up taking place. It is important to understand that there are various technologies competing for market share, each with its distinct advantages and disadvantages. Some of these technologies we see there is a lot of potential and probably [ph] the reason being like to expand those direct metal printing by laser sintering or binder jetting of metal powder. While these technologies may be good for small production, we do not see them capable of true industrial production for a variety of reasons. Data is too slow and cost prohibited [ph] while binder jetting of metal powders faces some issues with sintering the green part in a furnace especially for larger and more complex parts. The second question relates to voxeljet and why we do not sell more printers. Looking at the industrial uses section on the right side of this slide we can see that one third of our potential customers are currently not implementing 3D printing technology. Another 29% are experimenting with it and 25% by Prototyping Only. Taken together, let’s call that Group 1, they represent roughly 85% of our potential customer base. Group One is characterized by an early level of maturity and their needs are ideally suited for our on-demand business segment. They can satisfy their sporadic demand, very cost efficiently by ordering services. As mentioned earlier, this group is growing and is growing quickly. As they mature and understand the benefits of our technology better, they graduate into a systems sale opportunity. Looking at Group 2 or about 50% of our potential customer, they tend to be using 3D printing and production in very large sizes. This group is characterized by higher level of maturity. Taken together, we address roughly 40% of our customer base as system based opportunity. Within those, two thirds are very CapEx sensitive and cash restricted especially in Asia Pacific. To address this, we focus on optimizing the production cost of our equipment by re-designing part of our printer. Reduced machining time is critical in keeping production cost lower. Furthermore, we are exploring options to manufacture and assemble parts of our systems in our new state of the art facility in China. We conducted first quality inspections and the results are very promising. The remainder was third of our potential systems customers or 12% of our total customer base, has no problems with CapEx spending. These are the big automotive or aerospace OEMs that target multiple systems sales. But they do have a problem with singular non-integrated printers with a high labor cost associated to post processing. A pre requisite side is a high degree of automation downstream processes. To address this, we are developing VJET X. Lets’ turn to slide 16 and an update on our growth strategy, this remains unchanged since our IPO. The following sections present and briefly describe the priority areas broken down by the three strategy pillars. Relentless Innovation, Focused Internationalization and Scalable Infrastructure. I would like to start with Relentless Innovation. In HSS, we reduced the layer time of our VX200 platform by 50% by means of a software update. The scale up to a larger platform is ongoing and we are making good progress. We are actively working with several multinational companies from various verticals including sport equipment and consumer goods on the development and qualification of [Indiscernible] tools. Our strategy is simple, qualified new materials and paid for development projects and make sure it works on our VX200 platform, which was specifically designed for this purpose. When our production systems become available, mass commercializes. This approach resonates well with our customers and the results are frankly outstanding. VJET X is printing and we expect the [Indiscernible] full start later this year. Regarding Internalization, the construction of our new facility in China is almost complete and we are very much looking forward to the opening ceremony. Meanwhile we have resumed plans to start a service center in India and are actively exploring various options for an opening early next year. In Infrastructure we are in the final testing phase for SAP based production planning for on-demand business segment. A unique ID will be assigned to every printed model using a bar code making it possible to track the progress of each customer order in detail. Once implemented, it will ensure more efficiency in our own operation. Slide 17 summarizes our track record in these three categories. Looking at slide 18 we truly positioned for success while our actions and investments in total market are ongoing. We have made significant progress and we believe we are on the right track to continue to drive growth and improve execution worldwide. I believe the overall demand for our technology is greater than it has ever been. Our priorities business for our technology is greater than it has ever been. Our priorities this year remain on execution improvement efficiency and introducing disruptive new products to drive customer shift to 3D production. With that, I would like to turn the call over to Rudi.

Thank you, Ingo and good morning to everyone. 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 2018. Our first quarter came in as expected and we have entered 2018 well positioned to give us a growth and increased profitability as we continue to execute on our strategic priority. I just came back from visiting large customers in China and I’m delighted about by the many discussions that we are having with so many different players in a broad variety [ph] of industry. As Ingo mentioned, we are seeing that the effective adoption or conversion to 3D production only requires important investments, but also very important transformational shift in our customer’s eco system. The gross profit, development for this quarter was remarkable and sustainable, driven by sales growth and our focus on higher margin products. I would like to highlight that while topline growth was 11.5% gross profit improved 43.4% making it the best for this quarter in our company’s history in terms of gross profit, which is a great achievement. Our approach will remain focused around the work that we can win and master the 3% value that we deliver. Turning to slide 20, our total revenues increased 11.5% to kEUR5.1 million in the first quarter compared to kEUR4.5 million in last years’ first quarter. Across profit and gross margins in the quarter that stood at kEUR3 million and 44.9% compared to kEUR1.6 million and 34.9% in last year’s first quarter. This is clearly within our guidance range provided in February 2018. The next slide shows our segment reporting for the quarter. On slide 21, revenues from our Systems segment which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance decreased 18.8% to kEUR1.4 million for the first quarter of 2018 from kEUR1.7 million in last year’s first quarter. We sought [ph] to use and refurbished printers for the first quarter of 2018 compared to two new printers in last year’s same period. Systems revenues represented 27.2% of total revenues for this quarter compared to 37.4% in last year’s first quarter. Gross profit and gross margins for our systems segment in the quarter was kEUR0.4 million, that’s 31.2% compared to kEUR0.4 million and 20.9% in last year’s same period. As utilization picks up, we expect gross margin from the Systems segment to be above 40% consistent with the outlook we have given in the past. We continue to invest in improved systems, implement their [Indiscernible] inventory and supply chain management and continue to improve our communication coordination between our engineering and manufacturing team. Cost absorption of factories will continue to improve and that should lead to more positive margin outcome in product sales as the year progresses. Our goal is simple; deliver solutions that solve our customer’s problems. On slide 22, service revenues increased 29.6% to kEUR3.7 million compared to kEUR2.8 million in last year’s first quarter making it the best quarter in services revenue in our company’s history. This was mainly due to higher revenue contribution from our German operation and increasing contribution from all our subsidiaries. Gross profits for our service segment significantly increased to kEUR1.8 million in the first quarter of 2018 from kEUR1.2 million in the first quarter of 2018. The gross profit margin for this segment increased to 50% compared to 43% than last year's same period. This is mainly due to high utilization rate. As stated in previous calls, utilization is key to realizing better gross margin. Looking now to the rest of the income statement on slide 23, SG&A expenses were kEUR3 million for the first quarter of 2018, this compared to kEUR2.6 million in last year's first quarter. The increase is mainly due to higher personnel expense in our sales function resulting from higher headcount in Germany and the U.S. while administrative expenses remained on the same level. Research and development expense were about kEUR1.6 million compared to kEUR1.5 million in last year's first quarter as Ingo highlighted. We continue to invest in core R&D in Germany to maintain our position as a technology leader in 3D printing. Operating loss was kEUR2.3 million from the third quarter of 2018 compared to an operating loss of kEUR2.4 million in the comparative period in 2017. Net loss for the quarter was roughly kEUR1.6 million or kEUR0.42 per ordinary share compared to net loss of kEUR2.4 million or kEUR0.65 per ordinary share in the prior year's quarter. On an ADS basis net loss was kEUR0.8 per ADS in the first quarter of 2017 compared to a net loss of kEUR0.13 per ADS in the first quarter of 2017. Slide 24 shows selected balance sheet items. As March 31, 2018 the company had cash and cash equivalents and short-term investments in bond funds of roughly kEUR21 million. Total debt at March 31, 2018 was kEUR17.4 million, weighted average ordinary shares outstanding for the quarter was kEUR3.72 million which equates to kEUR18.6 million ADS. We continue to see opportunities to improve working capital performance, cash flow and our own cash conversion cycle in 2018. We remain comfortable with our cash balance and overall liquidity position. We believe that our balance sheet within equity ratio is about 60% position us well for the long term. Moving now on to slide 25 and our revenue guidance for the quarter and full-year. For the second quarter of 2018 we expect revenues in the range kEUR5.25 million to kEUR7.5 million. Full year 2018 revenue remains unchanged and is expected to be between kEUR28 million and kEUR30 million, the gross margin expected to be above 40%. SG&G spending is expected to be in the range of the kEUR11 million to kEUR12 million and the R&D spending is expected to be between approximately kEUR5 million to kEUR6 million. Depreciation and amortization expenses are expected to be between kEUR3.75 million and kEUR4 million. Adjusted EBITDA is expected to be neutral to positive in 2018. Adjusted EBITDA excludes the impact of foreign exchange gains or losses on the intercompany loans granted to subsidiaries. CapEx spending for 2018 is projected to be in the range to kEUR5.5 million kEUR6.5 million, which primarily consist of ongoing investments in our global subsidiaries. This concludes my remarks. And with that, we will now open the call for your questions. Operator?

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Rob Stone with Cowen & Company. Please proceed with your questions.

Hi, guys. Services result was certainly very strong. Could you comment a little bit on how you see the run rate of revenue going forward? Was there anything unusual in the strength this time? We've talked a little bit about seasonality in the past when the business was primarily driven by the cadence of operations in Europe where you typically have summer slowdown in Q3. But now that you're having a greater contribution from your global subsidiaries, if you could provide any update on how you think about seasonality that would be great?

Thank you for this question, Rob. Seasonality still is there, but as well we – what we see is that our subsidiaries are growing and therefore we can show a quiet good first quarter. The gross profit as well is primarily driven by utilization. And have in mind we expect these facilities [will require] [ph] some equipment which now turns out to be in full use which really help to improve our gross profit. Going forward we see pretty good start and that should help us to grow as well service our Service segment as indicated and the Systems segment is still I would say lumpy, but nevertheless we have a good backlog, good prospect and specific for Q2 and Q3 and I'm very positive.

Yes. That was actually going to be my next follow-up Rudi was on the System's backlog went up quite a bit sequentially and I was going to ask in relation to that. So did inventory -- so does all of that point to sort of finished goods in the Q that are ready to be recognized fairly soon?

That is our plan, yes.

Okay.

It depends on the Systems side. You recognize that we gave quite a range for the second quarter; 5.25 to 7.25. There's huge equipment in the installation phase and we currently don't know whether we can sign-off end of Q2 or early of Q3. Therefore we have the corridor on – there's quite some equipment in our inventories which will move out.

Okay. A question for Ingo, with respect to VJET X, you mentioned that you’re printing now and prototypes will be installed later this year. Will that be at one of your service centers or you going with prototypes up to customer sites?

So, in that respect the two answers are right, so we are, of course, we need to have prototype machines further down the road in our own Services segment to learn more about this technology but we also expect an order for a beta installation.

Okay. So the first customer beta installation would be later this year and that would be part of Systems revenue?

Well, we are not sure whether we can recognize revenue for this year. But in the end of course we will expect revenue for such a system.

Great. I'll jump back in the queue. Thanks.

Thank you.

Thank you, Rob.

Our next question comes from the line of Troy Jensen with Piper Jaffray. Please proceed with your question.

Hey, gentlemen, thanks for taking my question. I just – Rudi, just on the gross margins I guess, surprisingly strong given you guys sold a couple of refurbished machines this quarter. Just wondering if the outlook for kind of gross margins shows better now than it did starting the year? I know you reiterated the 40% plus gross margin guidance for the year, but do you feel kind of incrementally better on the business and why was it so much better this quarter?

Thank you, Troy. I think on Service segment, it always depends on utilization rate. And this quarter we simply had a pretty good utilization rate compared to the assets which we have in operation. And have in mind if you see the facility with new equipment you don't utilize the equipment by day one once you have it activated. So I think Q1, Q2 and Q3 should deliver pretty good gross profit, but we currently see no reason to increase, but I think we said in services the gross profit of about 45% is always doable, but there is to us no need to increase it above 50%, we feel quite comfortable with the range of say in service segment about 44% and overall 40%. The gross profit in the Systems segment, used printers as now I think we negotiated pretty good terms. The printers had a good fair value for being sold out, so -- and that were the main drivers I mean just some good things happened which helped us to improve the gross profits. As well I think it’s a fair point from Ingo, consumables as well, we're pretty good in that quarter. We can’t predict when clients order, but in Q1 we definitely received a pretty good inflow from consumable orders as well.

Okay. Perfect. And on the material side guys, can you just give us an update on kind of what's in the pipeline and kind of new introductions that could be meaningful for you guys?

We have a variety of materials for certification; qualification in HSS among others is of course various polyamides. We have polypropylene. We have TPU based materials, so there's a lot going on. It's not really good for the moment or not possible to say something specific, but I guess we will have a bunch of qualified materials by the end of the year. On the ceramic side, we're doing various test with customer materials for instance, silicon carbide and so on and we have our own ceramic materials that are under development which we hope we can release by end of the year. On the sand side, I think the PDB is still extremely powerful material system for the metal casting industry. We try to improve that. And as well the inorganic which begin to gain traction here in central Europe. It’s a very important material that since of the foundries are currently using inorganic to save pollution and to have a better environmental footprint.

Okay. Historically pricing has been an issue in the industry, have you seen better – a [safer] [ph] pricing as we've seen in the past?

Well, the pricing on services you mean?

Yes, exactly.

So, I think we stay since the while on a price level and see no pressure on the pricing maybe as we did in prior years, but that doesn't mean that we are able to increase pricing. So I think it’s a stable system for the moment. Low movement, customers are happy with this service, for instance, with the quality of the service. I think this is one of the main drivers while we [are too] [ph] good for this moment and have extremely good demand for our on-demand part service.

Addition to what Ingo said, we invested quite a bit in our sales teams and the customer service team to really keep the consulting level and the customer education on a high level. And it had only printing good, it’s definitely as well advising customers in the right methods process et cetera, but I think in that topic we do pretty good.

All right. Well, perfect guys. Good luck for the remainder of the year.

Thank you much. Thank you, Troy. Have a good day.

Thank you. There are no further questions at this time. I would like to turn the call back over to Ingo for any closing remarks.

Thank you very much. So through the systems investments, R&D and relentless innovation, the advancement of today go well beyond what we might have expected. And applications are widening in size and scope. We now see a rapidly voting market maturing in terms of acceptance and adoption of our technology as evidence by increasing traction across our services segment. We entered 2018 with great momentum and the strong focus on executing on our strategic targets. We have developed a scalable foundation on which to extend our leadership and to build the digital economy and we expect our forward momentum to deliver a strong 2018. The opportunities are all around the world await and we are ready to take them. Thank you very much.

Thank you very much. Have a good week-end. Have a good day. Bye-bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.