voxeljet AG (VJET) Q2 2018 Earnings Call Transcript
Published at 2018-08-17 13:59:08
Johannes Pesch - Director, Business Development and IR Ingo Ederer - Founder & Chief Executive Officer Rudolf Franz - Chief Financial Officer
James Medvedeff - Cowen & Company Nick Johnson - Piper Jaffray
Greetings and welcome to voxeljet AG Second 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. I'd now like to turn the conference over to your host, Johannes Pesch. Please go ahead.
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 second quarter financial results for the period ended June 30, 2018. 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. I want to thank everybody for joining us today. Today we will take you through some highlights of our second quarter performance and provide context on how we are well positioned for the launch of a variety of new products later this year and in 2019. 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 6, we started nearly 20 years ago as a spinoff from Technical University in Munich with a clear vision in mind to replace conventional manufacturing by constantly pushing technology boundaries. Turning to Slide 7. This vision translated into a powerful strategy, which clear mission statements and core values. This additional statement we shared throughout the year represents what we tried to be every day and essentially how we operate across all aspects of our business as we build this company for the long term. We are committed to executing the core pillars of our strategy, holding ourselves accountable for performance and investing in our business for the long term. Our integrated business model is summarized on Slide 8. In our Systems 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 9 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. The future of our company will be build on our strong position in Europe, the success of our international expansion, strategy, the growth potential of existing products and the introduction of new and innovative products. Slide 10 highlights our headquarters in Germany. Turning to Slide 11, we have summarized some of the applications of our products and selected customers. Today I can say that, together with our partners, we are about to reinvent the manufacturing landscape by launching the world's first fully automated 3D production solutions capable of replacing conventional manufacturing in serial-production. The 3D printing industry is at an inflection point and this achievement marks a key milestone in our mission. Let's turn to Slide 12, and start with the formal part of the presentation as this begins with an overview of the second quarter results. Rudi will then provide a more in-depth view of our financials and our outlook for the third quarter of 2018. Following his comments we will be happy to take your questions. Revenue was kEUR5.3 million, which represents a 2% increase compared to last year's second quarter. It is important to note that current order backlog in our Systems segment increased significantly to kEUR7.2 million, up 46% on the end of the first quarter. This is in part related to the launch of new products. I will elaborate on the split between revenue contribution from new and existing products in a minute. One of the reasons highlights certainly was the launch of the VJET X's InOrganic-Binding or IOB, setting the space for what we believe to be the most important product launched to date at voxejet. While we have been working towards this growth for years, in many ways achieving this is like the new start here at the company and everyone is energized to support the launch. Combined with the automation equipment, VJET X is now uniquely positioned and what we believe will become a most have -- must have technology for high-value added production. While other technologies will play some role in changing the manufacturing landscape, we believe that no other technology available today can come close to the speed, accuracy and level of automation of our platform. Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, decreased 26% to kEUR1.9 million in the second quarter of 2018 from kEUR2.5 million in the last year's second quarter. We delivered one new and one used and refurbishment in this year’s second quarter compared to three new printers in last year's second quarter. Our pipeline has more than 250 sales opportunities and we continue to work hard to turn these prospects into orders. We didn't -- I put the highest emphasis on managing our sales funnel and are investing a significant amount of our time into monitoring the progress of our future all around the globe. Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, increased 29% to kEUR3.4 million in the second quarter this year from kEUR2.6 million for the same quarter last year. We feel great about the momentum of our Services business and we are on target to reach our goal of improving our fiscal 2017 Services revenue for more than 25%. Our results were driven by strong performance in a number of areas, and I would like to briefly mention just some of these. The performance in Germany continues to be strong and the revenue increases and margin contributions in U.S. were exceptionally good. David Tait and his team in U.S. continued to work on some really exciting projects, for example, in the space exploration sector. Customers in these industries are using our PMMA process to create large patterns which are used to cap titanium parts at significantly lower cost compared to, for example, laser sintering. Part of the cost and time savings is related to the quick certification procedures as the cap-in process has been aroused with over 1,000 years. Let’s turn to Slide 13, and some additional information regarding VJET X IOB. Together with our partners, we have taken a major step to reinvent the manufacturing landscape by developing the growth terms fully automated 3D production solutions of replacing conventional manufacturing and 3D production. The integrated solution allows for the automated production of, for example, highly complex sand cores, which can be used in the casting process of critical engine components. The new solution leverages our decades of research and expertise in precision mechanics [indiscernible] in the truest sense. VJET X IOB is 10 times faster than our currently available 3D printers features fully automated pre- and post processes and uses a new inorganic material set, the combination of bind and powder to ensure high environmental compatibility during casting process of the 3D printer sand cores. The key benefits are improved engine performance and fuel efficiency, reduced cost per part and then increase in fuel stability and production. Turning to Slide 14 and an update on our research and development activities in general and our product pipeline in detail. Strategically, we want to bring our 3D printing technology into fully automated mass manufacturing. Throughout the first half of 2018, we have made significant progress towards this target and are incredibly enthusiastic about the solutions in our lineup. One of the most important elements in our strategy for growth is increasing our new product revenue, focusing, especially on the business, where we believe demand is growing and is potentially significant. For fiscal 2019, we project revenue for new products to fuel approximately 35% of our Systems revenue. For fiscal year 2020, we project this number to be around 50%. New product developments into intensified sales activities are showing initial results, and we are really excited about our pipeline as it features more advanced processes and technology. For example, we see strong demand for our High Speed Sintering with which we have entered the thermoplastics market. It enables us to directly manufacture and use products with properties and qualities similar to or better than Selective Laser Sintering, HPQ Multi Jet Fusion or injection molding. Just recently we reduced the layer time of our VX200 platform by 50%, by means of our software update. The scale-up to a larger and automated production platform called VJET XHSS is ongoing and we are making good progress. As mentioned in previous calls, we are actively working with several OEMs from various industries, including sport equipment and consumer goods of the development and qualification of new materials for HSS. Our strategy is simple, qualify new materials in paid-for development projects and make sure it works on our VX200 platform, which was specifically designed for this purpose. Then when VJET X, HSS becomes available, mass commercializes. This approach resonates well with our customers and the results are simply outstanding. Another interesting example is the upscale of the Phenolic-Direct-Binding process to our second largest platform, the VX200. This printer and process combination allows for the large-scale manufacturing of complex sand molds. A prototype version of this printer is an operation as a large European automotive OEM for over one year now. We are in early discussion with various customers for potentially market or sales of this new product. Our commitment to technology leadership is stronger than ever that can be seen by how we have advance our research and development strategy during the last few years. We are now ready to capitalize on these investments. It is quite simple innovation fuels growth. Turning to Slide 15, and what we believe represents our addressable market and customer segmentation. You've seen this overview before and we will show it again as it has to answer two of the questions we have frequently asked by investors. So let's go through them one-by-one. The first question relates to the potential 3D printing and the outlook for growth. Here our answer is clear. The potential for industrial 3D printing is huge and the market is growing, although not as quickly as many anticipated. Since industrial 3D printing will replace conventional production in various areas, which faces a lot of resistance from established technologies and best practice supply chain. To overcome these obstacles, it is needed to have a supporting ecosystem. In the case of 3D printing, the ecosystem is fairly complex and includes, among others, mature suppliers, software preparation tools and post-processing services. Over the last several months 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 received a lot of attention and capital recently, like for example, direct metal printing by laser sintering or binder jetting of metal powder. While these technologies may be good for small units' production, we do not see them capable of true industrial production for a variety of reasons. Data is too slow and cost prohibited while binder jetting of metal powders faces some issues with sintering the green part in a furnace, especially for larger and more complex pieces. The second question relates to voxeljet and why we did not yet sell more printers. Looking at the industrial uses section on the right side of this slide, you can see that one third of our potential customers are currently not implementing 3D printing technology. Another 29% are experimenting with it and 25% prototyping only. Taking together, let's call that group 1, they represent roughly 85% of our potential customer base. Group 1 is characterized by an early level of maturity and their needs are ideally suited for our on-demand business segments. They can satisfy their sporadic demand very cost efficiently by ordering services. As mentioned earlier, this group is growing, and it is growing quickly. Looking at the results in our Services segment, we are clearly benefiting from this development. As customers mature and understand the benefits of our technology better they graduate into a Systems phase opportunity. Looking at Group 2 are about 15% of our potential customers retain to be using 3D printing and production at various large sizes. This group is characterized by higher level of maturity. Taking together, we address roughly 40% of our customer base as system phase opportunities with the growth of two thirds of very CapEx-sensitive and cash-restricted, especially in the Asia-Pacific region. To address this, we focus on optimizing the production cost of our equipment by redesigning part of our printers, reduce machining time is critical and keeping production for slow. We planned to assemble some part of our printers in China would have productive advanced quality inspections. We are happy with the results so far. As a remainder, one third of our potential systems customers are 12% of our 2D customer base has no problems with CapEx spending. These are the big automotives or aerospace OEMs where we target multiple-system phase. For this group we have launched VJET X. Slide 16 summarizes our three strategic growth initiatives. Relentless Innovation and Focused Internationalization based on scalable infrastructure. We have discussed innovation and internalization. We would, therefore, like to add some comments on the infrastructure we have built to support substantial growth both in our Systems and Services segments. We, meanwhile, run fully integrated in SAP and have become one of the first, if not the first company to run large-scale 3D production on SAP. This means fully integrated phase production and product channels and logistics processes. From a strategic and financing perspective, we are proud to have the European Investment Bank as a strong partner on our side, which supports project that makes a significant contribution to growth, employment, regional acquisition and environmental sustainability with a special focus on highly innovative companies. The EIB is the bank of the European Union and is owned by the 28 member states. Slide 17 summarizes our track record in these three categories. Turning to Slide 18, and an update on phase execution. We continue to expand our sales team around the world by investing in sales leaderships, additional application engineers and training. To complement this, we focused on educating our channel partners to ensure full global coverage. We are exploring options to increase our production footprint in relevant key markets such as India, South America and Japan. Slide 19 summarizes the results for the quarter. Slide 20 highlights our value proposition. To sum up, we believe we are innovating in ways which truly matter to our customers. We are executing on the right side of the change in our industry and are positioning the business to reinvent manufacturing landscape. With that, I would now like to turn the call over Rudi.
Thank you, Ingo and good morning to everyone. I would like to begin by providing financial details and adding some additional context of results before discussing our outlook for the rest of 2018. Turning to Slide 22, our total revenues increased 2.1% to kEUR5.3 million in the second quarter compared to kEUR5.2 million in the last year’s second quarter. Gross profit and gross margin in the quarter were kEUR2.1 million and 39% compared to kEUR2.1 million and 40.9% in last year’s second quarter. The next slide shows our segment importance for the quarter. On Slide 23 revenues from our Systems segment, which includes revenue from selling 3D printers, consumables and spare parts as well as maintenance decreased 25% to kEUR1.9 million for the second quarter of 2018 from kEUR2.5 million in last year's second quarter. We recognized revenue for one new and one used and one refurbished printer in the second quarter of 2018 compared to three new printers in last year’s same period. Systems revenues represented 35.8% of total revenues this quarter compared to 49.3% in last year’s second quarter. Gross profit and gross margin from our Systems segment in the quarter was kEUR0.6 million and 2.98% compared to kEUR0.9 million and 36.4% in last year’s same period. [indiscernible] an increase in fixed cost is required for the further development of systems, the percentage portion of such costs and gross profits were decreased along with increase in business volumes resizing and significant increased margins. More generally speaking is utilization fix up we expect gross margin from the Systems segment to be in the range of 40% to 45%. On Slide 24, Services revenues increased 29.4% to kEUR3.4 million from kEUR2.6 million in last year's second quarter. This is a great achievement and highlight we are following the right path. The increase was mainly related to higher revenue contribution from our German and U.S. operations. Gross profit for our Services segment significantly increased to kEUR1.5 million in the second quarter of 2018 from kEUR1.2 million in the second quarter of 2017. The gross profit margin for this segment slightly decreased to 44.2% from 45.4% in last year’s same period. Looking now at the rest of the income statement on Slide 25. SG&A expenses were kEUR3.1 million in the second quarter of 2018, this compares to kEUR2.6 million in last year's second quarter. The increase was mainly due to higher personnel expenses resulting from the buildup of our sales process, especially in Germany compared to last year’s second quarter. In addition, delivery costs increased in line with the increased revenues for our Services segments. The increase in administrative expenses is mainly related to higher personnel expenses resulting from higher headcount in Germany with the consulting expenses related to the implementation of SAP in our Services segment in Germany, which is now complete. Research and development expenses were kEUR1.5 million compared to kEUR1.3 million in last year’s second quarter. As Ingo highlighted, we continue to invest in core R&D in Germany to maintain our position as a technology leader including printing. Operating loss were kEUR2.2 million in the second quarter of 2018 compared to operating loss of kEUR2.7 million in the comparative period in 2017. Net loss for the quarter was roughly kEUR2.75 million or kEUR0.74 per ordinary share compared to net loss of kEUR2.67 million or kEUR0.72 per ordinary share in the period previous quarter. On an ADS basis net loss was kEUR0.15 per ADS in the second quarter of 2018 compared to net loss of kEUR0.14 per ADS in the second quarter of 2017. We have provided the same graphic presentation for the same financial metrics for the 6 months period ended June 30, 2018 on Slide 26 to 29. Slide 30 shows selected balance sheet items. At June 30, 2018, the company had cash, cash equivalents and short-term investments in bond funds of roughly kEUR16.8 million. Total debt at June 30, 2018 was kEUR17.3 million, weighted average ordinary shares outstanding for the quarter was kEUR3.72 million, which equates to kEUR18.6 million ADS. Moving now onto Slide 31, and our revenue guidance for the quarter. For the first quarter of 2018, we expect revenues in the same range of kEUR6 million to kEUR8 million. Full year 2018 revenue remains unchanged and it is expected to be between kEUR28 million and kEUR30 million, with gross margin above 20%. SG&A spending is expected to be in the range of the kEUR11 million to kEUR12 million and 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 kEUR4.0 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 of kEUR5.5 million to 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. At this time, we will be conducting a question and answer session. [Operator Instructions] Thank you. The first question is coming from the line of James Medvedeff with Cowen & Company. Please proceed with your question.
Hi. Can you hear me all right?
Yes, pretty good. Thank you.
Okay. So, the first question that I have is on the timeline for the HSS system moving to a larger box. Can you discus that at all?
Hi, this is Ingo. So as in my presentation, we are working on this topic to bring HSS on the larger platform. Currently we are on track with the development. As shared in earlier calls, we are planning to launch first prototype version in our next year. This is still the target. And I think you're right on track.
Okay. Thanks. And congratulations on the order for the first VJET X system. Can you talk more about that? Is that a European customer, a North American customer? I think you said it's -- you plan to shift in Q1. Is that all -- is that correct?
Well, this was a very dedicating since the deal is not disclosed yet completely. What I can say is that the funnel customer is a big automotive OEM here in Europe. It's a multiple installation sale. And the first machines will be installed second quarter next year.
Is that machines, so there is more than one?
Okay. And then the third question that I have, if I can squeeze one more in, is on the Services revenue was declined 8% from the first quarter, very strong growth year-over-year. But is there -- was there some particular strength in Q1? Or what led to the decline from last quarter?
Well, we need to look at net AV. The yearly development of Services in the second quarter usually, I quote with the flat relation towards the previous quarter. So I think this is in line with the expectation. Of course, if you look on international scale, there are some other effects included some vacation time. We would achieve this as a normal development. No further sign for any larger development.
Okay. Great. Thanks. I'll get back in line. Thank you.
[Operator Instructions] The next question is from the line of Nick Johnson with Piper Jaffray. Please proceed with your question.
Hi, guys. Thanks for taking my question. Congrats on the quarter first of all. By the way, Troy is travelling from Boston today. So he will not be able to be on the call. But I'm sure he'll just follow up with you. I just want to ask, I know you guys have talked historically about taking multi-system orders in the pipeline. Any update on the timing of these larger system opportunities?
Well as already mentioned, we have an order for VJET X solution IOB already in which consists of more than one printer, I can tell currently. So this is going to start off. We are expecting this existence of this platform, a big demand from similar customer around the globe. So I think this is currently in progress. And we are doing, I think a good development in this regard.
Okay. And then looking at Asia, it seems like they're all-time lows at the moment. Any update on what's going on in Asia?
Yeah. Asia is definitely very sensitive market for us. I think the main message for us is that this is a capital investment, very, very price sensitive market. We are acting with our equipment, of course, in the high quality, high productivity area, but although with the high price area. And some of our Chinese customers are, let's say, dealing hardly with those prices. I think this is the main reason why it's currently a bit difficult for us. But I would say for the rest of the year, you will see us having some views in that region as well.
And then maybe just quickly if you could on India. I know, I think in last quarter, you had a nice uptick in India. How is that progress going?
India is overall performing quite nice. As you know we have a sales office in India and small service center activities. We have sold in Q1, a printer to a client, which was on our Indian booking, that’s why we had this peak in India. I would say India is heading in the right direction and we might see additional order income in Q4, Q1 next year.
Thank you. And then last one from me, I appreciate the last question or the person asked a question for me, I was talking about the larger system order for the HSS machine. With your -- currently the VX200 in the market today, are you able to provide how many systems or customers you’re currently working with?
We have various customer projects and also orders for the 200 platform already in. Project means that customers having a specific application or a specific material set of both of them and want to introduce those on the VX200 platform. So currently our R&D capabilities are completely covered by those projects. And you can easily foresee these are multiple opportunities. So I’m quite pleased with that. And as such we see existence of the bigger platform; those projects will immediately turn into a phase of the bigger platform.
I guess just one more follow-on as I think about it. In a long-term outlook, what do you see being a large opportunity the HSS or VJET X IOB?
The good thing is that the VJET X solution provides a technology base for both opportunities. So I mean the platform machine or the basic machine and it's principles is applicable to sand core printing, as well, to other mature tests, like ceramics, but also in some relation, HSS, so means thermoplastic materials. So it means we can neutralize some of the development effort in both areas. For the moment, it is relatively hard to foresee what application drives the better phase. For the moment we believe that the thermoplastics market might be the easier market for us, while the inorganic printing is absolutely an outstanding solution for some areas, especially in the automotive industry. So it's really hard for us to tell. But we believe HSS has probably the high potential.
Excellent. Well thank you for taking my questions and keep up the good work.
Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. Now, I would like to turn the call back to Ingo Ederer for closing remarks.
Thank you. So again, I’m very pleased with our progress halfway through the year. There is great momentum in our business and we are well positioned to be the leader in our technology driven by continued emphasis on growing our subsidiaries and unrelenting focus on R&D, and by increasing our market penetration through our sales and marketing operations. We will continue to invest strategically to support our momentum and to drive higher revenue growth in the second half of the year. There is a lot to be excited about. Thank you again for your participation in today’s call. We look forward to speaking with you again in November when we report our results for the third quarter of 2018. And thank you very much and have a nice weekend.
Thank you. Have a good weekend. Bye-bye.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.