Johannes Pesch - Director, Business Development and IR Ingo Ederer - Founder and Chief Executive Officer Rudolf Franz - Chief Financial Officer

Tory Jensen - Piper Jaffray

Greetings and welcome to voxeljet AG Third Quarter 2018 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. It is now my pleasure to turn the call over to Johannes. Please go ahead sir.

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 third quarter financial results for the period ended September 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 Web site 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. Since this is the first conference call since our follow-on offering, I would like to take this opportunity warmly welcome all our new shareholders who have come on board in the last month. Innovation is part of the DNA of voxeljet, we have created an exciting and forward thinking culture where we are constantly evolving and improving our ability to deliver the best experience for our customers. Major focus of ours is in the consistent investment in advancing our technology to reach profitable growth. We've talked before about how innovation enabled our strategic accomplishments and provides us with an ongoing competitive advantage. It would take an enormous amount of time, human capital and funding to replicate our major innovations like VJET X providing us with a very real barrier to entry. Looking at top-line and the progress we have made through the strategic launch of our new products and how this positions us for the long-term, we are happy with the results for this quarter. However, looking at the bottom-line there is still a great deal to be done based on our current results. At this stage of our company's evolution, I would therefore like to emphasize the most important layer to the execution of our strategy, profitable growth. The long-term success of our company will not only be measured by the quantity of our innovations, but also by our ability to bring these to their full potential. Our primary focus for the next quarter therefore is to reach a path to sustainable and profitable growth. We have made great progress towards this target. We are very confident our new products with increased sales and are currently implementing programs to optimize our cost structure further to reach profitable growth. The agenda for profitable growth can be broken down into a few action areas. First turn emerging market into the core business with specific product and market strategies and tap the efficiency potential lurking within the product cost along the entire value chain. Second, continue to make use of the market opportunity with existing products taking advantage of the volume markets in Europe, North America and Asia. And third, expand our total addressable market through innovative product and service packages. Fourth, drive destination in additive manufacturing solutions for the market relevant innovations which we believe will become state-of-the-art manufacturing methods and ultimately help us the same process to growth. Today and on future calls, we want to take you further behind the scenes to talk more about new product capabilities, we have developed and how each better positions us to win over the long-term and how each contributes to profitable growth. The opportunities are vast both in our direct and our indirect cost portfolio and I'm extremely excited about how our new products expand our total addressable market. With indirect metal parts from our OEM solution VJET X, the most productive additive manufacturing platform to-date, we believe to be on the forefront of a significant shift of conventional production to zero additive manufacturing. With advanced material combinations for direct parts from high speed sintering and a large production platform being launched in 2019, we see us in a position to unlock new customer groups to develop and commercialize such innovations is precisely the reason why I started this company 20 years ago. Turning to Slide 5, we started nearly 20 years ago at a spin-off from Technical University of Munich with a clear vision in mind to replace convention manufacturing by constantly pushing technological boundaries. Today the leading technology companies from the automotive and space exploration industries are our customers. Our proprietary technology is used to create parts which are flying in space. Our integrated business model is summarized on Slide 6, our systems segment that 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 in facilities around the world to offer affordable on demand access to our technology. This proprietary technology is reshaping the way things are made and it's truly disruptive to the traditional methods of manufacturing. Turning to Slide 7, this vision translates into a powerful strategy with clear mission of statements and core values. This vision statement we have shared throughout the year represents who we strive to be every day and essentially how we operate across all aspects of our business as we build this company for the long-term. To differentiate ourselves from the competitors by building this type it should geographically and feeding our proprietary additive manufacturing technology made [towards] [ph] production. Please turn to Slide 8 for an overview of our operations. With more than 500,000 liters of monthly printing capacity, with currently four service centers, we believe we are the world's largest provider of on demand printing capacity. To use this key competitive advantage to push the adoption of our technology and drive the sale of our 3D printing platforms all around the world. What I'm saying is, our service centers our best marketing engine for future system sales. Slide 9 shows our global sales network and production footprint. As you can see, we have reached an established position in all major markets in Europe, the U.S. as well as China and India. We continue to expand our sales team around the globe by investing in sales leadership, additional application engineers and training. To complement this we are focused on educating our channel partners to ensure true global coverage. On Slide 10, we have summarized some of the applications of our product and selected customers. Over the last 20 years we have been working with leading customers from a variety of industries to produce parts that cannot be produced in any other way with traditional methods of manufacturing. In the automotive sector, for example, we support the manufacturing of the more complex engine components like cylinder has the total charges. Let's turn to Slide 11, and start with the formal part of the presentation. I will begin with an overview of the third quarter results, Rudi will then provide a more in-depth view of our financials and outlook for the fourth quarter of 2018. Following his comments, we will be happy to take your questions. Revenue was kEUR7.1 billion which represents a decrease of 4% compared to last year's third quarter. We are very excited about our growing backlog for 3D printers, which is up 14% from the end of the second quarter. Based on our backlog, the fourth quarter has the potential to become the best quarter in the company's history base and revenue. Revenues from our system segment which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance decreased 10% to kEUR3.7 billion in third quarter of 2018 from kEUR4.2 billion in last year's third quarter. We delivered three new printers compared to [free-new] [ph] and free-refurbished printers in last year's third quarter. Gross profit margin for this segment increased to 32% in the third quarter of 2018 compared to 39% in the third quarter of 2017. This was due to lower gross profit margin contribution from our after sales activities mainly spare parts and maintenance. The gross profit margin contribution related to the sale of 3D printers was almost unchanged. Revenues from our service segment which focuses on the printing of on-demand costs for our customers increased 4% to kEUR3.4 million in this year's third quarter from kEUR3.2 million for the same quarter last year. We truly start to benefit from our global footprint and gain traction with new processes. In the U.S. for example the demand for PDP product especially strong and we are fully up there. Gross profit margin for the services segment decreased to 33% in the third quarter of 2018 compared to 47% in third quarter of 2017. The decrease is largely related to lower gross profit contributions from Germany due to a larger portion of sales with longer lead times, which generally have lower margins. In addition to that personnel expenses increased as we hired additional people. Slide 12 summarizes the results, we feel great about the momentum of our global subsidiaries and the U.S. was again performing exceptionally well. In Asia, we sold one of our largest systems to our clients in Indonesia. Looking at operating expenses, our [starting] [ph] expenses mainly increased due to the increase in headcount although we incurred relatively high delivery costs associated with the selling of the system to a client in Indonesia in the third quarter of 2018. Our commitment to technology leadership is stronger than ever as can be seen by our continued investment in R&D. Obviously there is VJET X and the new [indiscernible] which I will discuss in detail in a minute. But there is more as you might have seen from the press release earlier this month or uncertainty at the formnext show in Frankfurt. We have launched our new F-line of printers with VX-1000F operating on inorganic binding material, while VJET X was developed on the extreme performance 10x faster than previous models and this full automation equipment for automotive client in Germany Model F is still 5x faster than previous models and also operate on the new inorganic binding material. We are collecting orders for this new type of printer for delivery mid-2019. This is very exciting and we are looking forward to the feedback from our customers. It is fair to say they have been waiting for this kind of printer for quite some time. Administrative expenses are largely driven by our ongoing costs related to being a public company and including legal and substantially auditing fees. Turning to Slide 13, our addressable market is potentially huge, but the significant growth potential as additive manufacturing takes a larger and larger share from traditional manufacturing. As mentioned in my opening remarks, it is particularly rewarding to see how our new product offerings increase our total addressable market. With X, we will have as we believe the only OEM ready solution for fuel additive manufacturing which is capable of replacing conventional manufacturing. With the S we offer generally available entry option into additive series production, for example supplies of such OEMs. With direct parts from HSF, we are unlocking completely new market like the sports equipment spectrum. Let's turn to Slide 14 and a summary of our growing initiatives. Our growth strategy [indiscernible] three main points and is centered about reaching profitability. First, we introduced advanced and fully automated additive manufacturing solutions that addressed client needs on demand production. This allows us to sell multiple systems to individual companies. Second, we are developing new technology that matures which give our machine wide applications for new and existing customers. Finally, we are entering new markets such as sporting goods like shoes household goods and automotive interiors. Let's now turn to Slide 15 and an update on VJET X. This is without a doubt the most important product launch to-date at voxeljet. This new solution is a game changer for the whole industry. Here are some quick facts. VJET X 10x faster than previous models. It's fully integrated into automated pre and post processing and it's operating on environmentally friendly materials. Together with our partners who are experts from the chemical and the automation industry, we have a better solution for a leading German carmaker. Competition for this project was fierce and we are very excited to have come out on top. The new technology allows for the production of highly complex Water jacket at high speed which are used in light metal casting processes. Water jacket is a liquid-filled casing surrounding a device typically out of light metal having intake and outlet vent to allow a liquid to be pumped through and circulated. Water jacket is needed for the precise temperature management and not only internal combustion engines, but all the electric motors inverted for better resistance. The nutrition temperature management improved overall due to this performance. Slide 16 summarizes recent improvements in the performance of our binder jetting technology for indirect metals. Indirect metals means creating a mold pattern of core which is then used in a casting process to produce the extra metal part. The casting process has been refined over thousands of years and is geared towards high throughput at low cost and consistent quality. Our hybrid approach therefore leads to an unmatched capability potential by combining the best of the two groups, freedom of design to additive manufacturing in combination with established best practices for metal parts production. On the left side of the slide you can see the chart box of VX1000 printers which equals roughly 300 liters in volume to print such a box it takes approximately 21 hours with the standard printers. It's the pilot recording operations in stores the levering unit and the printers then move simultaneously this pilot is used 1 hour to 15 hours. On the new F line of printers, this time is again reduced further by more than 60% to only 5 to 7 hours, thanks to larger printers and to have some parallel movement on the axis. The [x] [ph] features another almost 80% improvement as compared to the S which makes it possible to print 300 liters in only 1.3 hours. This innovation featuring our next generation printers and recording unit will be made possible by our 20 years of research and expertise in precision mechanics, microfluidics and material science. From these numbers it should become obvious what we mean when we say we believe there to be no other additive manufacturing technology capable of replacing conventional manufacturing. Let's turn to Slide 17 and an update on direct path from high-speed printing which we have -- which we have entered, we have several plastic markets. This innovation gives us the ability to directly manufacture and use products with properties and quality similar to all better than selected laser sintering, HP's Multi Jet Fusion or Inject modem. We are really excited about the speed we see in the qualification of new materials for our high speed sintering processes. In less than nine months we were able to qualify various grades of putting my powders and are successfully printing several types of thermoplastic polyurethane. We are also working on some very customer specific materials including polypropylene which is one of the most widely used plastic materials in the world. PPE features extremely interesting properties and addresses a broader set of applications. They are successfully printing PPE on our smaller VX200 HSS assistant. In addition to the recent launch of new material for HSS we have doubled the speed of our commercial available lead to 100 platforms by reducing the layer time to only 20 seconds. This great achievement comes with [handpicking] [ph] and homogeneous texturing of the printed parts and expect the possible application of HSS products for example the automotive for sporting goods industry. These improvements are the direct result of the ongoing development of large HSS production systems. We expect to make this new product commercially available to us, end of 2019. Slide 18 summarizes our value proposition. Our commitment to technology leadership is stronger than ever as can be seen by how we have advanced our research and development strategy during the last few years. We have now started to capitalize on these investments. It is a quite simple innovation fueled growth. We believe we are on our way to reach profitable growth. With that I would now like to turn the call over to Rudi.

Thank you, Ingo and good morning to everyone. I would like to begin by summarizing the recent follow on offering that was launched after the close of this third quarter. I will than provide financial detail before discussing our outlook for the rest of 2018. Obviously, there is never good timing for a small company like ours to raise capital and having tested, there is a great momentum here and we are fully energized by this first order of VJET X. As Ingo mentioned that this doesn't be the most innovative product we have launched so far. You're very confident that VJET X truly is a game changing and have become the benchmark of productivity and [indiscernible]. We are convinced this will help us reach sustainable and profitable growth. In conjunction with a capital increase in [Tobo] [ph] where we issued the main tranche in early November when the underwriter exercise the over allotment option with issues an aggregate of profit 5.8 million new ADS at a price of 2.5 billion per ADS by total gross proceeds of roughly kEUR12.5 million. Ingo and I participated in the capital increase by purchasing on aggregate of 233,462 ADS. The company has received the effort from the capital increase led the underwriting discount permission and offering expenses. We plan to use the net proceeds for general corporate processes including the commercialization of our new products. Turning to Slide 20. Our total rating is slightly decreased speed of 6% to kEUR7.1 million in the third quarter compared to kEUR7.4 the phone in euros in the last quarter. Gross profit and gross margin results in the quarter kEUR2.3 million and 32% compared to 3 to 2 million and 42 of 7% in last's quarter. The next slide shows our segment reporting for the quarter, on Slide 21, revenues from our system segments which includes revenue from selling 3D printers, consumer goods and spare parts as well as maintenance decreased 9.8% to kEUR3.7 million for the third quarter of 2018 from kEUR4.2 million in last's third quarter. We started seeing new printers in the third quarter of 2018 compared to three new and three used and refurbished printers in last year's same period. System revenues represented 52.6% of total revenues this quarter compared to 56.2% in last year's third quarter. Gross profit and gross margin for our system segment the quarter was kEUR1.2 million and 32% compared to kEUR1.million and 38.9% in the last year's same period. On Slide 22, service revenues increased 412% to kEUR3.4 million compared to kEUR3.2 million in last year's third quarter. For the first nine months of this year revenue in the segment is up 20% compared to the same period last year. This is a great achievement and highlights that we are on track to reach our goal of 25% growth in this segment. Gross profit for our service segment decreased to kEUR1.1 million in the third quarter of 2018 from kEUR1.5 million in the third quarter of 2017. The gross profit margin for this segment decreased to 33% from 47.4% in last year's same period. The decrease in our service segment is largely related to lower gross profit contributions from Germany due to a larger portion of sales with longer lead times which normally had lower margins in addition to [indiscernible] personnel expenses and increased -- as we hired additional people. Looking at the rest of the income statement on Slide 23, SG&A expenses were kEUR3.5 million in the third quarter of 2018. This compares to kEUR3 million last year's third quarter. The increase was mainly due to higher personnel expense resulting from the dug up of our sales growth especially in Germany compared to last year's third quarter. In addition, delivery cost increased in this quarter due to the release of shipping expenses related to the sale of one of our largest 3D printers to a client in Indonesia. Administrative expenses were kEUR1.5 million for the third quarter of 2018 compared to kEUR1.4 million in the last year's same period. The increase in administrative expenses is mainly related to higher personnel expenses. Research and development expenses were kEUR1.7 million compared to kEUR1.1 million in last year's third quarter. As Ingo highlighted, we continue to invest in core R&D in Germany to maintain our position as the technology leader in the spectrum to reach profitable growth. Operating loss was kEUR2.8 million in the third quarter of 2018 compared to an operating loss of kEUR1 million in the comparative period in 2017. This was primarily related to a decrease in gross profit for the reasons mentioned earlier and higher R&D expense. Net loss for the quarter was roughly [kEUR3.8 million] [ph] or [kEUR0.10] [ph] per ADS in the third quarter of 2018 compared to a net loss of kEUR1 million of kEUR0.05 per ADS in the third quarter of 2017. Slide 24 through 27 provides the same information for the nine months ended September 30, 2018. Slide 28 show selective balance sheet items, at September 30, 2018, the company's cash, cash equivalents and short-term investments in bond funds of roughly kEUR30 million. Total debt at September 30, 2018 was kEUR17.3 million this includes kEUR10 million from the debenture of debt facility from the European Investment Bank for highly innovative European company. Weighted average ordinary shares outstanding for the quarter were kEUR3.72 million, which equates to kEUR6 million ADS. We continue to see opportunities to improve working capital performance, cash flow in our cash conversion cycle in 2018, remained comfortable with our cash balance and overall liquidity position to believe that our balance sheet positioned us well for the long-term. During the preparation of our consolidated interim financial statements for the three month and nine month period ended September 30, 2018, the company became aware that the margin of certain intra group transactions have not been properly eliminated on the consolidation process resulting in immaterial misstatement of cost of sales to the company's consolidated financial statement. That immaterialistic was corrected and restated line item from our prior to financial statements as summarized in our earnings release. We evaluated the effect of the incorrect presentation, service qualitatively and quantitatively and concluded that it did not have a mature impact on nor require amendment of any previously past financial statements. Moving now on to Slide 29, our revenue guidance for the quarter and full year 2018. We reaffirm full year guidance, for full year adjusted EBITDA, for the fourth quarter of 2018, we expect revenues in the range of 9.5% or kEUR5 billion, full year 2018 revenue remains unchanged and is expected to be between kEUR28 million and kEUR30 million with gross margins expected to be about 40%. Section a spending is expected to be in the range of kEUR11 million to kEUR12 million and R&D spending is expected to be between kEUR5 million and kEUR6 million. Depreciation and amortization expenses are expected to be between kEUR3.75 million and kEUR4.0 million. Adjusted EBITDA for the fourth quarter of 2018 is expected to be neutral to positive, adjusted EBITDA excludes the impact of foreign exchange losses on the inter-company 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 consists of ongoing investments in our lower subsidiaries. This concludes my remarks and with that, we will now open the call up for your question. Operator?

Thank you [Operator Instructions] Our first question is coming from Troy Jensen from Piper Jaffray Your line is now live.

Hey, gentlemen and congrats on the good results.

Thank you.

Thank you.

Maybe first for Ingo, the big automotive win that you had this quarter, I wondered if you could help us out with the timeline of this deployments and maybe what are some of the milestones that are going to be needed for you guys you go from two machines to five machines to 20 machines at this account?

Well, especially you have seen from the press release, currently we've got a frame over totaling in five units with an initial call for two units. The two units you are talking about, they will be delivered and installed next year. And we are -- that's a very, very sure that the we see that the call for the other units probably shortly after the full implementation of these machines. The plans for this automotive we added to have the full production capacity in 2020.

In 2020, full production capacity be in the 5 machines or the 20 machines?

What I'm saying is about the five machines. Of course, the 20 machines with the outlook, if we catch the performance that's required and then turning the reside or the other product line.

Okay, understood. And congrats on the win and sounds like it's something you guys been working on for a long time. With that switching gears here to your high speed update. Could you give us a just an update, any sense on the number of machines shipped and maybe which application that you think is really going to hit first with this new product.

So the good thing is here that even the smaller platform already gains interest in the market. So we have several different orders for machines and already we have installations out. Some of them are quite good leads. We have among them automotive OEMs and we have also orders from sports goods and manufacturers here in -- which means the -- I think the industry is catching up our solution and it is going forward especially with the latest upgrade with the increased we see more customers interested in that particular solution. And of course, the main interest is directed towards the bigger platform which we indicated to display on next year's call.

Yes. Okay. So I know asked in the past, but just to probably get an update on it. But the go-to-market strategy for high speed sintering and the customers are clearly going to be different than your casting, 10 casting customers or different application probably a lot of the same customers but some thoughts on go to market will you guys be building out direct sales force to go after this or using indirect partners?

Well, this is still under development. Currently we believe that we can address this market through our own resources. But we also are looking around what kind of capabilities and possibilities we may have through partners. So this is still under discussion. I think with the current setup, we are quite fine. I think we can address. For the moment interesting applications, interesting markets, interesting customers, as you heard me saying but it could be that we go also other ways full strategic partnerships in future.

Okay. Understood. And how about two questions for Rudy. First one, can you just let us know what we should model for the share count now [indiscernible]?

The total outstanding shares are 24 -- how much is it?

Plus 20%.

Is more than 30%, try to extend to the correct number over the call.

Okay. All right. Perfect. And then, Rudi, just where I got you to, I know you explain a little bit on the gross margin impact here pin it down year-over-year below what we thought. Can you explain once again what caused the gross margins to come in where they were?

I think the gross margin impact as we laid out in the script, the personnel, high personnel expenditures and the product mix as well. What we have seen here in the German service center activity is the exchange of print heads for our large format printers and we can't -- we had to book them right away into cost of goods sold, even if they hold for 15, 16 months we are not allowed to amortize in over time. And if you exchange a three large print heads in one quarter, which happened at that time that it's in your profitability. I think as you asked about, we tried to improve that and to be and don't get hit in one quarter but this time we couldn't avoid it. We discussed it and we simply had to exchange print head and do it accordingly. One second, I have it here, the total number of shares is 24,180,000 ADS.

Okay perfect. Congrats on all the recent success guys.

Thank you, Tory.

[Operator Instructions] If there are no further questions, I will turn the floor back over for any further or closing comments.

Thank you. At this point, we would like to remember especially colleague, loving family man, tireless innovator and successful entrepreneur and overall a great friend, David Tait, Managing Director of voxeljet America passed away last night after suffering from short serious illness. He lived quintessential life and leaves a lasting legacy. He was instrumental in building voxeljet America has established successful partnerships with some of the most exciting companies and most importantly has put the right people in the right job. Rudi will take over the MD position temporarily until Mike Dougherty who David selected as his successor to take over. Mike has joined us in August this year and has already assumed managerial level tasks. David truly works integrity and class personified. Our thoughts and prayers are with his family. Thank you.

Thank you.

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