voxeljet AG (NASDAQ:VJET) Q3 2022 Earnings Conference Call November 18, 2022 8:30 AM ET
Participants from Companies
Johannes Pesch, Director of Investor Relations, Business Development
Ingo Ederer – Chief Executive Officer
Rudolf Franz – Chief Financial Officer
Participants in the Conference Call
Brian Kinstlinger – Alliance Global Partners
Greetings. Welcome to voxeljet AG’s Third Quarter 2022 Financial Results Conference Call. All participants will remain in listen-only mode during this conference call. The formal presentation will be followed by a question and answer session. [Operator Instructions] This conference will be recorded.
Johannes Pesch, Director for Investor Relations and Business Development, will now take control of the conference. Mr. Pesch, you may begin.
Thank you, operator. Good morning, everybody. Rudi Franz, Chief Financial Officer at voxeljet, and Dr. Ingo Ederer are with me today.
Yesterday, voxeljet released a press release after the market had closed. [third] (ph), Quarterly financial results for the September 30, 2022 period. The Investor Relations section of the company’s website, voxeljet.com, contains the release and the accompanying presentation.
We may make forward-looking statements during our conference call about the company’s performance. These statements could include expectations and results from our current order queue. Forward-looking statements cannot be relied on as a guarantee of future performance. Forward-looking statements also involve inherent risks and uncertainties, which could cause actual results not to be as expected. These include the uncertainties and risks caused by the current COVID-19 Pandemic and the uncertainty that it will bring to the global economy.
You can refer to our press release for additional information about factors that could cause actual results not to match those in our forward-looking statements. The filings of the company with the Securities and Exchange Commission contain factors.
Now, I’d like to pass the call to Ingo, Chief Executive Officer at voxeljet.
Thank you, Johannes. Good morning to all. We are grateful that you joined us today on the earnings call.
Let’s move on to slide 4. Our roots go back to 1995 when the Technical University Munich performed the initial 3D printing test. This was in the context a secret project. As a spinoff from the university, I co-founded the company in May 1999 with the clear goal of establishing new manufacturing standards. We provide strategic competitive advantages to our customers by changing from conventional production methods to additive manufacturing. We push the boundaries of technology and create new generative processes to produce complex components.
Let’s move to slide 5, where we describe the technology. There are probably more than 10 technologies in the additive manufacturing market. Each technology has its own specialized application. Our technology is called binder jellytting. Because of its scale potential, binder jetting works well for high-volume manufacturing. Our VJET X technology is pushing boundaries.
Slide 6 shows a high-level overview, with recent milestones, of our company. These will be helpful in our quest to create new manufacturing standards. Recent months have seen the highest order inflow of 3D printers ever. Now, the emphasis is on delivering these printers in a timely manner. Our 3D printers have a record backlog. We have repaid all our financial obligations by closing the sale and leaseback transaction at our German headquarters.
Slide seven shows images of our production facilities in Germany and the U.S. Let me now briefly explain the two business segments. The Services segment is the top left of this slide. We have three locations around the globe where we can operate our 3D printers. This allows us to provide affordable access to our technology. In this segment, demand has been exceptional in recent months in Europe as well as in the U.S. and we were basically at capacity for the entire time.
Customers only need to send us their 3D data and we will print the parts. This is an easy way for customers to learn about new business opportunities in 3D printing. The short sales cycles and services also help us balance long sales cycles in the Systems segment. There are many industries that our customers come from, including aerospace, automotive, general engineering, as well as architecture. One of our biggest on-demand printing customers is a supplier to an international space exploration company.
Our Systems segment manufactures and sells high-quality, high-speed, large format 3D printing systems that are industrial-grade and designed for mass production of complex models, molds, and direct parts. Recurring revenue is also earned from consumables, maintenance contracts and upgrades, as well as other after-sales activities.
Let’s move on to slide 8 and an illustration of how our technology can be used in many different ways. We are encouraged by the many conversations we are having in various industries with different players. All of us are looking into adopting our technology in well-chosen applications. This interest is translating into orders. Recent months have seen the greatest order inflow for our 3D Printer ever.
Let’s look at slide nine. Here are some thoughts on the market for energy manufacturing. Wohlers associates predict that the market will grow rapidly over the next few decades. The growth will be driven primarily by a higher share of sales going to manufacturing. We are well-positioned to capture a fair share of the growing market in the coming years, according to me. Our focus on industrial production at scale or manufacturing is what makes us stand out from other 3D printers. Since our foundation, we have worked with major industrial OEMs. Our first release printer was sold to BMW and Daimler 20 years ago. Over the years, our technology has advanced significantly in speed, accuracy, and automation.
Slide 10 shows our global sales network as well as production footprint. As you can see we have established ourselves in major markets across Europe, the U.S., and Asia. We have temporarily ceased all activity in Russia and Belarus.
Slide 11 is next. Slide 11. Our USPs are build size, material diversity, and speed. We stand out from our competitors. This results in a complete line of industrial 3D printing machines that can be used to solve the most challenging applications.
Each model can be used with multiple maturities. We offer the VX10003D printer to print high-accuracy sand casting moulds for ceramics, or as a polymerization printer. You can see our 3D printer portfolio and the associated build volumes on the slide to the right. The time it takes to layer depends on the platform used and the build process. Layer times can take as little as four seconds. [indiscernible]
The BFP printer we are currently working with GE will have a build volume exceeding 50 cubic meters. We are excited about the normal size because it opens up completely new possibilities.
Let’s get to the formal part. Slide 13. Let me start by giving you an overview of the results from the third quarter. Rudi will then give a more detailed view of our financials and outlook for the remainder of 2022. We will be glad to answer any questions you may have after Rudi’s comments.
We are very happy with our performance over the last month as we continue to collect large orders for our 3D printers, made progress in key R&D projects and we’re extremely busy in our on-demand 3D printing segment. We are extremely excited about our future prospects, as the demand for our product is as high as ever.
Now, we are working hard on completing the installation and delivery in time to be able book revenue for these orders by 2022. We continue to experience delays with our suppliers, especially when it comes to electrical components. We work closely with our suppliers and receive excellent support.
Let’s take a closer look at the numbers. The quarter’s total revenue increased by 16%. Revenue in the on-demand 3D printer segment increased 24% over the previous year. It’s great to see this growth coming from many applications, such as the project for space exploration and yachts (U.S.), large orders from Germany’s art and architectural sectors, and components for cooling parts and electric cars in the U.K. We received another large order from a German supplier for printed parties.
We are happy with the gross profit margins and gross profit in our Services segment. It was especially strong in Germany. The U.S. and China were slightly weaker. This may partly be due to timing.
Our Systems segment saw a decrease in gross profit margins from 3D printer sales due to product mix. These quarter-to-quarter fluctuations are nothing to be concerned about. It’s great to see the system revenue increase in the third quarter, year-over-year. This is due to the increased installed base of 3D printers on the market.
Slide 14 shows the order backlog broken down by quarter’s revenue and operating expenses per category. In relation to order backlog, we highlighted in our previous conference calls that revenue from on-demand printing is a great indicator for future 3D printer sales. This is exactly what has been happening in recent months. The order inflow for 3D Printers was among the best and the order backlog for 3D Printers stood at EUR13.7 Million at September 2022. This is a record. We aimed to ensure that revenue was not influenced by local events when we looked at revenue per geographic region.
Slide 15 will give you a brief overview of some of our projects and explain why we think there isn’t another company offering this level of solution for additive mass production. Many additive manufacturing machines are not designed to be integrated on the shop floor. They can only be used for prototyping or single-part production. Integration requires machine controls that are easy to integrate into the factory’s manufacturing execution systems or enterprise resource planning software.
To reduce manual labor and provide comprehensive maintenance services similar to other production machinery, it requires high levels automation. This will help reduce the need for expensive production shops. Integration of 3D printers into automated workflows and processes is essential. This area has been an area of significant research for us over the past few years, particularly with the VJET X that we have worked with the German carmaker.
You will see some images at the bottom. Although the project was challenging, it was worth it. Five printers are now in operation. They have all been turned over to the customer. We gained valuable insights that we can apply to other projects and developments. You can see some of these on the upper slide. We have U.S. clients that mass-produce critical components in aerospace and marine applications using our VX1000PMMA printers. Sharrow Marine, for instance, has developed a next generation propeller system that can only use 3D printing. This year, Sharrow Marine announced a global distribution deal and manufacturing supply agreement to Yamaha Marine precision propellers.
They evaluated all 3D printing technology options and then decided to use voxeljet technology, which allows us to produce at sufficient scale at affordable costs.
We are currently sourcing components to build the prototype printer with GE Renewable Energy. TI is a long-standing American customer that uses several VX4000 printers for large, complex castings. A large U.S. carmaker awarded them a multiyear contract to manufacture certain components for an electric vehicle.
It is the car’s underbody that is printed and then cast. The complete vehicle’s underbody is made up of six large holostructural casts. The rear rail is the near rail combined. It combines the top-box longitudinal and shock tower into a single complex holocasting. 3D printing courses in production will be used to produce all holog sections. They can use 3D printing to combine the benefits of traditional manufacturing metal parts and wire casting with 3D printing for product and process innovation.
Another advantage to our technology is that we avoid high recertification fees because the casting process is a standard method for the production and casting of metal parts. We recently received a request for structural components from Germany’s supplier to an American electric carmaker. The structural geometries printed components have become more complex. This means that we are printing lots of parts to cast structural components. It is an exciting application of our technology.
You can see the right-hand slide an update about the new high speed sintering (or HSS printer assembly) of the first beta system. At the moment, we are doing the in-house Commissioning. Next we will prepare the shipments for our clients. This is expected to happen early next year. We believe we have reached an inflection and the amount of parts being manufactured is rapidly increasing.
Slide 16 shows some mature development. We used commercially available concrete powder from our local store to print parts. The large part of the slide on the left was printed in sand, and then poured in concrete. You can also see the smaller part that was 3D printed directly. It is the same size as the larger part and does not require any post-treatment. The surface is extraordinarily smooth and has more detail than expected.
The right side of this slide shows close-ups that are directly printed in concrete. We’ve seen companies interested in large-sized parts made of steel.
Turning to slide 17. Turning to slide 17.
To sum up, the recent months excellent growth rates and exciting projects in our on-demand printing segment, one of the best order inflows for our 3D printers, good progress in the key R&D projects and full focus on execution. There is much to look forward for in the months and years ahead.
Now, let me turn the phone over to Rudi.
Good morning, Ingo. We are happy with the performance of the last few months, as we closed the sale and the spec deal for our headquarters in Germany. The proceeds of this transaction were used to repay our financial obligations [Technical Difficulty] our debt free. This is a significant milestone for our company. We also added liquidity to our company through a logistical direct offering. This was completed in mid October.
As we’ve noted, our rating and rational capital will be marginalized. We were able to achieve record order levels for 3D printers. This transaction allowed us to plan to use the proceeds primarily as working capital. We order the products we need to build our printers, with extremely long lead times. This helps us avoid supply chain delays. Electrical components are one example.
All of our activities are focused on the long-term growth opportunities for our business, as well as creating value for all stakeholders in our business ecosystem. This includes clients’ investments in their employees. Both in the Systems and Services segments, we are pleased with the results. We’ll now walk you through the financials of the third quarter 2022. We are available to answer any questions.
Slide 19. Turning to slide 19. The gross profit and margin fell to EUR1.6million and 28.7%, respectively, compared to EUR1.9million and 39.3% in the third quarter last year. This was due in part to a lower product mix for our printer sales innovation. Our inventory reserve policy, which was kEUR263 positive for the third quarter 2022, had a higher allowance for inventories volume than the kEUR109 that we recorded in the previous year.
Next slide shows our quarter reporting. In our Systems segment on slide 20. This year’s third quarter revenue grew 8.3% over the previous year. Due to our 3D printers being installed in more markets, the after-sales business saw a significant increase over the previous year. For the Systems segment, gross profit and gross margin were EUR0.7 million (24.1%) and EUR1.1 million (44% respectively in the third quarter 2021. This decrease was primarily due to the less favorable product mixture regarding printer sales and the regulation amounts mentioned earlier.
Slide 21. Slide 21. The 3D parts production center’s revenue in Germany and the U.S. is still exceptionally strong. It’s exciting to see this momentum continue. The third quarter 2022 services revenues increased by 24.2% to EUR3million, compared with EUR2.4 million in the same quarter 2021. The gross margin for services — gross profit margin, which is the difference between 34.4% and 32.8% in the same quarter 2021, was slightly lower at 32.8% in the third quarter 2022.
Look now at slide 22 to see the remainder of income statement. Comparing EUR1.5million in the same quarter last year, the third quarter’s selling expenses increased to EUR2.0million. This was due to increased distribution expenses, which were in line with an increase in revenue. Shipping and packaging are the main selling expenses. They not only depend on the revenue but also the quality and type of the products. This applies to both the destination where goods are being delivered and their value. Distribution expense can vary from quarter to quarter.
In some cases, shipping costs have tripled over the past months. Administrative expenses were EUR1.6million, compared to EUR1.5million for the third quarter 2021. This was due to increased legal expenses related to the sale and leaseback transaction which closed on October 1, 2022. This was offset by lower legal advisory fees related to the stock market listing of our company and our communication with financial institution connection with funding activity.
Research and development expenses increased by EUR1.7 million, compared to EUR1.5million in the same quarter last. This increase was primarily due to increased use of external services. These expenses are typically driven by individual project costs, particularly the consumption of material. However, demand for external service may differ from quarter to quarter.
The third quarter of 2022 saw an operating loss in excess of EUR2.5 million, compared with EUR1.5 million in the comparable period last year. This was mainly due in part to higher expenses for the sales and marketing function, research development, and a decrease in gross profits.
The quarter’s net loss was EUR8.7million or EUR1.23 per ADS compared to the EUR8 million loss or EUR0.12 per ADS in the same quarter last year. This was due to an increase in finance expenses due to the write down of embedded derivative financial instruments related to the European Investment Bank’s performance participation. This is a nonrecurring and non-cash cost.
The October 2022 early repayment of the EIB finance contract was the reason for the write-down. This payment was expected to be made by September 30, 2022. The full repayment of the finance contract with EIB in October 2022, which includes all charges and interest as well as performance participation interest of EUR22 million, was made early. Slides 23-26 show the same presentation as for the nine months ending September 30, 2022.
Slide 27 lists selected balance sheet items. Slide 27 shows selected balance sheet items. The company had EUR10.2 in cash free at September 30, 2022. This excludes the profits from the October 2022 direct offer. [EUR14 million] (ph).
The total amount of debt as of September 30, 2022 was around EUR28 million. Our financial obligations were repaid on 31 October. The repayment occurred after the close of the third quarter. The report still shows the financial liabilities as of 30 September 2022. Current shares outstanding are 8,305,781 millions.
Now, slide 28 will be discussed. It contains our financial guidance and projections for the full year 2022. The fourth quarter revenue for 2022 will be between EUR9 million and EUR12 million.
So, these are my comments. We will now open the line for your questions. Operator?
Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Brian Kinstlinger from Alliance Global Partners is our first question. Please continue with your questions.
Great. Thank you so much for answering my questions. Solid order flow. How many customers were the 16 Systems representing? Then, how many first-time orders are placed by customers compared to follow up orders from customers who already own at least one printer?
The majority of orders are first-time orders. We don’t share the — I don’t think so, since we don’t reveal it in our numbers.
However, it helps if the crowd is as large as the second order.
Customers place second orders. Are you referring to customers who place second-time orders?
It’s primarily the first order from a client, but there are also orders from customers who have systems in place. Their installed base was increased. We don’t provide this level of detail, as we said. However, we talked about TI. They operate multiple systems. We also discussed Sharrow Marine.
Is there any concentration of orders in those 16 printers? Then, I guess I am just trying to determine what the average price is and how inflation affects that.
The VX1000 is still our best-selling product, as well as the related products. As always, the average sales price for these systems is $500,000 to $600,000.
Great. Then I thought —
VX4000 are still in backlog. VX4000 cost, depending on configuration, between EUR1.5m and EUR1.8m.
Yes. You also mentioned that shipping costs have doubled in the past six months. We’re hearing from many U.S. companies, however, that shipping container prices have dropped significantly to pre-COVID levels. What are the main differences between what you see?
We see that shipping costs remain at a high level. This has not reached the pre-pandemic levels. We often invoice lower due to increased shipping costs. We also see that shipping costs are still about three times higher than they were before the pandemic, and even more so than before the Russia-Ukraine crises. We have seen a 3x increase in shipping costs to Asia from January, while the U.S. has a half-assed 2x.
Okay. Can you please update us with any new information or remind us about the timeline for the joint development with GE. Which data point should investors be focusing on next?
We are currently designing the machine. The prototype printer will be used. We plan to begin ordering parts in the new year. The assembly of the prototype printer is also planned for next. The first test operation will then be scheduled for next year. We will then see the second phase of our project. In this case, we will do the customer project. That means we will print the actual molds and make the real car parts.
Great. Thank you.
Thank you so much.
Thank you. The question-and-answer period is now over. For closing remarks, I will pass the call to Ingo Ederer.
We are grateful. For a long time, the strategic priorities have been extremely important. We continue to work on them and deliver. It is obvious that our number one priority is to increase product growth. However, it has taken us longer than we expected. New products are contributing to top-line growth.
Our existing products perform better than we expected. You can see the deals we made recently with our VX1000 and VX4000 PMMA printers. There is much to look forward to in the coming years. It was great seeing you all at this week’s Formnext in Frankfurt Safe Charter is back. We look forward speaking with you again next year when we release our full-year 2022 results.
Many thanks to all. Have a good weekend.
We are grateful. Bye-bye.
Today’s conference is over. This is the time to disconnect your lines. We appreciate your participation.