SLM Solutions Group AG (OTC:SLGRF) Q3 2022 Earnings Conference Call November 10, 2022 10:00 AM ET
Company Participants
Sam O’Leary – Chief Executive Officer
Dirk Ackermann – Chief Financial Officer
Conference Call Participants
Constantin Hesse – Jefferies
Sven Sauer – Kepler Cheuvreux
Sam O’Leary
Thank you. And good morning, good afternoon, and thank you again for joining us today as we review our Q3 2022 earnings.
I’ll begin with a summary of our performance, followed by some strategic updates, Dirk will then run you through the financials, and I will close with a summary prior to the Q&A.
So we are pleased to report yet another multi-record breaking quarter. Order intake for the quarter was €23.3 million, up 29% year-on-year. This resulted in nine-month order intake of €62.7 million, up 47% year-over-year. On top of that for the fourth consecutive quarter, we are pleased to report our largest ever backlog position of €50.8 million, up 49% year-over-year.
From a revenue perspective, we delivered our best ever Q3 and nine-month performance. Q3 revenue was €26.9 million, up 39% year-over-year. This resulted in nine-month revenue of €69.4 million, up 36% year-over-year. This strong operational performance resulted in a positive EBITDA of €1.5 million for Q3, continuing on from our positive Q2 results. This poses a negative $1.5 million for the nine-month period, an improvement of 80% year-over-year. Our strong operating leverage and continued operational excellence transformation are key drivers for this positive momentum, which as I stated during our H1 call we expect to continue.
Moving on to some key strategic business updates, we announced together with Nikon our intention to acquire all outstanding SLM shares, including an immediate capital increase to reinforce our liquidity position. We have taken the world’s most productive metal additive manufacturing system and made it 150% bigger with a 1.5 meter extended Z-axis, opening up exciting new applications with our first customer receiving the machine in 2023.
Additionally, we have ongoing discussions with several customers for this configuration. The standard that’s still incredibly groundbreaking and market-leading NXG XII 600 continues exactly in line with our plans with additional deliveries and orders across multiple industry verticals. And next week, we will participate in the Formnext trade show, unveiling multiple new products and innovations.
Moving on to an update on the progress of Nikon’s takeover offer. The acceptance rate was around 75% as of November 1st for the public offer for all outstanding shares. This means that Nikon has now secured more than 86% of SLM’s total share capital on a fully diluted basis. FDI approval has been granted in Germany, the UK, France and Canada. Only the US is now outstanding. There is an additional acceptance period of two weeks, which began on November 5th for anyone who had not yet accepted the offer. The final acceptance rate will be published following the end of the additional acceptance period.
Now moving on to technology. We are a technology company, relentless innovators, we deliver the technology and products to enable our customers’ success. And yesterday we announced yet another step in changing the future of manufacturing by taking the world’s most productive metal AM machine and making 150% bigger without sacrificing on the immense productivity delivered by the NXG XII 600 without sacrificing on build quality. In fact just taking everything that is so revolutionary and incredible about the NXG XII 600 and simply making it a whole lot bigger.
Of course, this has a clear purpose. It opens up new exciting applications in the aerospace industry and beyond. It simply changes the game again. It’s also around two times bigger than its closest competitor.
But it’s not just about single components. When you compare this configuration for building multiple smaller diameter parts, a square build plate just makes more sense, enabling the opportunity to build at least twice as many components compared to our closest competitors. On top of that, it’s something that can be retrofitted to the existing NXG XII 600 machines, opening up limitless possibilities for our customers.
With that, I’ll hand it over to Dirk for a detailed review of the numbers.
Dirk Ackermann
Thanks, Sam, and good afternoon and good morning also from my side. Sam already highlighted, we once again had a record breaking quarter. Starting with order intake, we achieved significant growth in the third quarter, growing 29% year-over-year. Looking at order intake on a rolling 12 months perspective this is by far the highest one in the company history. Also looking at the pipeline for Q4, we remain optimistic that we can also achieve significant growth in the fourth quarter. Our backlog increased slightly compared to last quarter, showing a healthy balance of order intake and order conversion.
Finally, revenues were at around €27 million in Q3, allowing us to record our best ever nine months revenue performance. Looking at our backlog and potential of in-quarter conversions in the fourth quarter, we remained positive to also grow significantly in the last quarter.
Taking a closer look at the revenue performance, the machine business accounted almost for the entire growth year-over-year, which was mainly driven by shipments of the NXG XII 600 by also benefiting from our growth in the US and the corresponding strong US dollar. Unfortunately, we had a few machines slip into Q4, while a portion of those were driven by material shortages situation slightly over the last quarter but remains challenging.
The aftersales business was almost flat year-over-year, which is not worrying as we had some larger one-offs in Q3 last year and we expect to see another growth in the last quarter. Gross profit margin remains impacted by the material shortage situation, which keeps productivity on our shop floor low, while leading to elevated market prices.
In some instances, we have to pay six times our sell price to get material from secondary sources and especially one of our key electronics supplier continues to struggle with its own supply chain. And in other instances, we haven’t performed the sourcing of critical parts for our suppliers to avoid shortages.
EBITDA was positive for the second quarter in a row, which was mainly driven by the higher revenue and positive FX remeasurements, mainly deriving from the strong US dollar. At the same time, we see a significant rate pressure given the elevated inflation across our key markets.
Operating cash flow and working capital were negatively impacted by a further inventory buildup, which we have already seen over the last quarters. This was partially caused by the missed shipments I described earlier, as well as a further ramp-up of production for Q4 deliveries. We expect an improvement around inventories in the fourth quarter.
Finally, our cash position is by far the best since I joined the company, after receiving the third range of our 2020 convertible and the additional equity increase is part of the Nikon transaction. This has allowed us to sell around €30 million of the 2017 convertible, which were due in mid-October.
On the next slide as usually we provide an overview of our expected backlog conversion. As we close the first three quarters with around €70 million, we required at least another €30 million in the fourth quarter to achieve our revenue guidance of at least €100 million. We are relatively comfortable that we can convert around $27 million of our current machine backlog in the third quarter. If we then had after sales revenue and additional quarter conversions in the fourth quarter, we remain confident to achieve our guidance.
At the same time, the material availability that situation remains difficult, which may impact our performance in the last quarter. As just highlighted, we feel comfortable to achieve our revenue guidance for the 2022. Furthermore, we already achieved our EBITDA goal by recording a positive EBITDA in the last two quarters. We also expect to continue the streak in the fourth quarter.
Looking at our long-term outlook, where the macroeconomic situation has worsened significant at least since the time we published the forecast. Our view has not changed, as additive manufacturing continues to benefit from the multitude of larger trends, while becoming more and more cost competitive traditional manufacturing methods. Therefore, we at SLM are confident to change the future of manufacturing.
With that, I would like to thank the entire SLM team for the tireless efforts and hand back to Sam for his closing remarks.
Sam O’Leary
Thank you, Dirk. So to summarize, we are laser-focused on delivering the future of manufacturing, the relentless innovators removing geometrical and economic limitations by creating bigger and faster technology. Our innovations and products are pivotal for increased technology adoption. They changed the path and simply enable more of the world’s huge manufacturing market to be converted to AM.
We continue to grow the business in line with our commitments and plan delivering our best of a nine-month performance, whilst consistently improving operational profitability. Our order backlog exceeds €50 million, driven by continued industry agnostic growth.
We have reinforced our liquidity position and the acquisition of Nikon positions SLM Solutions well on its accelerated long-term growth plan. And finally, while supply chain constraints continue, we have been able to effectively manage them throughout the year-to-date.
With that, I would welcome your questions.
Question-and-Answer Session
Operator
Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] One moment for the first question please. And our first question is from the line of Constantin Hesse from Jefferies. Please go ahead.
Constantin Hesse
Hi, there. Thanks guys. Quick one. Just with regards to the US approval, how are you guys thinking about this? Might there be an issue given that you were selling to defense companies over there just some insiders and thoughts into that would be great. Thanks.
Sam O’Leary
Dirk, do you want to take that.
Dirk Ackermann
Yes. Sure. Hi, Constantin. So I think in January like as we already stated previously, we do not really expect like issues with the approval. There’s a few like defense contracts where we have been a subcontractor. But from our perspective, we’re not at the position yet to be really significant.
Hopefully, for sure in the future that will change. But for the time being we believe we are not really critical, and therefore, the approval should not be an issue. And although, you need to consider that Japan as achieve sort of numbers is close of the US.
Constantin Hesse
Yes. All right. Thanks.
Operator
[Operator Instructions] The next question is from the line of Sven Sauer from Kepler Chip. Please go ahead.
Sven Sauer
Hello gentlemen. Sorry if you mentioned this I had some connection problems. So could only join late. But I was just wondering what was the — what triggered the additional acceptance period?
Sam O’Leary
Dirk, you got actually, you take that.
Dirk Ackermann
Yes, it’s more or less a mandatory item to allow people who have not been able to kind of subscribe during the initial period to subscribe. So it’s a standard procedure nothing unusual.
Sven Sauer
All right. Great. Thank you.
Operator
[Operator Instructions] So there are no further questions at this time, and I would like to hand back to Sam O’Leary for closing comments.
Sam O’Leary
Great. Thank you all for taking the time and we wish you a great rest of the day wherever you are. Thank you and have a good day.
Operator
Ladies and gentlemen the conference has now concluded and you may disconnect. Thank you for joining and have a pleasant day. Goodbye.
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