voxeljet AG (NASDAQ:VJET) Q2 2022 Results Conference Call August 19, 2022 8:30 AM ET
Company Participants
Johannes Pesch – Director of Investor Relations and Business Development
Dr. Ingo Ederer – Chief Executive Officer
Rudi Franz – Chief Financial Officer
Conference Call Participants
Brian Kinstlinger – Alliance Global
Jacob Stephan – Lake Street Capital
Operator
Greetings. Welcome to voxeljet AG Second Quarter 2022 Financial Results 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] Please note this conference is being recorded.
At this time, I’ll turn the conference over to Johannes Pesch, Director of Investor Relations and Business Development. Johannes, you may begin.
Johannes Pesch
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, 2022.
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, including expectations and results from our current quarter backlog.
Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance upon them. Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expected including the risks and uncertainties caused by the current COVID-19 pandemic and the resulting uncertainty in the global economy.
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.
Dr. Ingo Ederer
Thank you, Johannes. Good morning, everyone. Thank you for joining us on our earnings call today.
Let’s turn to Slide 4. Our roots reach back to the year 1995 with the first successful dosing of UV resins. In the context of a hidden project, initial 3D printing tests were performed at the Technical University of Munich. I co-founded the Company on May 5, 1999 as a spinoff from the University with a clear vision in mind to establish new manufacturing standards.
Today, we provide our customers a strategic competitive advantage by upgrading their existing conventional production methods to additive manufacturing solutions. We push technological boundaries and develop new generative processes for the serious production of complex component.
Let’s turn to Slide 5, where we describe our technology. In the additive manufacturing market, there are likely more than 10 different technologies each with its specialized field of application. We use the technology called binder jetting. Binder jetting is especially suited for high-volume manufacturing because of its potential to scale. With our VJET X technology, we are pushing new boundaries.
On Slide 6, you can find a high-level overview of our company, including recently achieved milestones. We believe these will help us on our mission to establish new manufacturing standards. In recent months, we have probably seen some of the best order inflow for 3D printers we have ever had. Now, the focus is on delivering these printers on time.
On Slide 7, you can see pictures of our production facilities in Germany, the U.S. and China. As you might have seen from the press release, last week, we have entered into as a leaseback transaction for our headquarters here in Germany. We expect gross proceeds of €26.5 million and plan to use the funds to repay our debt. We expect the transaction to close towards the end of the third quarter of 2022.
Now let me briefly explain our two business segments. In the services segment top left side of this slide, we operate our own 3D printers in free facilities around the world to offer affordable on demand access to our technology. Demand in this segment has been outstanding in recent months in Europe and in the U.S., and we were basically at or over capacity for the whole time.
The barriers to entry are very low and customers just need to send in the 3D data and we will print parts for them. That is a great and easy way for our customers to understand new business opportunities in 3D printing. The short sales cycles and services help us balancing the typical long sales cycles in our System segment.
Customers come from various industries including automotive aerospace, general engineering, as well as art and architecture. In the U.S., one of our largest on demand printing client is a supplier to a leading space exploration company.
In our Systems segment, we manufacture and sell industrial-grade, high-speed, large-format 3D printing systems geared towards mass production of complex models, molds and direct parts. Systems revenue also includes recurring revenue from the sale of consumables, maintenance contracts, upgrades and other after sales activities.
Let’s turn to Slide 8 and an illustration of the wide range of applications of our technology. We are encouraged by the many discussions that we are having with different players in a broad variety of industries. They are all seriously looking at adopting our technology for well-chosen applications, and this interest is translating into orders.
In recent months, we have seen some of the best order inflow for our 3D printers ever. To give you some examples, there is for instance an innovative U.S. yacht company producing several thousands of advanced propellers with our technology. These new propellers have a shape that cannot be made conventionally. We have added more details on this exciting project in one of the other slides.
There are leading U.S.-based exploration companies using our technology to make parts of their rockets more aerodynamic. There are carmakers who use our technology to make their vehicles more light-weight and more energy efficient. There is a leading university in Zürich, Switzerland, the ETH using our technology to make the most amazing concrete structures. And there are many, many more.
Let’s turn to Slide 9 and some thoughts on the additive manufacturing market. As you can see, all of associates projects growth to accelerate over the next years. This growth will be driven by a larger share of sales to manufacturing. I believe we are in an excellent position to capture our fair share of this growing market over the next years because that really differentiates us from the other players in the 3D printing industries our focus on solutions for manufacturing or industrial production at scale.
We have been working with leading industrial OEMs since our foundation. We sold our first 3D printers to BMW and Daimler more than 20 years ago. Our technology has evolved significantly over the last years in terms of speed, accuracy and the degree of automation of the whole process chain.
Slide 10 shows our global sales network and production footprint. As you can see, we have reached an established position in all major markets in Europe, U.S. as well as Asia. We have halted our activities in Russia and Belarus until further notice.
Turning to Slide 11. On the left side, we have summarized our USPs. We differentiate ourselves from our competitors by build size, mature, diversity and speed. This leads to a complete set of industrial 3D printers to support critical demanding applications and address the challenges and needs that are most important to our customers.
Each model can be used with multiple mature sets. For example, we offer at least 1000 3D printer for the printing of highly accurate sandcasting molds for ceramics or as a plastic polymerization printer.
On the bottom right side of the slide, you can see some of our new products. With these new printers, we believe we can increase our total addressable market considerably. We can target new applications within existing customer groups, for example, with VJET X.
With high-speed sintering, we can address both new and existing markets, like, for example, audio equipment, automotive interiors and exterior ceilings, gaskets, walls, grippers and other consumer products.
Let’s start with the formal part of the presentation on Slide 13. I will begin with an overview of the results for the first quarter. Rudi will then provide a more in-depth view of our financials for the second quarter and our outlook for 2022. Following his comments, we will be happy to take your questions.
We are very happy with the results for the quarter and how the momentum has continued to build in recent months. We are extremely busy in our on demand printing segment and for major orders for 3D printing systems. Very recently, we signed an order for two printers, worth over €2 million with a client in Germany. With the current designs number of orders for 3D printers, we have already achieved our target for 2022.
Now, we are working hard to make this deliveries and installations on time to be able to provide revenue for these orders in 2022. Similar to many other companies we continue to see some delays with our suppliers, especially for electrical components. We are working closely with our suppliers and the support we receive is excellent.
Let’s look at the numbers in some more detail. Total revenue for the quarter increased 35% with both segments contributing equally to this growth. Revenue in the on demand 3D printing segment increased 36% year-over-year and absolute gross profit almost doubled.
As mentioned earlier, it is great to see that this growth comes from a wide variety of application, projects for space exploration and yachts in U.S., large orders from the art and architectural sector herein Germany, components for cooling of parts in electric vehicles in the UK, and so on.
The higher utilization leads to excellent gross margins in this segment of more than 40%. The high utilization also means that each printing shop is fully packed and there is less way. We mentioned in our earlier conference calls that on-demand printing revenue is a good leading indicator for future sales of 3D printers. This is exactly what we have seen in recent months and especially in July in August.
Order inflow for 3D printers was one of the best we ever had so far. This makes us very optimistic for us in this segment. Looking at the right side of the slide in gross margins, we are very pleased with high gross profit and gross profit margins in our Services segment of roughly 40%. Utilization is key and as it was the case in the first quarter, we had more orders than printing capacity.
In our System segment, gross profit margin from the sale of 3D printers slightly increased. The overall segments saw a decline in gross profit margin as a result of change of valuation allowance for inventories, falling in our inventory reserve policy. This valuation allowance is a non-cash item.
Let’s turn to Slide 14 and a quick update on really exciting project. U.S.-based Chevron Marine developed a new type of propeller that cannot be manufactured conventionally. And the left side of the slide, you can see a standard propeller and the corresponding turbulences, it creates underwater.
In the center of the slide, you can see the new propeller which creates significantly less turbulence and tip cavitation and waters. This new design has several advantages then it is up to 30% more energy efficient and creates more speed and order less vibrations for much better ride comfort.
Chevron Marine purchase two printers so far and ordered a large amount of parts in our U.S. 3D parts production center. On the right side of this slide, you can see the 3D printed pattern and the cast the propeller in a closer. We believe that this part cannot be made with any other technology in higher quantities at comparable costs to our approach of printing the pattern and then casting it. On the bottom left side of the slide, we have included a link to a video of these propellers in action. It is really remarkable.
On Slide 15, we have provided a quick update on our high-speed sintering technology called Greyscale printing. We have mentioned this in one of the earlier calls and can now show what it is. With this technology, we can adjust the amount of ink on the box level. Remember a box is a 3D pixel.
Let’s start at the left side of the slide. Here we can see printing data that has been prepared with different levels of grades. This information is then sent to and processed by the print head and adjusting the ink amount on the box level. We can also filter the energy input and can avoid a detailing agent which makes our technology cost efficient in production.
On the right side of this slide, you can see the results from this grey scaling effect. It enables functionally graded mono material components. This means that you can tailor for example the flexibility of a shoe sewn to the specific needs of a person and you can do it with only one material then charting the amount of ink. We’re currently trying to bring this technology from this 200 high-speed sintering to the larger production HSS printer.
On Slide 16, you can see some parts printed on the big high-speed sintering printer and an overview of the topics we have been working on. I would like to highlight that we have improved overall part quality and are already printing many benchmark parts for our customers. We identified a third potential retail client into our advanced discussions with them. Also unattended operation of this large printer is now possible. This means we can for example run overnight jobs.
In the lower half of this slide, you can see some of the parts we have been printing with printed an air duct for student built racing car. After printing, it was colored and then mounted onto the car. It looks very impressive. Above that you can see a car grill and the housing for vacuum cleaner robot. We continue to make progress with VJET X and are improving the stability and performance of the printer.
We now have a large high-tech industrial microwave in operation in our facility and feedback similar to the ones at the carmaker. This allows us to develop the inorganics process further to an application in our standard VX1000 high-speed sinters. In the coming years, we believe there will be a lot of demand for this inorganic process because it creates no harmful emissions during casting and is fully environmentally friendly.
Regarding materials and high-speed sintering, we are currently exploring the use of PBT. This is a thermoplastic engineering polymer that can be used as an insulator in the electrical and electronics industries for housing, in electrical engineering and automotive construction as plug connectors, and in household applications like showerheads or irons. Just recently, we have put commercially available concrete powder from a local stock now VX200, and we were able to print part of good quality. They’re now scaling this up to our larger platforms.
Slide 17 breaks down order backlog by quarters, revenue by a geographic, and operating expenses by category then looking at revenue by a geographic region with targeting even distribution across the three regions to hedge against risk from local events. As mentioned earlier, we were able to win major orders for 3D printers in recent months. And our backlog is growing. We target to have at least a one year backlog because that makes it easier to plan and optimize our production we are getting then.
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 and good progress in key R&D projects. We are very excited about how the Company is positioned and our view opportunities ahead.
With that, I would like to turn the call over to Rudi.
Rudi Franz
Thank you, Ingo, and good morning to everyone. As mentioned in previous calls, it’s our target to deliver long-term value for our shareholders through attractive growth, strong margins and optimal deployment of capital. Last week, we entered into a sale and leaseback transaction of our headquarters in Friedberg. We are fully committed to our operation in Germany and signed a 15-year lease term. With two consecutive five years extension options the buyer is institutional unaffiliated real estate investor.
We expect gross proceeds of approximately €26.5 million in the closing to take place towards the end of the third quarter. We’ll proceed to plan to repay our financial liabilities. As we continue on our path towards profitability, the sale and leaseback transaction alliances our objective to source non-dilutive financing wherever possible and focus on our main business, which is developing, manufacturing and selling high-tech industrial 3D printers. We’re very happy with how the business spent in recent months both in our Systems and Service segment.
Regarding COVID-19, we continue to work with some special measures in place around as a nation contamination protocols to ensure the safety of our employees and to reduce risk of operational disruption. We are monitoring the evolving situation carefully. I will now take you through the financials for the second quarter of 2022. After that, we are happy to take the question.
Turning to Slide 19, total revenues increased 35.4% to €6.7 million for the second quarter of 2022 as compared to €4.9 million for the last year second quarter. Gross profit and gross profit margin increased to €2.1 million and 31.3% from €4 million and 28.6% for the second quarter of last year.
The next slide shows our segment reporting for the call in our segment. System segment of Slide 20, we were able to collect major orders for 3D printers, especially in recent months. Revenue for the second quarter of this year increased 35% compared to the same period last year. Gross profit and gross margin for the quarter for the System segment was at €9 million or 24% compared to over €8 million and 28% for the second quarter of 2021. The gross profit margin for the 3D printer slightly increased the overall margin for the segment increased as a result of a change in the valuation allowance for inventory following our inventory reserve policy. This is a non-cash item.
Turning to Slide 21, revenue from our 3D parts production centers summarizing the service segments. In Germany and the U.S. continues to be exceptionally strong and it’s great to see that the momentum is carrying on. In China results strong sequential increase from the previous quarter of this year.
The second quarter was one of the best quarters we ever had in the April to June period and our demands part production service revenues increased 35.8% to €3.1 million for the second quarter 2022 compared to €32.3 million for the same quarter of 2021.
Services gross profit margin significantly increased to 39.7% for the second quarter of 2022 from 28.9% for the same quarter of 2021. The improvement was driven by strong gross margin contribution from our German and U.S. 3D parts production center. Assets gross profit almost doubled to €1.2 million for this year, second quarter for more than €7 million for the same quarter of last year.
Looking now to the rest of the income statement on Slide 22. Selling expenses increased to €1.9 million for the second quarter of 2022 from €1.5 million for the second quarter of last year. This increase was mainly related to higher distribution expenses in line with the increasing revenue.
Distribution expenses like shipping and packaging our main driver of selling expenses in the end not only depend on the amount of revenue but also the quantities and types of products sold, as well as destination to which those goods are being delivered. Therefore, distribution expenses can vary from quarter to quarter.
Administrative expenses were €1.5 million as compared to €2.0 million for the second quarter of 2021. This decrease was mainly related to significant lower legal advisory fees related to our stock market listing and lower fees expended on financial institutions in connection with fundraising activity.
Research and development expenses were stable at €1.7 million. This expenses are usually driven by individual projects, especially through the consumption of material as well as the demand of external services may vary significantly from quarter to quarter.
Operating loss of €2 million for the second quarter of 2022 compared to an operating loss of €3.9 million for the comparative period last year. Improvement was mainly due to a positive net impact of other operating income, higher gross margin, and lower administrative expenses.
Net loss for the quarter improved to €1.8 million years or €0.26 per ADS compared to a net loss of €2.5 million or €0.41 per ADA for the prior year same quarter. We’ve provided the same presentation for the first half period ended June 30, 2022 on Slide 23 through 26.
Slide 27 shows selected balance sheet item. At June 30, 2022, the Company had free cash of roughly €13 million. Total debt at June 30, 2022, was approximately €27.5 million.
As mentioned at the beginning, we plan to repay the debt with the proceeds from the sales and leaseback transaction and expect the closing of this transaction towards the end of the third quarter of 2022.
Weighted average number of shares outstanding at 30 June 2020 was 7,026,711 ADS. This is all the current number of shares outstanding.
Moving now on to Slide 28 and our financial guidance for the full year 2022, which remains unchanged. Revenue for the third quarter of 2022 is expected to be in the range of €5 million to €6 million.
This concludes my remarks. And with that, we are now open the call for your question. Operator?
Question-and-Answer Session
Operator
Thank you. We’re now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Alliance Global. Please proceed with your question.
Brian Kinstlinger
Great. Thank for taking my question and to see the order flow during the second quarter. My first question is about those bookings. I’m hoping we can get a little bit more information. You certainly talked about a lot of different projects. Can you share information such as how many customers ordered what I calculate was five printers? How many were repeat customers industries and even with printers potentially you sold? Anything share would be helpful.
Rudi Franz
Thank you for the question. Usually, we don’t share this in that detail, you asking Brian. What I can say is there is the five printers sold to all new customers, Chevron Marine was named in this presentation where we gave as well some more insights. And the booking of those printers is planned towards the second half of 2022 as well as the first half of 2023.
The industries are as said, Chevron Marine business more or less engine technology, automotive, renewable energy things. These are currently the main projects where we see a high demand of equipment. Materials sets, sand, PMMA, again for the demand of complex metal pieces.
Brian Kinstlinger
Great. And you had mentioned on several occasions that one of the leading indicators is the services business. So were these — how many of these five customers were previously services customers, whether you are printing parts for them?
Rudi Franz
So every, I would say almost every system customer was or is still a service customer. So, the Service segment is faster real cash flow positive marketing tool because initially we don’t have to oversell clients can send us data sets, and we print goods for them, which is a real good showcase. So I said, every system customer was always a service client.
And the Service segment, that’s what we currently see as well the high demand very likely, comes from the geopolitical challenges all of us are facing and supply chain issues. We assume that those, we see those volume 2023 and another drivers for sure that the industry is really seeing additive manufacturing or what we do, as a standard process, meanwhile, in slowly start ordering high volume.
Brian Kinstlinger
Great. And then I think in the press release you mentioned the challenges of the supply chain, which I assume is sourcing components for you and your focus is on getting these built in delivered. Can you touch on whether there’s, one or several components that you’re having trouble with? What the lead times look like? And anything that is in your control that can speed up the process?
Rudi Franz
High level, we manage it very good, our team is focused and very close with our suppliers, critical components, and I’m sure you hear this everywhere, our electrical components, microchips, I think we getting closer and we get the parts. But it’s still a challenge and we have to order a lot earlier and accordingly, we have to accept higher inventory. So lead times are a lot longer in accordingly to we currently build our book for 2023 on the system side. And we already negotiate volume with our suppliers to be on the safe side.
Maybe Johannes, do you want to add something to it’s your department.
Johannes Pesch
No absolutely, Rudi. The critical path that the electrical components in the electrical cabinet, but the suppliers really helping us like we are chasing them and then we get to parts, that’s the delay but we will get them swiftly.
Brian Kinstlinger
And my last question is relates to your large German auto OEM. Have you installed all the printers that from the original order, could you just remind me? And have they ordered additional printers in?
Rudi Franz
I hand it over to Ingo, so he’s working on this client.
Dr. Ingo Ederer
So, we understand that whether we will hold?
Rudi Franz
All five printers are installed.
Dr. Ingo Ederer
Yes, that’s true. We have an ongoing discussion with the client about further sales, also with the suppliers. Such a car maker has a network of suppliers applying similar or the same products at scale. And these discussions are ongoing. And we believe that we can gather further sales probably next year for this in technology.
Operator
Our next question is from the line of Jacob Stephan with Lake Street Capital. Please proceed with your question.
Jacob Stephan
Hey guys. Congrats on the good results and thanks for taking my questions. Maybe just touching on gross margin in the Systems segment, it looks like they were down just slightly year-over-year. Is that mainly due to the product mix or kind of supply chain component constraints like we were just talking about?
Rudi Franz
As mentioned in the presentation, the decrease or the lower gross profit is primarily related to a one-time effect where we adjusted or where we had to adjust our inventory, which went through this, if you would, that was a non-cash item, if you would exclude this gross margin would look very different.
So overall, we are previous booking, we were very happy with the gross profit. As you’re right, the gross profit margin is fluctuating. But in this specific quarter, there is a good reason for aspect support system booking of inventory.
Jacob Stephan
Okay. Yes. No, that’s helpful. And then maybe just revenue in Asia, it looked like it was up basically sequentially and year-over-year. Could you just talk about the primary driver of that growth?
Rudi Franz
As mentioned, I think our clients are really seeing this technology as a standard technology and they build their own production plans against it. Ingo gave a good example of Chevron Marine, for example. That product is designed for using a production process, which is called additive manufacturing.
I think the global supply chain issues are not only on microchips. We see this on other components as well. I think that pushes as sintering factoring as well. And we believe that in the call that going forward, we will see a lot more growth, because that technology is meanwhile really an accepted and very, very robust technology where you really can start building production capacity against.
Jacob Stephan
Okay. Is it may be fair to say that the €1.5 million from Asia this quarter was mostly services revenue, but it could potentially lead to some additional systems revenue?
Rudi Franz
No, I think we signed off on one system and the rest is for sure service activities and aftermarket business components that be signed off on big printer in Q2.
Jacob Stephan
Testing use, with these printers that the facilities already prepared at this site for accepting multiple printers of the same type?
Rudi Franz
So, it’s fairly, I think we can’t say more about this.
Operator
Thank you. We reach end of the question-and-answer session. I’ll turn the call over Ingo Ederer for closing remarks.
Dr. Ingo Ederer
Thank you. We are pushing ahead with full speed and are very excited about the opportunities in front of us for the employees, one of the best we ever had. And we are working hard to deliver those printers on time.
Hopefully, we can see many of you next month at the IMTS in Chicago. Have a great summer and we look forward to speaking with you in our next earnings call, which we expect to take place in November with results for the third quarter of 2022.
Thank you and good bye. Have a good weekend.
Rudi Franz
Thank you. Have a good weekend.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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