voxeljet AG (NASDAQ:VJET) Q3 2022 Earnings Conference Call November 18, 2022 8:30 AM ET
Company Participants
Johannes Pesch – Director of Investor Relations, Business Development
Ingo Ederer – Chief Executive Officer
Rudolf Franz – Chief Financial Officer
Conference Call Participants
Brian Kinstlinger – Alliance Global Partners
Operator
Greetings. Welcome to voxeljet AG’s Third Quarter 2022 Financial Results Conference Call. At this time, all participants will be in 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 now turn the conference over to Johannes Pesch, Director of Investor Relations and Business Development. Mr. Pesch, you may begin.
Johannes Pesch
Thank you, operator, and good morning, everyone. With me today are Dr. Ingo Ederer, voxeljet Chief Executive Officer; and Rudi Franz, voxeljet Chief Financial Officer.
Yesterday, after the market closed, voxeljet issued a press release announcing its [third] (ph) quarter financial results for the period ended September 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 order backlog. Such forward-looking statements are not guarantees of future performance and therefore, 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, 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.
Ingo Ederer
Thank you, Johannes. Good morning, everyone. Thank you for joining us on our earnings call today.
Let’s turn to slide four. 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 Munich. I co-founded the company on May 1, 1999 as a spin-off 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 the existing conventional production methods to additive manufacturing solutions. We push technological boundaries and develop new generative processes for the serious production of complex components.
Let’s turn to slide five, 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 our 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 six, 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 more months, we have seen some of the best order inflow for 3D printers we have ever had. Now the focus is on delivering these printers on time. Order backlog for our 3D printers is at a record high. Recently, we cleaned up the balance sheet by completing the sale and leaseback transaction of our headquarters in Germany with the gross proceeds of approximately EUR26.5 million, we have repaid our financial liabilities.
On slide seven, you can see pictures of our production facilities in Germany, U.S. and China. Now let me briefly explain our two business segments. In the Services segment, the top left side of this slide, we operate our own 3D printers in three 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 overcapacity for the whole time.
The barriers to entry are very low as 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 balance the typical long sales cycles in our Systems segment. Customers come from various industries, including automotive, aerospace, general engineering as well as are and architecture. In the U.S., one of our largest on-demand printing clients 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 aftersales activities.
Let’s turn to slide eight 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. We 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 of our — for our 3D printer ever.
Let’s turn to slide nine, and some thoughts on the energy manufacturing market. As you can see, Wohlers associates project growth to accelerate over the next few 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 few years. Because what really differentiates us from other players in the 3D printing industry is 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 release printer to BMW and Daimler more than 20-years ago our technology has evolved significantly over the last few 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 and 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, material 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 maturities. For example, we offer the VX1000 3D printer for the printing of high-accurate sand casting molds for ceramics or as a plastic polymerization printer. On the right side of this slide, you can see our portfolio of 3D printers and the corresponding build volume. Layer times vary with the platform and process and so can go as fast as four seconds with [indiscernible]
The new BFP printer, which we are currently developing together with GE is expected to have a build volume of more than 50 cubic meters. The normal size offers completely new opportunities we are very excited for it.
Let’s start with the formal part of the presentation on slide 13. And I will begin with an overview of the results for the third quarter. Rudi will then provide a more in-depth view of our financials for the third quarter and our outlook for the rest of 2022. Following his comments, we will be happy to take your questions.
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. With the demand for our product as high as ever, we are very excited about how we are positioned for the coming years.
Now we are working hard to make the deliveries and installations on time to be able to book 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 16% revenue in the on-demand 3D printing segment increased 24% year-over-year. It is great to see that this growth comes from a wide variety of applications, project for space exploration and yachts in U.S., large orders from the art and architectural sector in Germany, components for cooling of parts and electric vehicles in the U.K. and so on. Very recently, we received another large order for printed party in Germany from a supplier to a large U.S. electric carmaker.
Looking at the right side of the slide and gross margins, we are pleased with the gross profit and gross profit margins in our Services segment, especially in Germany, it was a bit weaker in the U.S. and China. This is partially the result of timing, for example, when we install a new print head.
In our Systems segment, gross profit margin from the sale of 3D printers decreased as a result of product mix. These fluctuations from quarter-to-quarter are nothing that makes us nervous. It is great to see that the systems related revenue significantly increased in the third quarter year-over-year, reflecting the higher installed base of our 3D printers in the market.
Slide 14 breaks down order backlog by quarter’s revenue by geography and operating expenses by category. Regarding order backlog, I would like to highlight, 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, order inflow for 3D printers was one of the best we ever had so far and order backlog for 3D printers was at EUR13.7 million at the end of September 2022. That is a new record. When looking at revenue by geographic region, we targeted even distribution across the three regions to hedge against risk from local events.
Let’s turn to slide 15 and a quick status update on some of the projects we are working on and why we believe there is no other company in this space with a comparable portfolio of solutions for additive mass production. Most additive manufacturing machines are designed for prototyping and single-part production, they cannot be easily integrated into the shop floor. Integration requires machine controls that can be included seamlessly in the factories manufacturing execution systems and enterprise resource planning software.
It also requires high levels of automation to reduce manual work and comprehensive maintenance services, similar to those for other production machinery to reduce the number of costly production shops. This means the integration of 3D printers into automated processes and workflows is critical. We have gained significant knowledge in this area over the last few years, especially with the VJET X in our project with the German carmaker.
You can see some pictures at the bottom of this slide. While the project was extremely challenging. We now have five printers in operation. All of them have been handed over operationally to the customer. We have gained invaluable insights that can be applied to other projects and developments. We have some of them on the upper half of this slide, for example, with our VX1000 PMMA printers, we have U.S. clients mass produced critical components in marine and aerospace applications. Sharrow Marine, for example, who has developed a next-generation propeller system that can only be made with 3D printing, earlier this year announced a global distribution and manufacturing supply agreement with Yamaha Marine precision propellers.
They looked at all the available 3D printing technologies and also conventional technologies and decided to go with voxeljet technology as it is the only one that allows us to manufacture at sufficient scale and at acceptable costs.
With GE Renewable Energy, we are developing an ultra large 3D printer for the production of next-generation wind turbines, we are currently sourcing components for the prototype printer. TI, a long-standing customer in the U.S. is using several of our VX4000 printers to make large complex castings. Recently, they won a multiyear contract from a large U.S. carmaker to make certain components of a new electric vehicle.
In this case, it’s the underbody of the car that is made by printing the mold followed by casting. Just six large holostructural castings make up the complete vehicle underbody out for this future EV. The near rail combined — the rear rail combines the top box longitudinal and shock tower into one complex holocasting. All holog sections will be made using 3D printing course in production. In doing so, they can combine the advantages of 3D printing namely product and process innovation with those of conventional manufacturing of metal parts, wire casting, cost advantages and high degree of automization.
Another important advantage of our technology is we’re avoiding high recertification cost as the casting process is a standard process for the production of metal casting parts. In Germany, we recently received an order for structural components from a supplier to another U.S. electric carmaker. Structural geometries of printed components are becoming ever more complex and demand for lightweight holog structures is growing fast — means we are freely printing a lot of parts for the casting of structural components, which is a really exciting application of our technology.
On the right side of the slide, you can see an update on the new high-speed sintering or HSS printer assembly of the first beta system is complete, and we are currently doing the in-house commissioning. Next, we prepare shipments to our clients, which we expect to take place early next year. We believe we are now reaching an inflection point and the number of parts that are currently going into production is increasing fast.
On to some mature development use on slide 16. As mentioned in the last conference call, we have put commercially available concrete powder from a local store on our VX200 and were able to print parts of excellent quality, large part on the left side of this slide was printed in sand and then casted in concrete. On top of the large part, you can see a smaller part that was directly 3D printed and is as it is out of the printer, meaning no post treatment was necessary. The surface is exceptionally smooth, and the degree of detail is far better than we had expected.
In the middle of the right side of the slide, you can see close-ups of parts directly printed in concrete. We have seen interest from companies that, among many other things, operate very large steel parts.
Turning to slide 17. We hosted a two-day customer seminar finally, again, live and in-person, the seminar future fascinating speakers and presentations about metal casting and 3D printing, topology optimization, large-format art casting and material development for polymer additive manufacturing, networking sessions and get together.
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. We have a lot to look forward to in the coming months and years.
And with that, I would now like to turn the call over to Rudi.
Rudolf Franz
Thank you, Ingo, and good morning to everyone. We are pleased with our performance over the last few months as we completed the sale and the spec transaction of our headquarters here in Germany. We used the proceeds from this transaction to repay our financial liabilities [Technical Difficulty] our debt free. This is an important milestone for our company. Also, we added additional liquidity through a logistic direct offering, which was completed in mid-October.
As we noted in the past, our rational and rating capital will be marginated. This transaction accomplished that, given the record level of order backlog for our 3D printers we plan to use the proceeds primarily for working capital. Together against supply chain delays, we order products that we need for our printers with exceptionally long lead times. For example, electrical components well ahead of the client delivery.
Everything we do is focused on capturing the growth opportunities in our business and our long-term value creation for everyone in our business ecosystem that includes our clients’ investments in employees. We are very happy with how the business went in recent months, both in our Systems and Services segment. We will now take you through the financials for the third quarter of 2022. After that, we are happy to take your questions.
Turning to slide 19. Total revenues increased 16.1% to EUR5.7 million for the third quarter of 2022, as compared to EUR4.9 million for last year’s third quarter. Gross profit and gross profit margin decreased to EUR1.6 million and 28.7% from EUR1.9 million and 39.3% for the third quarter of last year. The decrease was mainly due to a less favorable product mix regarding our printer sales innovation. We recorded a higher valuation allowance for inventories volume, our inventory reserve policy amounting to kEUR263 negative for the third quarter of 2022, compared to kEUR109 negative in the last year same period.
The next slide show our segment reporting for the quarter. In our Systems segment on slide 20. Revenue for the third quarter of this year increased 8.3%, compared to the same period last year. After sales business increased significantly, compared to the previous year, reflecting the growing installed base of our 3D printers in the market. Gross profit and gross margin for the quarter for the Systems segment were EUR0.7 million and 24.1%, compared to EUR1.1 million and 44% in the third quarter of 2021. This decrease was mainly due to the less favorable product mix regarding our printer sale and the regulation amount mentioned earlier.
Turning to slide 21. Revenue from our 3D parts production center summarized in the Service segment in Germany and the U.S. continues to be exceptionally strong, and it’s great to see that this momentum continue. Services revenues increased 24.2% to EUR3 million for the third quarter 2022, compared to EUR2.4 million for the same quarter of 2021. Service gross margin — gross profit margin slightly decreased to 32.8% for the third quarter of 2022 from 34.4% for the same quarter of 2021.
Looking now to the rest of the income statement on slide 22. Selling expenses increased to EUR2.0 million for the third quarter of 2022 from EUR1.5 million for the same quarter of last year. This increase was mainly related to higher distribution expenses in line with the increase in revenue. Distribution expenses like shipping and packaging are main drivers for selling expenses and not only depend on the amount of revenue, but also on the qualities and types of products. So — as well as the destination to which those goods are being delivered. That for distribution expense can vary from quarter-to-quarter.
Over the last few months, shipping costs have doubled in some cases even triple. Administrative expenses were EUR1.6 million, as compared to EUR1.5 million for the third quarter of 2021. The increase was related to higher legal expenses relating to sale and leaseback transaction, which closed on October 1, 2022. This was offset by lower legal advisor fees related to our stock market listing and our communication with financial institutional connection with funding activity.
Research and development expenses increased to EUR1.7 million from EUR1.5 million in the same quarter last year. The increase was mainly due to higher usage of external services, expense are usually driven by individual projects, especially through the consumption of material, as well as demand of external service that may vary significant from quarter-to-quarter.
Operating loss was EUR2.5 million for the third quarter of 2022, compared to an operating loss of EUR1.5 million in the comparative period of the last year. This was mainly due to higher expenses with the sales and marketing function, as well as research development in combination with a decrease in gross profit.
Net loss for the quarter was EUR8.7 million or EUR1.23 per ADS, compared to a net loss of EUR8 million or EUR0.12 per ADS for the prior year same quarter. This was mainly related to a higher finance expense due to the write-down of embedded derivative financial instruments relating to the European Investment Bank’s performance participation interest. This is a non-recurring and non-cash expense.
The write-down resulted from the early repayment of the finance contract with EIB in October 2022 expected already as of September 30, 2022. The early repayment including the full settlement of all charges and interest, including the performance participation interest for an amount of EUR22 million. We have provided the same presentation for the nine-month period ended September 30, 2022 on slides 23 to 26.
Slide 27 shows selected balance sheet items. At September 30, 2022, the company had free cash of roughly EUR10.2 pro forma and taking the proceeds related to just the direct offering completed in October 2022 into account, free cash would have been approximately [EUR14 million] (ph).
Total debt at September 30 2022 was approximately EUR28 million. We repaid our financial liabilities on 31st October, because the repayment was after the third quarter close. The financial liabilities still show up in the report as of 30th September 2022. The current number of shares outstanding is 8,305,781 million.
And now moving on to slide 28 and our financial guidance for the full-year 2022. Revenue for the fourth quarter of 2022 is expected to be in the range of EUR9 million to EUR12 million.
And this concludes my remarks. And with that, we will now open the call up for your questions. Operator?
Question-and-Answer Session
Operator
Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your questions.
Brian Kinstlinger
Great. Thanks so much for taking my questions. Solid order flow. First as it relates to the backlog of Systems, how many customers did the 16 Systems represent? And then how many are first-time orders from customers, compared to follow-on orders from customers that already have taking control of at least one printer?
Rudolf Franz
So the majority of the order this first-time orders. The — and I think anything else since we don’t disclose this in our numbers in that detail, we do not share.
Ingo Ederer
But among the crowd also as the second time orders, so does it help?
Brian Kinstlinger
There are customers that have second-time orders? Is that what you’re saying whether or not?
Rudolf Franz
As said, primarily, it’s first client orders, but they are as well orders with customers who already operate systems. So they increased their installed base. But as said, we don’t go this in such a detailed information. But we spoke in the call about TI, for example, they operate multiple systems, talk about Sharrow Marine, as well multiple systems in both printers you find as well in our backlog.
Brian Kinstlinger
And then is there any concentration in those 16 printers in the backlog in terms of what type of system there are orders in there? And then I guess, I’m just trying to figure out what the average price looks like and how inflation of components is impacting that?
Rudolf Franz
Our best-selling system still is the VX1000 and the related independently from the product mix. The average sales price is as always said, it’s $500,000 to $600,000 and on those systems is slightly higher.
Brian Kinstlinger
Great. And then I think —
Rudolf Franz
There are — VX4000 are in the backlog, you know, that VX4000 for example, cost up to — it depends on the configuration between EUR1.5 million and EUR1.8 million.
Brian Kinstlinger
Yes. And then you mentioned, I think, in the last six months, shipping costs doubled and we’ve been hearing from a lot of U.S. companies that the price of shipping containers as it dropped substantially to around pre-COVID levels. Can you reconcile the differences that you’re seeing?
Rudolf Franz
What we see is currently that shipping costs are still on a very high level. We did not reach the pre-pandemic level on this. We usually invoice declined with the increased shipping costs. And in addition, what we see is partly still shipping costs is about 3 times higher than pre-pandemic and as well before the Russia-Ukraine crisis. So from January to now, we have seen partly asset 3 times higher shipping cost to Asia, the U.S. partly some of at least double.
Brian Kinstlinger
Okay. Lastly, can you update us on any changes or remind us of the expected timeline of the joint development with GE? And what the next data point investors should be focused on?
Ingo Ederer
So currently, we are engineering the machine. It will be a prototype printer. We are planning to start ordering parts beginning of next year, and the assembly of this prototype printer is also planned for next year. There will be then an initial test operation also scheduled for next year. And then hopefully, we see a second phase of the project where we than do the customer project, means so we are printing then the real molds and do the real car things.
Brian Kinstlinger
Great. Thank you so much.
Ingo Ederer
You’re welcome.
Rudolf Franz
Thank you very much.
Operator
Thank you. We’ve reached the end of the question-and-answer session. I’ll turn the call over to Ingo Ederer for closing remarks.
Ingo Ederer
Thank you. The strategic priorities have been very key for a long period of time now, and we keep working on them and delivering. You know that our first priority is to drive more product growth, but it has taken longer than we anticipated. New products are starting to meaningfully contribute top line growth.
Existing products are performing better than we expected. See for example, the recent deals we made with our VX1000 PMMA and VX4000 printers. We have a lot to be looking forward to in the upcoming years. It was great to see many of you at this week’s Formnext show in Frankfurt Safe Charter is back, and we are looking forward to speaking with you again with our full-year 2022 results then in next year.
Rudolf Franz
Thank you very much to everyone. Have a good weekend.
Ingo Ederer
Thank you. Bye-bye.
Operator
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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