Materialise NV Price & Performance (MTLS)

Before we get started, I'd like to remind you that management may make forward looking statements regarding the company's plans, expectations and growth prospects. Among other things. These forward looking statements are subject to known and unknown uncertainties and risks. Could cause actual results to differ materially from the expectations expressed. Including competitive dynamics and industry change, Any forward looking statements, including those related to company's future results and activities, represent management's estimates as of today and should not be relied on as representing their estimates as of any subsequent day. Management disclaims any duty to update or revise any forward looking statements to reflect future events or changes in A more detailed description of the risks and uncertainties and other factors that may impact the company's future business or financial results can be found in the company's most recent annual report on Form 20 F filed with the SEC.

Finally, management will discuss certain non IFRS measures on today's call. A reconciliation table is contained in the earnings release and at the end of this slide presentation. And with that, I'd like to turn the call over to Brigitte Davette Vaiten. Brigitte, please go ahead.

Good morning and good afternoon everybody. Thank you for joining us today.

I'm very pleased to present our fourth quarter and full year 2024 results You can find the agenda for our call on Slide three. Now as you know, I've now been in my role as CEO from DLI's [indiscernible] I'm proud of the achievements we have realized in this year, and I would like to highlight some major milestones realized in 2024 in this call. I would also reflect on the achievements and our results of the fourth quarter.

After that, I will pass the floor to Kun, who will go in more detail through our financial results. Finally, I will come back and explain what we expect 2025 to bring. We've completed our prepared remarks, we'd be happy to respond to questions. 2024 has been a difficult year for the industry, driven by high interest rates, geopolitical tensions and a difficult economic climate. I am very proud that in this difficult climate, we realized 4% growth and managed to keep our adjusted EBIT stable while continuing to invest in our growth businesses. And while making progress on our strategic objectives. On Slide four, I will highlight some of those strategic objectives and major achievements in the various [indiscernible] Starting with Medical. We continued to make progress on our journey towards mass personalization where our aim is to bring personalization to many more patients. We that can benefit from our solutions by reducing our lead times thanks to the opening of our U. S. Plant at further auto automating our processes in order to conquer the trauma market, So patients that cannot be scheduled and need to be treated within the week. We also brought personalization to new markets.

And in particular to the cardiovascular market where we complemented our existing planning solutions with simulation offerings from FIOPS, the company that we acquired in the third quarter of twenty twenty four. While the acquisition has had a negative impact on our EBIT on the short term, an impact our fourth quarter results, we are pleased with the customer feedback and the progress of the integration. As a highlight for the fourth quarter, also want to mention the launch of our Mimics platform, to accelerate the adoption of personalized solutions and help companies and hospitals bring personalization to more patients. By making it easier and faster to segment images, plan cases and design a personalized instrument or implant. The Mimics platform is an integrated cloud solution combining our strong desktop toolbox Mimics, [indiscernible] AI based automation and cloud based three d viewing capabilities in an end to end cloud based environment, The Mimics platform addresses the challenges that customers face when scaling their personalized offerings. Typically manual segmentation and design work, cumbersome communication between engineers and clinicians, strengthened regulatory requirements and growing patient privacy legislation. At the end of twenty twenty three, we launched the Mimic's case management tool, to provide an end to end workflow and generate efficiencies in process of commercializing patients with specific devices.

With the launch of the new Mimics platform, called MimicsFlow, we've gone a step further enabling our customers to collaborate effortlessly and benefit from AI based automation in a frictionless way, while staying [indiscernible] with the latest regulations. In our Manufacturing segment, continued to shift from prototyping to certified manufacturing of end use parts and in particular in our focus segments in which we saw growth throughout the year and in which we continue to strengthen our position. Let me give you the example of the RS based segment. Which has been a focus segment throughout the year. In Aerospace, we offer EN9001, 35 manufacturing for polymer and metal parts.

We have production organization approval, and have printed more than 500,000 flying parts so far. We saw 28% revenue growth in this segment throughout the year. As a next step in this market, we recently opened our Iris based competence center in Delft. The TU Delft, the technical university, is a leading university and there's a vibrant ecosystem that has developed around it. We are joining the selective aerospace networking space allowing us to collaborate closely with Iris based companies in this hub and bring our knowledge to foster the smart use of additive manufacturing in the industry to our manufacturing services and our software. Our long experience in this market gives us access to performance data from hundreds of RV space builds including parameters like part density, tensile strength and elastic modulus. With a clear view of process repeatability and reliability, we are well positioned in this space. Let me give you another example of one of our focus segments. At ACTech, we expanded our market segments to the production of what we call huge and heavy parts. As you know, we expanded our facilities in Germany to accommodate production of this type of parts. We have seen growth above 30% in the segments throughout the year.

While making progress in our focus segments, we have also seen headwinds in the traditional business segments such as prototyping, and the casting of combustion engines for the automotive sector. Accelerated by an increasingly unfavorable macroeconomic industrial environment in Europe and the general softness of the automotive in the fourth quarter. These headwinds in addition to the plant's reduced operational capacity at ACTEC, due to the opening of the new plant, led to a difficult Q4 with disappointing results. We expect these headwinds to continue in 2025. To adjust to this reality, we have taken action in the fourth quarter and implemented a restructuring in our three d printing manufacturing activities to reduce our cost base in 2025. Now turning to software. In software, we had two main priorities throughout the year. First, strengthening our position in factory management based on OEM [indiscernible] And second, organically adding capabilities and expanding our position in the preprint, matrix market, adding functionality for users that scale in end use production. Throughout the year, we have made progress on both fronts. On the Core YET side, we announced numerous partnerships throughout the year. And we added functionality for example, to monitor the builds and capture data in our QPC module.

We continue to onboard new partners on this platform, which is an essential foundation to accelerating our future growth. In the Preprint segment, we accelerated the shift towards a subscription based model for Magic's customers. [indiscernible] a software that automates support structure generation and helps customers make metal additive manufacturing more economically viable. And we expanded our build processor functionality.

In the fourth quarter specifically, we announced the launch of our metrics SDKs. Expanding our users' ability to customize their three d printing operations. This allows our users to create custom workflows in the Magic software. Protect the intellectual property behind component designs, and print high performance geometries. With access to algorithms developed over thirty four years, customers will now be able to scale additive manufacturing operations economically. Overall, I am proud of the Progress achieved despite the difficult climate. Throughout the year and in particular in the fourth quarter impacting our financial results. I will now pass the floor to Kun to summarize the financial results of the fourth quarter and the full year. You, Brigitte. Good morning or good afternoon to all of you on this call.

I'll begin with a brief review of our consolidated revenue on Slide five. As a reminder, all comparisons in this call against our results for the fourth quarter and the full year 2023. In the final quarter of the year 2024, our revenue increased slightly to €65,700,000 Materialized Medical continued its double digit growth increasing its revenue by more than 14% and once again posted a quarterly revenue record. Manufacturing on the other hand remained confronted by challenging market conditions that even identified in the last months of the year. While software continued its transition towards a recurring revenue business model, will positively impact its revenue potential in the future. As you can see in the graph on the right side of the page, Materialise Medical accounted for close to half of our consolidated revenue during the fourth quarter of twenty twenty four. Materialized manufacturing for 35% Materialise software for 17%. Reflecting the impact of the different growth rates rates of the three business segments. For the full year 2024, we generated over €2,000,000 of revenue. Which is 4% above 2023. Our Medical segment represented 44% Manufacturing 40% and Software 16%, of the annual revenue total. The amount of deferred revenue on our balance sheet related to software licenses and maintenance fees increased in Q4 twenty twenty four by 5,900,000.0 ending at €46,900,000 Total deferred revenue reported on our balance sheet was just above €59,000,000 at the end of the year Now on Slide six, you will see our consolidated adjusted EBITDA and EBIT numbers for the fourth quarter as well as for the full year.

Consolidated adjusted EBITDA for the fourth quarter amounted to €4,300,000 decreasing from €8,500,000 for the 2023 period. The corresponding adjusted EBITDA margin in the last quarter of twenty twenty four was 6.6%. This decline in Q4 is mainly attributable to combination of factors. Including the startup of production in our new active plants, the difficult industrial environment in particular in Europe, impacting our manufacturing results, but also restructuring costs taken in manufacturing and G and A and continued investments in medical including the integration of Fayetteville. Full year adjusted EBITDA remained stable at €31,500,000 with an adjusted EBITDA margin for the full year to reach 11.8%. Consolidated adjusted EBIT for the fourth quarter decreases to minus €1,200,000 compared to €3,200,000 for the corresponding period of 2020 reflecting the impact of a lower EBITDA and higher depreciation charges. Our adjusted EBIT margin for the quarter was negative by minus 1.8%. Full year adjusted EBIT ended at €9,700,000 compared to €9,900,000 in 2023. Our adjusted EBIT margin for the full year reached 3.7%, compared to 3.9% last year Moving now to Slide seven, you will notice that the quarter's total revenue our 14% to €31,800,000 once again a quarterly revenue record. This strong growth was generated by both higher revenue from medical devices and services sales and by higher revenue from medical software which grew respectively by 1514% Within our Medical Devices and Services business, we saw continued growth also here both in direct and partner sales.

Increased costs may be coming from higher R and D spend as we made progress on various study and FDA approval tracks and the integration of PHALPS, impacted the operational profitability in the fourth quarter. Nevertheless, we realized an increased adjusted EBITDA of €9,500,000 representing an adjusted EBITDA margin of of 30% for the quarter. As a reminder, the 2024 numbers also include the impact of sales. As of July 2024 which in its current development phase still contributing negatively to our EBITs. On a full year basis, our Medical segment revenue increased by almost 15% to €116,000,000 translating into an adjusted EBITDA of €35,600,000 and adjusted EBITDA margin of 30.6%. The share of medical software revenue remained stable throughout the year at around 30%. Slide eight summarizes the results of our Materialise Software segments. In the fourth quarter, software revenue remained close to flat despite the further transition to cloud and subscription based business model, Recurring revenue from software maintenance and license sales including COEM, increased once more by 19%. On the other hand, non recurrent revenue decreased by 35%. The adjusted EBITDA in our software segment remained roughly stable in Q4 at €1,100,000 representing an adjusted EBITDA margin of 10.1%.

Also on a full year basis, our Software segment's revenue remained stable around €44,000,000 which translated in an adjusted EBITDA of €5,600,000 adjusted EBITDA margin of 12.7%. While this includes also the impact increased investments in our growth products. Now let's turn to Slide nine for an overview the performance of our Materialise and Manufacturing segment. In Q4, we realized further growth in our aerospace and medtech, but this was more than offset by continued weak prototyping demand by Agtech's new plant startup and by strongly unfavorable macroeconomic climates in the industrial sector particularly in Europe. Unlike our other reporting segments, the vast majority of the revenues in our manufacturing segments are generated in Europe. As a result of these, revenue decreased by 13% compared to last year's fourth quarter. As a consequence of this lower top line, also adjusted EBITDA ended at minus €3,000,000 while the fourth quarter of twenty twenty four also included restructuring costs incurred to reduce our cost basis going forward. On a full year basis, manufacturing's revenue decreased by 3% to €106,500,000 realizing €1,700,000 of adjusted EBITDA. Representing an EBITDA margin 1.6%. Slide 10 provides you the highlights of our consolidated income statement for the fourth quarter and the full year.

Our gross profit for the fourth quarter ended at €36,400,000 representing a gross profit margin of 55.4%. Over the full year, the gross profit margin was 56.5%, roughly stable compared to prior year. Our operating expenses in the quarter increased by €3,600,000 or 10% in aggregate with the largest increase coming from higher R and D spend which grew by 20% compared to 2023 The higher R and D spends in fourth quarter was already mentioned, mainly driven by medical. Furthermore, Q4 costs included unfavorable impacts as also mentioned from the active plant startup CF's integration and from restructuring costs to reduce our cost base going forward. For the full year, operating expenses were in aggregate 9.5% higher than in 2023, with the main impact again coming from increased R and D spends The net operating income in the quarter was positive at €1,400,000 compared to a negative €3,300,000 last year. Where 2023 included non recurring charges from the impairment of goodwill tangible and intangible assets for €4,200,000 For the full year, net operating income was positive at €4,200,000 compared to a negative €6,500,000 for last for 2023. As a result of all of these elements, the group's operating result in the quarter was negative €1,300,000 compared to also a negative €1,100,000 in last year's period.

For the full year, operating result increased to €9,500,000 compared to €5,600,000 2023. In Q4, net financial income amounted to a positive €3,300,000 including a positive currency exchange result of €2,900,000 mainly reflecting the change U. S. Dollar to euro interest income of €4,800,000 from our cash reserves, which are partly offset by interest expense on our reducing financial debts. Amounting to €300,000 Income tax in the quarter amounted to a positive EUR 900,000.0 in with the prior year As a result, net profits for the fourth quarter ended positively at €2,900,000 representing €0.05 per share compared to a loss net loss of minus EUR0.5 million or minus €1 per share for the 2023 periods. Over the full year, we realized a net profit of €13,400,000 resulting in €0.23 per share compared to a net profit of €6,700,000 or €0.11 per share in 2023. Now please turn to Slide 11 for a recap of the balance sheet cash flow highlights. Also in the fourth quarter, our balance sheet remained strong. Our cash reserves at the end of the quarter amounted to €102,000,000 The cash position was impacted though by an anticipated bullet loan repayment of €10,000,000 in Q4. Over the full year, loan repayments totaled €23,000,000 and reduced our gross debt to €41,000,000 to resulting net cash position at the end of the fourth quarter was €61,000,000 slightly below the position at the beginning of the year.

Compared to the balance sheet at the end of 2023, we reduced our net working capital over 24 by €1,800,000 to an increased focus the underlying components. The total deferred income €3,000,000 at year end, reached €46,900,000 was related to deferred revenue from software license and maintenance contracts as I already mentioned earlier, As you can see from the graphs on the right side of the page, cash flow from operating activities for the [indiscernible] 2020 amounted to €6,200,000 year [indiscernible] The impact from lower P and L components was compensated by favorable working capital movements. Capital expenditures for the quarter amounted to €7,800,000 which is higher than average and which is reflecting the active investments the completion of the building installation of new machinery As a result of these larger than usual investments, as of some limited income from asset sales, our free cash flow over the quarter of twenty twenty four turned negative by minus €1,300,000 Now for the full year, the operational cash flow increased to €31,500,000 up by 56% compared to 2023. The free cash flow remained positive over the year while we invested more than EUR 26,000,000 of CapEx. Including both recurring and non recurring investments.

And while we completed sales acquisition, We have the bulk of investments in our new Aclic facility behind us now, but we'll continue to invest in additional machinery as we gradually ramp up the new facilities throughputs in coming months. And with that, I'd like to hand the call back Thank you, Koen. Let's turn to Page 12 for a quick review of our financial guidance. Looking at 2025, we remain confident that our Medical and Software business will continue to grow with the growth of our Materialise Software Segment Still Not Being Fully Reflected In The Segment's Revenues As We Continue To Transition Towards A Cloud Based Subscription Business Model. At The Same Time, We Expect That The Uncertain Macroeconomic Industrial Environment In Europe will persist in 2025 and will continue to impact our manufacturing segment.

Which is particularly exposed to the European environment As a result, expect revenues to be in the range of €270,000,000 to €285,000,000 and adjusted EBIT in the range of €6,000,000 to €10,000,000 We intend to continue our investments in the growth markets of the future and in particular in the medical segment and the factory management solutions and software. While keeping a strong focus on cost control and op optimization in our manufacturing segments and our corporate overheads. With our guidance reflects the impact of the uncertainty economic environment in Europe on our manufacturing business, We believe Materialise is ideally positioned in the market for personalized medical products and the market for additive software and for manufacturing services. Thanks to our strong product portfolio, continued investments in innovations and our strong financial foundation.

This concludes our prepared remarks. Operator, we're now ready to open the call to questions.

And our first question will come from Alexander Kramersch with Kepler, your line is now open.

Alexander from Kepler Cheuvreux here. Yes, actually, I have a couple of questions, five if that's possible. So first, could you remind us of the main margin difference between recurring and nonrecurring revenue in the Software segment? Second question would be, what is there the average lifetime on the subscription? The third question also on software would be How much of the revenue in software is now recurring versus non recurring? I saw some highlights there, but I've calculated it's still about two thirds nonrecurring. Does that sound about correct? Then maybe I'm going to list all my questions first and then let you answer. So the fourth question would be if you could give us some granularity on the one offs. I'm talking specifically on the increased R and D spend, the AC Tech startup, and the FIPS integration combined with the restructuring cost you could just give us a bit of a split, how much that impacted the adjusted EBIT in the fourth quarter? Given that the guidance of €11,000,000 to €14,000,000 that you provided at the end of Q3 was clearly that had an impact there. So and then the last question would be considering the difficult climate that you talked about was already present after Q3, yet you decided to send an optimistic message in October, could you tell us what exactly has changed and that you didn't have the visibility Thank you, Alexander, for the five questions.

Trying to decide in which order I will tackle them or we will tackle them. Well, I have to admit that your first question is not exactly clear to me. So you wanted to understand the margin difference? Between the recurring and the nonrecurring? [indiscernible] Yes, in the software segment. So you're going from a nonrecourse wondering if there's any large margin difference there? Thanks.

No, I don't think you can expect a large margin difference. On the difference.

The revenue recognition, Alexander, is different, of course, in the two scenarios.

Whereas in the old perpetual license model, we take the revenue immediately into P and L. And whereas in a recurring revenue model, we we gradually the contracts. Maybe they're picking also into your question on what the split is between recurring and non recurring. Revenue within our software segment we see as in the previous quarter, a continued transition [indiscernible] Recurring revenue, if you look at the situation at year end, we're roughly at about 76%, so just above 75% or three quarters of the revenue, the total software revenue that we consider as to be recurring And then maybe tackling your softer question on the average lifetime of the subscription. So most of our subscription based revenue, you should expect an annual so one year lifetime.

Then maybe shifting to the question on the clarification on the operational spend. [indiscernible] You are there, if I understood you correctly Alexandra, on how these different components that you mentioned impact the Q4. Cost increase without having the maybe not providing the detailed breakdown, I would say about half of the cost increase that I mentioned versus the last quarter of last year, which is between €1,500,000 and €2,000,000 half that amount, which is half the total cost increase comes from the three elements you listed and Fabius integration the restructuring costs that we took And the operation the purely operational impact from the Arctic on start up.

And then maybe commenting on your last question, on the whether we saw this coming or not. Well, the first thing I would want to say, we had sent the with the third quarter results, we already indicated to be very cautious about around the fourth quarter results to be expected, in particular, in the manufacturing [indiscernible] as we were expecting the move to our new plants, to reduce the operational capacity The industrial climate was already very cautious at that point in time. However, what we did see is that in the fourth quarter, we saw that climate accelerated, particularly in Europe.

And that is what you see now reflected in our fourth quarter results and the 2025 guidance. Does that answer your question, Alexander?

Yes, about. Thank you. As a reminder, And our next question comes from Troy Jensen with Cantor Fitzgerald. Your line is open. Hey, good morning, good afternoon, Brigitte and Coon. Hey, Troy.

Hello.

So I guess my question is, first of all, deferred revenue, that was like a huge kind of growth in the quarter in the software segment. I guess that was more hopeful that would hear better kind of forecast at the the software business. But can you just explain why such a big step function in in deferred revenues this credit Yes. The deferred revenue went up with just below $6,000,000 in the [indiscernible] which is something we had anticipated. It's in line also if you look at the seasonality with prior years, there's quite some [indiscernible] large contracts at the end of the year where we typically see in the first in the last quarter of the year a buildup of deferred revenue and then a depletion in the second and the third quarter.

For a little bit in line with what we anticipated, though it was larger than [indiscernible] which is of course also the effect from the conversion to more recurring revenue that we are doing.

Yes. Okay, perfect. And then just a follow-up on this OpEx question. How much of this $1,500,000 to $2,000,000 that you're mentioning falls off quickly? Or can you kind of help us out with we had big stufunctions and kind of growth in OpEx sequentially in December. In March, are they going to be down now on a sequential basis because these one time items fall out? Or or do they still hang around also?

If I can just comment. So Kunpe pointed out at the increased R and D, the uptake start of cost and the sales integration, if you look at those three, the actual startup costs should taper down. The increased R and D, we do want to continue to accelerate our investments in the medical business in particular. As we very much believe in the growth future growth there. Now the FIPS integration costs should also taper down as we go.

Okay. Do you think just like on an absolute basis, it's up or down sequentially?

I mean, are you guys going to cut costs now and we're going to try to get back to higher profitability levels? Are these going to that throughout 2025, we'll certainly will have a strong focus on cost control and not optimization, in particular in the manufacturing segment going forward.

All right. That's fine. So then how about just last on European weakness? I may get European auto sense, but is it much broader than just the automotive vertical?

Can you repeat that question twice?

Just the European weakness, I would understand auto is really weak in Europe. Is it broader than automotive? So the automotive sector is particularly weak in Europe.

It's slightly broader because of the end with also the impact of the Trump administration in The U. S. On Europe, it's So there's uncertainty factors around that. Great. Understood. Okay. All right. Well, good luck here in 2025. Thank you. I show no further questions in the queue at this time. I would now like to turn the call back over to Brigarata for closing remarks.

Thanks again for joining us today. We look forward to continuing our dialogue with you through investor conferences or in one on one meetings or calls. Please do reach out if you have any further questions. With that, I want to say thank you. And goodbye for now.

This does conclude today's conference call. Thank you for your participation. [indiscernible]