Good day, ladies and gentlemen, and welcome to the Q2 2019 Materialise Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call will be recorded. I would now like to turn the conference over to your host Ms. Harriet Fried of LHA. You may begin.

Thank you for joining us today for Materialise's quarterly conference call. With us on the call are Fried Vancraen, Founder and Chief Executive Officer of Materialise; Peter Leys, Executive Chairman; and Johan Albrecht, Chief Financial Officer. Today's call and webcast are being accompanied by a slide presentation that reviews Materialise's strategic, financial and operational performance for the second quarter of 2019. To access the slides, please go to the Investor Relations section of the company's website at www.materialise.com. The earnings press release issued earlier this morning can also be found on that page. 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 that 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 the company's future results and activity represent management's estimates as of today and should not be relied upon 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 expectations. 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 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 the slide presentation. And with that, I'd like to turn the call over to Peter Leys. Go ahead, please. Peter?

Thank you, Harriet. And thank you everyone for joining us today. You will find an agenda for our call on Slide 3. As always I'll begin with a brief recap of our results for the quarter, after which Pete will come on to discuss some of the many growth initiatives in Materialise medical, including obviously the investments we made just last week in Engimplan, a Brazil based manufacturer of cranio-maxillofacial or CMF and orthopedic implants and instruments. After that Johan will go through our second quarter results in more detail and then I will come back to review our financial guidance for 2019. When we've completed our prepared remarks, we will be happy to respond to any questions that you may have. Now turning to Slide 4, you will see the highlights of our second quarter results. Despite the macroeconomic - macroeconomic environment that remains challenging Materialise continues to grow, our total revenue rose 7%. Our consolidated adjusted EBITDA was 10.5% and we were again very close to the break even point. Materialise Medical continues to perform strongly with revenues growing 17% quarter-over-quarter and within EBITDA margin of almost 19%. The revenues of Materialise manufacturing grew by 5% for a double-digit EBITDA margin of more than 11%. This quarter Materialise Software performed below our expectations with a growth of 2% and EBITDA margin of 22%. And I will now turn the call over to Pete who will as I explained earlier among other things expand on the investment in Engimplan that we announced last week. Pete?

Good morning. And good afternoon to everyone. Thank you for joining us today. Our strategy to invest in a select number of vertical applications of 3D printing in the medical field has been very successful and it's evidenced by the continued strong results of Materialise Medical. Going forward, we intend to continue following that course. I would like to expand on a number of initiatives that are currently ongoing with Materialise Medical and further execute and build on that strategy. First, our recently announced investment in Engimplan perfectly fits our vision to invest in meaningful applications of 3D printing, more particularly this initiative underscores our commitment to continue to invest in the verticals of cranio-maxillofacial surgery and orthopedic applications of additive manufacturing. Engimplan develops, manufacturers themselves through a network of distributors, its proprietary CMS and orthopaedic, which are mainly being related implant and instruments in Brazil. A large market with significant growth potential that is not covered by our international collaboration agreements. While Engimplan’s product portfolio currently consist mainly of standard products that have certain custom solutions, including their own patient specific EMG implant. Importantly, Engimplan is a very innovative company that is on the verge of introducing metal 3D printing in its production process, by including some of our own software and hardware solutions into Engimplan’s product portfolio and by adding our technological expertise to Engimplan’s production process we believe we can create a lot of synergies and effort to strengthen Engimplan’s market share in Brazil. We acquired a 75% stake in Engimplan through a mix of existing and new chips. The remaining 25% remains the defining family [ph] that stays in charge of the company's daily management. Turning now to Slide 6. Another materialized medical initiative. Our Mimics Enlight medical cardiovascular planning suite offers a good example of…

Thank you, Pete. I’ll begin with a brief review of our consolidated revenue on Slide 7. As a reminder, when we refer to sales in our presentation, we mean revenues, plus deferred revenues. Also please note that unless otherwise stated, all comparisons in this call are against our results for the second quarter of 2018. As Peter mentioned in his opening remarks in this year's second quarter we generated a 7% increase in revenue, driven by our medical segment. Deferred revenue from annual software sales and maintenance contracts increased €2.5 million compared to 2018. For the quarter, Materialise software accounted for 90% of our total revenue, Materialise medical for 30% and Materialise manufacturing for 51%. Cross-segment revenue from software products accounted for 29% of our total revenue. Moving to Slide 8, you will see our consolidated adjusted EBITDA numbers for the first quarter. Consolidated adjusted EBITDA decreased to 3% from €5,260,000 to €5,59,000. our EBITDA margin changed from 11.6% to 10.5%. Unlike the previous period to 2019 Q2 EBITDA included a positive effect of €644,000 by the new IFRS 16 accounting standard that requires us to capitalize certain lease expenses as of 2019. This new accounting standards has little impact on our operating profit as depreciation expenses increased by almost the same amount. The increased operating expenses reflecting our continued investments in sales and marketing capacity, research and development, regulatory initiatives counterbalanced the growth of our top line. Slide 9 summarizes the results of Materialise software segment. Revenue was up by 2% or €189,000, recurring revenue was up 23% percent, non-recurrent revenue was down 14% affected amongst others by delayed OEM sales. The combination of lower non-recurrent revenue with a continued expansion in our sales and marketing capacity and R&D initiatives has led to a decrease in the segments EBITDA…

Thank you, Johan. As indicated earlier, I wanted to - wanted to conclude our prepared remarks this morning by touching briefly on our financial guidance. While our medical segment continues to perform very well and our manufacturing segments also performs relatively well given the micro economic circumstances, our Materialise software sales have been below our expectations in the first and second quarter of this year. There are several reasons for the softer performance of our software segments in the first half of this year. Over this period there have been less new system sales than were generally expected. Users of multiple machines were more cautious about adding new operators and a number of transactions that we expected to close in the first half of the year were pushed out to a later date. Based on the information we currently have, we expect that in the second half of 2019 our medical and manufacturing segments will continue to perform well in the segment form any better how [Technical Difficulty] adjusted EBITDA and our net profits. Engimplan had revenues of €6.2 million, has an EBITDA €2.4 million and had net profits of €2.1 million in 2018. All these numbers are based on Brazilian and on the average currency exchange rate of the Brazilian as published by the European Bank for the month of July. [Technical Difficulty] shares both new and existing that we acquire will be fully cash at closing. [Technical Difficulty]. The expected contribution from plan obviously further stretched our confidence to maintain our revenue guidance and give some additional comfort to maintain our guidance. This conclude the prepared remarks. Operator we are now ready to open to floor to questions.

Thank you so much. [Operator Instructions] We have your first question coming from Troy Jensen from Piper Jaffray. Your line is now live.

Hey, gentleman. Congrats on good results here in a tough environment.

Thank you, Troy.

Hey. So first of all you know the software weakness, you get the OEM for weak. We have picked that up too. But don't you just touch a little bit about the margins, the EBITDA margins in the segment. It seems like you know historically guys have been closer to a 30 level or higher than that even up revenue levels in this segment, so just any comments there would be helpful.

Yes. Troy, if you if you if you'll look at the numbers more carefully you'll see that we've continued to our investments, first and foremost in sales and marketing within the software segment. And secondly we also continue to push a number of R&D initiatives. And it's the it's the - I mean the mismatch if you want between the continued growth of our investments and R&D and sales and marketing on the other hand and basically flat sales that we encountered in the second quarter that basically resulted in the decrease of our EBITDA from above 30% to 22.1%. And then the increased efforts in sales and marketing, I mean is - I mean proves our continued belief in our software suite and I continue to believe that we are very well poised to continue to grab market share in this difficult market environment but in the short term obviously the impact is pretty significant.

I have a 2 just on health care that's been you know great little segment for you guys and you just touched on like knees within that I'm assuming a lot of the growth coming from new applications and CMF. But how is the knee segment?

Well, it's performing - the knee guys are performing on a kind of continuous basis. The amount of cases we handle at this moment is approximately at the same level as last year. So the growth is really in CMF, but also in the field of the implant we saw directly for instance the Amaze [ph] implant or hip surgery. But the knee guys are flat.

Okay. Then just last question for me, just manufacturing did really well and I know you guys have been kind of hit with the European automotive weakness. So just curious dive into that a little bit and your thoughts on his outlook bottoming here. And can we get a better growth from that critical going forward?

Well, as you correctly stated Troy, we were always worried about the situation in the automotive market and our worries are not over yet. Actually the numbers highlight a very good performance of our certified manufacturing business that has known a growth of close to 30% over Q2 and it is obvious that it compensates for quite some loss in the automotive sector which me personally in our minds of the year 2008 or 2009 then when the situation in the automotive sector was even more dramatic than today. But nevertheless we see a bad situation in the automotive sector.

All right. Good luck to in the second half.

Thank you, Troy.

Thank you. We have your next question coming from the line of [indiscernible] with KeyBanc. Your line is now live.

Hey, guys. This is Jason filling on for West today. Thanks for taking our questions. One thing we wanted to ask was what the FDA clearance of the cardiovascular - cardiovascular planning suite. What it's been early customer feedback you've been since that approval?

Well, the customer feedback is extremely positive. We are releasing that - as was indicated on the basis of on a patented collaboration with the Henry Ford Health Center from Detroit. That is really delivering a unique planning methodology that is giving us system - better results than in competition and that this is one of the new products that will enable further growth in our medical segment. Please be aware that we - medical segment has grown to a considerable size and that's a new starting product line starts from zero. So before it starts significantly the top line it takes some time.

And I think when you're giving Engimplan contribution and guidance it broke up a little bit. Can you maybe just state what those were again?

Yes. So Engimplan Jason, the two thousand - I gave the 2018 numbers which is revenues of €6.2 million and EBITDA of €2.4 million. We expect the Engimplan business to grow somewhere high single digits low double digits in 2019 and we will consolidate those numbers as of August 1st 2019.

Great. Thank you. That's all for me.

Sure.

Thank you. [Operator Instructions] Your next question comes from the line of Gregory Remy with [indiscernible]. Your line is now live.

Thank you. Good afternoon and thank you for taking my question. I would just come back to the software business because in fact I know if it's two full fold, but the line was very bad when you made the comment. So could you just repeat your comments regarding the prospect of this business H2? You mentioned that there were some deferrals but what is your level of confidence as the transactions that you're expected in Q1 and Q2 with closing in H2?

Yes. Well thank you Gregory and my apologies for the line not being as clear as it as it should be. As I explained during the prepared remarks, our level of confidence is such that even without the contribution of Engimplan the Performance of software in the second half of the year should be such that we should still be able to reach the bottom of the overall consolidated EBITDA guided range between €29 million and €33 million. So that implies that software will perform significantly better in the second half of the year as compared to the first half of the year. Amongst others because we do expect that the number of deals that were missed in the first half of the year will slip into the second half of the year.

And it would be more free because last year your software revenues were down a bit. There was a different seasonality compared to 2017 and this time do we expect a more pronounced seasonality?

We frankly we expect as always, but probably the more outspoken this year than the year before we expect a very strong last quarter of the year.

Especially also that last year in Q3, we already had an increase of 17% compared to the year before.

Yes sure. So do we have to expect some revenue decline in the software division for Q3 this year?

Well, I mean we have to I mean if - if we have to do significantly better in the second half of the year than the first half than Q3 should be better, should be stronger quarter already with an even stronger Q4.

Okay. Thank you very much.

Thank you, Gregory. Operator Thank you. And I am showing no further questions at this time. I would now like to turn the conference back Mr. Peter Leys.

Thank you so much and thank you all for joining us today for this second quarter call. Johan by the way will be in the U.S. Johan will be attending the KeyBank Financial Conference in the course of next week. And obviously we look forward to meeting some of you at that conference or during any of the other conferences that we intend to attend in the second half of 2019. Thank you for your time. And we look forward to continuing the dialogue.

Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.