Good day, and thank you for standing by. Welcome to the Q1 2024 Materialise N.V. Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Harriet Fried of LHA. Please go ahead.

Thank you, everyone, for joining us today for Materialise's quarterly conference call. With us on the call are, Brigitte de Vet, Chief Executive Officer; and Koen Berges, 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 first quarter of 2024. To access the slides, if you haven't already done so, please go to the Investor Relations section of the company's website at www.materialise.com. The earnings press release that was issued earlier today 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 activities, represent management's estimates as of today and should not be relied upon as representing their estimates as of any subsequent date. 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 could 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 the slide presentation. And now I would like to turn the call over to Brigitte de Vet.

Good morning, and good afternoon. Thank you, everyone, for joining us today. Looking at the agenda for our call on Slide 3. You will recall that in our last earnings call, I described my observations about the market dynamics and our strong position in this market, built on the foundation of the last 34 years. I also clearly described our priorities for 2024. Today, I will build on that theme and share with you key highlights of our team's performance in the first quarter 2024 as well as the progress made on our strategic priorities. After that, I'll pass the floor to Koen, who will go through our first quarter numbers in more detail. Finally, I will come back and explain what we expect the remaining months of 2024 to bring. And we've completed our prepared remarks, we'll be happy to respond to questions. Looking at our key results for Q1 2024, summarized on Page 4, you can see that we were able to deliver profitable results in line with our expectations. For the comparisons versus the first quarter of last year, [ later ] on this call, please bear in mind that the first quarter 2023 was a particularly strong quarter with record high revenues and high EBITDA supported by significant tailwinds mainly in our Medical and Manufacturing segments. Over the first quarter of this year, our total revenue decreased slightly by 3.4% to EUR 63.6 million compared to the record first quarter 2023, that I just referred to. When compared to the first quarter of 2022, our consolidated revenue still grew by more than 20%. At the same time, our gross margin increased to 56.5% and from 55.9% over the same period last year. Adjusted EBIT amounted to EUR 2.7 million, representing 4.2% of revenue. Net profit amounted…

Thank 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 6. As a reminder, please note that unless stated otherwise, all comparisons in this call are against our results for the first quarter of 2023, which as Brigitte already indicated, was an exceptionally strong quarter. Now compared to this high baseline, revenue in the first quarter of 2024 decreased 3.4% to EUR 63.6 million. However, Materialise Medical continued on its growth path and increased its revenue by 8%. On the other hand, revenues at our Software segment were impacted by the accelerated transition towards a cloud-based subscription business model, and low prototyping demand had an unfavorable effect on our Manufacturing segment, resulting in revenue decreases of 8% and 11%, respectively. As you can see in the graph on the right side of the page, Materialise Medical accounted for 41%, Materialise Software for 16% and Materialise manufacturing for 43% of our total revenue over the first quarter of 2024. Deferred revenues related to software maintenance and license fees grew further in the first quarter of this year by EUR 0.5 million, bringing the total amount carried on our balance sheet to EUR 45.4 million. On Slide 7, you will see our consolidated adjusted EBIT and EBITDA numbers for the first quarter of this year. Consolidated adjusted EBIT ended at EUR 2.7 million compared to EUR 5 million for the same period of last year, representing a decrease of 47%. Our adjusted EBIT margin was 4.2% compared to 7.6% last year. Consolidated adjusted EBITDA for the first quarter amounted to EUR 8.1 million, decreasing from EUR 10.3 million last year. Our adjusted EBITDA margin reached 12.7% compared to 15.6%, the prior year. Now this decrease…

Thank you, Koen. Let's turn to Page 13. I'll conclude my remarks with a discussion of our full year 2024 guidance. The fundamentals of our 3 business segments are strong, and we therefore remain confident that we are well positioned to deliver on our growth objectives. We continue to expect to report consolidated revenue for the full year 2024 within the EUR 265 million to EUR 275 million range we communicated in our prior earnings call. We are also maintaining our adjusted EBIT guidance of EUR 11 million to EUR 14 million for the fiscal year. This concludes our prepared remarks. Operator, we're now ready to open the call to questions.

[Operator Instructions] Our first question comes from the line of Alexander Craeymeersch of Kepler Cheuvreux.

A couple of questions from Kepler Cheuvreux side. I'm a bit surprised at how many times you stressed that Q1 2023 was exceptional, especially in manufacturing. So that was definitely not as stressed as last year. So could you maybe elaborate on what was so exceptional? And then are you also indicating to us the market, that these are also not realistic numbers in the next years in Manufacturing? And then second question would be, you also stressed that the Medical segment was exceptionally strong in Q1 2023, yet you were able to book better results than last year. So why was one exceptional different than the other exceptional? And then the third question would be on the low CapEx levels. You're building the ACTech plant that's coming up live in H2 2024. Why was there not a lot of CapEx coming into the cash flow statement. I was just wondering why that was exactly whether those projects are either being delayed or -- and then maybe on the ACTech following up on that specific topic. I was just wondering with the ACTech plant coming up, whether you're not feeling any overcapacity considering that the volumes of [ end ] manufacturing are trending lower. I'll keep it there, wait for my colleagues then and then maybe ask some questions again afterwards.

Yes. Thanks, Alexander, for the questions and for joining the call. So I'll really start answering, and then I'll let Koen pitch in for the CapEx question. So your first question on exceptional manufacturing results. So last year -- well, essentially, your question being, are these structural or not and what can we expect for the future? If we look at what happened in the first quarter last year in manufacturing, I see a structural part in a nonstructural part. And let me explain what I mean. So the results last year were driven -- the exceptional results last year were driven by 2 main factors, One is that our ACTech business had very strong revenues at that point in time. And over the last couple of quarters, we have noticed that we have capacity constrained at ACTech, which leads to the revenues being lower than what we think or what we strongly believe is possible in the market. And with the capacity extension that we are now planning, we believe that, that gives us a road towards further increase in growth of those revenues going forward. So I think there's a structural element at ACTech that gives us a path towards future growth in the Manufacturing segment. The second driver of that exceptional result last year is non -- not so structural, I would say, and which is why we call it exceptional. What was this? You might know that as part of our services within the manufacturing unit, we deliver consulting services to customers and consulting services as such have the beauty of -- when we have these contracts that they come at a very healthy profitability for us. But the nature of those consulting services is that you don't necessarily have a recurring element because once the…

Yes. So I think, I can confirm, Alexander, that the investment program is in full execution, and this is still fully on track to have a start-up of the plant later on in this year, as we've indicated before. Now the reason why the investment is limited in the cash flow statement of the first quarter is because we include, of course, only the cash component of CapEx investments in our cash flow statement. And you will see that there is a ramp-up of investments that are being made, but where the cash out has not been made to the suppliers and will typically come or mainly come in the second quarter and the third quarter of this year. That is because at that point, also the machinery will be installed in the factory and will be started up and the way we have negotiated most of the contracts with these suppliers is that the bulk of the payment is delivery of the machinery, which is going to take place -- is taking place in the coming weeks. And of course, then the results of the payment term to be applied. So you will see a different picture for sure in the second quarter and partly also the third quarter, I would, the deferred -- the late payments related to ACTech investments.

Could you maybe indicate there how much we need to foresee in terms of CapEx, maybe just for the full year, but then maybe for Q2 and Q3, specifically.

I think we've always indicated the total order of magnitude of the investment is around EUR 30 million and upwards, and it will depend -- will come in several stages. But that has been spread over a number of years. So I think I don't have the exact number. It will also depend on the exact timing of what will be delivered when. But I think you can expect our free cash flow, as I've indicated also in the last call, might be negative in the second quarter driven by this nonrecurring CapEx.

Our next question comes from the line of Jacob Stephan of Lake Street.

Maybe, could you just kind of give us an indication in the manufacturing segment, how have project volumes been trending? I know you said prototyping has been weak, but maybe just kind of overall project size, if you can give us a sense for that.

Jacob, thanks for the question. And when you say project size, you refer to an indication of what our average type of projects is in terms of the revenue driven by?

Yes.

Yes. And it's a hard one to say because the Manufacturing segment as such is composed of so many different components. I think in general, when we look at our core manufacturing segments, so the core 3D printing services that we offer, what we have indicated is that we want to make and we see the shift from prototyping to certified manufacturing. And in general, the certified manufacturing projects are slightly larger than our prototyping projects. Now I can't give you an exact number but that is certainly a shift that we see and that we will continue to see going forward. Now if you then put in the mix ACTech and the other business lines that we have, it's a very different structure in terms of the order size, et cetera. So I can't give you an exact number on your question, honestly.

Okay. You said that you shipped the first products in Q1 here from the Michigan facility. Is that correct?

In the Medical -- well, so no, so we shipped the first products from our Michigan [ fast ] facility last year in August. And we started ramping up that facility. So we were up and running in 2023. What we now have done in the first quarter is access the trauma market that I was talking about. And those are products that require very short lead times. And we have done that out of our U.S. manufacturing facility now, which has enabled us to get into the U.S. trauma market. That's essentially a type of a new product line in that facility, which gives access to that large market segment.

Okay. And maybe you could just kind of give us a sense on how things are trending as we are a month into kind of Q2 here. But maybe just help us kind of think about where you're seeing the most opportunity in that Trauma space?

Yes. So I think the Trauma opportunity remains a large one for the rest of the year in the medical business. The way you should look at that is probably to say that in the first quarter, we were cautious because we first wanted to make sure that we were able to deliver in those short time lines. We are seeing confirmation that we are able to bring that offering successfully to the market. So that definitely will stay a growth driver for the remainder of the year and beyond. And that is for that particular Trauma segment. I think the other one that I referred to in my remarks, as a growth driver is an important one, too, and it's on the -- more on the software side with more and more personalization being done in the market. The parties bringing personalized cases to the market will face more volume. And with that needs system that helps them stay organized and do that in an efficient and effective way. And that's what our Mimics Flow product does. So despite the fact that we're still in a limited launch, we've seen traction there in the first quarter. And I would expect that as well in 2024 and beyond to stay, a nice opportunity for us for us [ particularly in ] the Medical segment.

[Operator Instructions] Our next question comes from the line of Kieran McCabe of Cantor Fitzgerald.

I'm going for Troy Jensen. My first question was maybe you can -- R&D was about 16% of revenue and continue to make investments for sustainable growth. I was wondering maybe you can set some details or color on sort of on the strategy plan for continued investments in R&D and sort of the time line of payoffs of those investments, where do we kind of see R&D going for the year and into next year and sort of the benefits from those investments, the timing of that?

Yes. So let me maybe give you a little bit of color on our high 16% R&D spending. So the R&D efforts that we're doing at this point in time are really going into a number of our strategic priorities that I also refer to in my remarks. The first one is that on the medical -- in the Medical segment, we still have significant untapped market opportunities where we have taken first steps, but we do believe that there is a significant market potential. I'm talking about markets like the respiratory field, the cardiovascular or structural heart field. Those are markets that are still relatively new for us and where there's untapped potential of an R&D efforts going into those markets. The second main strategic priority is on the software side for our software units. Specifically, I talked to the priority that we have to tap into the growth that is in the market for -- in the area of manufacturing of end-use products. And that is where in terms of our product portfolio, we still make significant investments to bring appropriate offerings into the market to tap into that growth potential. I think that gives you a bit of color as to what are the -- what type of R&D investments are driving, to a large extent, the 16% that we talk about. Now to your question, what is our view on those investments going forward? The new markets of that we want to tap into, we will certainly not be at the end of our efforts there in the next couple of quarters. I think there is still significant R&D investments going forward that we are planning to do. We see those untapped markets and market expansions. And as a market leader, we want to take the advantage of being one of the first in those market segments and take the lead there. And therefore, I would expect our R&D spending to remain at least in the area of what we are spending today.

All right. And my other question was, I think you recently quoted an article talking about replicating some of the success that the Medical segment has had trying to replicate that in the other segments. I was wondering if you could provide any kind of details on the strategy or practices that you're looking to apply to the other segments to really kind of replicate that success that you've seen in the medical?

Yes. So I think the -- there's a couple of strategies or reflections that we've seen have led to success in the medical market that we'll seek to apply in the other markets as well. I mean, the additive manufacturing is a growth segment still and selecting carefully where we play and how we play with a deliberate market strategy is -- in setting continuously setting the right priorities, focusing our efforts there where we see we have the price changes of a return on our investment. That's what we've done in the medical market, making clear choices about what are the markets we want to serve and how do we want to serve them and focus. I think that is certainly an effort -- obviously a reflection that we want to apply to other markets as well.

[Operator Instructions] Our next question comes from the line of Alexander Craeymeersch of Kepler Cheuvreux.

Just maybe one more question on the CO-AM platform. So that was back in time, a significant investment also on the back of an acquisition. So could you maybe just give us an indication where that stands today, how that -- the demand is moving? Were you able to increase the prices? Because if I look at the Q1 where it was not exceptionally as far as I understood it in 2023. So I just see a 8% decrease in sales. So yes, I see there that the subscription fees rose by 4%. Does that then imply that basically the volumes are down? Or how do I need to see this?

No, I don't think you can conclude that from the numbers. So let me talk to CO-AM and the in the strategic importance of that. And you're absolutely right, we have invested a lot in CO-AM in the past, and it is an absolutely critical driver of our growth going forward. Why? Because I'm -- I talked a lot about that shift in the market from prototyping to end-use products. And that's the shift that we want to tap into with our software unit. And CO-AM plays a major role in that because CO-AM is one of the vehicles that we can use to cater the needs of those customers that are additively manufacturing end-use products. And that needs to scale, they need offerings and systems that help them to do this efficiently and effectively and CO-AM is the vehicle to do that. In my remarks, I mentioned one of the functionalities that we brought out now in the first quarter that is based on CO-AM and list the QPC modules to the quality and process control functionality, which does exactly that. It helps customers that really want to scale in the production of end-use products and then they need to have better tools to monitor to quality, monitor their process and capture that data to scale efficiently and provide the Aero products at an appropriate market -- I don't know, the appropriate cost to their markets. So CO-AM stays an absolutely critical element in our strategy to tap into that market where we see growth and it is the perfect vehicle. Now we did an acquisition to at least get the basis of this vehicle in-house, but obviously, we continue to develop further on that vehicle. And on that basis, which again is what is reflected in our 16% R&D spend. Does that answer your question?

But -- yes, but why are the sales down? Why are clients less interested in your software -- but at least that's the impression that the numbers in Medical [indiscernible].

No. Maybe what I can add to it, Alexander is if you look at the number at a 4% increase that we've mentioned for recurring revenue that includes far more than just only our CO-AM platform, there is growth mainly on 2 components within recurring revenue that is first on CO-AM. Secondly, also on the switch to annual licenses. On the other hand, we see a decline, of course, if we do the switch from perpetual to annual licenses with regards to maintenance contracts. And maintenance contracts go down. And historically, there has been a large bulk. So when we do the transition from perpetual to annual, that component goes down. So if you take the bulk of the 3, then overall, there is still an increase of about 4%, but there is various components within that. And also in the first quarter, we can confirm that CO-AM continued to grow even if the project has more functionality is being added to it.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Brigitte de Vet, CEO, for closing remarks.

Well, thanks again for joining us today. We look forward to continuing our dialogue with all of you through investor conferences or in one-on-one virtual meetings or calls. And as you know, you can always reach out to us if you have any questions or you need further clarification. Thank you, and goodbye for now.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.