Belgian software and 3D printing service provider Materialise has reported a reduction in its operating revenue by more than 20 percent during Q2 2020.
Materialise’s total revenue for Q2 2020 decreased by 21.2 percent to €38.1 million, from €48.4 million in Q2 2019. Despite continued growth in the company’s Software segment, it failed to offset the revenue declines in its Medical and Manufacturing segments compared to Q2 2019.
Other companies have also suffered from reduced revenue during the second quarter, owing to the impact of the ongoing COVID-19 pandemic on customer demand. Groupe Gorgé reported a 35.2 percent revenue decline during Q2 2020, and 3D Systems announced a strategic refocus after the company’s revenue fell 28 percent.
After the Q2 results were released, Materialise’s shares initially fell from $28.26 to $22.41, and are now at $25.07.
In a call with analysts and investors, Executive Chairman Peter Leys explained how the pandemic had forced Materialise to make cost reductions during Q2. “In the second quarter, our business suffered materially from the COVID-19 pandemic. We were able to realize cost savings in both sales, marketing, and general administrative expenses, but maintained our strategically important research and development programs.”
“While our R&D programs and financial strength give us a solid platform,” continued Leys, “we draw equal confidence from the many examples of resilience, creativity, and discipline that our workforce has shown worldwide throughout this difficult period.”
Materialise Q2 2020 financial results
Materialise revenue is reported in three segments: Software, Medical, and Manufacturing. The company’s Software business reported its most robust revenue growth for Q2 2020, generating €9.5 million compared to the €9.3 million reported in Q2 2019. When combined with the five percent increase in Software revenue generated in Q1 2020, the segment’s growth has remained flat across H1 2020.
The company’s Medical revenue declined from €14.5 million in Q2 2019 to €11.7 million in Q2 2020, a 19.3 percent decrease. Materialise’s Medical revenue had proved resistant to the pandemic’s impact in Q1 2020, reporting a 15.3 percent increase. COVID-related orders sustained the segment’s growth during the first quarter, but the additional activity wasn’t sufficient to drive continued growth into Q2.
Manufacturing saw the most significant reduction in revenue, falling 31 percent in Q2 2020 compared to the same period last year. In Q2 2019, the firm’s Manufacturing business generated €24.5 million in revenue, but in Q2 2020, this fell to €16.7 million. The company attributed the decline in its Manufacturing revenue to the impact of the pandemic on-demand in its automotive and aerospace businesses.
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Despite the company’s continued revenue decline from Q1 2020, its net losses have remained flat. In Q1 2020 Materialise reported a loss of €2.8 million, equating to -€0.05 per diluted share, while in Q2 2020, its loss was €1.9 million or -€0.04 per diluted share.
The company continued to invest in its future during Q2 2020, with R&D spending staying flat at €6 million compared to €6.1 million in Q2 2019. Similarly, Materialise invested €5.7 million over H1 2020 in property, plants, and equipment, increasing 15.7 percent on the €4.8 spent in H1 2019.
During the second quarter of 2020, Materialise released several software packages, which boosted its Software segment’s revenue growth. In Q2 2020, the firm brought an update to its Mimics Innovation Suite, with features integrating 3D printed models into hospital, medical imaging, and logistical workflows.
Materialise also launched its Mindware service during Q2 2020, designed to provide businesses with tailored advice on the implementation of 3D printing. As part of the company’s offering, specialists from dedicated verticals such as aerospace and medical are available for consultation.
Recovering from the COVID-19 pandemic
On the earnings call, Leys explained that the effects of the COVID pandemic on the company’s Medical segment had created new growth opportunities in other areas.
“While COVID-19 has created a dip in our medical activity in Q2, it has fundamentally increased the interest of hospitals in point-of-care 3D printing,” said Leys. “Many hospitals have used the 3D printing facilities during the pandemic to support their internal supply. Materialise Medical is well placed to take advantage of this increased interest in the following years.”
Moving into the third quarter, Leys said that Materialise expected an even tougher third quarter in 2020 than the second due to the pandemic’s effects in the United States. “We currently expect that this prolonged uncertainty will translate into a slower than previously expected pickup of our software and manufacturing sales,” said Leys. “As a matter of fact for both units, we expect that the third quarter will be more difficult than the second quarter.”
Despite the challenges facing the company’s growth in Q3 2020, Leys said it was expecting to see a recovery in its Medical segment, as doctors perform elective procedures again. According to Materialise, its Medical business is now operating at “close to 100 percent” following the relaxation of lockdown rules in Western Europe. The firm’s medical software sales also rose 7 percent in Q2 2020, suggesting a growing synergy between its Medical and Software businesses.
The boost in Materialise’s Medical revenue is not expected to be sustainable, though. During the earnings call, Leys said that the unpredictability of the COVID pandemic meant that hospital beds could become unavailable again, impacting on the company’s Medical revenue.
“We did see a good rebound already in the month of June, but it is extremely difficult to say that with a high degree of confidence,” said Leys. “Hospitals and surgeons don’t know when they will be able to free up hospital beds for elective surgeries. They always have to be prepared to switch back to crisis mode to help Coronavirus patients, so it’s difficult to say.”
“Our visibility beyond the third quarter remains fairly limited. So in response to this unclear and uncertain outlook, we intend to continue to manage our cost structure in a balanced way,” added Leys. “This means that we will not cut costs as much as possible, but as much as necessary.
In his closing remarks on the earnings call, Leys emphasized that Materialise would continue to invest where necessary, despite the difficulties expected in Q3 2020. “We believe that Materialise remains very well positioned to support many of the digitized, localized and personalized solutions that we expect will thrive in the post-COVID 19 era,” concluded Leys.
“It is, therefore, crucial that we keep our software and hardware infrastructure in place and up-to-date, and more importantly, that we get and keep the right people on board to address the needs of the market. We will continue to monitor our costs with one eye focusing on the present and with the other looking into the future,” he added.
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Featured image shows a Materialise 3D printing facility. Photo via Materialise.