Belgian software and 3D printing service provider Materialise (Nasdaq: MTLS) has revealed that it suffered the first full year of revenue decline in its 30-year history within its 2020 financial results.
During FY 2020, the company generated €170 million in revenue, 13% less than the €197 million reported in FY 2019. Even though Materialise’s revenue recovered slightly between Q3 and Q4 2020, turning over a total of €45 million, this figure still represents an 11% reduction compared to the €51 million reported in Q4 2019.
While Materialise’s Medical income increased substantially during the fourth quarter, it didn’t grow sufficiently to offset the 16% revenue drops seen within its Manufacturing and Software divisions. Interestingly, in spite of the firm’s overall revenue decline, investors have chosen to focus on its quarterly recovery, and the company’s shares rose by over 24% in early morning trading.
On an earnings call with analysts and investors, Peter Leys, Executive Chairman of Materialise, emphasized that the company’s recent recovery has laid the groundwork for its return to growth. “The COVID-19 pandemic made 2020 an incredibly challenging year for economies worldwide,” commented Leys, “and for the first time in Materialise’s 30-year history, revenues decreased year over year.”
“While uncertainty remains, we are encouraged by the fact that our fourth quarter 2020 revenues grew double digits sequentially,” he added. “We also believe that our continued R&D efforts and strategic investments position us well to expand our existing business, and capture new growth opportunities.”
Materialise’s Q4 2020 financials
Materialise’s revenue is reported across three main segments: Software, Medical, and Manufacturing. Although the company’s Manufacturing division remained its highest earner, accounting for 39% of the firm’s total revenue, it still declined during Q4 2020, falling from the €21 million generated in Q4 2019 to €18 million.
According to Leys, Materialise’s Manufacturing segment continued to suffer at the close of 2020, due to the reluctance of its clients to spend during the pandemic. However, the firm’s acquisition of footwear scanning company RSscan did yield an additional €762,000 over the course of Q4, and it’s expected to contribute even more going forwards.
Software-wise, Materialise’s revenue also dropped by 16% between Q4 2019 and Q4 2020, falling from €12 million to €10 million. Despite a 40% increase in quarterly sales, and a 3.5% jump in recurring revenue, the company saw less Software activity from its 3D printing base during Q4, with many holding back due to financial difficulties.
Contrastingly, Medical was the firm’s best performing segment during Q4 2020, remaining flat compared to Q4 2019, but growing by 1.5% across FY 2020. The company’s healthcare revenue was reinforced by the acquisition of Engimplan in August last year, while its clinical software achieved a 30% increase in sales between Q3 and Q4 2020.
In terms of the company’s operating costs, it made cutbacks due to COVID-19 but didn’t sack any employees or cut R&D spending, continuing to re-invest 14.5% of its revenue during Q4. Thanks to its shrewd spending strategy, Materialise has been able to offer an increased EBITDA margin of 16.3% for the quarter, somewhat explaining why investors have viewed the firm’s financial results so favorably.
|Revenue (€)||Q4 2019||Q4 2020||Variance (%)||FY 2019||FY 2020||Variance (%)|
Switching to a cloud trajectory
Although Materialise’s revenue broadly fell during FY 2020, it did achieve notable successes over the year, especially within its eyewear and software verticals. The firm launched its mindware offering in August 2020, a consultancy service tailored to the needs of its business clients, and the company is developing a new cloud-based program for launch in H2 2021.
As part of the revamp, Materialise is also modernizing its legacy software, and according to Leys, the firm has begun to “completely redesign” its portfolio, after identifying a customer trend towards cloud-based computing. “It’s obvious that the COVID-19 crisis has accelerated digitization in general, and cloud-based services in particular,” explained Leys.
“All of our medical OEM partners are taking advantage of our cloud-based services, and that’s why we have already started a complete redesign of the legacy materialise software,” he added. “During 2020, we came close to a full transformation of our software technology base into cloud-compatible APIs, making them ideal building blocks for the future.”
Elsewhere, Materialise expects its strategic investment in Ditto to pay dividends in 2021, and anticipates that its clinical revenue will increase as well. On the earnings call, Leys reiterated this, saying that as COVID-19 recedes the company’s medical division will “to continue to grow,” thanks to the “disruption” of its solutions.
Materialise focuses on short-term
During Q1 2021, Materialise has made it clear that it expects its Software and Medical segments to continue recovering, generating revenues similar to those seen in Q1 2020. However, the firm also anticipates difficulties for its Manufacturing division, meaning that it has forecast a 5 to 10% annual revenue decline for the quarter.
Similarly, Materialise has seen inconsistent uptake from its automotive and aerospace clients over Q4 2020, making it difficult for the company to speculate on its future earnings. As a result, the firm has refused to issue guidance for Q2 2021 and beyond, claiming that it remains well-positioned for the future, but uncertain about the pandemic’s future direction.
“Our outlook is currently not sufficiently mature, and is too diverse across our various segments and regions, for us to provide quantitative guidance,” concluded Leys. “In line with our strategy, we will continue to invest in our R&D programs and internal infrastructure, which will weigh on our overall results in 2021.”
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Featured image shows someone being tutored on how to use Materialise’s Magics software. Photo via Materialise.