Stock Market

Voxeljet, increased sales but lower forecast full year revenue

Voxeljet AG (NYSE:VJET) has announced their most recent financial statements for the quarter ended June 2016.

The German company trades on the NYSE as an ADR and analysts at Citigroup Inc. adjusted their price target for the stock from $6 to $5 after the results were published. The stock finished the week at $4.28; down from the $4.95 shares were trading at prior to the earnings update.

Voxeljet CEO, Ingo Ederer, described the current operating environment as, “challenging,” during a call with investors and analysts.

The negative sentiment can be attributed to a number of factors, of which revenue and profitability rank among the highest.

Year to date share price performance
Year to date share price performance

Revenue target narrowly missed

Total revenue reported was €6.3m, this is an increase of 14.8% on the comparative period from the previous year, although slightly below recent management estimates. Previous revenue guidance from the March earnings update was in the range of €6.5m to €7m.

Ederer attributed this narrow miss to the failure to complete a sale of one particular system before quarter end. The impact of manufacturing printers that have not yet sold can also be seen with Inventories increasing from €9.4 m to €11.2m since March 2016, of which €1.1 million relates to finished goods and €9.1 million to work in progress.

In total the company delivered 6 3D printing systems during this quarter compared to 3 for the second quarter of 2015. These sales generated €3.8m in revenue for the Systems segment. This segment also includes revenue from spare parts, consumables and maintenance.

Voxeljet also announced they were lowering their expectations for the full year. Full year revenue guidance is now in the range €24m to €25m, this would represent a 17% to 22% increase on full year figures from 2015 (when adjusted for non-recurring revenue) if the company hit the target.

The history of full year results over the past three years shows a net loss of -€3 million for 2013, -€4 million in 2014 and -€10 million for 2015. Full year gross margins have declined over the same period from 39.7% in 2013 to 28.7% for 2015.

Voxeljet Profitability Margins
Voxeljet Profitability Margins

Gross margins: a vital area

For the quarter ended June 30 gross margins were reported as 36.6% (Q2: 2015 33.5%). This is an increase on the first quarter of 2016 when the figure was 27.3%. On a call with investors Rudolf Franz, Chief Operating Officer and also Chief Financial Officer, advised that the company have a target of 40% to 45%. He added, “the main drive to us is first of all gross margin.”

Drilling down into the gross margin shows that of the two revenue streams, Services in the most profitable with a margin of 48%, compared to 29.1% for Systems. While Voxeljet have improved Services gross margin from 33.8% for the comparative quarter, Systems gross margin has actually decreased by 3.6%.

The aggregate figures for the year to date paint a worse picture, with six-month System’s gross profit margin at 27.4%. This is 12.6% below the lower end the full year target.

Franz gave two reasons for the hit to gross profit margin. Firstly new processes, “contribute lower gross profit at the beginning of the product cycle.” Secondly, the company are preparing for, “future growth by increasing staff.”

Drivers for growth

Voxeljet identify two important drivers of future success, “large scale service centers across the globe” and “continued innovation and advancement in technology for ongoing research and development.” In respect of the first driver the company have operations in the UK, U.S., India and China.

The second driver, innovation, was remarked upon by the CEO who gave Phenolic Direct Binding and the current testing of concrete casting applications for the 8 cubic meter build chamber printer as examples.

Looking at the reported spend on R&D shows that the company are spending €368k less than the comparative quarter, a 26% decrease. The COO & CFO explained that the decrease, “related to the termination of certain non-core R&D projects at Voxeljet UK as part of our restructuring.”

While these developments and research are undoubtedly interesting, the unresolved question is whether Voxeljet will be able to generate significant revenue in the short term in order to carry out their longer term “2020 vision.”

In the increasingly crowded market potential customers have more options than ever before. Voxeljet’s CEO said the company were seeing, “lead times between three and nine months and could not yet convert enough of our opportunities into backlog.” Commentators have speculated that this is due to the success of rivals such as ExOne.

Voxeljet Q2 Analysis of Revenue by Region
Voxeljet Q2 Analysis of Revenue by Region

Performance and prospects of customers

Voxeljet have targeted the oil and gas industry as an opportunity. Applications for Voxeljet printers in this sector include the production of turbine blades for power generation. However, a number of factors are influencing capital expenditure in this area. Including the decrease in oil prices that has had an, “impact on investments in oil and gas extraction equipment,” according to Ederer.

Furthermore, uncertainty in the political environment has prompted a delay in the purchase of new equipment and investment by companies in this industry. Finally, incorporating 3D printing processes into the supply chains of these large companies is a complicated task that requires organizational change. Ederer explained that change is, “not yet happening as quickly as expected.”

Ederer also pointed to the automotive industry as a potential source of customers. This industry is, “on the verge of electrification” and Voxeljet hope to capitalize on this shift. The company believes their machines have application for global OEM’s and suppliers who wish to differentiate, “Many of them are evaluating our technology,” said Ederer.

The energy and automotive markets are clearly opportunities that could net, not only Voxeljet, but also several of the industrial additive manufacturing enterprises significant returns. As Voxeljet correctly identify, acceptance and integration within the current manufacturing process is a task that cannot be accomplished overnight.

The pace of change can become problematic for relatively smaller enterprises. Voxeljet has a market capitalization of approximately $80 million, and as a loss making company must partly fund operations from previously accumulated funds or loans.

Watching the cash

Total cash and equivalents declined since June 2015 from €42.1 million to €27.4 million. Furthermore, short term investments have taken halved since March 2016, from €30.7m to €14.6 m. Interestingly, cash holding of €12.9 m is at the highest level over the past 15 months, previously ranging between €1.6 m and €3.8 m. This raises the question of whether short-term investments moved into cash to ensure liquidity is maintained?

The companies net loss for the period was €1.7 million, an improvement on the first quarters €3.1m. Using the most recent full year net margin of -39.87% and the upper end of forecast revenue, this gives the company a run of approximately two and half years. Expansion of operations, without a resulting increase in revenue may put further pressure on the bottom line.

While some investors have taken this most recent news as an opportunity to increase their position in the stock and bide time until the price increases, others are less optimistic. This later group view the decline in sales in the company’s home market from €3.9 to €3.2 million as indicative of a rise in competition.

As the froth around market valuations begins to subside and the market continues to, “evolve and mature”, public companies with solid technology but unprofitable operations may find themselves in the cross hairs for acquisition. The case for competition by consolidation becomes increasingly attractive when the vagaries of the market push an enterprise’s share price lower based upon short-term prospects.

It would not be much of a surprise if the remainder of 2016 brought news of such a takeover for one or more of the companies active in this area.

Voxeljet Q2 Income Statement
Voxeljet Q2 2016 Income Statement