In its second fiscal quarter, ended June 30, 2017, Materialise, a leading provider of additive manufacturing software and of sophisticated 3D printing services, registered a 21.8% increase in revenues from the second quarter of 2016, for a total of to 33,612 kEUR, with increases in all three business segments.
Adjusted EBITDA increased 164% from 1,034 kEUR for the second quarter of 2016 to 2,732 kEUR.
Total deferred revenue from annual software sales and maintenance contracts amounted to 17,206 kEUR at the end of the second quarter of 2017 compared 16,799 kEUR at the end of the fourth quarter of 2016.
“Materialise turned in another sound quarter, delivering strong revenue growth in all our segments, particularly Manufacturing, where, driven by a surge in end part manufacturing, revenue rose 32.5%. Reflecting the pick-up in the demand environment for 3D printing this year, revenue from our Software segment increased 19.0%, while Medical rose almost 10% on the strength of solid software revenues. Despite start-up activities associated with the opening of our new manufacturing facilities in Leuven and Poland, our Adjusted EBITDA margin more than doubled. We look forward to completing the facilities’ start-up process during the third quarter and to gradually realizing scale effects and efficiency gains thereafter.” commented Executive Chairman Peter Leys.
Second Quarter 2017 Results
Total revenue for the second quarter of 2017 increased 21.8% to 33,612 kEUR compared to 27,597 kEUR for the second quarter of 2016, with gains in all three of our segments, particularly Materialise Manufacturing. Adjusted EBITDA increased to 2,732 kEUR from 1,034 kEUR as a result of the combination of continued revenue growth (21.8%) and a significantly lower increase in operational expenses (9.0%) as compared to the second quarter of 2016. The Adjusted EBITDA margin (Adjusted EBITDA divided by total revenue) in the second quarter of 2017 was 8.1% compared to 3.7% for the second quarter of 2016.
Revenue from the Materialise Software segment, which offers a proprietary software backbone that enables and enhances the functionality of 3D printers and 3D printing operations worldwide, increased 19.0% to 8,305 kEUR for the second quarter of 2017 from 6,981 kEUR for the same quarter last year. Recurrent revenues from annual and renewed licenses and maintenance fees grew 25.2% from the same period in the prior year. Segment EBITDA rose to 2,952 kEUR from 1,602 kEUR while the segment EBITDA margin was 35.5% compared to 22.9% for the prior-year period.
Revenue from our Materialise Medical segment, which offers a unique platform consisting of medical planning and design software, clinical engineering services and patient specific devices, increased 9.7% to 10,646 kEUR for the second quarter of 2017 compared to 9,706 kEUR for the same period in 2016. Compared to the same quarter in 2016, revenue from our medical software grew 15.5%, and revenue from medical devices and services grew 6.6%. Segment EBITDA was 758 kEUR compared to 14 kEUR while the segment EBITDA margin increased to 7.1% from 0.1% for the second quarter of 2016.
Revenue from our Materialise Manufacturing segment, which offers an integrated suite of 3D printing and engineering services to industrial and commercial customers, increased 32.5% to 14,455 kEUR for the second quarter of 2017 from 10,907 kEUR for the second quarter of 2016. End part manufacturing revenues increased 89.7% compared to the same quarter in 2016. Segment EBITDA rose to 1,241 kEUR from 430 kEUR while the segment EBITDA margin increased to 8.6% from 3.9% for the same quarter in 2016.
Gross profit was 19,388 kEUR, or 57.7% of total revenue, for the second quarter of 2017 compared to 16,253 kEUR, or 58.9% of total revenue, for the second quarter of 2016.
Research and development (“R&D”), sales and marketing (“S&M”) and general and administrative (“G&A”) expenses increased, in the aggregate, 9.0% to 20,911 kEUR for the second quarter of 2017 from 19,182 kEUR for the second quarter of 2016. R&D expenses increased from 4,760 kEUR to 5,131 kEUR while S&M expenses increased from 9,533 kEUR to 10,009 kEUR. G&A expenses increased from 4,889 kEUR to 5,771 kEUR.
Net other operating income decreased by 550 kEUR to 1,228 kEUR compared to 1,778 kEUR for the second quarter of 2016. Net other operating income consists primarily of withholding tax exemptions for qualifying researchers, development grants, partial funding of R&D projects and currency exchange results on purchase and sales transactions.
Operating loss improved to (295) kEUR from (1,151) kEUR for the same period prior year. This improvement was the result of a combination of an increase in gross profit of 19.3% and an increase of only 9.0% in R&D, S&M and G&A expenses, partially offset by a slight decrease of 550 kEUR of net other operating income compared to the same quarter in 2016.
Net financial result was (427) kEUR compared to 207 kEUR for the prior-year period, reflecting variances in the currency exchange rates, primarily on the portion of the company’s IPO proceeds held in U.S. dollars versus the euro.
Net loss for the second quarter of 2017 was (955) kEUR compared to net loss of (436) kEUR for the same period in 2016. The 2016 period contained income tax income of 639 kEUR primarily from deferred taxes compared to an expense of (191) kEUR in the 2017 period. This variance of (830) kEUR in income tax and the decrease in the net financial result of 634 kEUR, which were offset in part by a decrease of 89 kEUR in the share in the loss of a joint venture and the improvement of the operating loss by 856 kEUR, explain the increase of the net loss by (519) kEUR for the second quarter of 2017. Total comprehensive loss for the second quarter of 2017, which includes exchange differences on translation of foreign operations, was (1,403) kEUR compared to (911) kEUR for the same period in 2016.
At June 30, 2017, we had cash and equivalents of 53,832 kEUR compared to 55,912 kEUR at December 31, 2016. Cash flow from operating activities in the first six months of 2017 was 5,188 kEUR compared to 5,781 kEUR for the same period in 2016, mainly due to working capital evolution.
In its year-end 2016 and first-quarter 2017 earnings announcements, Materialise stated that it expects to report consolidated revenue between 128,000 – 134,000 kEUR and Adjusted EBITDA between 10,500 – 13,500 kEUR in 2017. Based on the company’s first-half 2017 results, management now expects revenue and Adjusted EBITDA to be at the high end of these ranges. Management continues to expect the amount of deferred revenue generated in 2017 from annual licenses and maintenance to increase by an amount between 4,000 – 5,000 kEUR as compared to 2016.