Materialise (NASDAQ: MTLS) announced that it closed its fourth quarter and full year 2022 with revenue growth of 10% and 13%, respectively, driven by gains in its medical and manufacturing segments. Nevertheless, the company’s adjusted EBITDA (short for earnings before interest, taxes, depreciation, and amortization) decreased from €32.5 million ($34.9 million) in 2021 to €19 million ($20.4 million) in 2022, reflecting the negative effect from the investments in new businesses, Link3D and Identify3D, as well as labor costs and inflation. The bottom line also declined from the year-ago fourth quarter and 2021 profit. At this time, the company reported net losses of €4.6 million ($4.9 million), or 8 cents per share, in the fourth quarter and €2.2 million ($2.4 million), or 4 cents per share, in 2022, falling short of estimates.
Like most public companies in the 3D printing universe, Materialise Executive Chairman Peter Leys attributed the drawbacks in Materialise’s earnings report to the macroeconomic and geopolitical turbulences of 2022. But, unfortunately, the challenges of 2022 showed no signs of slowing down with the new year at the door. Even more so, during last week’s Additive Manufacturing Strategies (AMS) event in New York City, a panel of financial experts from the Digital Industrialist, Stifel, AM Ventures, STS Capital Partners, and Asimov Ventures explained how public companies are suffering much more than private ones in today’s economy and amid the current slowdown and highly anticipated recession.
During the company’s earnings call on February 14, 2023, Leys considered the company’s overall annual top-line performance solid, especially considering the difficult circumstances that resulted directly or indirectly from the war in Ukraine.
“In 2022, the increased costs of labor energy, and materials weighed heavily on our margins. Nevertheless, backed by a strong balance sheet, and supported by a solid positive cash flow from operating activities of almost €25 million, we decided to stay the course with our growth strategy and not to compensate for these inflated costs by scaling back our R&D efforts,” highlighted Leys.
In the December 2022 quarter, Materialise clocked a revenue increase of 17.3% in its medical segment and 10.9% growth in its manufacturing segment. Furthermore, during the entire year, the firm registered roughly a 16% revenue growth in medical and manufacturing.
Discussing these increments in detail, company founder and CEO Fried Vancraen assured investors that the company’s medical division, which maintained its double-digit revenue growth rate at 16%, is poised to be the second Materialise segment to exceed €100 million in revenue.
“At the sales level, the annual growth was even 20%, reflecting a substantial increase of deferred revenues, especially thanks to the 29% growth in medical software sales,” suggested Vancraen.
In 2022, the biggest investment of Materialise medical supported the installation and validation of a completely new production line for implants in the U.S., which is expected to become operational in a few months. In addition, the division also invested considerably in new products and, at the start of 2023, launched a new planning tool called Mimics Enlight Lung that helps surgeons save lung lobes for patients with lung cancer. Unfortunately, a combination of inflation, war-related costs, and continued investment in future enterprises slightly reduced Materialise medical’s EBITDA compared to last year.
As for manufacturing, Vancraen pointed out that the growth was directly related to a combination of “existing reliable and profitable rapid prototyping activities with continuously growing certified manufacturing in selected vertical segments such as aerospace, medtech, alternative drive systems, and wearables.”
Last year, the company made the investments required to scale manufacturing applications, including doubling the plant size of its ACTech business, which produces limited runs of highly complex cast metal parts, and prepared to launch a completely new online sales platform in 2023 in the core AM activity.
What’s in the cards?
Following the Tuesday release of last year’s earnings report, shares of Materialise began trading downhill and slightly recovered in the afternoon. By noon the stock was trading at $8.65 – one of the lowest points of the month – and closed at $8.71.
Although the company performed below forecasted estimates, Materialise executives anticipate 2023 will result in another year of double-digit revenue growth, with revenues totaling between €255 million ($273.5 million) and €260 million ($279 million). As in 2022, Leys said he expects the company’s medical and manufacturing segments to remain the main drivers of that growth.
“While we expect sales of our Materialise Software segment will also grow, this growth may not be fully reflected in the segment’s revenues due to the changing cloud-based subscription business model we are introducing there.”
Software sales decreased 4% during the fourth quarter, to €11.7 million ($12.5 million) from €12.2 million ($13 million) for the same quarter last year, while software revenue for the year ended December 31, 2022, resulted in an increase of 1.8% to €43.7 million ($47 million). According to Vancraen, Materialise software went through “a major makeover in 2022,” which started with the acquisition of Link3D, enabling the full integration of the Link3D cloud-based MES platform and the legacy code base of a range of leading Materialise software packages for AM, including the flagship Magics. Months later, Materialise took over Identify3D, a proven software toolkit field-tested by companies and government organizations to allow distributed secure AM operations and supply chains.
Vancraen also explained that “the combination of extra expenses we incurred to attract additional talent and to continue to support our workforce in Ukraine, the high inflation on a global scale, and restructuring resulting from the integration of our existing sales and development teams with the new Link3D and Identify3D teams significantly impacted the bottom line of Materialise software. Hence, the decline of software historically healthy EBITDA last year, particularly in the last quarter.”
With full-year results now reported, investment banking firm Stifel anticipates that Materialise software is expected to grow, as Vancraen stated, but this will not be fully reflected in reported numbers due to the evolution to cloud-based systems. Nevertheless, Stifel’s experts Noelle Dilts and Kieran McCabe suggest that Materialise is “well-positioned to participate in the 3D printing revolution we expect to occur over the next decade.”
As part of their analysis, the experts believe that “as adoption of 3D printing technology increases, so should demand Materialise’s software and services, given its central position in the industry. On the Industrial front, we believe the sector is amid a transformational shift toward Industry 4.0 and digital manufacturing (of which additive is a key element). This should drive demand for the Materialise Magics software suite and the company’s manufacturing services. Finally, on the Medical front, we believe the company’s leading position in Medical software (Mimics), services, and select applications is a strong and defensible competitive advantage.”
Similarly, Leys concluded the earnings call on a positive note, explaining that he expects Materialise to post another solid top-line growth in 2023, a stronger adjusted EBITDA (with the potential to grow by more than 30%) and robust contributions from Materialise’s medical, manufacturing and software – in that order.
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