Materialise N.V. (MTLS) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Materialise Fourth Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to Jody Burfening. Ma’am, you may begin.

Thank you, Candice and thank you everyone for joining us today for Materialise fourth quarter earnings conference call. With us on the call are Fried Vancraen, Founder of Materialise and Chief Executive Officer; Peter Leys, Executive Chairman; and Frederic Merckx, Chief Financial Officer. Today’s call and webcast are being accompanied by a slide presentation that reviews Materialise strategic operational and financial performance for the fourth quarter. To access the slides, if you have not done so already, please go to the Investor Relations section of the company’s website at www.materialise.com. The earnings press release, that was issued earlier this morning, can also be found on this page. Before we get started, I would like to remind you that management may make forward-looking statements regarding the company’s plans, expectations and growth prospects, among other things. These forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed, including competitive dynamics and industry change. Any forward-looking statements, including those related to the company’s future results and activities, represent management’s estimates as of today and should not be relied upon as representing our estimates as of any subsequent day. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that may impact the company’s future business or financial results can be found in the prospectus filed with the SEC on June 26, 2014. Finally, on today’s call, management will discuss certain non-IFRS measures. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With those housekeeping matters out of the way, I would now like to turn the call over to Materialise’s Executive Chairman, Peter Leys. Peter?

Thanks, Jody and thanks everyone for joining us today for our fourth quarter earnings call. To begin if you could please turn to today’s agenda on Slide 3. First, I am going to summarize some of our financial highlights, then Fried will take over and discuss our strategic investments of 2014, after that Frederic will give you more detail on our financial results, then I will come back and discuss our key 2015 operational goals and walk you through our guidance for 2015, and then finally, we will open the floor for Q&A. But let’s start with the helicopter view of our fourth quarter and full year performance on Slide 4. When we look back at our final quarter of 2014, there are two things that strike us as being particularly relevant. First, during the periods and this frankly much like our second and third quarters, we executed the strategy that we laid out as part of the IPO process and that is a strategy of investing heavily in the near-term in both sales and marketing as well as in product development, with a view to accelerating our growth in the mid to long-term. Secondly and once again we have successfully combined the execution of our strategic investment plan with a strong and consistent short-term financial performance. So, first, let’s look at our top line. In Q4, revenue increased by almost 21% to €23.6 million. This growth was driven by an exceptionally strong gain in our 3D Printing Software segment as well as by double-digit growth in both our medical and our industrial production segments. When we exclude the OrthoView revenues, which we only started consolidating during the past quarter, we still post an impressive 16% organic growth compared to last year’s final quarter. Now, the next two metrics on this Slide 4 clearly show where we are heading. In the fourth quarter, 3D Printing Software sales increased 51% and our total software sales both 3D Printing and Medical represented 35% of total revenues, this compares to only 27% in Q4 of 2013. Turning now to the bottom line our adjusted EBITDA was €927,000 in quarter four which represents 3.9% of revenue. This is admittedly lower than Q4 last year, but still represents a meaningful achievement to us given the fact that our sales and marketing and R&D expenses increased by approximately €4.4 million in the aggregate. And now I will turn it over to Fried who will discuss our 2014 strategic investments.

Thank you, Peter. Good morning and good afternoon to everyone. Please turn to Slide 5. As we talked in our IPO roadshow and on our second and third quarter conference calls our objective in raising capital was to get resources to aggressively invest in 2014 and 2015. And this with the flexibility to deploy the capital wisely making sound buy or build decisions to drive long-term revenue and earnings growth as efficiently as possible. I am really proud to report that we made good progress on each of the initiatives we outlined in our IPO roadshow. Now as 2014 has come to an end, I want to summarize the investments we have made during the year and their strategic rationale. We started investing prudently in the first half of the year in anticipation of the complete – of completing the IPO. And we intensified our spending in the second half of the year to achieve full speed in the fourth quarter. Let’s start with the investments we make in expanding our sales and marketing teams worldwide. Against this objective we increased our sales and marketing spending in 2014 by approximately €5.2 million or roughly 23% up to €27.5 million. This is in large part due to the increase of the size of our sales and marketing workforce that increased by 38%. The majority of those new employees were hired to support activities in the sales of our software products both 3D Printing and Medical, which is clearly in line with our strategy. Because of the care we took in hiring these sales people the majority of the hires were made towards the end of the third and during the fourth quarter. Complementing the sales expansion, we established a separate team dedicated to grow the collaboration with the 3D printer manufacturers. The successful launch of our build processor program is to a large extent attributable to this team and we expect to be able to announce similar successes in the course of 2015. Lastly, we opened and started an office China to move closer to the manufacturers there. Its early days, but we now have a foothold in the large markets that we believe offers a substantial long-term growth for Materialise. Let me now move to the research and development efforts. We invested approximately €15.1 million during 2014, an increase of approximately €4.5 million or roughly 42% as compared to last year. Our R&D headcount grew by 28%. In our 3D Printing Software segment, our Build Processor program is a good example of the successful R&D program. It has already yield incremental sales for us. The program has correctly anticipated increased interest like OEMs in investing as it is manufacturing as part of the end part production growth, in particular, in highly regulated markets such as aerospace or healthcare. We continue to advance our x-ray project and currently expect to file with the FDA mid 2015. We believe that we are still on track to see revenue growth from the x-ray program in 2016. We also initiated programs to further penetrate the markets for high value and product printing, such as the SCHUNK eGrip platform or the RSPrint customized insoles. Finally, we dedicated R&D resources to commercialize our metal printing capabilities. We acquired two metal printers to bring metal printing of implants in-house and have completely validated this production process for medical use. On the capital expenditure side, we purchased 18 printers during the year as part of our plan to expand Materialise printing capacity. And following the expiration of the Red Eye collaboration in 2014, we also acquired all 34 FDM printers that we operated as part of this collaboration. From an M&A perspective, we acquired and integrated the operations of e-Prototypy, a 3D printing service that are based in Poland and we acquired OrthoView last quarter giving us new channels to distribute our surgical preplanning software tools and related 3D printing products. In 2015, we will further continue to advance those initiatives, but this will be later explained by Peter. Now, I will turn the call over to Frederic to take you through our financial results for the fourth quarter.

Thank you, Fried. Let’s turn to Slide 6. During the fourth quarter of 2014, we increased our revenue by almost 21%. Revenue from software sales both 3D Printing and Medical Software represented 35% of total Q4 revenue. It is the highest percentage that we have ever reported. Revenue from end parts manufacturing, including medical end parts, represented 38% of Q4 revenue. The remaining 27% was generated through sales of prototyping business. In terms of our segment breakdowns for the full year, both 3D Printing Software and Industrial Production increased their relative revenue share. 3D Printing Software grew to 22% of total revenue and Industrial Production grew to 41% of total revenue. Slide 7 shows our corresponding adjusted EBITDA numbers for the fourth quarter. As a result of the significant €4.4 million increase in sales and marketing and R&D spending, adjusted EBITDA decreased by €1.4 million to €0.9 million. The adjusted EBITDA margin for the fourth quarter of 2014 was 3.9%. Please be aware that we fully expense R&D spending during the period. As illustrated, our higher margin Software segment increased its contribution to consolidated adjusted EBITDA, generating 62% of the total for the full year compared to 46% for the prior full year. Slide 8 shows the Q4 financial performance of our 3D Printing Software segment. Top line growth of 51%, was well above the rate at which the overall 3D printing industry has been growing and resulted from a 65% year-over-year revenue increase from new software licenses. Another positive metric in Q4 was a 51% gain in software sales generated from or through printer OEMs. And finally, sales in Asia, one of the key growth drivers in this segment increased by 46% for the full year as we continue to pursue emerging opportunities in this region, particularly in China. Q4 EBITDA growth for the Software segment was 30% and the EBITDA margin was 30.7%. The margin decline in the fourth quarters was due to a €1.3 million increase in sales and marketing and R&D expenses. And as we have discussed in our last two calls, we expected these investments to reduce EBITDA margin in the segment from the levels achieved in the first half of 2014. Turning to Slide 9, you will see that the company revenue growth in our Medical segment continues to improve reaching 18% this quarter which represents a 5% organic growth. Medical Software revenue in Q4 increased by 80% from the prior year due to the accelerated conversion from perpetual to annual software licenses and sales contributed by OrthoView. Excluding OrthoView Medical Software sales rose by 16%. Revenue from the direct sales of guides and implants increased by 54% compared over last year’s fourth quarter, offsetting a decrease in revenue from medical collaboration partners which saw its percentage of Q4 segment sales declined to 52% from 66% in the prior period. Fourth quarter EBITDA for the Medical segment declined to €0.5 million from €1.1 million in the prior year due to the €1.6 million increase in investment in sales and marketing and R&D expenses. As a result EBITDA margin declined to 5.7% from 15% last year. On Slide 10, you will find the performance of our Industrial Production segment. We delivered a revenue increase of 14% for Q4 2014. The sales of end parts in the fourth quarter rose by 40% over last year’s period as we continued to add and expand key automotive and aerospace accounts. Sales from our two growth businesses, RapidFit and i.materialise rose 76% in the quarter. Our Q4 EBITDA in this segment decreased to a small-off of €38,000 from a profit of €293,000 last year. Excluding the growth businesses from Q4 segment results, our EBITDA margin dropped to 13.1% versus 16.4% for the prior year as a result of increased sales and marketing activities. The profitability of the two growth business i.materialise and RapidFit has suffered during the fourth quarter from delays in revenue recognition as well on the new franchising contracts of i.materialise which need to be recognized over the duration of the contract as was some projects of RapidFit’s final deliveries have been delayed to the first quarter of 2015. Slide 11 provides the highlights of our income statement. Our fourth quarter gross margin rose 510 basis points to 59.5% from 54.4% last year, largely due to a greater mix of software revenue withholding tax exemptions for qualifying researchers and partial funding of R&D versus a comparable income of €0.6 million in the prior period. With higher gross profits only positively compensating for the increases in operating expenses, the Q4 operating profits dropped by €2.4 million compared to the same quarter of last year. Financial income for the fourth quarter of 2014 rose to €358,000 from the loss of €491,000 in the prior year quarter due to a foreign exchange gain on the portion of IPO proceeds kept in U.S. dollar. We have provided some – we provide you with some additional financial highlights on Slide 12 the biggest year-to-date changes on our balance sheet came from our June IPO which netted us €89 million. We currently have over €50 million in cash and equivalents and another €10 million held to maturity investments and a very manageable debt to equity ratio. The €6 million increase in receivables is partially related to the inclusion of OrthoView in our consolidation as from October 2014 as well as a result of the important relative increase in revenue during November, December 2014 compared to the same months of previous year. Our capital spending in Q4 of 2014 more than tripled to almost €5.4 million from the prior year’s level, while our cash flows from operations dropped to a negative €490,000 as a result of lower EBITDA and an increase in working capital associated with higher sales. With that overview I will turn the call back to Peter to discuss our growth strategy.

Thanks Frederic. Now if you would all please turn to Slide 13, the first column of this slide summarizes our operational goals for 2015. The second column shows which initiatives we have already identified earlier in 2014 and which we have shared with you during the IPO and clearly we will continue to advance these initiatives in the current year. The third column identifies those opportunities that we identified subsequent to our IPO and that we have added to our budgets of 2015. And finally, the last column shows the initiatives that are extremely high on our priority list for the current quarter Q1 2015. Let’s turn to our 3D Printing Software segment first. To begin in 2015, we want to further expand the product offering of our 3D Printing Software segment. Fried already alluded to it. The introduction of Additive Manufacturing in the production process of end parts requires sophisticated tools that enable the manufacturers to closely monitor and control the quality of the production process. To address and anticipate this need, we have decided to invest in an additional product that will complement our current suite of software solutions for end part manufacturing. This initiative, which will require significant additional product development efforts in 2015 is not only very recent, it also ranks extremely high on our priority list. In the near future, we hope to be able to give you more details on this addition to our 3D Printing Software portfolio. Already in the second half of last year, we launched our Build Processors program, which has quite frankly received extremely good traction in the markets. So, in 2015, we definitely intend to add new Build Processors to our portfolio. And in this respect, I would like to refer you to the press release of earlier today that announced the launch of our Build Processor program with Renishaw. Finally, we will continue to focus on Asia. Our new office in China is not just a sales office, but also a development center. Each collaboration with a new local player there requires important product development efforts. Turning to Medical, here is what we plan to focus on in 2015. An important goal for the current year is the introduction of our 3D surgical planning solutions into the 2D preoperative planning toolbox of OrthoView. As you know, OrthoView has a strong and very well respected 2D product line that we will continue to foster and expand globally. At the same time, however, an important rationale for the acquisition was to leverage the OrthoView brand and distribution channel and to accelerate the introduction of our own 3D solutions on the market. So, the integration of our own product offering into the OrthoView portfolio will require important R&D efforts that we intend to greatly intensify in the course of 2015. Moving on still on the Medical, as Fried already explained, we will continue to advance our x-ray project this year. Thirdly, with respect to metal printing of medical devices, Fried already announced that we made extremely good progress in the current quarter as we completed the validation of our in-house production process. Our focus for the remainder of the year will be to expand the range of medical products that we will build in-house and on the commercialization of these devices. And finally for Medical, we intend to continue investing in the global sales of our complex surgery product line. As part of that strategy, we recently decided to expand the range of our mobilized solutions, which will again imply additional product development work. These plans fronted us by the way to acquire the remaining 20% of the mobilized shares that we did not yet own at the time of the IPO. Now, here are the 2015 priorities for our Industrial Production segment. First, we have decided to also include metal printing in the technology offering of our Industrial Production segment. In that respect, I am pleased to announce that already in the first half of the current quarter, we have made good progress on this priority. As a matter of fact, since the beginning of this week, our service offering officially includes aluminum printing services. We were able to include this offering immediately in our commercial portfolio and thus avoid a typically time consuming learning curve through the acquisition of a small local company that has operated Renishaw 3D Printing machine commercially for over a year now. In 2015, we intend to expand our aluminum printing capacity. And we are also gearing up to add other metal materials to our technology range. In 2015, we also intend to continue to monetize the i.materialise 3D printing platform by signing agreements similar to the one that we signed with UCT last December. And finally, RapidFit is very determined to expand its footprint in the U.S. automotive fixtures market through M&A activity. While the timing of M&A is typically very unpredictable, we have put this expansion very high on our to-do list for 2015. And as a reminder, any acquisition is also the case with OrthoView, will require additional investments to integrate the products. So, as you can see 2015 will be another busy year and in particular another year of heavy investments in our R&D and sales and marketing. During our IPO in our second and third quarter conference calls, we indicated that ‘14 and ‘15 would be years of heavy investments, as we expand our product offering and build our sales and marketing presence globally. While in 2015, we intend to continue to implement our investment plans that not only with respect to the initiatives that we had in our pipeline at the time of IPO, but also with respect to some of the new opportunities that have come into our line-of-sight since then. In a dynamic and rapidly growing market like additive manufacturing, flexibility and speeds are key. We are convinced that seizing the new opportunities that we have included in our 2015 budget now is the right course of action for Materialise. We have worked hard to achieve our leadership position in the carefully chosen sub-segments of the additive manufacturing space where we operate today. This stronger than expected 2014 revenue growth in particular in software demonstrates that we are very well positioned in the market and that our strategy works. In order to strengthen our leadership position and to widen the competitive gap even further, we have decided to put the funds we raised last June to work even faster than contemplated last summer. So, now if you would turn to Slide #14, I will take you through our guidance for fiscal 2015. We expect to report full year consolidated revenue between €99 million and €101 million. This represents the growth of 22% to 24%, which is stronger than we had initially anticipated. Our plans to foster this growth and to make it even more sustainable by greatly accelerating the pace of investments in R&D and sales and marketing will impact profitability for 2015. And we expect to report adjusted EBITDA of between €4 million and €5 million, for an adjusted EBITDA margin between roughly 4% and 5%. In 2015, we expect revenue seasonality to be similar to the seasonality that we experienced in 2014, while operating expenses should increase more linearly throughout the year. Turning to Slide #15, while we are planning to deploy our IPO proceeds more quickly than anticipated our long-term financial goals remain unchanged. Aggressive and faster investments in developing new software tools in 2015 and in bringing these products to the market even faster is intended to accelerate growth of our higher margin software sales. This would help us to shift the total company revenue mix in favor of software sales. As a result, in the next 2 years gross margins will go up and operating expenses as a percentage of sales will start to come down. In addition to growth rates of our operating expenses should moderate substantially. With this Slide 15, I would like to conclude the first part of our call and we will now be happy to answer any questions that you may have. So operator, if you could please open up the Q&A session? Thank you.

Thank you. [Operator Instructions] And our first question comes from the line of Troy Jensen of Piper Jaffray. Your line is now open.

Hey, congrats on the nice quarter gentlemen.

Thank you, Troy.

Hey, a couple of quick questions here on the healthcare stuff, so it looks like the healthcare business grew 5% organically, that’s a nice margin improvement over the prior few quarters. Do you see like healthcare is turning the corner here? And I note do you think you can continue to grow without the x-ray product introduction?

Well, thank you for this question, Troy. It’s Fried here. What you see especially on the clinical side is the effect of the growing what we call complex surgery products that we sell directly and that are starting to achieve bigger and bigger absolute numbers compared to the OEM related sales. So, I think this is a fundamental process that we have been trying to forecast and this showing its effect at this moment. So, I think it’s a fundamental change.

Okay.

On behalf of your second question, first of all, I want to express that our confidence in the x-ray technology as the phases are progressing is only growing, but despite that we believe that we are not really dependent on x-ray. There are so many different lines and opportunities in our medical portfolio that if a disaster would happen through x-ray again which we don’t expect that we still could achieve our long-term objectives with the other elements of our portfolio.

Okay. And then a follow-up just on healthcare and I got one at the end I want to give for Frederic, but if you think about metal parts in the healthcare, if we could maybe size that versus plastic and nylons, I mean maybe 2, 3, 5 years out, do you think the metals business could be as big as plastic and nylons?

Certainly, I think its Fried again. I think I have a better view on the market of the medical devices. So, I will take this one for Frederic. In the overall market, if you are up for market info, it’s absolutely true that the most valuable devices are the metal implant devices, but if you take it for Materialise in particular, it is expected that in 2 to 3 years from now, the metal devices will grow substantially, but not to a 50-50%. We rather estimated that it will be 20% to 25% of our overall product portfolio.

Perfect. And the follow-up that I meant for Frederic is this one, can you just give us any color on what the depreciation and amortization assumption is in your 2015 EBITDA guidance and just hoping we can try to get closer to what in EBIT, so we can model the expenses closely?

I think you can start from the Q4 depreciation and on knowing that we intend to keep the same level we have estimated in 2015 as in 2014, I think you can derive the depreciation charge.

So, depreciation for ‘14 was about €4.5 million. So, you think it will be the same in ‘15?

No, I mean, it will be higher, because we invested a lot during 2014. We want to keep that level of investment in 2015. So, depreciation will definitely increase.

Could you just give us a range on what you think the number will be, Frederic, so that we can get to the operating expenses?

I think it will be higher than the €5 million for sure.

Any sense of how much higher they are?

Depends on the timing of the investments it could be €5 million to €5.3 million something like that.

Okay, perfect. Congratulations and good luck gentlemen.

Thank you, Troy.

Thank you. And our next question comes from the line of Holden Lewis of Oppenheimer. Your line is now open.

Thank you. Good morning or good afternoon over there. The Industrial Products segment that has decelerated each quarter this year coming in at about 14% in Q4, the RapidFit and i.materialise business is growing fairly well, I mean no real change kind of growing mid-70s, 80 plus, what was the sort of non-RapidFit and i.materialise growth in Q4, what was that number?

Yes. The growth of our base AMS business has been 15% in Q4. And I am a little bit surprised that you are talking about deceleration, the sales growth has been quite consistent throughout the year even a little bit better in the second half of the year than in the first half of the year because of the very first quarter has been a bit weaker.

But didn’t the first quarter grow, the Industrial Products segment grew about 28% in the first quarter?

Yes. There was a very high impact of RapidFit that was extremely weak in 2013.

Okay. I guess the other way to kind of think about it is I think in Q3 you grew about 22% in Industrial Products, in Q4 you grew about 14% and I think RapidFit kind of fell from 84% Q3 to 76% how did the course of which you are staying around 15% when you saw deceleration in the overall number was that just because of the deceleration in the growth businesses?

Yes. We indicated that in the growth businesses we have had a few elements that were not in our favor. On the RapidFit side several of the projects that were in progress have been delayed because of project delays on the customer side. So some order fixtures have been placed on hold because of design changes with the customers and as we are there in let’s say rather big development programs, one design change can hold up an entire series of fixtures and as it happened in the middle of Q4 last year for RapidFit. While for i.materialise a lot of effort has been growing into the franchise agreement, but they are also like Frederic indicated we are not recognizing any revenue for this as it is – as it needs to be deferred over the entire year.

Okay. And are you seeing any – what are the trends that you are seeing in the core service bureau business, anything on the macro side or the pricing side?

Business on what we call AMS has been well actually more stable in the second half of the year as in the first half of the year. And it’s affirming in our situation I think better than we see – than what we see in order report. But as the European economy is at this moment as we experienced more healthy than a year ago.

Okay, great. Thank you.

Thank you. And our next question comes from the line of Ben Hearnsberger of Stephens. Your line is now open.

. Hi, thanks for taking my question. First, on the x-ray project, you mentioned that you expect to file with the FDA kind of middle of this year. Can you take us through how that process or how we can expect that process to kind of play out? And then when you expect that product to be commercialized and ready to go to market?

Ben, the process in the nutshell is as follows. Just assume that we – I mean, officially – when we officially introduced the file with the FDA, the FDA has a period of 90 days to get back to us. So that will be 3 months as of the date when we file. This is – I mean, this is a complex product. It’s a very innovative product. We do not at all exclude that, in the given circumstances, it may take a bit longer than 90 days from the first filing date to get the – to get the approval in place. And so, we have actually in our outlook here another 6 months, basically that the second half of the year foreseen for iterations with the FDA to get our approval in place. Now, simultaneously as the regulatory approval process follows its course, we will obviously start dividing our go-to-market strategy, which includes discussions with a number of potential partners. And so as the regulatory approval process follows its course, we will also gradually try and put partnerships or the similar initiatives in place to bring the product to market. So, as we have explained before, we believe that contribution to revenue from the U.S. studies, because I have discussed the U.S. approval process, is something that we still expect to come in 2016. Let me add that this should not withhold us from already deriving some sales and some revenues from the technology earlier as the regulatory trajectory in Europe will be less cumbersome and should allow us to get access to the markets quicker.

Okay, that’s helpful. So, when do you expect the product to be able to go to market in Europe then?

Well, actually in Europe regulatory wise, the project is already approved. So, but we are now still – yes, in a trial phase and actually that will end approximately at the moment that we are filing with the FDA, so at the moment we file with the FDA, it will probably start also the commercialization in Europe.

Okay, thank you. And then on the sales and marketing investments you are making, you said your workforce is up by 38% with the majority of those in software sales, how – I think you said those were basically 3Q and 4Q hires there. So, how should we think about the timeline of training up those new hires and when we can start to see production out of those new hires?

I think we are selling product that are quite technical and quite complicated. So, the real contributions from those brand new people have to be expected in the second half of the year.

You make a very good point there. Ben actually it is one of the reasons also why we believe that accelerating investments and accelerating higher sales people will help us to reach our long-term objectives. I mean, the sooner these people are trained, the sooner those people can put their feet on the street, the sooner we will see revenue coming from those people.

Okay, thanks. And my last question, within in the service bureau, the Industrial Production service bureau, can you speak to capacity utilization in 4Q and how capacity utilization trended within that business throughout the prior year?

Well, actually the utilization was most soft in Q1. Then it started to increase during Q2 and during Q3. Now, thanks to the addition of the 18 machines that I mentioned. We now have again more free capacity in order to grow further during this year.

Can you give us an idea of how much excess capacity you have within your business?

Well, we try to operate our machines above 80% capacity utilization. Currently, we have for several processors rather 75%.

Okay, great. Thank you, gentlemen.

Thank you.

Thank you. And your next question comes from the line of Bobby Burleson of Canaccord Genuity. Your line is now open.

Hey, good afternoon gentlemen.

Hi.

So, just a couple of quick ones here. Looking at the parts business in Europe, I was curious if you are seeing, you mentioned the partnership that you have with Red Eye and actually buying some of those machines at the end of the year. I am wondering whether or not you are seeing increasing competition from Stratasys going forward there kind of what are your thoughts on the evolving competitive landscape for the parts business in Europe?

It’s a question that is very complicated, because we have so many different prototyping or 3D printing or Additive Manufacturing technologies, but as your focus seems to be on the FDM technology, the reality is that this business is under pressure. And I would like to say most due to the fact that there are so many alternatives appearing on the market with low cost machines that all, where MDM technology is the key technology that is available. So, in the conceptual modeling and so on, the market is from a service bureau perspective really declining. If Materialise keeps doing well here and expect to keep doing well, it is because we use this technology in real high-end manufacturing applications, where the finishing and the quality controls and the process controls are of extreme importance.

Okay, great. And then in terms of the metal capacity that you guys have brought online, it sounds like at this point, it’s dedicated to healthcare, but there is obviously a lot of finishing work that’s involved in metals and you are having a complete manufacturing where the process is an advantage. So, do you foresee expanding that metal production beyond things like orthopedic implants into aerospace or other industrial markets?

Yes, Bobby. As I mean, I announced and maybe I wasn’t clear enough, but indeed, I mean, we actually – we acquired a company earlier this week that already commercially operates Renishaw metal printer for industrial purposes, not for medical purposes. So that has the post-processing knowledge either in-house or outsourced with very strong partners. So, by taking that action as I explained during the call, we actually were able to immediately include metal indicate it has aluminum in our commercial offering to our customers. And it is definitely our intention in 2015 to on the one hand add capacity to expand that aluminum service offering and on top of that, it’s also our intention and we have made a few key hires to help us in that initiative. It’s also our intention to include in our service offering other metal materials in the course of 2015.

Great. But is that Renishaw process the one that you guys are focused on or as with the other metal capacity you have in house are you looking at other solutions besides Renishaw going forward?

Well, we are there and kind of unbiased and we are looking for the technologies that best fit the requirements of our customer base and that can be from different manufacturers.

Okay. And then just a quick on the AAOS Conference, its coming up towards the end of this month in Las Vegas wondering what you guys would be exhibiting there, what your main focus is going to be at the show? Thanks.

We will continue to demonstrate the leading position we have in the patient specific medical devices and both at the level of the highly sophisticated implant for complex surgery and the level of the personalized guiding systems.

Thank you.

Thank you, Bobby.

Thank you. [Operator Instructions] And our next question comes from the line of Ben Hearnsberger of Stephens. Your line is now open.

Hi, thanks for taking my follow-up. So I tend to think of software revenue growth is kind of growing with 3D printer system sales and we have seen it kind of growing 30% over the last few quarters before the big jump to 51% or so this quarter, is your expectation that over the next year we will continue to see a divergence with your software business significantly outgrowing kind of the systems business?

Yes. A couple of things Ben, first we are excited by the growth of our 3D printing segment and we are convinced that it will continue to grow very sharply. Obviously, there is a bit of big effect in Q4 for all software sales, so that kind of played a little bit here. But other than that if you – I mean our go to market strategy has definitely been setup in such a way that yes indeed we are poised to outgrow the growth of the market. We sell together with OEMs, which showed an increased of more than 50% our base products first so that was a growth that is in line with the growth of the market. But then we have our sales force that in the months and years thereafter will visit those customers and we will up-sell to customers with a number of modules that we have that will further allow them to more efficiently use their machines. So if you combine the sales of our initial modules of Magics for instance that will follow the market growth and adds on that the up-selling of our direct sales force then yes our model has definitely been established and construed in such a way to eventually outpace the growth of the market.

Okay. Thanks. And then as a follow-up to that with most of the new sales hires having just come on how did you see, what was that play or maybe special about this quarter how did you see such large growth this quarter, is there anything unique in that number?

Well, we have always indicated that while if we take statistics over the longer term we outpaced the device market with a few – and I want to stress the professional devices market. We outpaced the system sales, but that it also happens with approximately a year of delay. So and actually end of 2013 there has been the entire sector was very popular at that time. So we see there this is delayed to some extent appearing in our numbers because in general people think about buying the machine first and then they want to come to more professional software for it. So, this is an effect that has been playing, but I think apart from this historical effect that we also are experienced on positive, yes, add-on from our increased close relationship to Build Processors with many of the OEMs.

Okay, great. That’s helpful. And my last one, I will let you go. On the x-ray product market opportunity, I know it significantly expands your market opportunity, but when you say it’s going to contribute in ‘16, can you give us some idea of how quickly that business ramps? Is it relatively a small contribution in ‘16 or do we immediately see that business kind of ramp up closer to your historical medical business?

Well, we have had an historical reference with the introduction of our MRI based guides and there the pattern we have seen has been an important, but still limited growth in the first year and then which would be 2016 the first commercial year, with then really the tough ramp up or the big ramp up in the second year, which in this context would be 2017. That is what historically has happened with MRI guide business, because also the partners, which we are working, yes, first want to get to know the product first placed with a limited amount of key opinion leaders and then only really deployed in the second year.

Okay, that’s very helpful. Thank you very much.

Thank you.

Thank you. And our next question comes from the line of Holden Lewis of Oppenheimer. Your line is now open.

Great, thank you. Just an housekeeping here. What is your expectation for taxes in your 2015 guide, you have sort of a tax rate or a tax number you are kind of expecting?

Hi, Holden, the tax rate in Belgium is 34% and our estimated tax rate in our 2015 budget is very low because of the investments we are going to make, but in future, we estimated to be around 24%.

Okay, so 2016 and beyond 24%, but in ‘15 much lower than that?

Yes.

Okay. And then the – I am just trying to sort of get to your total organic growth, I mean, can you just give us how much was your acquired revenue in the period. It seems to suggest that you are sort of €750,000, €800,000 in OrthoView. I don’t know if you had any from productivity or anything like that. Can you just tell us how much your acquired revenue in the period was?

The OrthoView impact in the fourth quarter is €900,000.

€900,000, okay.

Yes.

And then just last thing is are you going to begin giving us maybe you breakout the stock-based comp, others breakout the amortization related to M&A which you have done a little bit of now, are you guys start giving that number or is it just not material to be breaking out?

So far, Holden, I mean it has not been material to break it out. I mean, so give us some time to think about that one. And definitely once it becomes material and important, it’s information that we would not withhold from the market.

Okay.

If and when it becomes relevant.

Great, thank you guys.

Thank you.

Thank you.

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Mr. Peter Leys for any further remarks.

Thank you, operator and thank you all for joining the call and for your very good and strong questions. I am glad we could give you an overview of our accomplishments in 2014 and even more glad that we could give you a good understanding of the many plans that we have to further our growth strategy in 2015 and beyond, as you know from our press releases that we will be presenting at various financial conferences in the U.S. in the coming months. As you may also have picked up from some press releases, we are organizing our Materialise World Conference here as of middle of April. We will also be participating in the Inside 3D Expo in New York City in mid-April. So, we really hope to see many of you at one or more of these events in the coming months. Thanks again and at the latest we will be talking again sometime in May, but hopefully before that. Thanks.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.