Thank you for standing-by and welcome to the Q4 2020 Materialise Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today Ms. Harriet Fried, of LHA. Thank you. Please go ahead ma'am.

Thank you for joining us today for Materialise's quarterly conference call. With us on the call are Fried Vancraen, Founder and Chief Executive Officer of Materialise; Peter Leys, Executive Chairman; and Johan Albrecht, Chief Financial Officer. Today's call and webcast are being accompanied by a slide presentation that reviews Materialise's financial and operational performance for the fourth quarter and full year, 2020. To access the slides if you've not already done so, please go to the Investor Relations section of the company's website. The earnings release that was issued earlier today can also be found on that page. Before we get started, I’d 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 their 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 could impact the company's future business or financial results can be found in the company's annual report on Form 20-F filed with the SEC. Finally, management will discuss certain non-IFRS measures on today's conference call. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With that, I'd like to turn the call over to Peter Leys. Go ahead please, Peter.

Thank you, Harriet. And thank you everyone for joining us today. As always you can find the agenda for our call on slide number 3. As a first item on our agenda, I will summarize the highlights of our financial results for the fourth quarter of 2020. Then I will pass the floor to Fried who will provide us his key takeaways with respect to our performance last year. After that Johan will walk you through our fourth quarter numbers in more detail and finally I will come back to give you some qualitative insights in what we currently believe the near-term future will bring. When we've completed our prepared remarks we will be happy to respond to any question that you may have. So let's turn to Slide 4 which summarizes the highlights of our financial results. Just like the second and third quarters of 2020 the results of our fourth quarter were impacted by the COVID-19 pandemic. While we expect the impact of the crisis on our performance to continue throughout the first quarter of 2021, we do see a number of encouraging signs of recovery. First, while our revenue was still roughly 10% lower than the fourth quarter of 2019 our revenues in the reported period do represent a 10% increase on a sequential basis compared to our revenue in the third quarter of last year. Second, we are further encouraged by the fact that in Q4 our deferred revenues from software license and maintenance fees grew by €3.4 million compared to the end of the third quarter of 2020. Third, in spite of the revenue decline our adjusted EBITDA margin remained healthy at 16.3% actually 10 basis points higher than the 15.3% margin that we reported in the same period of 2019. Importantly, this performance did not come at the expense of our R&D efforts. On a comparable basis R&D expenses increased by 10.8% in the fourth quarter of 2020 compared to the last quarter of the previous year and they represented 14.5% of total revenue compared to roughly 12% of total revenue last year. Finally, we closed 2020 with cash and cash equivalents of €111.5 million on our balance sheet and with total gross debt of roughly €115 million of which only about €17 million is due within the next one year. And with that I would now like to ask Fried to give some further color to these numbers. Fried?

Good morning or good afternoon everyone. I would indeed like to focus a moment on the last numbers Peter mentioned because they show the impressive resilience Materialise demonstrated during the crisis year 2020. Our growth depth decreased by €13 million from €128 million in 2019 to €115 million. Our cash positions decreased by €17.5 million from €129 million to €111.5 million at the end of last year. I consider this an exceptionally strong performance as it actually means that except for €4.5 million the hard work of our team members in 2020 financed in addition to the normal CapEx a year-on-year increase of R&D efforts by 7.1%. On top of that the first phase of our new TIT infrastructure program for a total amount of €3.3 million was rolled out and then the acquisition of RS Scan and RS Print for which we paid roughly €8 million in 2020 was financed. And finally for the strategic partnership with Ditto we drew in 2020 €2.8 million from our U.S. $9 million facility. All of this was financed in a roller coaster years where several of our production and sales activities came to a near complete standstill in the second quarter. The very strong recovery of our medical segment in the second half of 2020 requires many of our people to move abruptly from standstill to an overtime situation. The slower recovery of our software and manufacturing activities requires skillful management of a wide variety of temporary employment measures in the different countries where we operate. We did not implement any redundancy programs earning Top Employer Awards in both early 2020 and 2021 and we’ve retained our key talents, the core knowledge asset of our company. We will need those talents to tackle the big changes and opportunities that we are expecting…

Thank you Fried. I begin with a brief review of consolidated revenue on Slide 5. As a reminder when we refer to sales in our presentation we mean revenues plus deferred revenues. Also please note that unless otherwise stated all comparisons in this call are against our results for the fourth quarter of 2019. In this year's fourth quarter our income statements include the two months of the RS Print activities as a result of the 50% step-up acquisition of RS Print and RS Scan on November 9 of last year. Revenue decreased 10.7% to €45.3 million for the period. COVID-19 continued impacting our software and even more so our Manufacturing segment. However, compared to the third quarter of 2020 we recorded 11% growth boosted by manufacturing that grew 26% plus 21% if we exclude the RS Print impact. The €3.4 million increase of deferred revenues from software license and maintenance fees underscores the strong sales performance of a Software and Medical segment in this fourth quarter. For the quarter Materialise software accounted for 23% of our total revenue Materialise Medical for 38% and Materialise Manufacturing for 39%. Cross-segment revenue from software products increased to 34% over total revenue. Moving to Slide 6, you will see a consolidated adjusted EBITDA numbers for the fourth quarter. Consolidated adjusted to EBITDA amounted to €7.4 million a modest increase of almost €400,000 compared to Q4 last year. This decrease should be seen in the lights of a quarterly revenue decline of €5.4 million. Besides the effect of reducing variable cost of sales the many cost saving initiatives we implemented had a substantial impact on keeping our EBITDA margin at 16.3%, 1 percentage point above last year. All this while we increased our R&D efforts this fourth quarter on a comparable basis by 10.8%.…

Thank you, Johan. Before opening the floor to questions, we would like to try and give some qualitative insights about what 2021 may bring in the short term. As we explained in today's press release, our fourth quarter 2020 results and the customer feedback we have been receiving to-date in 2021 are encouraging. The COVID-19 crisis continues to impact our business, however, and does this in a fairly diverse way across our various segments and the various regions where we do business. As a result, our outlook is currently not sufficiently mature for us to provide meaningful quantitative guidance for our consolidated full year 2021 performance. Today, we do have more visibility on what the first quarter of 2021 may bring. We currently expect that both our Software and Medical segments, which continue to recover steadily, have the potential of posting revenues that were close to the revenue levels that they posted in the pre-pandemic first quarter of 2020. We do not expect our Manufacturing segment to recover to the same extent at the same pace in the first quarter of this year. As a result, we estimate that our consolidated revenues in the first quarter of this year will be 5% to 10% lower than what they were in the same period of the previous year. The backlog of orders and the pipelines of our Manufacturing business, in general, and of our ACTech and RapidFit activities, in particular, are becoming stronger by the day. Because of the nature of these businesses, that recovery will only be reflected in our Q2 numbers at the earliest. But based on that information, we believe that in the second, the third and the fourth quarters of this year, as the pandemic crisis subsides, the entire group, including our Manufacturing segment, will perform well and will grow sequentially quarter-over-quarter. In line with our strategy just like last year, we will continue to invest in our R&D programs and internal infrastructure. And this will weigh on our overall results in 2021. This concludes our prepared remarks. So operator, we are now ready to open the call to questions.

[Operator Instructions] Your first question comes from the line of Jason Celino from KeyBanc. Your line is open. Please ask the question.

Hello, can you hear me okay?

Hey, Jason can you hear fine?

Okay. Looks like a little bit of echo on my end. It looks like you had pretty solid renewal activity in the first quarter. Was it potentially [Technical Difficulty] or is it a requirement of more and more renewal activities? And this is for the Software segment.

For the Software segment, I think we can state that it's a combination of both. Some people had really such economic difficulties last year that they postponed some renewals of maintenance, for instance, or annual licenses. Despite the fact that we did very well on the recurring income side, we could have done better, if not some of our customers had experienced some financial difficulties. At the same time, you will have noticed that the OEM-related activity of our software was very low. And that we believe that the entire climate in the 3D printing sector will pick up, so that we also have more possibilities to sell in relation -- in combination with new machine sales, for instance, and new projects that are going to be started this year.

Okay. Great. And then one more for me. The commentary on the sequential growth from second quarter to fourth quarter, but more specifically for Manufacturing. Your level of confidence here, if I heard this correctly, is being driven from [Technical Difficulty]. Maybe can you talk about more, like r what exactly is driving the confidence?

Yes. Jason, we're getting feedback. There's quite a bit of echo on the line when people ask questions. So we get the suggestion that we briefly repeat the questions, so everybody can follow. So I will try to recap your question. Your question relates to the sequential growth that we are currently expecting for the second, third and fourth quarter of this year. And what, in particular, with respect to Manufacturing, you were asking where we draw that confidence from?

Correct. Yes, correct.

Yes. Yes, you're right. I mean, we referred in our prepared remarks, we referred to the activities of ACTech and RapidFit, two activities that really are, to a very large extent, active in the automotive sector. So if we look at the orders that we're getting in and at the backlog that we -- those two activities are currently having, then we do see that the automotive sector, in particular, is picking up, is gaining confidence and is finding its way to our salespeople, again, with good and strong orders that supports the confidence that we have expressed with respect to the sequential growth for the following quarters of this year.

If I can add something to that, Peter. We also have the new line associated with the foot care that we also expect that will start ramping up, especially as from Q2. And simultaneously, also, we see a good progress to come up in our eyewear business line, on top of the elements that Peter has already explained.

Thank you, Johan. We had echo from Jason's line before. Now we hear nothing. Maybe we should move to the next question.

Your next question comes from the line of Arvind Ramnani from Piper Sandler. Your line is open. Please ask your question.

Hi, Arvind. How are you doing?

Good. So one of the items you talked about were -- as the year progresses, how much of growth are you expecting from pent-up demand or, in other words, growth that was not done in 2020, that's been delayed, the pent-up demand [Technical Difficulty] should likely [Technical Difficulty] any color on that would be helpful.

Yes. Arvind, I will also first repeat the question. You are asking us how much increase of demand we estimate we will be seeing because of the delays in orders last year.

Yes.

Actually, we have a strong belief and good indications that this is going to happen this year. However, the quantitative amount we cannot express at this moment. That is why we give a qualitative, yes, forecast because it's very hard to estimate at which rate this is going to happen through the entire year. What we can currently state is that in the automotive sector, for instance, we have seen, let's say, in the last months return to the normal situation of before the crisis. And if that -- that's what we can currently state, but that's where we are.

Terrific. And is there anything [Technical Difficulty]. Medical field, in the prepared remarks, you talked about kind of demand from medical field. So any further color you can provide of that would be helpful.

So again, Arvind, I'll try to repeat your question. So your question was, if we could also expand on the same topic of pent-up orders with respect to the Medical sector.

Yes.

That will, to some extent, be the case, but I think this -- we expect lots of actually genuine growth within our Medical sector. So genuine growth, not only coming from delayed orders of last year, for a very simple mathematic reason that last year was actually a very good year, where we showed albeit moderate growth compared to 2019. But secondly, there's also the practical reality that surgeons can only do so many interventions on the day. So they cannot just -- so there is current business that is gradually picked up, that 2021 cannot basically lean heavily on many pent-up orders that would date from a year ago. So the growth that Medical has shown and that we expect that Medical will continue to show in 2021 is just genuine growth that has much more to do with the quality of the products and the disruption of the solutions that we bring than with delayed orders from the past.

All right. Thank you.

Sure. Thank you.

Excuse me, presenters. I can see there's a static on the line of Mr. Peter Leys. Are you on a speaker phone, sir?

Yes, we are.

Can you kindly use your handset or mute your line while not speaking to prevent background noise?

Yes, we will mute the line when we are not speaking.

Okay, sir. Let's move on, on the next question. Your next question comes from the line of Troy Jensen from Lake Street. Your line is open. Please ask your question.

Hello, gentlemen. Congrats on the improved results.

Thank you, Troy. Welcome back.

Yes, thank you. Glad to be back. Hey, so quick, I guess I was most interested in Fried's comments about the cloud offering here. Could you talk at all about like the timing of these launches? Has it started to contribute to revenue? Or this is going to be a 2021 story? And then I'll probably throw a few questions out here just because the meet you guys got to do, but is it going to be Mimics and Magics and Streamics? And I'm guessing this is going to be an OpEx expense now for customers versus the CapEx. So do you see this accelerating revenue growth for you guys given the typically too easy to get OpEx approval for that corporations?

Troy, this is about new products. We announced at the end of last year, and that we are taking in better tests with customers during the first half of this year, but that only will be going on sales in the second half of the year. So the overall impact on results, well, this year still be limited. I hope this answers your question.

Yes, understood. That's fine. [Technical Difficulty] I'll let you guys mute.

Troy, related to your question about CapEx, we reported in 2020, CapEx of something more than €17 million over the full year. What it will bring next year, we will continue to invest. That's for sure. We already mentioned there are two elements. On the first place, we have R&D investment that entered in our P&L. And second, we have our capital expenditures. We estimate that it will not be that far from what we have invested in 2020 in the same range, but the focus may differ a little. In 2020, for example, we still invested in manufacturing, also in our building. But now we are -- we count also on investing in our focus in our strategic new business lines where Peter has -- all that Peter has talked about. We also count on investing much more money in our digital transformation program, and that will be partly reflected in capital expenditure, but also in our P&L. We have to follow the IFRS standards. And not all of the -- in IT investments that we make are to be recognized as capital expenditure, but some also have to be expensed in P&L. Again, it will be more or less in the same range.

Yes. I was actually referring to your customers when they buy software. Typically, it's a CapEx purchase, as it relates to the service. I think it's more of an OpEx purchase, and I believe it can get better or quicker approval on it. I'm going to move to the next question here. Software revenues were up 7.8% sequentially, but sales were up 40%, and I get that that's deferred revenues. Can you talk about what's driving that? Is that going to be additive applications or is that the Medical stuff?

Yes. The 40% applies really to our technical software. So the additive manufacturing software. And again, I think there, we definitely had some catch-up operations of people that postponed some purchases during Q2 and Q3.

I guess one more question I'm going to see the floor. So some of the system companies are talking about an upcoming inflection in end part production. And I always view that as good for your Software business. So does this tie into this 40% growth in deferred revs? Do you agree with the comment, Fried, that we're starting to see an uptick in in-product applications?

Yes. Troy, we are -- and we have always been very positive about the future of 3D printing. However, you will -- we can only talk as we have been talking to before about what we call the slower evolution. So the inflection point that is often mentioned is never a sharp inflection. It's a steady -- that steady growth that sometimes accelerates a bit, and I do think we can believe some acceleration will happen, of course, when the economy recovers. But don't let -- don't believe it's going to double at once, because the 3D printing is embedded in such a complex manufacturing and, yes, ecological systems that this is always moving much slower than many people think.

Yes, completely understood you guys. Thank you and good luck in '21 here.

Thank you, Troy.

There are no further question at this time, you may continue.

Thank you, operator, and thank you all once again for joining us on this call. We look forward to continuing our dialog with you through virtual investor conferences or one on one meetings and calls. Obviously, we very much more look forward to meeting you again in-person, hopefully somewhere in the second half of this year. But in the meantime, please feel free to reach out to us if you have any questions. Thank you again and goodbye for now. Bye.

Bye-bye.

This concludes today's conference call. Thank you for participating, you can now disconnect.