Materialise N.V. (MTLS) Q4 2020 Earnings Report, Transcript and Summary

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 in the next decade of 3D printing that starts now. Let me demonstrate this with our segment strategies in more detail. Our Medical segment has demonstrated its flexibility and innovation by the superfast development of several products in the early days of the pandemic when supply chains were at the peak of the problems. Simultaneously, our team released several new software products that expanded our legacy mimics innovation suite and hospital-based point-of-care 3D printing solutions. These proved to be a major tool for some hospitals deprived of normal supply. These new releases also position materialize well for growth in the cardiovascular market. We showed our passion for personalized medical products when hospitals could reopen their elective care activities with accelerated deliveries and did not let down the surgeons and our medical device company partners when their planning of interventions was extremely difficult. All in all this resulted in a year-over-year growth for our Medical segment despite the severe economic difficulties for hospitals and related companies in fields that could not be directly linked to the pandemic. As we all expect that the medical sector will quickly return to serving all kinds of medical needs as soon as COVID-19 is under control. We believe that the experience of 2020 will spur elective cases to be the first time right as much as possible and well-planned of course for each person or patient. This is exactly where materialized medical excels. Now moving to our Manufacturing segment, it has been the one most severely hit during 2020 especially due to its exposure to the aerospace and automotive sectors. The COVID-19 crisis in those sectors cannot be seen independent of the long-term climate crisis which is driving an unprecedented change in both sectors. This is a threat and opportunity at the same time. The strategic actions that we started already before and as we even accelerated during 2020 are two-folds. First, people have materialized belief in empowering sustainability and we hate waste. That is why we believe we are well placed to serve the needs of the future in aerospace and automotive. We can provide services in which energy and materials consumption are minimized and we can enable our customers to do the same. For instance lightweight rocket fit fixtures that are reusable cater the needs of the electric car manufacturing. Rapidfit saw historically high order intakes at the end of 2020. Second, the footwear and eyewear activities in our Manufacturing segment have demonstrated much more resilience in 2020 and this is where we made the most important strategic investments in Q3 and Q4 as we explained in our investor call in November. Both for eyewear and insoles there are millions of consumers that need the right personalized solutions and additive manufacturing has the functionality and economics to deliver this. Materialise passion for personalization made us develop not only the products and processes for the 3D printing of those products but also the entire software backbone that allows us to create and harvest value from the moment of data capturing at the point of sale with an optician or pathologist up to delivery of the final product and the house of the customer. We believe we can grow our own products in those sizeable markets during the next decade substantially. Last but not least 2020 has also been a year in visual transformation within our Software segment accelerate. One can see the Software segment as the one through which the accumulated know-how of 30 years of Materialise additive manufacturing knowledge is shared with the additive manufacturing users worldwide. It is obvious that the COVID-19 crisis has accelerated the digitization in general and cloud-based services in particular. Companies preferred in-house solutions such as those offered by the standard [indiscernible] or streaming suites and they still rely on them to-date. This is demonstrated by the growth of our recurring revenue on annual basis that our CFO will explain later in this call. There is, however, a growing interest in cloud-based solutions often as a service rather than a product for scalability reasons. For instance, all our medical OEM partners are taking advantage of the cloud-based services Materialise provides. That is why previously we have started already a complete redesign of the legacy materialized software kernel into APIs and take full advantage of the best scalability and security options that cloud technology has to offer. During 2020, we came close to a full transformation of our software technology base in cloud compatible APIs that are ideal building blocks for the future not only to run the old functionalities in the cloud but also as a base for reliable workflow automation which many additive manufacturing applications are waiting for. As a result of the transformation during the launch of the Materialise thinking series in mid-November we could announce several new products for this year 2021. Magics storefront is a full e-commerce and CRM solution in one platform. The new process tuner is an intuitive online platform that helps speed up the optimization of process parameters that is required for mass market and mass manufacturing of 3D printed parts. Both are examples of a new generation of cloud-based services that are fundamentally based on a comprehensive Magics cloud platform we are rolling out. Through these steps we have ensured that existing and new Materialise customers have access to the most comprehensive body of additive manufacturing intelligence available through software algorithms and data. In the new normal as we expect soon after the vaccines have beaten COVID-19 we are strongly convinced those will be very successful. Johan, up to you?

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%. Slide 7 summarizes the results of our Materialise Software segment. The revenue was 15.7% below last year's quarter. The current revenue grew 3.5% from last year benefiting from a strong increase of renewed license sales. Only current revenue decreased 31%, on a sequential basis however compared to the third quarter of 2020 a Materialise Software revenue increased 7.8% and the sales even increased 40 %, 4-0 including the effect of deferred revenue of €2.3 million. The significant sequential growth of our software sales of 40% was boosted by an increase of direct sales of 48% while OEM sales rose 9%. EBITDA amounted to €3.9 million compared to €5 million. The EBITDA margin remains strong at 37.9% compared to €41.5. In fact, while revenue decreased €1.9 million cost containment manages in SG&A amounted to €0.9 million while R&D efforts increased. For the full year the EBITDA margin increased 1.1% to 34% and this in the light of a decreased revenue of 6% over the full year. Moving now to Slide 8, you will see that total revenue in our Materialise Medical segment was €17.2 million matching both the quarterly record revenues of Q4, 2019 and also the solid performance of Q3, 2020. We are particularly proud of the Materialise Medical full result that in the midst of the pandemic still represented an increase of 1.5% compared to an already very strong 2019. Revenue from our Medical device solutions remains strong. At December 1 2020 Materialise acquired the remaining 25% shares of Engimplan from the founding family in exchange for Engimplan's spinal implant business line which was non-strategic for Materialise. Since that date Engimplan is a 100% Materialise company with a very targeted focus on our CMF business. Because the pandemic in Brazil delays the rollout of our business plan in that region including the introduction of 3D printers devices we impaired €2.5 million of goodwill and intangibles related to the Engimplan acquisition of 2019. Revenue from Medical Software sales accounted for 30% of the segment revenue. In the last quarter of 2020 our medical software sales match the quarterly records of both fourth quarter of 2019 out of the third quarter of 2020. Moreover medical software sales excluding the impact of deferred revenues increased by an impressive 40% compared to Q3, 2020. While revenue was flat adjusted EBITDA increased 28% to €4.8 million from €3.5 million. We succeeded in reducing operating expenses by €2.4 million while the segment increased its R&D program efforts by 11% on a comparable basis in line with our strategy. This quarter we impaired the capitalized expenditures on our balance sheet of €2.1 million related to tracheal splint development program. A couple of setbacks were affecting our expectations related to the timing of start of commercialization creating a longer period of uncertainty and leading to this impairment. We currently still believe in the successful outcome of the program and of the associated business case. So we plan to continue this R&D program in full. As of Q4, 2020 our R&D expenses related to the program are reported now in our income statement. Now let's turn to Slide 9 for an overview of the Q4 performance of our Materialise Manufacturing segment. This quarter, Manufacturing revenue included two months of activities from a newly acquired RS Print and RS Scan Footwear business line. The revenue represented €762,000 in the fourth quarter. This revenue, yes. Total revenue decreased by 16%, mainly due to our ACTech business. Our traditional 3D printing-related manufacturing business lines recovered well and came close to the revenue of Q4 2019. Compared to Q3 2020, total manufacturing increased 26% or 21% if you exclude RS Print footwear. But including already a double-digit growth in ACTech as well. Despite the mitigating effects of lower variable expenditures and labor cost reduction efforts, gross profit of Materialise Manufacturing was still negatively affected because of the fixed cost of underused capacity. Savings measures resulted in a decrease of operating expenses of 13% or almost €800,000. As a combined result, adjusted EBITDA decreased €0.7 million to €1.1 million while the EBITDA margin was 6.1%, which is, all-in-all, not that far from last year's 8.3%. Slide 10 provides the highlights of our income statement for the fourth quarter. Revenue decreased €5.4 million or 10.7% and gross profit decreased €2.4 million or 8.4%. Gross profit was negatively affected by the cost of capacity in our manufacturing business lines, but positively impacted by efficiency gains and the growing software and services portion in our revenue sales mix. As a result, gross profit margin increased to 57.8% compared to 56.4%. While revenue fell 11%, our sales and marketing spending decreased 23%. G&A expenditures increased 12%, an increase entirely due to the rollout of the ongoing internal digital transformation project that we discussed in our last earnings call. Excluding the impairment cost of our tracheal splint program, research and development expenses increased 11% this quarter, in line with our stated strategy. This quarter's net operating expenses were €0.3 million, and included the €2.5 million impairment cost of goodwill and intangibles and a positive revaluation of €0.8 million on our initial 50% interest in RS Print. Last year, net other operating income was €1.4 million. As a result of these elements, the group's operating result was negative €2 million compared to a profit of €2.5 million in last year's period. Net financial cost was €600,000 at the same level as last year. Income tax expense amounted to an income of €0.5 million, mainly due a new German tax law enabling tax carry back on 2019 taxes. Net loss for the fourth quarter was €2.118 million compared to a net profit of €1.2 million through the 2019 period. Now please turn to Slide 11 for a recap of balance sheet and cash flow highlights. In this fourth quarter, our balance sheet remained strong, as both Peter and Fried pointed out earlier. Cash amounted to €111.5 million compared to €128.9 million at December 31, 2019. But over the same period, our borrowings decreased by €13 million to €115 million, only €17.2 million of our debt is short-term at December 31. Equity decreased almost €10 million to €133 million as a combined effect of the year-to-date net loss of €7 million, negative conversion differences of €6 million and income from the exercise of stock options for €4 million. Of the negative €6 million conversion differences, €4.6 million reflects the effect of the weakened Brazilian real on Engimplan's equity position. Total deferred revenue amounted to €34.9 million as compared to €32.7 million as of end 2019. Of the €34.9 million, €13.2 million were related to annual software sales and maintenance contracts versus €27.7 million as of December 31, 2019. Cash flow from operating activities for the fourth quarter of 2020 increased €9.5 million to €15.2 million from €5.7 million for the 2019 period. Main contributors to the strong operating cash flow with the EBITDA performance, a further improvement of our working capital of €3.8 million and deferred revenue of €3.5 million. Full year operating cash flow amounted to €30 million compared to €28.4 million last year. Our days of sales outstanding position even improved from the past quarters, and our customers have not shown any material payment difficulties. During the quarter, we paid €8 million for the acquisition of RS Print, including the acquisition of the assets of RS Scan. Capital expenditures for the quarter amounted to €3.7 million and were not financed. This quarter's CapEx included a €0.3 million investment related to our ambitious internal digital transformation project, and that besides the €900,000 expenditures reported under G&A in our income statement. Peter?

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.