Good day. Thank you for standing by. And welcome to the Q3 2021 Materialise Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. Harriet Fried of LHA. The floor is yours.

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 strategic, financial and operational performance for the second quarter of 2021. To access the slides if you have not already done so, please go to the Investor Relations section of the company's Web site at www.materialise.com. The earnings release issued earlier today can also be found there. 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 activity, 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 may impact the company's future business or financial results can be found in its most recent annual report on Form 20-F filed with the SEC. Finally, management will discuss certain non-IFRS measures on today's call. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With that introduction, I'd like to turn the call over to Peter Leys. Go ahead please, Peter?

Thank you, Harriet. Harriet, before addressing the agenda of today’s call, I would like to add just a small additional paragraph to the Safe Harbor language that you have as always read so eloquently. Fried, Johan and myself are today just the messengers of the excellent results that we have the honor to report to you today. The true heroes of our third quarter, the only ones responsible for the results, are our 2,200 plus collaborators, and at the risk of spoiling the fun of the rest of this call, we would like to thank and congratulate each and every one of them for the record results, both at the top and at the bottom line that they have achieved during this quarter. With that little additional message, I would now like to turn to Slide three, which as always, holds the agenda for today’s call. And as the first item, I will summarize with great pleasure the highlights of our financial results for the third quarter. Then, I will pass the floor to Fried who will provide some insights into how we are creating value, both for our customers and for our company in Materialise manufacturing. After that, Johan will walk you, as always, through our third quarter numbers in much more detail. And finally, I will come back to give you some observations about what we currently believe the rest of 2021 will bring. And when we have completed our prepared remarks, we will then of course open the call for any questions that you may have. So let's start with Slide four, the highlights. In the third quarter of 2021, Materialise posted all time quarterly records, both in terms of revenues and in terms of earnings, driven by a double digit growth in each of our segments.…

Thank you, Peter. Good morning or good afternoon to all of you listening to this call. Let me go back to the roots of Materialise. Our mission to enable a better and healthier world based on our deep competences in heart and software for additive manufacturing. From the very beginning of the industry when it was still called stereolithography or rapid prototyping or free form fabrication or any other name that was given to a subset of technologies that we call today additive manufacturing or 3D printing, it was our conviction that the key for successful adoption of the technology did not exclusively lay in the development of a successful machine or a software, but in the smart use of the technology to enable meaningful applications. At Materialise, we have constantly focused on enabling these meaningful applications, because these are the applications that create most added value and it’s our strong belief that we have to create is better and healthier world by creating and value for our customers, and that we can do well as a company by enjoying our fair share the added value that we co-create with our customers. Since COVID, our medical business has been demonstrating on a quarterly basis that the medical devices that Materialise pioneers to help individual patients with customized solutions can generate solid growth and healthy margin. Our manufacturing segment has been suffering much longer from COVID. Today, we see that as the market rebounds, we are also able to generate healthy numbers in the manufacturing segment. This is largely due to the transition of our manufacturing segments towards more and more certified manufacturing projects, and this despite the continuing weakness in automotive and aerospace markets. In the past quarter, the revenue decrease that we still have in the plastic automotive prototyping…

Thank you, Fried. I'll begin with a brief review of our consolidated revenue on Slide 7. As a reminder, when we refer to sales in our presentation, we mean revenues plus deferred revenues. Also, please note that unless otherwise stated, comparisons in this call are against our results for the third quarter of 2020. Revenue was EUR52.2 million for the quarter, 28% above the level over the same period last year. The growth took place in all 3 segments, our software and medical segments grew by 10%, our revenue in manufacturing bounced back by 61%. Deferred revenues from software license and maintenance fees increased by EUR0.5 million compared to the end of last year. For the third quarter of 2021, Materialise software accounted for 20% of our total revenue, Materialise manufacturing for 36% and Materialise manufacturing or 44%. Cross-segment revenue from software products represented 31% of our total revenue. Moving to Slide 8. You will see our consolidated adjusted EBITDA numbers for the third quarter of 2021. Consolidated adjusted EBITDA grew to a new quarterly record of EUR9,739,000 from EUR6 million last year. Our revenue grew 28%, EBITDA grew 62%. This increase was a result of a variety of positive factors. Our strong revenue growth and improved gross margin triggered by increased in-sourcing and continuous productivity improvements and disciplined spending, in particular with respect to overhead. Importantly, the increase of our EBITDA did not come at the expense of our R&D spending, which actually increased by 13% compared to last year. In addition, the initiatives we previously described to enhance our internal business application platform continued and are on track. Slide 9 summarizes the results of our Materialise software segment. Software revenue increased 10.4% to EUR10,468,000. But recurrence revenue was flat, non-recurring revenue grew 33.6%, driven by new perpetual license…

Thank you, Johan. Now if you could please turn to Slide 14. Before opening the floor to questions, we want to give you some insights into what we currently believe the remainder of 2021 will bring. Based on what we know today, we have comfort that our consolidated revenues for 2021 will be closer to the higher end of the EUR197 million to EUR200 million range that we provided during last quarter's earnings announcement. We intend to gradually increase our operational expenses with a view to boosting our growth initiatives. But we expect that these accelerated efforts will impact our 2022 results much more than this year's results. Therefore, for 2021, we are increasing our adjusted EBITDA guidance by EUR3 million to up to EUR28 million. With that positive note, I would like to conclude our prepared remarks. So operator, please go ahead and open the call to questions. Thank you.

[Operator Instructions] Your first question comes from the line of Devin Au from KeyBanc Capital Markets.

This is Devin on for Jason. Just first one I have is, you mentioned automotive market was still relatively unstable due to supply chain disruptions last quarter. Have you seen any sort of signs of improvements from that market? And are there other markets that you're also experiencing supply chain interruptions?

I mentioned the weakness of the automotive market, definitely in Europe, but we hear that it's also the case in other continents. And we expect this to continue this entire year at this moment. For Materialise, there is also a serious impact of the -- yes, airliner market that is still weak at the level, the rate at which new aircrafts are being constructed by the major companies such as Boeing and Airbus. But these are the two segments where we experience difficulties and the remainder of our activities is in segments where, at least for us, the impact of the supply chain disruption is quite limited.

And just one more for me. On the medical segment, good quarter, you're growing 8% sequentially. I just want to ask what kind of drove that growth there? Have you worked through all the pent-up demand and should we expect kind of like a more normalized level of demand going forward for that segment?

As you noticed, the software grew by 15% in our medical segment. So that is not pent-up demand that is actually just a continuation of the solid growth that the segment in general, and that particular subsegment of our medical segment has been showing over the last, I would say, four to eight quarters. And in our devices activity, I think the growth was between 8% and 9%. And there, I think it's more and more structural growth rather than recovering pent-up demand. I mean, the hard quarter was the second quarter of last year. Now we're reporting already on the third quarter of 2021. So there's still some pent-up demand, but I mean, these numbers basically also show a continued structural strength and growth within that segment.

Your next question comes from the line of Noelle Dilts from Stifel.

So my first question just relates to guidance. And I understand there's a lot of kind of puts or takes in terms of one-time items in the quarter and what we just talked about in terms of some of the trends in the market, but it does seem like historically, your fourth quarter is meaningfully stronger than your third quarter, which would kind of get you above the high end of the EUR200 million guidance that you're talking about. And also kind of your EBITDA guidance suggests a step down in margins is pretty substantial. So I just want to make sure I understand all of the elements there and/or maybe you could comment on to what degree you might be being a little bit conservative given the overall prevailing kind of economic uncertainty?

It's a combination. Yes, there is still some economic uncertainty that we definitely want to factor in to -- in our vision into the future. On the other hand, what we have been trying to do year after year, and what we continue to do is, give guidance over a full year period. And we know that in a full year period, there will be quarters and sometimes there are months that are stronger than expected. And quite often, then there's also a quarter or a month that is just, for whatever reason, weaker than expected. But overall, we have learned. We have a very good grip on where we think we will land on a one year's basis. Obviously, it's comfortable if you have a good third quarter that takes some pressure away from the fourth quarter. But again, you're right. If you have a record quarter and to some extent, I think it's basically driven by an excellent recovery and by the strength of our products by the markets, but it's also partially driven because some deals that may be able to follow in Q4, now have followed in Q3. Hence, our comfort that we will be at the high end of the range in terms of revenues, but not sufficient comfort to suddenly based on one record quarter, go beyond the guidance on revenues that we had given for the entire year. On EBITDA, Noelle, as the crisis is gradually subsiding, as we also explained, we are increasing our efforts, in particular, in the field of our growth initiatives that also implies that you try to hire the right people, and that typically impacts more the next quarter than the quarter where you start hiring. So as we are recovering in terms of revenues, we are also more and more trying to make sure that we have the right people in place to boost the growth of our growth initiatives. And as you hire people, those people will have less impact on the quarter when you hire them, and they will have a bigger impact on the subsequent quarters. So hence, also, I think, a strong message, increasing a guidance on EBITDA by more than 10%, I think, is a strong sign of comfort. But we want to make sure that everybody remains realistic. This is a company that wants to continue to combine strong results with smart investments in the future. Hence, the EBITDA guidance of up to EUR28 million for the full year.

Just wanted to make sure we all understood that. And second, could you just give us a bit of an update on some of your key strategic priorities. Maybe if you could just touch on some of the investments that you're making in growth verticals, perhaps, CMS, and footwear and eyewear, if you can kind of give us a sense of where those stand and where you're seeing traction heading into 2022?

Well, let me start by saying that we have reported growth in all three of them. And CMS is, of course, the bulk of our devices business in medical, and it's definitely the growth engine of the medical devices business, where we anticipate to continue the growth into next year. And yes, the same is true for our footwear and eyewear initiatives. Our Materialise motion business in footwear has a very heavy investment schedule in front of it that will enable the release of several new products and even product categories next year that should ensure serious long-term growth. In eyewear, we want to be open that we closed the Ditto investment on favorable financial terms, but it's a drawback for the digital side of the eyewear developments we had in mind. So we are, at this moment, a little bit more cautious with the growth expectations of our eyewear at this very moment.

Next question is from Troy Jensen from Lake Street Capital.

Gentlemen, I'd also like to say congratulations. I'd just say gross margins, operating margins, everything looks spectacular this quarter with the exception of maybe the guidance, but I'll take the over on that, Peter. But congrats, gentlemen.

Yes.

So quickly, just on eyewear and footwear, and thank you for the update on the eyewear, Fried, but do those segments run through medical sales…

No.

Or will they?

They are reported in manufacturing.

And that's to really -- I know manufacturing had a huge quarter that wasn't really anything to do with eyewear and footwear that was to really just manufacturing, correct?

Eyewear and footwear have performed very well, are parts of manufacturing, but the real growth engine for the third quarter was our end part additive manufacturing business within the entire segment, not the prototypic part. The other parts performed well, but that's the engine for the growth in this year.

So Peter, I'd like to talk a little bit more about just manufacturing visibility. I guess, it's my belief that with all these supply chain constraints that manufacturers around the globe read are just going to local machine shops and additive service bureaus and trying to get parts, right, to kind of fill up some or bridge some of these supply constraints. So it's definitely been a short term benefit. I'm wondering, are you seeing more production applications? Are you seeing more conviction on this extending into long-term benefits? And then, I brought this up last quarter, too, and just would love to hear your thoughts if it's changed on Materialise being a broader digital manufacturing company. You guys incubate new technologies in new areas, and this seems like something that would be right up your wheelhouse, but go ahead.

I find this a very good question. And that is why I stressed, in my part of the presentation, so much the focus of Materialise on specific, what we call, meaningful applications, where we are not just jumping into temporary opportunities, but we are trying to focus on, yes, applications on environments, where we can sustainably produce parts that preferably cannot be produced by any other technology. And these are also not just parts that have been in the past produced in Asian countries in classical supply chains. No, these are parts that are -- yes, working on new, I could call it, product categories. And I gave the explicit example of the eVTOL. It's a new breed of vehicles that is expected to be a growing market, really a market of the future and a new mode of mobility that we will see appearing and the unique benefits of additive manufacturing are really crucial to build reliable systems that are so light they can take up passengers only with electric energy. And that is the kind of markets where we really fundamentally believe in. So I would say maybe some companies take advantage of those short-term supply chain disruptions, but I dare to say that it's not at all the case in the revenue that Materialise is reporting.

How about just one for Jonah? Gross margins, I mean, they're huge this quarter, right. Even if you guided to like a flattish revenue level, in the December quarter, would gross margins be flat? And I just wondered what you think just maybe, what, '22 gross margins or just how they're trending? Whether they continue to go higher now with better economies of scale? Or is this just an anomaly we're seeing?

Gross margins, as mentioned in our prepared remarks, the revenue grow. We have a better capacity usage, so our fixed costs are set off against a higher level of revenue. We have improvements by insourcing certain lines or activities in the production that we used to outsource. Of course, that will stay. And as the revenue will grow -- and we also have other production efficiency that we are realizing by further optimizing our technology. And, of course, we counted that will stay so. So it will also depend on the product mix on a quarterly basis. But the trend is that the margins will stay and will gradually further increase. But that depends also on the pricing, but let's say that it will not go down.

It sounds like it's all good news over there. So congrats, guys. Keep up the good work.

Yes. Hence, the guidance to bring some balance into it all.

[Operator Instructions] Your next question comes from the line of Gregory Ramirez from Bryan Garnier.

Two, if I may. The first one, just to come back to the guidance, do you confirm that the updated guidance on revenues exclude Link3D, that you consider that the option has not been exercised yet in the guidance? And my second question is to come back to the previous question regarding the gross margin. When we look at the outstanding margin on the manufacturing division, with EUR19.3 million operating expenses, it's, say around, roughly EUR2 million or less than two years ago on a quarterly basis. Obviously, can imagine that you have some better utilization of the printers, so obviously, that takes a positive role in the improvement. But do you think that our current capacity utilization, this level of cost is sustainable or will you have to invest in new printers, hire more people? That way, is 15.5% quarterly margin on manufacturing is not sustainable?

I will give you comfort on your first question, it's very short. The option has not yet been exercised. So there's no revenue whatsoever of Link3D in the numbers that we have presented earlier. And for the second part of the question, I will hand the floor to Fried.

Gregory, regarding the gross margin of manufacturing, I want to say, on one hand, that we have always indicated that manufacturing is a more cyclic business. So we have the advantage now to be in a more positive area of the cycle, and that helps, of course, with the margin. On the other hand, I want to stress that it's not the aim of Materialise to overinvest in capacity because we have always seen that we need to focus our manufacturing to the high-end applications of 3D printing. And rather than filling it with volume, we prefer to go for and I can frame this again in meaningful applications. Those applications where we believe that serious value can be made. So there is no plan to expand the capacity in a big way. I do want to say that our metal activities are still in a growth mode and that we are going to expand that capacity in the future because we just have opened a new plant earlier this year in Bremen. And in this plant, we will add gradually some extra machines in the coming years.

Maybe I didn't answer your question in full, Gregory, but also the guidance does not include any revenue from Link3D.

That ends our question-and-answer session. I'll turn the call back over to Peter for closing remarks.

Thank you so much, operator, and thank you, again, all for joining us today and for engaging in this interesting discussion. We hope to see some of you, obviously, at Formnext, just a couple of weeks from now. And in the meantime, if you have any other questions, please feel free to reach out. Thank you, again, and goodbye for now. Bye.

That concludes today's conference call. Thank you all for participating. You may now disconnect.