Good day and thank you for standing by. Welcome to the Q3 2022 Materialise Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Harriet Fried of LHA. Please go ahead.

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 third quarter of 2022. To access the slides, if you have not already done so, please go to the Investor Relations section of the company’s website. The earnings press release issued earlier today can also be found on that 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 known 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 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 results of the risks and uncertainties and other factors that may impact the company’s future business or financial results can be found in the company’s most recent 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 today’s slide presentation. With that, I’d like to turn the call over to Peter Leys. Please go ahead Peter.

Thank you, Harriet and thank you everyone for joining us today. You can find, as always, the agenda for this call on Slide #3. As a first item on our agenda, I will set the stage by summarying the highlights of our financial results for the past quarter. Then I will pass the floor to Fried, who will walk you through some of our recent business successes and initiatives. After that, Johan will go through our third quarter numbers in more detail. And finally, I will come back to give you some very quick observations about what we currently believe the last few months of the year may bring. And then we have completed our prepared remarks. As always, we will be happy to take and respond to your questions. So, let’s turn to Slide #4, which summarizes the highlights of our financial results. In the third quarter of 2022, we recorded €58.3 million in revenues, representing a growth of almost 12% compared to last year’s period. Also, deferred revenue from maintenance and license fees further increased €3.2 million compared to the end of last year, which was driven by strong sales performances of our Medical segment. Our adjusted EBITDA for the quarter amounted to €5.1 million compared to €9.7 million last year and was impacted by both our continued investment, in particular, in our CO-AM Software Solutions, but also, by inflation-related higher expenses, in particular, revenue ratio costs. Our earnings per share for the quarter were $0.02. And with this, I would like now to pass the floor to Fried. Fried?

Thank you, Peter. Good morning or good afternoon to all of you listening to this call. Even in the current uncertain economic climate, Materialise is consistently boasting double-digit growth and investing in a sustainable future. Materialise Manufacturing posted a 14% growth in Q3 on a business that is going to exceed €100 million this year. This result is a combination of reliable and profitable rapid prototyping activity in a mature market and growth of our certified manufacturing activities in selected vertical segments such as aerospace, netting, alternative drive systems and wearables. In those, we are building on early proven and long-term scalable opportunities for additive manufacturing. In Aerospace, we have been consistently growing our customer base beyond our longstanding relation with Airbus. In last year’s Q3 call, we talked about the Materialise contribution to the eVTOL of Lyft aircraft currently in regular production. A recent project that we can communicate about is shown on Slide 5. It is the production of 60 components per plane in a new series of aerial survivor drones for the company, Atmos. At the beginning of 2022, we indicated we would invest in the future this year and we are doing so consistently. During our Q2 call, we announced the acquisition of a second plant for ACTech. This quarter, we launched a complete new Materialise foot scan suite for Materialise Motion. And this one is illustrated on Slide 6. This is the result of a major product portfolio upgrade a year after integrating RSscan and RSprint into the newly formed Materialise Motion. The new foot scan software is now a CE certified medical device and the Phits Plus insoles for a complete new line of medical-grade personalized insoles that are based on years of scientific research in collaboration with multiple academic institutes to cater specific…

Thank you, Fried. I will begin with a brief review of our consolidated revenue on Slide 7. Please note that unless otherwise stated, all comparisons in this call are against our results for the third quarter of 2022 – ‘21, I apologize. Revenue increased 12% to €58.3 million. The increase took place in all three segments. The growth in – the growth in our Software segment was 4%. Our Medical segment grew by 13% and revenue in manufacturing increased 14%. Importantly, deferred revenues from software license and maintenance fees further increased up €3.2 million compared to the end of last year, further underscoring the strong software sales performance within our Medical segment. For the third quarter of 2022, Materialise Software accounted for 18% of our total revenue, Materialise Medical for 37% and Materialise manufacturing for 45%. 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 2022. Consolidated adjusted EBITDA was €572,000 compared to €9,739,000 for the same period last year. Adjusted EBITDA reflected the negative effect from the investments in our new businesses, Link3D and Identify3D, labor costs and inflation. Slide 9 summarizes the results of our Materialise Software segment. Software revenue increased 3.8% to €1,863,000, supported by 37% of sales from renewed licenses and by usage from deferred revenue. Revenue from non-recurring sales decreased 12%. As mentioned in our Q2 earnings call, it will take some time to convert the positive feedback we’ve received on our CO-AM platform and applications into significant sales growth. We expect to see this growth only in the midterm because of the introduction time required and because of the nature of the cloud solutions we offer. In fact, in the beginning, the typical cloud pricing…

Thank you, Johan. Before opening the floor for questions, I would just like to confirm that the consolidation of Identify3D in our numbers as of September 1, 2022, will not impact the financial guidance that we have provided earlier for the entire year. In other words, we expect our revenues to increase by at least 10% compared to last year, and we expect to post a full year adjusted EBITDA this year between €20 million and €25 million. This concludes our prepared remarks, operator. So, we are now ready to open the call to questions.

Thank you. [Operator Instructions] Our first question comes from Jacob Stephan from Lake Street Capital. Please go ahead.

Hey, thank you for taking my questions. Congrats on the great results. Maybe looking at the medical software side, was that primarily from a single customer or is that just broad strength across the healthcare industry?

I want to say it’s absolutely a growth broader industry, covering multiple medical segments like orthopedics, cardiovascular enology and craniomaxillofacial segments.

Okay. And have you started to see any early indications that sales cycles on software are lengthening just given the environment that we’re entering.

As our numbers show, not on the medical side, but we do see, yes, weaker investments happening on the industrial side.

Okay. And maybe just on the inflationary kind of costs. Have you been able to pass any of the subcontractor kind of increased wages or materials prices on to your customers at all? And kind of what have you guys been doing around that?

Well, we absolutely are doing so. Well, for some of our short-term activities, for instance, in the rapid prototyping, we can adjust our price levels, I would say, on a daily basis. But that’s not really happening. It’s rather on a regular basis, monthly or so. However, for all of the bigger contracts, we normally include indexation clauses that happen only once a year. And for instance, the very big medical contracts, they are typically once a year adjusted in function of price indexes.

Okay, that was helpful. I will take rest of my question offline. Thanks.

Okay. Thank you.

Thank you. Our next question comes from Noelle Dilts with Stifel.

Hi. Thanks for taking my questions and perhaps on the good results. First, I was just hoping you could comment on just how you are thinking about some of the risks that are out there, obviously, a lot of concern around what might happen with energy in Europe. Can you just give us some thoughts on how you are thinking about maybe even as you are looking out into ‘23, how you are thinking about some of those risks and where you think your business will be more resilient and less resilient in potentially – in a weaker economy? Thanks.

I would like to say that we believe we will show resilience because in a more difficult supply chain economy, we are seeing increasing evidence that, people turn more and more to additive manufacturing. So, while there may be recession, we still believe that the additive manufacturing or the 3D printing industry is going to grow also in the coming year or years. That’s the first fundamental we have to – we believe we will be able to benefit from. Secondly, Materialise has been attaching a big value to sustainability. And as a consequence, we have in the previous years already shifted to renewable electricity contracts which will also help us in the future to moderate the impact of increasing energy prices, be it that it will not totally offset the overall market dynamics.

Okay. Great. That’s very helpful. And then could you just expand upon on the labor front on the talent front. How are you – what are you seeing in terms of finding the people that you need and retaining folks. Could you just comment on that? Thanks.

Yes. Noelle, what we can – what we have been doing in the past there and something that is something that we are really benefiting from now is we have talent centers and competence centers across the globe. We source our talent in Western Europe, but also in Eastern Europe, including Kyiv actually we continue to hire in Kyiv. But we also have very important talent centers, as you know, in the East and in the U.S., both in North America, but also in South America and Colombia. In the East, we have an increasing talent pool in Kuala Lumpur. And here in Europe, we do not only source our people at HQ, but we are also actively looking for talent and finding talent in important countries like Germany and also the – we are moving to the south countries like Spain and the like. So, by – now by having this broad pool, global pool of places where we could actually source the land and where we already have people that are present on the market and can actively talk to new recruits. We think that we can tackle the issue of the workforce, albeit that even with this broad reach for talent that we have, it remains a difficult market and pressure on remuneration, obviously, as we have explained earlier, it is there and it’s probably going to be still there in the coming quarters.

Okay. Thanks very much. Appreciate it.

Sure.

[Operator Instructions] Our next question comes from Alexander Craeymeersch of Kepler Cheuvreux. Please go ahead.

Yes. Hello. Alexander from Kepler. I was just wondering if you could just give us some more granularity on what exactly was the impact of the raw mat and wage inflation and then also the higher investment costs from the Link3D and the Identify3D. I was just wondering that because especially in the Software segment is difficult to split out these effects. And then a second question on the medical contracts. So, you say that you adjust once a year. I was just wondering what the timing exactly or what’s the bulk of the contract timing? And does it also adjusted wage inflation next year, because if I remember it correctly, you have a large wage in Belgium. So, I guess that there it will be indexed to inflation. Just wondering that, I will start with that.

Alex, let me answer to the – your second question first, and then we will go back to the first one and just also make sure that we fully understood. The indication clauses on the large medical contracts, they will take – they typically take place at the end of the year. So, that is something that will be coming soon. In other words, in this year, we have not been able to fully recover our increased inflated costs in these large contracts with our larger medical device partners. The contracts have been dropped in a very standard and very straightforward way, referring to the Belgian index. So, that will allow us to recover quite a bit of the inflated also inflated remuneration costs, including as a result of the automatic indication of remuneration costs in Belgium, which is a unique feature that I am sure you are very much aware of. With respect to your first question, Alexander, we may – I may not have taken note of all the parts of your question, but you were asking to what extent Link3D and Identif3D are – have an impact on increased costs. Is that correct?

Yes. So, basically, you have your R&D went up with $3 million approximately. Then you also have like the marketing expense that went up with $3 million. I was just wondering how much is that related to inflation? How much is that related to an increase [ph] of higher investments due to Link3D, etcetera. So, if there would be a split. I mean I know the wage is, of course, around 10% or 7%, but I am just wondering how much is this exactly?

It’s hard to give you an exact number. But if you look at the variance compared to last year’s quarter, you see the difference in EBITDA. Half of that is due to the higher investment and half of – the rest is because of the cost increase of the inflation that could not immediately be calculated to certain customers.

Okay. And could you maybe give us then on Link3D and Identify3D specifically a bit of granularity?

But that’s effectively what I am saying. So, the difference between the EBITDA of Q3 ‘21 and Q3 ‘22, half of the difference is due to the investments in Link3D and Identify3D. The vast majority…

Okay. Alright. That’s perfect. And then just one final question. So, I remember a couple of calls ago, you mentioned that you were – that you would go back in the Software segment to an EBITDA margin of 30% to 35% by the end of next year. Are you still confident you will reach that level, or do we have to take that a bit on the weakness that we have seen recently. Yes, just a question, is that still maintainable in this high inflationary environment?

Alexander just refer to my previous response, which as I have said that we are investing a lot in the new businesses Link3D and Identify3D that are part of the Software segment. So, as I mentioned also in the prepared remarks, it will not come immediately on the short-term, all the large profits from this new business. It will take a little bit more time.

Okay. Alright. Thank you for that. That’s all for me.

Thank you, Alexander.

Thank you. I am seeing no further questions. I would now like to turn it back to management for closing remarks. End of Q&A:

Thank you, operator. And again, thank you all for joining us on the call today. We obviously look forward to seeing some of you at Formnext and to continuing our dialogue with all of you through investor conferences or through one-on-one virtual meetings or calls. So, if you have any questions, please feel free to reach out. Thank you again and goodbye for now.

Goodbye.

Bye.

Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.