Good day and thank you for standing by. Welcome to the Q2 2023 Materialise Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Harriet Fried of LHA. Please go ahead.

Thank you everyone 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 Koen Berges, 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 2023. To access the slides, if you haven’t already done so, please go to the Investor Relations section of the company’s website at www.materialise.com. The earnings press 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 date. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that may impact the company’s future business or financial results can be found in the 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 call. A reconciliation table is contained in the earnings release and also 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. You can find the agenda for our call on Slide 3. As a first item on our agenda, I will summarize the highlights of our financial results for the second quarter of this year, and then I will pass the floor to Fried, who will discuss our investments and a new facility for medical mass customization production in the U.S. After that, Koen will walk you through our second quarter numbers in more detail. As you may recall, couldn't assume the position of our Chief Financial Officer in May of this year. And we've already experienced that he does bring a lot of valuable experience to the role, and as you will notice, he has gotten off to a very quick start. Finally, I will come back to give you some observations about what we currently believe the rest of the year may bring. And as always, and we have completed our prepared remarks, we will be happy to respond to any questions that you may have. So, let's turn to Slide 4, which summarizes the highlights of our financial results. Our operational performance during the second quarter was very much in line with our very solid performance in the previous quarter. In the second quarter of 2023, we recorded €64.8 million in revenues, representing a growth of almost 12% compared to last year's period. Our adjusted EBITDA for the quarter, which was impacted negatively by the unexpected adverse resolution of an arbitration proceeding for a total amount of €5.2 million amounted to €4.8 million, which is still a 12% growth, compared to last year's period. In the absence of this one-time adverse event, our current EBITDA margin of 7.3% would have been 15.3%. As a result of this unexpected event, our net results turned negative to €0.5 million negative or minus €0.01 per share for the period. And with that, I would like to pass the floor to Fried.

Thank you, Peter. Good morning or good afternoon to all of you listening to this call. After these tailwinds that we discussed a quarter ago in our medical business, we faced a serious headwind in Q2 '23 at the EBITDA level. But fundamentally, we confirmed the robustness of our profitable growth in medical devices and software during this quarter. In essence, the medical segment performed at the level of revenue and operational profitability, even stronger in Q2 than in Q1, where we talked about the tailwinds. If we want to ensure profitable growth in the longer term, we need to invest wisely in our medical activities. In the important U.S. market or personalized implants are the major growth driver. Until now, materialized manufactured titanium CMF implants solely at our 3D printing facility in Belgium. This will change when our new production lining limit will become operational this summer. The new facility will not only provide capacity for vertical growth, it'll also improve our service offerings strategically in the United States. With the opening of this 3D printing line, Materialise will accelerate the delivery of patient specific medical implants to patients in the United States. Surgeons are increasingly embracing 3D printing solutions as they recognize the added value these solutions bring to personalized patient care, including a more predictable and accurate surgical outcome and time savings during the survey. At the new production line in our printing facility, materialized, specializes in the 3D printing of personalized titanium cranio-maxillfacial implants for the reconstruction of bone segments. CMF implants are used for facial reconstructive surgery, facial asymmetry resolution, [indiscernible] corrections, as well as general affirmation surgery. With a dedicated 3D printing facility in the U.S., we can respond to surgeons' needs with greater reliability while significantly reducing the delivery time of fully personalized…

Thank you, Fried, and good afternoon or good morning to you all. I'll begin with a brief review of our consolidated revenue on Slide 6. Please note that unless stated otherwise, all comparisons in this call are against our results for the second quarter of 2022. Revenue increased by almost 12% to €64.8 million. The growth took place in all three of our business segments. Our software segment grew by 3.6%, our medical segments by 19.6% and manufacturing revenue increased by 8.5%. The amount of deferred revenues from software, license, and maintenance fees and our balance sheet amount to €41.7 million at the end of June '23, compared to €42.8 million at the end of last year. Over the second quarter of 2023, Materialise software accounted for 17% of our total revenue. Materialise medical for 38%, and Materialise manufacturing for 45%. Cross segment revenue from software products represented 29% of our total revenue. Moving on to Slide 7, you will see that our consolidated adjusted EBITDA grew to €4.8 million compared to €4.3 million for the same period last year, which is an increase of more than 12%. This represents an adjusted EBITDA margin of 7.3%. The increase in adjusted EBITDA follows our top-line growth while we continued investing in R&D which is key to materializes further developments. Importantly, as Peter already mentioned, our adjusted EBITDA includes the negative impact resulting from the unexpected adverse resolution of an arbitration proceeding for €5.2 million in May of this year. Excluding this one-time event, the adjusted EBITDA margin for Q2 would have been 15.3%. Slide 8 summarizes the results of our materialized software segments. Software revenue increased by 3.6% to €11 million driven by increase of 7% of our recurring revenue from maintenance contracts and renew licenses, including our CO-AM subscription fees.…

Thank you, Koen. At the beginning of 2023, we said we expected our full year revenues to be between €255 million and €260 million. After our solid results in the first half of the year. We believe, we are well on track to post full year revenues close to the high end of average. When we reported roughly three months ago our first quarter results in April, we increased the expected range of our year-end EBITDA by 10% to an amount between €28.33million. Today, our strong operational results of the first half of the year allow us to maintain our EBITDA guidance and this despite the €5.2 million adverse arbitration award that we did not expect at the time of our previous call. And with this outlook, I would like to include our prepared remarks. So, operator, please go ahead and open the call to any questions.

Thank you. [Operator Instructions]. And our first question comes from Troy Jensen of Lake Street Capital Markets. Please proceed.

Hi, Johan. Congrats on nice Q2 results here.

Thank you, Tory.

So first, I guess I want to focus on just some of the profit margin stuff here. I mean, 15.3% adjusted EBITDA is at that near, is that record, recent record levels for profitability for you guys?

Yes. Definitely on the high-end, we had previous quarters that were a little bit better, like the first quarter but, it's definitely among the better performances.

And obviously a lot of a strength, and gross margins. So, I guess, question would be on the lines of second half expectations for gross margins, can we stay above this 57% level and then also on EBITDA, adjusted EBITDA? I mean, do you guys think you can run it 15% plus year in the second half?

Well, typically we have some seasonality and the third quarter has been proven consistently a little bit worse in previous years, but yes. Then you also know that the fourth quarter is normally our best quarter. So, over the second half of the year it will be approximately consistent, but with the differentiation between the two quarters.

Great. And congrats guys on this profitability level. I mean, excluding that €0.9 hit, you guys did really good here in Q2, but, other questions I want to hit, I guess on the medical side for you, Fried, CMF, is most of your business titanium and just your thoughts about peak versus titanium in CMF applications?

Well, indeed titanium implants are the major growth driver, although we still have, very considerable part of the cases we support that are done with just the guides and models as well. So, it's not always that the surgeons opt for patient specific implants and patient specific guides and patient specific planning. Also contribute to still a majority of surgeries where no patient specific implants are used. Some of those can indeed be with peak implants as well. In our experience, it's still a minority and we believe that titanium is very competitive.

And even if peak grows, you guys can obviously make peak based CMF parts?

At this moment, we only strongly believe in the added value of titanium.

I see. Okay. All right. That's interesting. I'll switch gears here. I know I'm asking a lot, but, just the 3D software business seems like you guys are kicking butt here and medical and manufacturing 3D was down sequentially. I think deferred risk dropped a little bit sequentially. So, can you just talk about what's going on competitively and link integration or link 3D integration and just when you think we're going to start to get better growth out of the software business?

We face, for our software, a challenging investment climate at the moment. And as far as we can judge, this is not only for us the case. It's even beyond the pure additive manufacturing related software industry software in general. It is facing a difficult investment climate at this very moment. But that doesn't mean that we don't have also some internal transitions that are taking place from our previous model where we sold perpetual licenses to annual licenses and subscription models, which is a transition that for medical software has been ongoing already for five years, and that we more recently intensified for the industrial software business. So, that is also impacting our revenue growth because it yourself perpetual licenses an immediate revenue recognition, while animals are less recognized in the asset revenue. And, but on the other hand, as a more long-term recurring revenue impact. And then finally, yes, we have that transition from engineering tools with magic to the growth that is also coming from AM, which is a more companywide or at least AM facility wide investments that is much more strategic and that we want, but we also experience that those investments are not made lively, especially at this moment in the current investment climate and that is challenging. Of course, we also have to deliver those software and that is also taking longer than delivering an engineering product. So, the combination of all of these factors currently seriously weigh on the growth of the software business.

Got it. Alright, you guys one to keep up to get work and get [indiscernible].

Thank you very much, Troy.

[Operator Instructions]. And our next question comes from Alex Craeymeersch of Kepler Cheuvreux. Please go ahead.

Hi, good morning. Maybe a first question to the new CFO, Koen. I'm just wondering how you're settling in your position and what are your main priorities at the moment and of to the with that.

Thank you, Alexander. It's been a very interesting journey so far for me. I've had a chance in the last two months to meet a lot of people in the business, both in finance and also outside finance, trying to understand the business that we're in and then all the strengths and weaknesses that can be found there. For me, I think, it was very interesting to learn all of these. For me, the key priorities is to continue delivering purely financially a good process of financial results. And that is a process I think that works quite well. I think the challenge for us is like free to already indicated to continue that journey towards, even more recurring revenues especially in our software business, and we're taking further steps also to help support that from a finance point of view.

Yes, thank you. And maybe if I can just elaborate on that recurring revenue side. I saw that the order book deferred revenue has actually decreased versus Q1. Maybe this is normal, but I'm just wondering what was the exact reason for that? If you could explain that please.

It is indeed correct, Alexander, that we saw a temporary decrease of our deferred revenue that we carry on the balance sheet. That is also partly due to timing effects and we noticed that for instance especially also. Last year, we still quite some multi annual licenses in the second quarter. And of course, the differences from annual licenses and then they don't come up for renewal one year later. So that is a trend we of course, we are watching, but that impacts our deferred revenue in the second quarter indeed.

Thank you for that. And then on the manufacturing, very interesting to see the ACTech finally coming up. Just, two questions on that. So, one, what would now be the obstacles for you and your clients to get the manufacturing side more attractive? And that your capacity is actually more filled, so also the margins can get a bit higher. And, yes. And then also on that part, I was just wondering, if you could just maybe elaborate on the difference in costs versus the subcontracting and the in-house manufacturing for the ACTech factory because, you mentioned that in your reports specifically. I was just wondering how much the difference is so we can maybe put an analysis forward.

Yes. Particularly in relation to ACTech we currently face through capacity issues. So, this amount is really higher than what we can deliver. And yes, ACTech is active in the market where cost delivery times are also really important to the kind of ambiguity industries and automotive industries they are supplying. So, that is why we believe that we have serious growth potential on the one hand. And secondly, why it is expensive to subcontract. Because we have to ask our system contractors also to deliver very complex and big components on very short notice. And of course, we also ask some premium prices for this. I cannot give you a very clear indication of how much that difference exactly is simply cost, but we are confident that we can increase our EBITDA margin further with a few percentage points, if we can produce in-house.

But maybe to ask if, what's the goal there in terms of percentage points or at least EBITDA margins for the future?

Like I said, it is really difficult to give an accurate estimate. So, I prefer not to give you a clear indication at this moment because I simply click on.

Hey thank you. And maybe as a final question, I mean, now that we're going in the second half, we're already almost to the end of July. What's your visibility typically at the midpoint of the year towards the second half? And how does that visibility lead you to project your guidance at the moment considering that the last guidance was actually a bit conservative given the 5 million impact?

Yes, but luckily it was sufficiently conservative to completely compensate for that, for us, rather big effect that we experienced with the medication outcome. Now there is a difference, I must admit when you asked me the same question last quarter, I had, I could say that, while there were in the market quite some rumor, not just rumors, but companies that announced the experience, some downturn of the economic environment that we were very positive and we didn't see anything of it in our quotation levels and in the way, the market was demanding services, not us. I must say at this moment, that we see a decline in quotation requests. The effect on our output is still limited, but we must admit that the economic climate for us in particular is a bit more negative. I won't exaggerate it, but it's a bit more negative than it was a quarter ago. So, maybe it has to do with the summer holiday period. But anyhow, it is worse than a quarter ago.

Okay, thank you very much. And again, congratulations on the financial [ph] results. Thank you.

Thank you.

[Operator Instructions]. And I see no further questions. So, I would now like to turn the conference back to Peter Leys for closing remarks.

Thank you, operator, and thanks again to all of you for joining us for our Q2 call today. We, of course, look forward to continuing our dialogue with you through investor conferences, including the Lake Street Conference that we intend to attend in mid-September or in one-on-one virtual meetings or calls. So please reach out to us should you need any further information. Thanks again, and goodbye for now.

Goodbye.

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