Good day and thank you for standing by. Welcome to Q4 2023 Materialise Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like now to turn the conference over to our first speaker today, let me please introduce 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 Brigitte de Vet, Chief Executive Officer; 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 fourth quarter of 2023, as well as the year 2023 as a whole. To access the slides, if you have not done so already, 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 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 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 presentation. And now, I’d like to turn the call over to Brigitte de Vet. Brigitte?

Good morning and good afternoon, and thank you everyone for joining us today. I’m very pleased to present our quarter four and full year 2023 results today. You can find the agenda for our call on slide three. Now, as you know, I took over the role of the CEO of Materialise on January 1st. So before we go into the official agenda, I actually will start sharing my first observations six weeks into this role. I will then summarize the highlights of our financial results for the fourth quarter and the full year 2023 and I will dive deeper into some key achievements we realized in the past year. Then I will pass the floor to Koen, who will go in more detail through our fourth quarter numbers. Finally, I will come back and explain what we expect 2024 to bring. When we’ve completed our prepared remarks, we’d be happy to respond to questions. So to start with, over the last couple of weeks, I’ve spent a lot of time listening and learning from customers, partners, industry stakeholders and our employees at Materialise. First, let me reflect on what I heard about the market for additives manufacturing. As you know, 2023, and in particular Q4, has been a challenging year for many players in this market. Rising geopolitical instability in combination with increased economic uncertainties and high interest rates made companies more hesitant to invest in new technologies, while R&D efforts were often also reduced, resulting in less prototyping demand. That being said, the fundamentals of the market are sound, driven by the demand for flexible, sustainable and cost-effective production methods. AM is the go-to technology for prototyping and this market is very mature. At the same time, the shift from prototyping to end-use product is well underway and…

Thank you, Brigitte. I’ll begin with a brief review of our consolidated revenue on slide six. As a reminder, please note that unless otherwise stated, I will discuss fourth quarter and full year 2023 results to comparable periods of 2022. In the last quarter of the year, we increased our revenue by 4.1% to €65.3 million. Less favorable market conditions continued and mainly impacted our Manufacturing segment and to a lesser extent also our Software segment, resulting in a revenue decrease of 2% and 4%, respectively. Materialise Medical, on the other hand, continued to grow by double digits and increased its revenue by 15%. Materialise Software accounted for 17% of our total revenue, Materialise Manufacturing for 40% and Materialise Medical for 43%. Deferred revenues from Software maintenance and license fees grew again in the last quarter of 2023 by €4.8 million, bringing the total amount carried on our balance sheet to €44.9 million at the end of the year. For a full year, our revenue grew to €256.1 million, representing an increase of 10.4% compared to 2022. We saw growth in all three of our business segments during the year, with largest growth coming from Medical, which posted a 20% year-on-year growth rate. Our Manufacturing segment grew its revenue by almost 7% and software by 2%. Moving now on to slide seven, you will see our consolidated adjusted EBITDA numbers for the fourth quarter, as well as for the full year. Consolidated adjusted EBITDA for the fourth quarter amounted to €8.5 million, doubling from the €4.3 million in 2022. Our adjusted EBITDA margin reached 13%, compared to 6.8% the prior year. Full year adjusted EBITDA ended at €31.4 million, compared to €19 million in 2022, representing an increase of 65%. Our adjusted EBITDA margin for the full year reached 12.3%,…

Thank you, Koen. Now let’s turn to page 13 to take a look at the outlook for 2024. In 2024, we expect the uncertain macroeconomic and geopolitical environment to continue, at least for a large part of the year. In this environment, it remains important that we stay focused on our key priorities. First of all, it is critical that we maintain the momentum in our Medical segment through continued product innovation and leveraging our manufacturing facility in the U.S. to deliver cases with shorter lead times and address those new market segments that I talked about earlier. Second, in our Software segment, we need to remain focused on capturing the growth opportunities, in particular in the market for end-use parts. And last but not least, in our Manufacturing business, we need to capture the growth in selected market segments in order to drive revenue in 2024. And as part of this plan, we will open the new manufacturing plant for ACTech towards the end of this year to capture the opportunities we see in casting. I’ll conclude my remarks on slide 14 with a discussion of our full year 2024 guidance. We expect revenues in 2024 to be in the range of €265 million to €275 million, representing a healthy growth despite the continued uncertainty of the macroeconomic and geopolitical environment. With our guidance reflects this uncertainty, we believe Materialise is ideally positioned in the market for additive manufacturing software and services in the market for personalized products. Thanks to our strong product portfolio, our continued investments in innovation and our strong financial foundation. We expect growth in all three of our segments. The growth of our Materialise Software revenue will be further temporarily impacted by the transition towards a cloud-based subscription business model that we are continuing to implement. As you will have noticed going forward, we will be providing guidance on adjusted EBIT. We believe our consolidated adjusted EBIT is a more useful guidance measure as it includes the periodic cost of capitalized tangible and intangible assets used in generating revenue in our business, and as such, will allow for a better assessment of our expected performance and profitability. However, we will continue to report the segment adjusted EBITDA of our three business segments. The expected revenue growth will result in an adjusted EBIT, which we currently anticipate to total between €11 million and €14 million for 2024. This guidance reflects our stride towards profitable growth in what we believe will remain an uncertain macroeconomic and geopolitical environment. This concludes our prepared remarks. Operator, we’re now ready to open the call to questions.

Thank you. [Operator Instructions] The first questions come from Jacob Stephan with Lake Street Capital Markets. Your line is now open.

Hey, guys. Thanks for taking my question. Congrats on the solid revenue growth here year-over-year. You talked a little bit about your Michigan facility here. I’m just curious to hear, how is that facility ramped over the last few months here and how do you think about your capacity utilization there currently?

Yeah. So, I can take that question, Jacob. It’s good to talk to you again. Yeah. So we’re very pleased actually with the ramp up of the Michigan facility. Opening up a new metal facility is never easy. But we are very proud that, first of all, in the preparation of the opening, we did stick to our timelines all the way through opening the facility in August and we also managed to ship first cases in August according to our plan. The ramp up is going very well and we are therefore in 2024 already considering additional investments in that facility. So we are very pleased with the results there. And as I mentioned earlier, the big advantage is that with these shorter lead times, we’re able to opening up new patient segments. So, new segments of the market and that is driving our growth, and we will continue to do so in 2024.

Okay. Awesome. That’s great to hear. Maybe just a touch deeper on the 2024 guidance. I’m curious how you’re thinking about kind of growth in the Manufacturing segment. You have referenced kind of prototyping weakness over the last couple quarters here. But are you expecting that weakness to continue, it sounds like you’re signing some nice partnerships in the aerospace market, which we’ve heard has been strong. But just curious how you’re thinking about kind of the prototyping market and where that stands entering 2024.

Yeah. Yeah. So I always like to differentiate between the prototyping and the end-use parts market because the dynamics are indeed different. Now if I look at our Manufacturing segment as a whole and the market that we’re serving there, the prototyping market has been under pressure and it’s mainly related to the macroeconomic difficulties and some other market dynamics. I would expect those to stay difficult throughout the year 2024, at least for a good part of the year 2024. The dynamics in the end-use parts are slightly different in the geopolitical environment and the macroeconomic uncertainties impact as well. But we need to take a more granular look in that segment at where we can find pockets of investment that do exist in that market. And I mentioned the aerospace segment, which has been a successful one for us and many other players over the last couple of years and there are others that we will be focusing on. So, it’s really for us in our Manufacturing segment, despite the more troubled market environments that many of us will still be in, I believe in the growth by focusing on those selected segments that we can benefit from. Prototyping is such, I mean, your question specifically goes to that, the market will stay difficult. Now, admittedly, I still am very convinced that with our differentiating position that in 2024, we can continue to grow on that side as well.

Okay. And just one last one for me here on Software. You could talk a little bit about your strategy, maybe how has your distribution strategy changed, are you kind of sticking with a direct sort of sales force, are you using a reseller model here? Just curious how you’ve kind of adapted over the last six months to 12 months here?

And that is on the Software segment specifically?

Yeah.

Yeah. So the software segment specifically, we’ve always used a multitude of channels. So we have a direct sales model combined with a channel model, and obviously, a close partnership with our OEM partners as well will help us put the products in the market. And we have continuously been doing that over the last couple of years and I expect us to follow that same mix of strategies going forward.

Okay. Great. Thanks for all the color. Best of luck going forward here.

Thank you, Jacob.

Please stand by for the next question. The next question comes from Alexander Craeymeersch with Kepler Cheuvreux. Your line is open.

Hi. Hello. Alexander speaking here. Congratulations, Koen and Brigitte, and the whole team on the nice profit this year. I was just interested in -- I have had two questions. So one was on the capacity expansion in the U.S. and ACTech. On the ACTech facility, don’t you think that the capacity that is coming on live in H2 this year, at least it was planned that way originally, will not -- will that not put extra pressure on the margins? And then next to that, I would also ask how much capacity we need to foresee for these plans both in the U.S. and ACTech in 2024? And then maybe in the extension of that question, maybe how we need to look at the free cash flow generation this year, including the working cap developments? Thank you for that.

Okay. So that’s a lot of questions. I’ll take the first one talking about the ACTech investments specifically. So, Alexander, you’re obviously right on the short-term, that any additional investment always adds on the short-term some pressure on the margin. At the same time, we -- I think you all know us as a player that invests in the long-term. So we believe in the potential of that business. We actually see that we have missed opportunities because of lack of capacity in the past and that’s what we want to rectify with that additional investment. So beyond the startup phase, the pressure on the margins should be equalized or neutralized. So that was for the first question.

Maybe I can pick up on your second part of the question, Alexander, and I’m going to split it into two parts, the free cash flow impacts of the facility expansions and then coming back to the working capital evolution. As to answer the question with regards to free cash flow evolution, indeed, in the year 2024, we will see a heavy investment phase, especially with the ACTech plants that we will bring into production. There is already a part of the investments that we have taken in 2023 and even before. But indeed, a fair chunk of the amount will come in the first half of 2024 and that will indeed impact our overall free cash flow generation this year, which, based on the current numbers, will be negative temporarily, just because we do this huge investment, and then we will see as of the second half of the year, we will see the cash flow coming in gradually from startup of the facility. Now, as to the metals U.S. plant, that investment was already taken in the past. There is, as Brigitte indicated, we’re contemplating to do further investments in the plant, but that will be to a minor amount compared to the initial investment and certainly compared to ACTech. Second question with regards to working capital evolution, that is certainly something that we will be monitoring more closely going forward. As we are growing, we see an increased need for working capital requirements. But we do want to focus further on this in order to keep a healthy operating cash flow and support further our free cash flow generation in the coming months and years ahead of us. I hope that answers your question.

Yeah. Okay. Thank you very much.

Thanks, Alexander.

Please stand by for the next question. The next question comes from Troy Jensen with Cantor Fitzgerald. Your line is open.

Hey. Thank you for letting me ask the question and congrats on the nice results here. Maybe start with Brigitte here. So I know you’ve been on board now for three months. Had some time to look at different aspects of the business here. I’m just curious, what would you change now or potentially do better versus what Fried was doing -- Fried and Peter’s leadership? And I know they’re listening, so be careful what you say.

I know. Thank you, Troy, and thanks for joining the call today. So, well, first of all, I want to stress that it’s been six weeks in the new role. So it’s still very early days. I knew you were going to ask the question, which is why I also added some remarks on how I look at things. And I also clearly highlighted the priorities for us in 2024 after my first look at how things are going. And it’s clear that the three priorities clearly are Medical growth that, we want to keep the momentum in Medical. So the growth potential is there and we want to make sure that we realize that. On the Software and the Manufacturing side, I mentioned that, we want to focus on capturing the opportunities and it’s maybe to answer your question a bit more specifically, what is the biggest change? It’s maybe a bit more of a focused approach, focusing on there where we do see growth opportunities, despite the environment that we see. And with that focus generating or driving the growth in revenue and that will be critical that we stay focused on that, because our growth ambition is there and is real, and I think it’s based on the potential that we have in the market. So I hope that answers your question.

Yeah. No. Very good. So let me get just the Medical business too. So if you look at total guidance, you have 4% kind of at the midpoint, but you said all three segments are going to grow. I mean, Medical has just been killing it, right? So you just had record revenues, you had record EBITDA margins. Yeah, I’d be curious to know, the applications that are driving it currently, and then, if you’ve been growing 15%, 18%, 20% of the last three years in this Medical business, it seems like you’re forecasting it to slow down. So is that just conservative guidance or some thoughts, please?

Yeah. So it’s really two questions, if I understand you correctly. One is the mix of markets in which we grow, and the second is, more specifically towards, our guidance going forward. Now let me answer the second one -- the second part of your question first, because I’ll help us on the first part of your question. So I highlighted in our current results or in the 2023 results that we saw Software sales to medical device companies, which is an important segment for us and that will weigh on our revenues in 2024. So, that plays into our guidance for 2023 -- for 2024, specifically for the Medical segment. The same obviously accounts for our Software segment, but that has an impact on the Medical segment. Now, when it comes to a couple of the segments in which we see the growth, the nice thing for us is that it’s really a healthy mix of different segments, which makes it balanced, and therefore, takes a bit of risk, hopefully, out of the equation as well and we really see a combination of our mature segments playing a very important role there. The orthopedic segment is still a very important segment for us. The CMS segment is playing an important role there. And despite the fact that we saw softness in our medical sales, as Koen highlighted in his remarks, we’re still seeing growth there as well, less than previous years, but we’re still seeing growth there towards the research and engineering markets in a broader way. So it’s a healthy mix.

Perfect. All right. Thank you for the explanation and good luck going forward.

Thank you.

I show no further questions at this time. I would now like to turn the call back to Brigitte for closing remarks.

Thank you and thank you all for joining us today. As you’ve heard, Materialise has many initiatives underway to leverage and accelerate the growing adoption of additive manufacturing. And we all look forward to continuing our dialogue with you throughout the upcoming investor conferences or our one-on-one virtual meetings or calls. Now if you do have any other questions, please feel free to reach out to us. Thank you all and goodbye for now.

This concludes today’s conference call. Thank you for participating. You may now disconnect.