Market Overview

Materialise Reports Second Quarter 2018 Results

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Materialise NV (NASDAQ:MTLS), a leading provider of additive
manufacturing and medical software and of sophisticated 3D printing
services, today announced its financial results for the second quarter
ended June 30, 2018.

Highlights – Second Quarter 2018

  • Total revenue increased 34.1% from the second quarter of 2017 to
    45,076 kEUR, driven by strong performances in our Materialise Medical
    segment and in the ACTech business within our Materialise
    Manufacturing segment, which we acquired in October 2017.
  • Total deferred revenue from annual software sales and maintenance
    contracts increased by 2,419 kEUR to 21,142 kEUR from 18,723 kEUR at
    year-end 2017.
  • Adjusted EBITDA increased 90.9% from 2,732 kEUR for the second quarter
    of 2017 to 5,216 kEUR.
  • Net result was 369 kEUR, or 0.01 EUR per diluted share, compared to
    (955) kEUR, or (0.02) EUR per diluted share, over the same period last
    year.

Executive Chairman Peter Leys commented, "The past several months have
been an especially exciting period for Materialise. We delivered another
set of good results for the second quarter, with particularly strong
performances from our Materialise Medical segment and the ACTech
business we added to our Materialise Manufacturing segment last October.
This performance again demonstrates the benefits of our company's
diversified business model. In July, we announced a collaboration with
BASF through which this leading chemicals company has invested US$25
million in Materialise to accelerate the advancement of the 3D printing
sector through the development of innovative applications and new
materials. We expect this collaboration to create significant new
business opportunities in new markets over time. We also raised US$44.85
million in gross proceeds through a successful public offering of ADSs
representing our shares, which included the full exercise of the
underwriters' over-allotment option to purchase additional ADSs."

ACTech

On October 4, 2017, we acquired ACTech, a full-service manufacturer of
complex metal parts. As described in more detail below, the acquired
business has increased the scope of our Materialise Manufacturing
segment's operations and had a significant impact on our results of
operations for the second quarter of 2018, resulting in increases to our
revenues, operating expenses and net result, among other items.

Second Quarter 2018 Results

Total revenue for the second quarter of 2018 increased 34.1% (1.5%
excluding ACTech) to 45,076 kEUR (34,113 kEUR excluding ACTech) compared
to 33,612 kEUR for the second quarter of 2017. Total deferred revenue
from annual software sales and maintenance contracts amounted to 21,142
kEUR at the end of the second quarter of 2018 compared to 18,723 kEUR at
year end 2017. Adjusted EBITDA increased to 5,216 kEUR from 2,732 kEUR
primarily as a result of the contribution by ACTech. Excluding ACTech,
Adjusted EBITDA increased to 3,245 kEUR. The Adjusted EBITDA margin
(Adjusted EBITDA divided by total revenue) in the second quarter of 2018
was 11.6% (9.5% excluding ACTech) compared to 8.1% in the second quarter
of 2017.

Revenue from our Materialise Software segment increased 9.9% to 9,131
kEUR for the second quarter of 2018 from 8,305 kEUR for the same quarter
last year. Segment EBITDA amounted to 2,859 kEUR compared to 2,952 kEUR
in the prior-year period, while the segment EBITDA margin (the segment's
EBITDA divided by the segment's revenue) was 31.3% compared to 35.5% in
the prior-year period.

Revenue from our Materialise Medical segment increased 16.5% to 12,400
kEUR for the second quarter of 2018 compared to 10,646 kEUR for the same
period in 2017. Compared to the same quarter in 2017, revenue from our
medical software decreased 5.2%. Including deferred revenues from
software and maintenance fees, medical software sales increased 8.9%.
Revenue from medical devices and services grew 28.8%. Segment EBITDA was
2,124 kEUR compared to 758 kEUR while the segment EBITDA margin
increased to 17.1% from 7.1% in the second quarter of 2017.

Revenue from our Materialise Manufacturing segment increased 61.8% to
23,387 kEUR for the second quarter of 2018 from 14,455 kEUR for the
second quarter of 2017. Segment EBITDA increased to 2,264 kEUR from
1,241 kEUR while the segment EBITDA margin increased to 9.7% from 8.6%
for the same quarter in 2017. ACTech contributed revenue of 10,958 kEUR
and segment EBITDA of 1,971 kEUR, with a segment EBITDA margin of 18.0%.
Excluding ACTech, revenue decreased 14.0% to 12,429 kEUR and segment
EBITDA decreased to 293 kEUR.

Gross profit was 24,788 kEUR, or 55.0% of total revenue, for the second
quarter of 2018. Excluding ACTech, gross profit was 21,189 kEUR, or
62.1% of total revenue, compared to 19,388 kEUR, or 57.7% of total
revenue, for the second quarter of 2017.

Research and development ("R&D"), sales and marketing ("S&M") and
general and administrative ("G&A") expenses increased, in the aggregate,
22.9% to 25,700 kEUR for the second quarter of 2018 from 20,911 kEUR for
the second quarter of 2017. Excluding ACTech, operating expenses
increased, in the aggregate, 10.5% to 23,096 kEUR. Excluding ACTech, R&D
expenses increased from 5,131 kEUR to 5,830 kEUR while S&M expenses
increased from 10,009 kEUR to 11,038 kEUR and G&A expenses increased
from 5,771 kEUR to 6,228 kEUR.

Net other operating income increased by 613 kEUR to 1,841 kEUR compared
to 1,228 kEUR for the second quarter of 2017. Excluding ACTech, net
other operating income increased by 557 kEUR. Net other operating income
consists primarily of withholding tax exemptions for qualifying
researchers, development grants, partial funding of R&D projects,
currency exchange results on purchase and sales transactions, and the
depreciation of intangible assets from business combinations.

Operating result increased to 929 kEUR from (295) kEUR for the same
period prior year, primarily as a result of the contribution by ACTech.
Excluding ACTech, operating result amounted to (122) kEUR.

Net financial result was (376) kEUR compared to (427) kEUR for the
prior-year period. The financial result included (414) kEUR net
financial expenses related to ACTech. The share in loss of joint venture
increased to (141) kEUR from (42) kEUR for the same period last year.

The second quarter of 2018 contained income tax expense of 43 kEUR, of
which 206 kEUR was related to ACTech, compared to 191 kEUR in the second
quarter of 2017.

As a result of the above, net profit for the second quarter of 2018 was
369 kEUR or ((62) kEUR excluding ACTech), compared to net loss of (955)
KEUR for the same period in 2017. Total comprehensive profit for the
second quarter of 2018, which includes exchange differences on
translation of foreign operations, was 422 kEUR compared to a loss of
(1,403) kEUR for the same period in 2017.

As at June 30, 2018, we had cash and equivalents of 48,719 kEUR compared
to 43,175 kEUR as at December 31, 2017. Cash flow from operating
activities over the first six months of 2018 was 11,031 kEUR compared to
5,188 kEUR in the same period in 2017. Net shareholders' equity as at
June 30, 2018 was 77,053 kEUR compared to 77,515 kEUR as at December 31,
2017.

2018 Guidance

As detailed in the company's year-end fiscal 2017 earnings announcement,
in fiscal 2018, management expects to report consolidated revenue
between 180,000 - 185,000 kEUR and Adjusted EBITDA between 22,000 -
25,000 kEUR. Management also expects the amount of deferred revenue the
company generates from annual licenses and maintenance in 2018 to
increase by an amount between 2,000 - 4,000 kEUR as compared to 2017.

Non-IFRS Measures

Materialise uses EBITDA and Adjusted EBITDA as supplemental financial
measures of its financial performance. EBITDA is calculated as net
profit plus income taxes, financial expenses (less financial income),
shares of loss in a joint venture and depreciation and amortization.
Adjusted EBITDA is determined by adding non-cash stock-based
compensation expenses and acquisition-related expenses of business
combinations to EBITDA. Management believes these non-IFRS measures to
be important measures as they exclude the effects of items which
primarily reflect the impact of long-term investment and financing
decisions, rather than the performance of the company's day-to-day
operations. As compared to net profit, these measures are limited in
that they do not reflect the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues in the
company's business, or the charges associated with impairments.
Management evaluates such items through other financial measures such as
capital expenditures and cash flow provided by operating activities. The
company believes that these measurements are useful to measure a
company's ability to grow or as a valuation measurement. The company's
calculation of EBITDA and Adjusted EBITDA may not be comparable to
similarly titled measures reported by other companies. EBITDA and
Adjusted EBITDA should not be considered as alternatives to net profit
or any other performance measure derived in accordance with IFRS. The
company's presentation of EBITDA and Adjusted EBITDA should not be
construed to imply that its future results will be unaffected by unusual
or non-recurring items.

Exchange Rate

This press release contains translations of certain euro amounts into
U.S. dollars at specified rates solely for the convenience of readers.
Unless otherwise noted, all translations from euros to U.S. dollars in
this press release were made at a rate of EUR 1.00 to USD 1.1658, the
reference rate of the European Central Bank on June 30, 2018.

Conference Call and Webcast

Materialise will hold a conference call and simultaneous webcast to
discuss its financial results for the first quarter of 2018 on the same
day, Tuesday, August 7, 2018, at 8:30 a.m. ET/2:30 p.m. CET. Company
participants on the call will include Wilfried Vancraen, Founder and
Chief Executive Officer; Peter Leys, Executive Chairman; and Johan
Albrecht, Chief Financial Officer. A question-and-answer session will
follow management's remarks.

To access the conference call, please dial 844-469-2530 (U.S.) or
765-507-2679 (international), passcode #8889356. The conference call
will also be broadcast live over the Internet with an accompanying slide
presentation, which can be accessed on the company's website at http://investors.materialise.com.

A webcast of the conference call will be archived on the company's
website for one year.

About Materialise

Materialise incorporates more than 25 years of 3D printing experience
into a range of software solutions and 3D printing services, which form
the backbone of the 3D printing industry. Materialise's open and
flexible solutions enable players in a wide variety of industries,
including healthcare, automotive, aerospace, art and design, and
consumer goods, to build innovative 3D printing applications that aim to
make the world a better and healthier place. Headquartered in Belgium,
with branches worldwide, Materialise combines one of the largest groups
of software developers in the industry with one of the largest 3D
printing facilities in the world. For additional information, please
visit: www.materialise.com.

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended,
regarding, among other things, our intentions, beliefs, assumptions,
projections, outlook, analyses or current expectations, plans,
objectives, strategies and prospects, both financial and business,
including statements concerning, among other things, current estimates
of fiscal 2018 revenues, deferred revenue from annual licenses and
maintenance and Adjusted EBITDA, the benefits of our collaboration with
BASF and the ACTech acquisition, results of operations, cash needs,
capital expenditures, expenses, financial condition, liquidity,
prospects, growth and strategies (including our strategic priorities for
2018), and the trends and competition that may affect the markets,
industry or us. Such statements are subject to known and unknown
uncertainties and risks. When used in this press release, the words
"estimate," "expect," "anticipate," "project," "plan," "intend,"
"believe," "forecast," "will," "may," "could," "might," "aim," "should,"
and variations of such words or similar expressions are intended to
identify forward-looking statements. These forward-looking statements
are based upon the expectations of management under current assumptions
at the time of this press release. These expectations, beliefs and
projections are expressed in good faith and the company believes there
is a reasonable basis for them. However, the company cannot offer any
assurance that our expectations, beliefs and projections will actually
be achieved. By their nature, forward-looking statements involve risks
and uncertainties because they relate to events, competitive dynamics
and industry change, and depend on economic circumstances that may or
may not occur in the future or may occur on longer or shorter timelines
than anticipated. We caution you that forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors that are in some cases beyond our
control. All of the forward-looking statements are subject to risks and
uncertainties that may cause the company's actual results to differ
materially from our expectations, including risk factors described in
the company's annual report on Form 20-F filed with the U.S. Securities
and Exchange Commission on April 30, 2018. There are a number of risks
and uncertainties that could cause the company's actual results to
differ materially from the forward-looking statements contained in this
press release.

The company is providing this information as of the date of this press
release and does not undertake any obligation to update any
forward-looking statements contained in this press release as a result
of new information, future events or otherwise, unless it has
obligations under the federal securities laws to update and disclose
material developments related to previously disclosed information.

Consolidated income statement (Unaudited)

 
 

For the three months ended

 

For the six months

June 30,

ended June 30,

(in 000, except per share amounts) 2018   2018   2017 2018   2017
  U.S.$        
 
Revenue 52,550 45,076 33,612 88,975 65,533
Cost of sales (23,652 ) (20,288 ) (14,224 ) (40,232 ) (27,668 )
Gross profit 28,898 24,788 19,388 48,743 37,865
Gross profit as % of revenue 55.0 % 55.0 % 57.7 % 54.8 % 57.8 %
 
Research and development expenses (6,798 ) (5,831 ) (5,131 ) (11,446 ) (9,723 )
Sales and marketing expenses (13,805 ) (11,842 ) (10,009 ) (22,441 ) (19,617 )
General and administrative expenses (9,358 ) (8,027 ) (5,771 ) (15,187 ) (11,150 )
Net other operating income (expenses) 2,146 1,841 1,228 2,390 2,246
Operating (loss) profit 1,083 929 (295 ) 2,059 (379 )
 
Financial expenses (1,127 ) (967 ) (1,317 ) (2,517 ) (2,236 )
Financial income 689 591 890 1,431 1,667
Share in loss of joint venture (164 ) (141 ) (42 ) (244 ) (431 )
(Loss) profit before taxes 481 412 (764 ) 729 (1,379 )
 
Income taxes (50 ) (43 ) (191 ) (543 ) (392 )
Net (loss) profit for the period 431 369 (955 ) 186 (1,771 )
Net (loss) profit attributable to:
The owners of the parent 431 369 (955 ) 186 (1,771 )
Non-controlling interest
 
Earnings per share attributable to owners of the parent
Basic 0.01 0.01 (0.02 ) 0.00 (0.04 )
Diluted 0.01 0.01 (0.02 ) 0.00 (0.04 )
 
Weighted average basic shares outstanding 47,428 47,428 47,325 47,378 47,325
Weighted average diluted shares outstanding 48,131 48,131 47,325 48,106 47,325
 

Consolidated statements of comprehensive income (Unaudited)

 
 

For the three months ended

 

For the six months

June 30,

ended June 30,

(in 000)

2018

 

2018

 

2017

2018

 

2017

U.S.$
 
Net profit (loss) for the period  

431

 

 

369

 

 

(955

)   186   (1,771 )
Other comprehensive income
Exchange difference on translation of foreign operations 62 53 (448 ) (42 ) (326 )
Other comprehensive income (loss), net of taxes 62 53 (448 ) (42 ) (326 )
Total comprehensive income (loss) for the year, net of taxes 493 422 (1,403 ) 144 (2,097 )
Total comprehensive income (loss) attributable to:
The owners of the parent 493 422 (1,403 ) 144 (2,097 )
Non-controlling interest
 

Consolidated statement of financial position (Unaudited)

 
   

As of

As of June 30,  

December 31,

(in 000)

2018

2017

Assets
 

Non-current assets

Goodwill   18,416   18,447
Intangible assets 27,058 28,646
Property, plant & equipment 89,011 86,881
Investments in joint ventures 31
Deferred tax assets 288 304
Other non-current assets 4,062 3,667
Total non-current assets 138,835 137,976
 

Current assets

Inventories 10,794 11,594
Trade receivables 38,408 35,582
Other current assets 10,213 9,212
Cash and cash equivalents 48,719 43,175
Total current assets 108,134 99,563
Total assets 246,969 237,539
 
   

As of

As of June 30,  

December 31,

(in 000)

2018

2017

Equity and liabilities
Equity
Share capital   2,735   2,729
Share premium 80,396 79,839
Consolidated reserves (4,233 ) (3,250 )
Other comprehensive income (1,845 ) (1,803 )
Equity attributable to the owners of the parent 77,053 77,515
Non-controlling interest
Total equity 77,053 77,515
 

Non-current liabilities

Loans & borrowings 85,700 81,788
Deferred tax liabilities 6,603 7,006
Deferred income 6,892 5,040
Other non-current liabilities 1,692 1,904
Total non-current liabilities 100,887 95,738
 

Current liabilities

Loans & borrowings 12,519 12,769
Trade payables 16,437 15,670
Tax payables 3,288 3,560
Deferred income 22,309 18,791
Other current liabilities 14,476 13,496
 

Total current liabilities

69,029 64,286
Total equity and liabilities 246,969 237,539
 

Consolidated statement of cash flows (Unaudited)

 
 

For the six months

ended June 30,

(in 000)

2018

 

2017

Operating activities

Net (loss) profit for the period

  186   (1,771 )
Non-cash and operational adjustments
Depreciation of property, plant & equipment 5,517 3,954
Amortization of intangible assets 2,498 1,269
Share-based payment expense 366 700
Loss (gain) on disposal of property, plant & equipment (90 ) 28
Movement in provisions 14
Movement reserve for bad debt 68 139
Financial income (58 ) (318 )
Financial expense 1,032 585
Impact of foreign currencies 111 302
Share in loss of a joint venture (equity method) 244 431
Income taxes and deferred taxes 543 392
Other (92 ) (58 )
Working capital adjustment & income tax paid
Increase in trade receivables and other receivables (4,147 ) (3,580 )
Decrease (increase) in inventories 774 (509 )
Increase in trade payables and other payables 5,634 4,207
Income tax paid (1,555 ) (597 )
Net cash flow from operating activities 11,031 5,188
 
 

For the six months ended

June 30,

(in 000)

2018

 

2017

Investing activities
Purchase of property, plant & equipment   (8,588 )   (15,770 )
Purchase of intangible assets (583 ) (1,027 )
Proceeds from the sale of property, plant & equipment (net) 486 104
Available for sale investments (50 )
Investments in joint-ventures (500 )
Interest received (2 ) 241
Net cash flow used in investing activities (8,737 ) (16,952 )
 

Financing activities

Proceeds from loans & borrowings 18,770 14,203
Repayment of loans & borrowings (14,074 ) (1,634 )
Repayment of finance leases (1,366 ) (1,405 )
Direct attributable expense capital increase 207
Interest paid (814 ) (302 )
Other financial income (expense) (130 ) (154 )
Net cash flow from (used in) financing activities 2,593 10,708
 
Net increase of cash & cash equivalents 4,887 (1,056 )
Cash & cash equivalents at beginning of the year 43,175 55,912
Exchange rate differences on cash & cash equivalents 657 (1,024 )
Cash & cash equivalents at end of the year 48,719 53,832
 

Reconciliation of Net Profit (Loss) to EBITDA and Adjusted
EBITDA (Unaudited)

 
 

For the three months

 

For the six months

ended June 30,

ended June 30,

(in 000)

2018

 

2017

2018

 

2017

 
Net profit (loss) for the period   369   (955 )   186   (1,771 )
 
Income taxes 43 191 543 392
Financial expenses 967 1,317 2,517 2,236
Financial income (591 ) (890 ) (1,431 ) (1,667 )
Share in loss of joint venture 141 42 244 431
Depreciation and amortization 4,010 2,656 8,015 5,224
 
EBITDA 4,939 2,361 10,074 4,845
 
Non-cash stock-based compensation expense (1) 277 371 366 700
Acquisition-related expenses of business combinations (2)
 
ADJUSTED EBITDA 5,216 2,732 10,440 5,545

(1)

 

Non-cash stock-based compensation expenses represent the cost of
equity-settled and cash-settled share-based payments to employees

(2)

During the periods presented, we did not incur any fees or costs
in connection with acquisitions.

 

Segment P&L (Unaudited)

 
   

Materialise

 

Materialise

 

Materialise

Manufact-

Total

 

Unallocated

 

Consoli-

(in 000)

Software

Medical

uring

segments

(1)

dated

 
 
For the six months ended June 30, 2018
Revenues 17,457 24,346 47,019 88,822 153 88,975
Segment EBITDA 5,183 4,184 5,397 14,764 (4,690 ) 10,074
 

Segment EBITDA %

29.7 % 17.2 % 11.5 % 16.6 % 11.3 %
 
For the six months ended June 30, 2017
Revenues 16,880 20,578 27,862 65,320 213 65,533
Segment EBITDA 5,945 1,072 2,563 9,580 (4,735 ) 4,845
 

Segment EBITDA %

35.2 % 5.2 % 9.2 % 14.7 % 7.4 %
 
   

Materialise

 

Materialise

 

Materialise

Manufact-

Total

 

Unallocated

 

Consoli-

(in 000)

Software

 

Medical

uring

segments

(1)

dated

 
 
For the three months ended June 30, 2018
Revenues 9,131 12,400 23,387 44,918 158 45,076
Segment EBITDA 2,859 2,124 2,264 7,247 (2,308 ) 4,939
 

Segment EBITDA %

31.3 % 17.1 % 9.7 % 16.1 % 11.0 %
 
For the three months ended June 30, 2017
Revenues 8,305 10,646 14,455 33,406 206 33,612
Segment EBITDA 2,952 758 1,241 4,951 (2,590 ) 2,361
 

Segment EBITDA %

35.5 % 7.1 % 8.6 % 14.8 % 7.0 %

(1) Unallocated Revenues consist of occasional one-off sales by
our core competencies not allocated to any of our segments.
Unallocated Segment EBITDA consists of corporate research and
development, corporate headquarter costs and net other operating
income (expense).

 

Reconciliation of Net Profit (Loss) to Segment EBITDA
(Unaudited)

 

 

For the three months

 

For the six months

ended June 30,

ended June 30,

(in 000)

2018

 

2017

2018

 

2017

 
Net profit (loss) for the period   369   (955 )   186   (1,771 )
Income taxes 43 191 543 392
Financial expenses 967 1,317 2,517 2,236
Financial income (591 ) (890 ) (1,431 ) (1,667 )
Share in loss of joint venture 141 42 244 431
 
Operating profit 929 (295 ) 2,059 (379 )
 
Depreciation and amortization 4,010 2,656 8,015 5,224
Corporate research and development 496 516 986 1,025
Corporate headquarter costs 2,813 2,464 5,077 4,537
Net other operating income (expense) (1,001 ) (390 ) (1,373 ) (827 )
 
Segment EBITDA 7,247 4,951 14,764 9,580

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