Edited Transcript of VJET earnings conference call or presentation 17-Aug-18 12:30pm GMT

Q2 2018 Voxeljet AG Earnings Call

Friedberg Aug 17, 2018 (Thomson StreetEvents) -- Edited Transcript of Voxeljet AG earnings conference call or presentation Friday, August 17, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ingo Ederer

voxeljet AG - Founder, CEO and Member of Management Board

* Johannes Pesch

voxeljet AG - Director of Business Development and IR

* Rudolf P. Franz

voxeljet AG - CFO, Principal Accounting Officer, Chief Opera$(OPRA)$tion Officer and Member of Management Board

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Conference Call Participants

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* James David Medvedeff

Cowen and Company, LLC, Research Division - Associate

* Nickolas Bradley Johnson

Piper Jaffray Companies, Research Division - Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the voxeljet AG Second Quarter 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Johannes Pesch. Please go ahead.

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Johannes Pesch, voxeljet AG - Director of Business Development and IR [2]

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Thank you, operator, and good morning, everyone. With me today are Dr. Ingo Ederer, voxeljet's Chief Executive Officer; and Rudi Franz, voxeljet's Chief Financial Officer.

Yesterday, after the market closed, voxeljet issued a press release announcing its second quarter financial result for the period ended June 30, 2018. The release, as well as the accompanying presentation for this conference call, is available in the Investor Relations section of the company's website at voxeljet.com.

During our call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and, therefore, one should not place undue reliance upon them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission.

With that, I would now like to turn the call over to Ingo, Chief Executive Officer of voxeljet.

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [3]

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Thank you, Johannes, and good morning, everyone. I want to thank everybody for joining us today.

Today, we will take you through some highlights of our second quarter performance and provide context on how we are well positioned for the launch of a variety of new product later this year and in 2019. This year marks the fifth anniversary since our IPO in 2013.

Before we start, I would like to remind those who might be new to our company about our strategy. Turning to Slide 6. We started nearly 20 years ago as a spin-off from Technical University, Munich with a clear vision in mind to replace conventional manufacturing by constantly pushing technology boundaries.

Turning to Slide 7. This vision translates into a powerful strategy with clear mission statement and core values. This vision statement we shared throughout the year represents who we strive to be every day and essentially how we operate across all aspect of our business as we build this company for the long term. We are committed to executing the core pillars of our strategy, holding ourselves accountable for performance and investing in our business for the long term.

Our integrated business model is summarized on Slide 8. In our Systems segment, we manufacture and sell industrial-grade, high-speed, large-format 3D printing systems geared towards mass production of complex models and modes.

In our Services segment, we operate these systems in facilities around the world, which are summarized on Slide 9, to offer affordable on-demand access to our technology. This proprietary technology is reshaping the way things are made and is truly disruptive to the traditional methods of manufacturing. The future of our company will be built on our strong position in Europe, the success of our international expansion strategy, the growth potential of existing products and the introduction of new and innovative products.

Slide 10 highlights our headquarters in Germany.

Turning to Slide 11. We have summarized some of the applications of our products and selected customers. Today, I can say that, together with our partners, we are about to reinvent the manufacturing landscape by launching the world's first fully automated 3D production solution capable of replacing conventional manufacturing interior production. The 3D printing industry is at an inflection point, and this achievement marks a key milestone in our mission.

Let's turn to Slide 12 and start with the formal part of the presentation. I will begin with an overview of the second quarter results. Rudi will then provide a more in-depth view of our financials and our outlook for the third quarter of 2018. Following his comments, we will be happy to take your questions.

Revenue was EUR 5.3 million, which represents a 2% increase compared to last year's second quarter. It is important to note that current order backlog in our Systems segment increased significantly to EUR 7.2 million, up 46% from the end of the first quarter. This is, in part, related to the launch of new products. I will elaborate on the split between revenue contribution from new and existing products in a minute.

One of the recent highlights certainly was the launch of the VJET X Inorganic Binding, or IOB, setting the space for what we believe to be the most important product launched to date at voxeljet. While we have been working towards this goal for years, in many ways, achieving this is like the new star here at the company, and everyone is energized to support the launch. Combined with the automation equipment, VJET X is now uniquely positioned and what we believe will become a most have -- must-have technology for high value-added production. While other technologies will play some role in changing the manufacturing landscape, we believe that no other technology available today can come close to the speed, accuracy and level of automation of our platforms.

Revenues from our Systems segment, which includes revenues from selling 3D printers, consumables and spare parts as well as maintenance, decreased 26% to EUR 1.9 million in the second quarter of 2018 from EUR 2.5 million in the last year's second quarter. We delivered one new and one used and refurbishment in this year's second quarter compared to 3 new printers in last year's second quarter. Our sales pipeline has more than 250 sales opportunities, and they continue to work hard to turn these prospects into orders. We didn't -- I put the highest emphasis on managing our sales funnel and are investing a significant amount of our time into monitoring the progress of our fleet all around the world.

Revenues from our Services segment, which focuses on the printing of on-demand parts for our customers, increased 29% to EUR 3.4 million in the second quarter this year from EUR 2.6 million for the same quarter last year. We feel great about the momentum of our Services business, and we are on target to reach our goal of increasing our fiscal 2017 Services revenue by more than 25%.

Our results were driven by strong performance in a number of areas, and I would like to briefly mention just some of these. The performance in Germany continues to be strong. And the revenue increases and margin contribution in the U.S. were exceptionally good. Heavy cadence team in the U.S. continue to work on some really exciting projects, for example, in the space exploration sector. Customers in these industries are using our PMMA process to create large patterns, which are used to cast titanium parts at significantly lower costs compared to, for example, laser sintering. Part of the cost and time savings is related to the quick certification procedures as the casting process has been around for several thousand years.

Let's turn to Slide 13 and some additional information regarding VJET X IOB. Together with our partners, we have taken a major step to reinvent the manufacturing landscape by developing the world's first fully automated 3D production solution capable of replacing conventional manufacturing interior production. The integrated solution allows for the automated production of, for example, highly complex sand cost, which can be used in the casting process of critical engine components. The new solution leverages our decades of research and expertise in precision mechanics (inaudible) in the truest sense. VJET X IOB is 10x faster than our currently available 3D printers, features fully automated pre- and post processes and uses a new inorganic material set, the combination of bind and powder to ensure high environmental compatibility during casting process of the 3D printed sand cost. The key benefits are improved engine performance and fuel efficiency, reduced cost per part and an increase in flexibility and production.

Turning to Slide 14 and an update on our research and development activities, in general, and our product pipeline in detail. Strategically, we want to bring our 3D printing technology into fully automated mass manufacturing. Throughout the first half of 2018, we have made significant progress towards this target, and I'm incredibly enthusiastic about the solutions in our lineup.

One of the most important elements in our strategy for growth is increasing our new product revenue, focusing especially on the business where, we believe, demand is growing and is potentially significant. For fiscal 2019, we project revenue from new products to fuel approximately 35% of our Systems revenue. For fiscal year 2020, we project this number to be around 50%. New product development and intensified sales activity are showing initial results, and we are really excited about our pipeline as it features more advanced processes and technologies.

For example, we see strong demand for our high-speed sintering with -- which we have entered the thermoplastics market. It enables us to directly manufacture and use products with properties and qualities similar to or better than selective laser sintering, HP's Multi Jet Fusion or injection molding. Just recently, we reduced the layer time of our VX200 platform by 50% by means of a software update. The scale-up to a larger and automated production platform called VJET XHSS is ongoing, and we are making good progress.

As mentioned in previous calls, we are actively working with several OEMs from various industries, including sports equipment and consumer goods, on the development and qualification of new materials for HSS. Our strategy is simple, qualify new materials in paid-for development projects and make sure it works on our VX200 platform, which was specifically designed for this focus, then, when VJET XHSS becomes available, mass commercialize it. This approach resonates well with our customers, and the results are simply outstanding.

Another interesting example is the upscale of the phenolic direct binding process to our second-largest platform, the VX2000. This printer and process combination allows for the large-scale manufacturing of complex sand molds. A prototype version of this printer is in operation at a large European automotive OEM for over 1 year now. We are in early discussion with various customers for potentially multiple sales of this new product.

Our commitment to technology leadership is stronger than ever as can be seen by how we have advanced our research and development strategy during the last few years. We are now ready to capitalize on these investments. It is quite simple, innovation fuels growth.

Turning to Slide 15 and what we believe represents our addressable market and customer segmentation. You have seen this overview before, and we will show it again as it has to answer 2 of the questions we are frequently asked by investors. So let's go through them one by one.

The first question relates to the potential of 3D printing and the outlook for growth. Here, our answer is clear. The potential for industrial 3D printing is huge, and the market is growing, although not as quickly as many anticipated. Since industrial 3D printing will replace conventional production in various areas, it faces a lot of resistance from established technologies and best practice supply chains. To overcome these obstacles, it is needed to have a supporting ecosystem. In the case of 3D printing, the ecosystem is fairly complex and includes, among others, mature suppliers, software preparation tools and post-processing services.

Over the last several months, we have seen some significant catch-up taking place. It is important to understand that there are various technologies competing for market share, each with its distinct advantages and disadvantages. Some of these technologies received a lot of attention and capital recently, like, for example, direct metal printing by laser sintering or binder-jetting of metal powders. While these technologies may be good for small dealers production, we do not see them capable of true industrial production for a variety of reasons. Laser is too slow and cost prohibitive, while binder-jetting of metal powders faces some issues with sintering the green parts in a furnace, especially for larger and more complex pieces.

The second question relates to why we should and why we did not yet sell more printers. Looking at the industrial uses section on the right side of the slide, you can see that 1/3 of our potential customers are currently not implementing 3D printing technologies. Another 29% are experimenting with it, and 25% do prototyping only. Taken together, let's call them Group 1. They represent roughly 85% of our potential customer base. Group 1 is characterized by an early level of maturity. And their needs are ideally suited for our on-demand business segment. They can satisfy their sporadic demand very cost efficiently by ordering services. As mentioned earlier, this group is growing, and it is growing quickly.

Looking at the result in our Services segment, we are clearly benefiting from this development. As customers mature and understand the benefits of our technology better, they graduate into a system sales opportunity.

Looking at Group 2 or about 15% of our potential customers, they tend to be using 3D printing in production at various large sizes. This group is characterized by high -- higher level of maturity. Taken together, we address roughly 40% of our customer base as system sales opportunities. Within those, 2/3 are very CapEx sensitive and cash restricted, especially in the Asia Pacific region. To address this, we focus on optimizing the production cost of our equipment by redesigning parts of our printers. Reduced machining time is critical in keeping production cost lower. We plan to assemble some parts of our printers in China and have conducted advanced quality inspections. We are happy with the results, so far. The remainder 1/3 of our potential customs customers, or 12% of our total customer base, have no problems with CapEx spendings. These are the big automotive or aerospace OEMs, where we target multiple system sales. For this group, we have launched VJET X.

Slide 16 summarizes our 3 strategic growth initiatives: relentless innovation and focused internalization based on a scalable infrastructure. We have discussed innovation and internationalization. We would, therefore, like to add some comments on the infrastructure we have built to support substantial growth, both in our Systems and Services segment.

We meanwhile run fully integrated in SAP and have become one of the first, if not the first, company to run large-scale 3D production on SAP. This means fully integrated sales production and production planning and logistics processes.

From a strategic and financing perspective, we are proud to have the European Investment Bank as a strong partner on our side, which supports projects that make a significant contribution to growth, employment, regional acquisition and environment sustainability with the special focus on highly innovative companies. The EIB is the bank of the European Union and is owned by the 28-member states.

Slide 17 summarizes our track record in these 3 categories.

Turning to Slide 18 and an update on sales execution. We continue to expand our sales team around the world by investing in sales leadership, additional application engineers and training. To complement this, we focus on educating our channel partners to ensure true global coverage. We are exploring options to increase our production footprint in relevant key markets, such as India, South America and Japan.

Slide 19 summarizes the results for the quarter.

Slide 20 highlights our value proposition.

To sum up, we believe we are innovating in ways, which truly matter to our customers. We are executing on the right side of the change in our industry and are positioning the business to reinvent manufacturing landscape.

With that, I would now like to turn the call over to Rudi.

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Rudolf P. Franz, voxeljet AG - CFO, Principal Accounting Officer, Chief Operation Officer and Member of Management Board [4]

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Thank you, Ingo, and good morning to everyone. I would like to begin by providing financial details and adding some additional context to our results before discussing our outlook for the rest of 2018.

Turning to Slide 22. Our total revenues increased 2.1% to EUR 5.3 million in the second quarter compared to EUR 5.2 million in the last year's second quarter. Gross profit and gross margin in the quarter were EUR 2.1 million and 39% compared to EUR 2.1 million and 40.9% in last year's second quarter.

The next slide shows our segment reporting for the quarter. On Slide 23, revenues from our Systems segment, which includes revenue from selling 3D printers, consumables and spare parts as well as maintenance, decreased 25% to EUR 1.9 million for the second quarter of 2018 from EUR 2.5 million in last year's second quarter. We recognized revenue for one new and one used to -- and one refurbished printer in the second quarter of 2018 compared to 3 new printers in last year's same period. Systems revenues represented 35.8% of total revenues this quarter compared to 49.3% in last year's second quarter.

Gross profit and gross margin from our Systems segment in the quarter was EUR 0.6 million and 2.98% (sic) [29.8%] compared to EUR 0.9 million and 36.4% in last year's same period. (inaudible) an increase in fixed cost is required for the further development of Systems, the percentage portion of such costs, and gross profits will decrease along with increasing business volumes, resulting in significantly increased margins. More generally speaking, as utilization picks up, we expect gross margin from the Systems segment to be in the range of 40% to 45%.

On Slide 24, Services revenues increased 29.4% to EUR 3.4 million compared to EUR 2.6 million in last year's second quarter. This is a great achievement and highlights we are following the right path. The increase is mainly related to higher revenue contribution from our German and U.S. operation.

Gross profit for our Services segment significantly increased to EUR 1.5 million in the second quarter of 2018 from EUR 1.2 million in the second quarter of 2017. The gross profit margin for this segment slightly decreased to 44.2% from 45.4% in the last year's same period.

Looking now at the rest of the income statement on Slide 25. SG&A expenses were EUR 3.1 million in the second quarter of 2018. This compares to EUR 2.6 million in last year's second quarter. The increase was mainly due to higher personnel expenses resulting from the buildup of our sales force, especially in Germany, compared to last year's second quarter.

In addition, delivery cost increased, in line with the increased revenues with our Services segment. The increase in administrative expenses is mainly related to higher personnel expenses, resulting from higher headcount in Germany and external consulting expenses related to the implementation of SAP in our Services segment in Germany, which is now complete.

Research and development expenses were EUR 1.5 million compared to EUR 1.3 million in last year's second quarter. As Ingo highlighted, we continue to invest in core R&D in Germany to maintain our position as the technology leader in 3D printing.

Operating loss was EUR 2.2 million in the second quarter of 2018 compared to an operating loss of EUR 2.7 million in the comparative period in 2017.

Net loss for the quarter was roughly EUR 2.75 million or EUR 0.74 per ordinary share compared to a net loss of EUR 2.67 million or EUR 0.72 per ordinary share in the period prior year's quarter.

On an ADS basis, net loss was EUR 0.15 per ADS in the second quarter of 2018 compared to a net loss of EUR 0.14 per ADS in the second quarter of 2017.

We had provided the same graphic presentation for the same financial metrics for the 6-month period ended June 30, 2018, on Slides 26 to 29.

Slide 30 shows selected balance sheet items. At June 30, 2018, the company had cash, cash equivalents and short-term investments and bond fund was roughly EUR 16.8 million. Total debt at June 30, 2018, was EUR 17.3 million. Weighted average of ordinary shares outstanding for the quarter was 3.72 million, which increased to 18.6 million ADS.

Moving now on to Slide 31 and our revenue guidance for the quarter. For the third quarter of 2018, we expect revenues in the same range of EUR 6 million to EUR 8 million. Full year 2018 revenue remains unchanged and is expected to be between EUR 28 million and EUR 30 million, with gross margins above 40%.

SG&A spending is expected to be in the range of EUR 11 million to EUR 12 million, and R&D spending is expected to be between approximately EUR 5 million to EUR 6 million.

Depreciation and amortization expenses are expected to be between EUR 3.75 million and EUR 4.0 million.

Adjusted EBITDA is expected to be neutral to positive in 2018. Adjusted EBITDA excludes the impact of foreign exchange gains or losses on the intercompany loans granted to subsidiaries.

CapEx spending for 2018 is projected to be in the range of EUR 5.5 million to EUR 6.5 million, which primarily consists of ongoing investments in our global subsidiaries.

This concludes my remarks. And with that, we will now open the call for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is coming from the line of James Medvedeff with Cowen and Company.

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James David Medvedeff, Cowen and Company, LLC, Research Division - Associate [2]

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Can hear me all right?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [3]

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All good.

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Rudolf P. Franz, voxeljet AG - CFO, Principal Accounting Officer, Chief Operation Officer and Member of Management Board [4]

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Yes, pretty good. Thank you.

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James David Medvedeff, Cowen and Company, LLC, Research Division - Associate [5]

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Okay. So the first question that I have is on the time line for the HSS system moving to a larger box. Can you discuss that at all?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [6]

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This is Ingo. So as I said by my presentations, we are working on this topic to bring HSS on the larger platform. Currently, we are on track with the development. As said in earlier calls, we are planning to launch a first prototype version next year. This is still the target, and I think we are right on track.

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James David Medvedeff, Cowen and Company, LLC, Research Division - Associate [7]

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Okay. And the -- congratulations on the order for the first beta X system. Can you talk anymore about that? Is that a European customer, a North American customer? I think you said it's -- you plan to ship in Q1. Is that all -- is that correct?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [8]

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Well, this is a very delicate thing since the deal is not disclosed yet completely. What I can say is the final customers is a big automotive OEM here in Europe. It's a multiple installation sale. And the first machines will be installed second quarter next year.

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James David Medvedeff, Cowen and Company, LLC, Research Division - Associate [9]

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You say machines, so there's more than one.

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [10]

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Machine, yes.

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James David Medvedeff, Cowen and Company, LLC, Research Division - Associate [11]

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Machine, okay.

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [12]

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Machine, machine. Yes.

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James David Medvedeff, Cowen and Company, LLC, Research Division - Associate [13]

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Okay. And then the third question that I have, if I can squeeze one more in, is on the Services revenue, which declined 8% from the first quarter. It's a very strong growth year-over-year, but is there -- was there some particular strength in Q1? Or what led to the decline from last quarter?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [14]

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Well, we need to look at the -- let's say, the yearly development of Services second quarter is usually a quarter with a flat relation towards the previous quarter, so I think this is in line with the expectation. Of course, if you look on an international scale, there are some other effects, included some vacation time. We would see this as a normal development. No further sign for any larger development.

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Operator [15]

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(Operator Instructions) The next question is from the line of Nick Johnson with Piper Jaffray.

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Nickolas Bradley Johnson, Piper Jaffray Companies, Research Division - Research Analyst [16]

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I just wanted to ask. I think you guys have talked historically about taking multisystem orders in the pipeline. Any update on the timing of these larger system opportunities?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [17]

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Well, as already mentioned, we have an order for the VJET X solution IOB already in, which consists of more than one printer, I can tell currently. So this is going to start off. We are expecting, with the existence of this platform, a big demand from similar customer around the globe. So I think this is currently in progress. And we are doing, I think, a good development in this regard.

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Nickolas Bradley Johnson, Piper Jaffray Companies, Research Division - Research Analyst [18]

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Okay. And then looking at Asia, it seems like they're at all-time lows at the moment. Any update on what's going on in Asia?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [19]

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Yes. Asia is definitely a very sensitive market for us. I think the main message for us is this is a capital investment, very, very price-sensitive market. We are acting with our equipment, of course, in the high-quality, high-productivity area, but also with the high-price area. And some of our Chinese customers are, let's say, dealing hardly with those prices. I think this is the main reason why it's currently a bit difficult for us. But I would say, for the rest of the year, you will see us having some deals in that region, as well.

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Nickolas Bradley Johnson, Piper Jaffray Companies, Research Division - Research Analyst [20]

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And then maybe just quick, if you could, on India. I know -- I think, in last quarter, you had a nice uptick in India. How's that progress going?

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Rudolf P. Franz, voxeljet AG - CFO, Principal Accounting Officer, Chief Operation Officer and Member of Management Board [21]

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India is overall performing quite nice. As you know, we have a sales office in India and small service center activities. We have sold in Q1 a printed work line, which was on our Indian book. And therefore, we have this peak in India. I would say, India is heading the right direction. And we might see additional order income in Q4 or Q1 next year.

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Nickolas Bradley Johnson, Piper Jaffray Companies, Research Division - Research Analyst [22]

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And then last one for me. I -- pretty sure, the last question -- or the person asking the question before me was talking about the larger system order for the HSS machine. But for your current VX200 on the market today, are you able to provide how many systems or customers you're currently working with?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [23]

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So we have various customer projects and also orders for the 200 platform already in. Project means that customers having a specific application or a specific material set of both of them and want to introduce those on the VX200 platform. So currently, our R&D capabilities are completely covered by those projects. And you can easily foresee that these are multiple opportunities, so I'm quite pleased with that. And as said, with the existence of the bigger platform, those projects will immediately turn into sales of the bigger platform.

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Nickolas Bradley Johnson, Piper Jaffray Companies, Research Division - Research Analyst [24]

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I guess, just one more follow-on, as I think about it. In a long-term outlook, what do you see being a larger opportunity, the HSS or the X IOB?

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [25]

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The good thing is that the VJET X solution provides a technology base for both opportunities, so it means that the platform machine -- or the basic machine and it's principles is applicable to sand core printing, as well, to other mature sets, like ceramics, but also in some relation, HHS, so means thermoplastic materials. So means we can utilize some of the development effort in both areas. For the moment, it is relatively hard to foresee what application drives the better sales. For the moment, we believe that the thermoplastics market might be the easier market for us, while the inorganic printing is absolutely a outstanding solution for some areas, especially in the automotive industry. So it's really hard for us to tell. But we believe HHS has probably the high potential.

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Operator [26]

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Ladies and gentlemen, we've reached the end of our question-and-answer session. I would like to turn the call back to Ingo Ederer for closing remarks.

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Ingo Ederer, voxeljet AG - Founder, CEO and Member of Management Board [27]

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Thank you. So again, I'm very pleased with our progress halfway through the year. There's great momentum in our business. And we are well positioned to be the leader in our technology, driven by continued emphasis on growing our subsidiaries and unrelenting focus on R&D by increasing our market penetration through our sales and marketing operations. We will continue to invest strategically to support our momentum and to drive higher revenue growth in the second half of the year. We have a lot to be excited about. Thank you, again, for your participation in today's call. We look forward to speaking with you again in November when we report our results for the third quarter of 2018. Thank you very much, and have a nice weekend.

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Rudolf P. Franz, voxeljet AG - CFO, Principal Accounting Officer, Chief Operation Officer and Member of Management Board [28]

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Thank you. Have a good weekend. Buh-bye.

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Operator [29]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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