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Dear ladies and gentlemen, welcome to the first quarter results 2018 of SLM Solutions Group AG. At our customer's request, this conference will be recorded. [Operator Instructions]. May I now hand you over to Uwe Bögershausen, CFO, who will lead you through this conference. Please go ahead, sir.
Thank you very much and a warm welcome to everybody. Thanks for attending our presentation. At first, I would like to get a broad overview of the first quarter 2018 and then I will hand over to Dennis Schaefer, our Head of Investor Relations, for further details. At the end of the presentation, as already announced, that we're open to answer your questions as always.So coming to the first quarter 2018. We think the following things have to be highlighted. First of all, revenue is slightly lower than in Q1 2017, but just slightly -- it's less than EUR 1 million. Total operating revenues increased by 35% roughly. This is in preparation for the move into the new building. We pre-produced some machines in order to be prepared for the moving process. The new order intake in value also decreased if we take the first 3 months alone by 21%. It sounds significant, but this is in terms of machines, but only 3 machines. Please keep in mind, the first quarter is always by far the slowest that we have after a very strong fourth quarter. If we just -- if we take a look at the current order intake based on the day before yesterday, then the order intake increased by 34% roughly. That's due to increase to roughly EUR 16 million in order value. I think that's the better picture and the better indicator for this year. The first 3, especially January and February, are always very slow, and therefore, not significant for the rest of the year.Adjusted EBITDA is almost on the same level. Net results increased by 17%. So we see that as a successful start in 2018. Everything is according to plan. And based on the strong order intake that we've seen, including April and a part of May, we clearly see that the revenue guidance for 2018, and as a consequence, the EBITDA guidance for 2018 are still intact. We are moving successfully into our new facilities. Right now, we are in the middle of it. This will lead us to further optimization of our processes. And therefore, we see Q1 as a very positive start so far. And we reiterate our guidance for 2018. That's an overview of the first quarter 2018.I now hand over to Dennis Schaefer, Head of Investor Relations.
Thank you very much. Also, warm welcome from my side. Let's continue. This is our new headquarter in Lübeck [ DE ], which comes with a production capacity of minimum 500 machines per year in a 1-shift system. Depending on the product mix, as you all know, our machines get bigger compared with our new [ SLMA camera ] for example, is the SLM 125. So the product mix is key here, but we are confident 500 machines in a 1 [ shift ] system in an average.We saw high volatility in share price over the last few weeks, especially in the first quarter of this year. Not so much to comment on that, except that we had this high volatility. Shareholder structure remain unchanged compared to what we saw last time when we presented the full year 2017 numbers. Very strong shareholder base, founder team still involved, management involved and except that, a very strong shareholder base, which has already been involved since the time of the IPO and still believes in the future success of the company.Sales prospects further increased. You know this slide, everyone who joined SLM in the year 2017 presentation knows this slide. It's the same slide we presented there ending at Q1 2018. What we can say is that as we've already mentioned, especially in April and May, not only on the order intake side, but also on the general interest side, we saw further increase. And I'm confident that we will update this chart towards the first half of the year numbers. Let's get to some financial highlights. Finally, as already mentioned, we have a strong year-to-date order intake on the basis of the 1st of January to the 8th of May with approximately EUR 16 million respective to 25 machines compared to EUR 11.8 million, 19 machines in the same period in the year before. As also already explained, Q1 2018 compared with Q1 2017 was slightly down by only 3 machines at the end of today, which can have such an impact of EUR 2.4 million. But positively, we saw further increase in the demand of our Multi-laser machines compared to Q1 2017.Sales figures, Q1 2018, we still see that the SLM 280 remains the so-called bread-and-butter business. That's the machine which we sell the most. Our results for 2018 will again in this year highly depend on the second half of the year, especially the fourth quarter of 2018.We had a little change in segment reporting. I want to hand over back to Uwe Bögershausen to give a quick explanation about the changes, which happened in the segment reporting.
We changed segment reporting slightly. This makes our business from our perspective more transparent. We decided to define a clear machine segment, a clear segment of machine sales that includes only the SLM machine and the peripheral equipment like [indiscernible] and other equipment. So that's a clear machine segment now whereas the After Sales segment includes everything that is related with After Sales services, spare parts, commodities, including metal powders that we are trading, training, installation, application side of it and [indiscernible]. This is from our perspective indeed a better perspective and a better definition that is comparable to other machine tool manufacturers who are also probably listed their reporting system that goes in the same direction. So the revenue share that we are showing After Sales is now more comparable to the typical After Sales segment that is reported by other machine tool manufacturers.The figures are as follows: 63%, most of the revenue was generated with Machine Sales, including accessories compared to the 78% in Q1 2017. After Sales is catching up, and this becomes now transparent. It's catching up. It's now 37%, including everything that is usually defined as After Sales revenues.After Sales Business as for the growth potential, I would like to reiterate the target that we have talked about last year of more than 20% revenue share with its definition, but it's comparable, again, to the reporting of other machine tool manufacturers. This is definitely achievable and will become more transparent in the course of the year.
Thank you very much. Getting back to revenue development quickly, as already mentioned, we anticipate to see very strong second half of the year with a very strong fourth quarter in this year same as in the years before. While it's important to mention that, of course, the frame contracts with the value of more than EUR 100 million, which we signed in 2017 will help us to give us a [ trend of ] basis for 2018 and the coming years.EBITDA is almost on the same level compared year-over-year with around 10%. We see a lower personnel cost ratio but higher cost of materials ratio as explained due to stock building in preparation of moving into our new building, which as I already mentioned has started and will take another few weeks to be finalized. But in order to be able to deliver machines during that period of time, we have to purge some respective inventories.Net results increased by almost 18% compared Q1 2018 and Q1 2017.Working capital intensity increased by 19 points, up to 71.5 points now, which is significantly higher than Q1 2017. The amount is EUR 58.3 million now. Again, the same reason as already explained on the cost of materials ratio, we have built up stocks in order to be able to supply machines to our customers during the time when we move into our new building and expect [ decrease ] in working capital over the course of the year.For strategic outlook, I would like to hand over back to Uwe Bögershausen to explain us where to lead in the future.
Our strategy hasn't changed too much. We've been very successful in 2017 by selling these large contracts. We will strengthen that strategy by entering other partnership contracts with other -- customers, not just from Asia, but also from Europe, and probably, the U.S. We want to -- we are a machine tool manufacturer that's for sure, but we want to increase our After Sales and service revenues and activities. And therefore, we will include software solutions, training, consulting, other consumables. And well, I wouldn't call it turnkey solutions, but at least we help our customers to integrate the technology into their existing production facilities and existing production processes. So the overall strategy hasn't changed. We will have a strong focus on After Sales activities.We reiterate our outlook for 2018. We confirm the EUR 125 million in revenue. We -- again, we will put a strong focus on long-term frame contracts in collaboration agreements. We're in a good way to convince some European customers as well. Product mix will include more production-oriented machines. So Multi-laser tools and the SLM 500 and 800. The double-digit EBITDA margin is still expected, yes that's definitely feasible, and the first quarter underpins that we're on track and everything is according to plan. Our long-term vision is still intact. The EUR 500 million in revenue with a positive EBITDA margin of at least 20% by 2022, that's confirmed in this outlook.So the investment highlights -- highlights you already know. We're now open to answer your questions.
[Operator Instructions] The first question comes from David (sic) [Robert] Burleson, Canaccord.
Sorry, I didn't understand my name. I thought you said something else. So I guess, probably the first thing to understand for me is just the SLM 800. I was just curious geographically you've had some success in China. Kind of wondering if you look globally where you think your biggest opportunities are going forward and kind of what's behind that difference in timing.
Okay, that's a good question. As you know, the first SLM 800 for 2018 and 2019 were sold to a customer in China. So we've got a strong focus on this Chinese customer right now. And that's what I expect is that the interest is huge for that new machine as we are now able to produce much larger parts. So what I expect and what I see in the [ lease ] is that many customers from different industries and from different regions, including Europe and including the U.S., are very interested in the tool as such. We have to be a little bit cautious. We cannot take too many of these orders if we are not 100% sure that we are able to produce that part. If we reminded the tool we sold and displayed at the last trade show promised in November 2017 was the first prototype. So for 2018, we want to fully concentrate on that Asian customer. We want to fully satisfy this customer. And then we are going to take orders from other customers from other regions as well. Globally, we see a strong demand for that kind of tool. The same I expect for the SLM, well this [ graft ] machine that we announced in the last few weeks. This will be a machine with 10 to 12 lasers at least. And the demand for that kind of machine is also very high, very huge globally.
Okay. And what's the most difficult part for you technology-wise in terms of getting the machine production-ready? Is it getting the lasers to coordinate together? I know that that's oftentimes a software challenge. Similar question with the new machine that you just mentioned. What's the biggest technology challenge hurdle that you guys have had to get across?
For the [indiscernible] machine, the challenge is to find the right parameter set to make trials and test runs in order to find parameters for specific materials that allow us to produce the size of 850 millimeters without any fraction or any difficulty. Regarding the machine as such or the system as such, please keep in mind, we have to -- the customer wants to combine up to 5 machines with one fully automated [ pump ] handling stations. And this requires automization and process know-how. So this is developed in parallel. These are the 2 challenges that we have right now. [indiscernible] Obviously, I didn't understand that you also asked for the cubicle machine. For the cubicle machine the number of lasers is definitely the challenge that we have to overcome, combining 10, 12 or even 16 lasers. Such a machine, requires a lot of R&D efforts for the optics for the lasers. Packing the lasers in a more [ neat ] environment, that's what the challenge is.
Okay. And then one last one for me. Curious in terms of the lasers that you guys source whether or not you've explored programmable fiber lasers as an option where the beam intensity and pulse and things like that can be adjusted in real-time, while you're using a laser whether or not that's something you guys have explored in your tools?
That's a topic that we explore. We have some -- we have a team working on the lasers and the different laser software. So beside of that, we are evaluating other laser concepts as well. But we can't go, I ask for your understanding, we can't go into the details, because that's know-how that we currently develop and that is quite confident (sic) [ confidential ] right now.
Sure. And just -- I'm sorry, I said that was my last one. But let me sneak one more in there before I turn it over. In terms of the competitive landscape, it feels like things are getting a little bit -- you guys are looking at different types of processes, material jetting processes, other ways of making metal parts that aren't quite as dense. And I'm wondering whether or not anything is changing in terms of the total addressable market for laser-based -- for powder bed-based machines like yours? Or is the market partitioning a little bit in terms of different processes that large customers are evaluating for different types of parts? Anything changing the size of the market that you're seeing for your solutions?
No, I don't see a major change in the competitive landscape. There are other competitors approaching like Desktop Metal, for example. But these competitors they are using a different process, and we clearly see that it's a purpose for that kind of technology. But it's not direct competition to our parts due to the technical and physical restrictions of these new processes. So we are sure that our customers are evaluating that kind of technology as well. But if they want to achieve absolute full dense -- parts with full density then there's no other ways than using the laser beam or the electro beam. So that's from our perspective still valid. So if it comes to prototypes or something that just looks like metal but doesn't need -- doesn't require the material -- the cut properties or material properties of [indiscernible] parts, then these new technologies might be an option. But that's not what we are aiming for. We are aiming for parts with full density.
Question is from Adrian Pehl, Commerzbank.
Actually 5, 6 questions if I may. First of all, on your new segment format. That obviously includes services replacement and merchandise. So merchandise probably mostly consumables, but I was just wondering if you could give us a rough split of these 3 components within the Aftermarket segment? And just to be clear on that, how does it change now the average selling price per machine, which I calculated last year on the old format so to say at EUR 650,000? I mean, can you give us a figure for this one? And then on the bookings in the last 5 weeks so to say versus last year, so that's probably 10 versus 1. So I was wondering whether you could elaborate a little bit on those additional tools in terms of regions, and applications and maybe on the Multi-laser, i.e., high end versus low end share on those. But I was also wondering to some extent is there is an Easter effect, that we should take into account here, which has obviously influence this number or any other seasonal component to that? And then, also, you show the same lead value in the presentation as in Q4, given that now bookings have obviously accelerated. I was just wondering also the lead activity has accelerated in April and early May, obviously. And then I might have some follow-ups.
Yes, thank you very much for your questions. First of all, the unit price of the machines if you have done the calculation based on the old segment report, then you are right. Then you should take that into consideration. It should be some 10% that lower the unit price if you do the calculation on the new figures. So some 10% of the old price should be affected by the auxiliary equipment that we considered Machine Sales in the past.
And maybe just a quick follow-up on this one, because also you show the order intake value. But I have not seen you making any restatements on that. So are we here comparing apples with apples actually when I look at the value? Is that...
The order value always comprised only the machine. So let's put it that way. We justified the technical reports. That is why that is now comparable to the unit prices that we report. Regarding the split, roughly, EUR 1 million, EUR 1.5 million of the After Sales service is powder. I think that's the most relevant figure for you, isn't it?
Yes, absolutely. That's helpful. So I should also consider that for these -- is services larger than replacements or spare parts at the moment? Probably yes.
Yes, sure. That's definitely true. We got into bookings. You're right. It's mainly the EMEA region where the bookings are coming from. It's not China if that's your direction. It's mainly the EMEA region. In Asia-Pacific, we also have a slight increase. In North America, is still quite slow. Please keep in mind that in North America, the negative impact of the GE takeover. I don't want to mention that stuff anymore, but the negative impact of that incident is -- was the highest. And therefore, we still have to find ways how to replace that large customer. For the other regions, especially EMEA, the order intake looks very, very positive.
Okay. Should we factor in some kind of seasonality from the Easter vacation, I was wondering? And also, in conjunction with the lead activity, that's my question. If there really a new trend coming up? Or do you sense that should be think of it like rather seasonality adjusted and not much of a change?
Well, what I think is that we should always keep in mind that the first quarter 2017 was quite strong. At that time, we reported high order intake and with many SLM 500s. So for me, it's better to add up the first 4 or 5 months of the year in order to get a better picture of how the year started. And that's why we did this calculation based on 8th of May. And so if we include April and the first part of May, then we have reached 35% ahead of last year. And I think that's the most -- the more valuable indicator for us.
All right. And then just also technical question. If we, actually as you said, compare apples with apples in the Q1 order intake value. So the SP was nevertheless down to some extent year-on-year. I mean, is that you, what kind of mixed effect should factor in or is that partly also due to U.S. dollar move, because not everything was sold in euro or is it a wrong assumption?
No, it's more based on slight -- on a slight impact of the product mix year. So in Q1 2017, we've had some more SLM 125 and more SLM 280. So the mix effect is more relevant than any other factor. Actually, we sold -- in the first quarter of 2018, we sold 3 SLM 500s compared to 1 in 2017. But as we sold more of the very small machine and less of the 280, the 280 you should always keep in mind, the 280 becomes more and more valuable for us, because we are selling mainly twin laser systems and with a lot of periphery. So the value of that machine becomes more and more important. And as we sold less of that compared to Q1 2017, this might be a slight distortion that we have in the -- slight distortion that we have in the ASP.
All right. And then final question from my side on the larger framework contract that you are focusing on since Chinese New Years now, quite some time ago. I just wondered obviously can you share with us any particular details, but just from a process perspective or a timing perspective, where do we stand currently on that?
In most of -- if we have to announce something then this will come in the third quarter. Remember last year, in the third quarter and fourth quarter, we have seen these large orders coming in and there seems to be a tendency that these decisions are made in the course of the year and then [indiscernible] figures in the third quarter the earliest.
Obviously, you are still confident. And if you compare this year to last year's statues of negotiations, you would say things are obviously running as planned, i.e., that you see significant growth and interest is very strongly increasing.
Yes. It's according to plan. The framework agreements will be -- will probably be smaller than the ones we have seen with the Chinese customers last year. And it will be high profile OEM customers from Europe.
The next question is from Roman (sic) [ Uwe ] Schupp, Deutsche Bank.
I guess, most of my questions have been answered. I will be focusing on the frame contract as well. The way I read the press release this morning and your quarterly report, you indicated that your efforts regarding frame contracts already were visible, already in April and May. Is that correct assumption? Or would that be apparently you just indicated that it wouldn't be a case, it would only be happening Q3?
Yes, exactly. All right. As for -- as you know, we have a new colleague onboard. Dr. Schulz and he is strongly focusing on that. And he just defined very promising process and role model for that kind of contract. So I think, we that will not see the impact in Q2 already, probably not. But Q2 is still a way to go. So never say never. But I expect that for Q3.
And then you also -- I mean you sound definitely rather confident, because you talk about we will see these orders meaning you attribute the high likelihood to it. Is that the correct assessment of the situation?
Yes, that's the perfect assessment. If I were a lawyer, I would say, I expect that maybe we will see some larger contracts. [indiscernible] for the wording, but that's -- of course, there are uncertainties. There are always uncertainties, but I'm confident that's the correct assumption.
Is your conviction level higher than 2 months ago, when we had the last call?
I don't know how to measure my [indiscernible] .
Just to maybe rephrase the question. You say correctly that you talk about some European customers and not only one European customer that is left. Was that correct?
We are talking to some customers. That's correct.
All right. And then just lastly for me. In terms of how -- you indicated that it may be just a pattern for these companies to kind of order for whatever reasons only in second half. Should you get these 2, 3, 4, whatever the number is potential framework customers. Where are the discussions going? What is the missing element for them kind of to go in all-in on SLM technology and moving to serial production? Is it financing? Is it some technology hurdles? Is it some kind of internal nodding by the board level? What is it really that holds people back at this stage?
Well, I think financing something definitely not the issue for that kind of OEMs. But I think, it's clear that such a decision takes some time and that the OEMs want to be sure who they partner with. So it's a finalization of their business cases internally.
And then sorry very last one if I may. We are approaching the, I was going to say, the 12 months typical period for when contracts of senior management people is or are extended. Are you expecting a similar, again, this is probably difficult to comment on your own situation, but are you expecting a similar lengthy process for your renewed contract? Or could that be an ideal case also done within the normal 12-month period?
Well, first of all, our periods of discussion is shorter than that, than the 12 months. And to be very honest, I didn't spend a single thought on my personal contract. And we are focusing on getting the orders in and subsequently signing contracts that we already agreed on. That's what we are focusing on. I spend some thought on the contracts when it's time for that.
It's not necessarily this coming summer month could be later than that, is what you basically tried to say?
Yes. That discussion will come when it's time for that. And something on getting the orders in that's the operational business. That's the most important and the only relevant topic that we are working on.
My point would be simply your relative [indiscernible] company after all, many investors are still attributing your name with the company. And I think that is why it would be a good signal. But again, I understand your situation as well. So it's not...
I can't comment any further. Because as I said, the discussion, the period of discussion with the supervisory board will start later this year. And -- but before that, I don't spend any energy on thinking about contracts or whatever. We are focusing 110% on getting orders in. That's what we are here for.
The next question is from Philip Saliba, HSBC.
Sorry for the short delay. Just wondering, in the press release you mentioned framework agreements in the value of EUR 100 million in the last year. Is that just a ballpark, or could it be even more? I mean, in the last year, I remember you did indicate some ranges. And if I sum all these 4 orders up, potentially you could also write at a value above EUR 100 million. And then you also mentioned recently a EUR 40 million out of that will be delivered this year. I assume it's still valid. And what's the schedule there? Is it also Q3, Q4 loaded? And then in terms of the 12-laser or 16-laser machines, just to understand what will be the innovation? Or can I -- in terms of the simple mathematics, can I assume we move from 100 cubic centimeters build speed to more than 300 cubic centimeters? Or how should I do -- what's the rough indication there? And then in terms of supply chain, is there anything, any shortage, any longer lead times on your main input products, lasers, optical systems and so on?
Okay. First of all, I have to apologize. You are right, it's a mistake in the translation. In the German version, we clearly said at least EUR 100 million. So that's -- you're right, that's a ballpark figure. In the English version, we said a value of EUR 100 million. It's also at least EUR 100 million. So that's obviously a misunderstanding. You're also right with your assumption that most of the frame contracts will come in in Q3, Q4. But we will already see some deliveries in June. So that's what we are currently working on. Regarding your assumption or your estimates, regarding the number of lasers. You are right. There is always -- you cannot just double. If we double the number of lasers, we cannot just double the cubicle centimeters, but nearly. There's always some loss in efficiency. But you can nearly put that in the correlation. Shortage in supply chain. No, there is no shortage regarding powder, lasers or optics or whatever. Everything is according to plan.
The next question is from Thomas Effler, ODDO BHF.
The first question is regarding coming back to the SLM 800. When do we expect the first deliveries? Is it kind of already in Q2 or later in Q3?
The first shipment was in Q4 2017 already. The very first machine. But this is for testing purposes, especially for testing certain material the customer wants to use. And the shipments I expect for Q3 this year.
So in kind of the first ones or are they all going in one go?
No, it will be -- well, I don't know how many will be shipped in Q3 and how many in Q4. But if you want to model it, it's more or less equally distributed.
But they all -- I expect it will -- to be delivered this year, the [ 21 ] [indiscernible]?
Yes. The remaining 9. One was -- again, one was shipped in December and the remaining 9 will be shipped in Q3, Q4 and end in 2019.
Okay, good. Second question regarding your working capital intensity. It was up to 72% in the first quarter. Can we expect a kind of normalization during the rest of the -- remaining of the year -- is going to be the same we can assume?
Yes, we can expect a normalization as we are now as I said, we are pre-producing machines for the movement phase. We are now moving into the new building, and it will take some time for us to catch up production again, but we will still ship machines.
Okay. Another question regarding your software business. I think, if I read it right, in the report, you were saying you're expecting software sales coming up in the second half of this year. So [indiscernible] , what kind of volume you expect to sell software?
It will start beginning of Q3, volume will be relatively low as we are starting with the former beta testers. But then it will -- we will ramp that up steadily.
Okay. And regarding your personnel cost ratio. Kind of, are you still hiring people or how is the situation, there for the personnel cost ratio we can expect for the current year?
The personnel net cost ratio will be on the same level as last year, more or less, and normalize. This is what we expect. And yes, we are still hiring people. But only we take a very close look to the revenue development, and we are very strict and restrictive with hiring new people. For service and for development, we always need good people, that's for sure.
There's the final -- last question from Adrian Pehl, Commerzbank.
But anyway, just 2 ones, actually I was wondering just connecting to the question that has been asked before on personnel cost. Assuming that, obviously, we should expect quite a revenue ramp up, I was just wondering whether you could give us some clarity, again, on the production personnel that you have and how you work with temporary staff or outsourcing partners in terms of assembly. So just to make sure that everything can be shipped out in time, obviously, always the last week of the year are pretty busy here. And the second housekeeping question is actually on the tools. I remember correctly, hopefully, that has been delayed from Q4 into 2018 since the customer wanted to have them later, obviously. When should we expect our sales volume to hit your P&L?
Yes, first of all, regarding production. Yes, we are working with part-time workers and external workers to a certain extent. In addition to that, we agreed on a very flexible time schedule that allows future overtime in the second half and in the first half of the year. This overtime that is collected in the second half is then written down. So that's a very flexible working scheme for us. It's 100 hours in total overtime per employee in the second half and minus 30 -- up to minus 30 in the first half. So this allows us to breathe with our capacity. The orders that were delayed are coming in, so they are coming in steadily over the next few months. There's one Japanese customer, for example, who will placed his order in April instead of December. And others will come as well. So this will come in steadily.
The next question is from Gerhard Orgonas, Berenberg.
Just a question on your receivables, please. They've almost doubled year-on-year and didn't come down as much from Q4 as they used to in previous years. Can you give us an indication what's going on? Do you have particular clients or did you extend your payment terms?
As I already said, January and February were relatively slow for our business. And therefore, most of the revenues came in at the end of the quarter. This has direct impact on the level of accounts receivable. That's the reason for that. There are no overdue receivables if that's your question.
At the moment, there are no further questions via the telephone lines. [Operator Instructions] There are no further questions. I would like to hand back to you gentlemen.
Thank you very much for your interest in our company. I know it's a busy day for you today as many companies are reporting Q1 figures. So thank you very much for your interest. And as always, if you have any further questions, please don't hesitate to contact Dennis or me in order to clarify open questions. Thank you.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.