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Dear ladies and gentlemen, welcome to the SLM Solutions results for the first quarter of 2021. At our customer's request, this conference will be recorded. [Operator Instructions] I now hand you over to Sam O'Leary, who will lead you through this conference. Please go ahead.
Good morning, good afternoon, everybody, and thank you for joining us today as we review Q1 2021 earnings. Along with me on the call is our CFO, Dirk Ackermann. So I'll begin with a review of the progress we made in the first quarter. Doug will then run you through the financials, and I'll round things up with a general market update, followed by clarity on our NXG commercial progress. So Q1 represents continued progress, both in terms of our commercial and operational performance. Firstly, we delivered an order intake increase of over 350% compared to the same period last year. This, in turn, resulted in a more than 70% adjusted backlog increase. From an operational perspective, we delivered a 30% EBITDA improvement, even considering a slight reduction in revenue. We have continued to deliver excellent progress on confirming NXG commitments, including signing a detailed MoU with a leading energy OEM. Please note that NXG, our existing portfolio, is the best in the industry and is increasingly enabling fantastic applications across every industry segment, with some noteworthy examples since we last reported. Firstly, we worked together with Safran on another world's first. A 3D printed landing gear was produced here in Lubeck using an SLM 800 and delivered a 15% weight reduction. We have supported aero engine production applications on the SLM 500, delivering enhanced performance and a little bit closer to home, we're proud to see one of our automotive production customers using the SLM 280 to deliver huge productivity enhancements and achieving build rates that are frighteningly high. Then moving gears to rail transportation. This week, we published another fantastic use case where the SLM 800 is enabling a reinvention of a locomotive brake panel, delivering a 70% lead time and a 50% weight reduction in a production application for Wabtec. They are all, of course, remarkable use cases and validation of our technology, but there are just a handful of the things we see day after day. We see every day how this technology is being adopted and how it will change the future of manufacturing at an ever-increasing velocity. And we have taken an increasing share of this dynamic and growing market, gaining 3% market share throughout the course of 2020. With that, I hand over to Dirk for a review of the numbers.
Thanks, Sam. Good morning and good afternoon, everyone. Overall, we had a solid start into the year. We are especially happy with the order intake in the first quarter, which is historically the weakest quarter within our industry. Similar as stated on the last earnings call, we continue to see an increasing demand, which is getting closer to reach pre-pandemic levels. Due to the positive development of vaccinations and infection levels in our core markets in Europe and the U.S., we strongly believe growth will further accelerate, especially in the second half of 2021. The second very positive news is on EBITDA, which improved notably despite the lower revenue, which is mainly a result of implemented cost out actions. Overall, this showcases that becoming EBITDA positive during the course of next year is more than feasible. Revenue, while being down year-over-year is fully in line with our operating plan for the year. Major driver for the decrease is the conversion profile of our backlog, which I will explain in more detail on the next page. Operating cash flow was significantly lower as we already started with the purchase of inventory for machine deliveries in the second half of the year given the increased backlog. We expect the partially reversing impact of this over the next few quarters. On the next page, we want to provide a more detailed look into our backlog. As you can see on the left-hand side of the chart, as expected, a significant amount of backlog is expected to be converted in the second quarter. However, what is different to prior years is that we already have a notable backlog for Q3 and Q4 deliveries. Consequently, the year-on-year comparison of our backlog shows a significant increase, even more so if we consider the adjustments we performed in the second quarter last year. As we stated previously, the majority of our growth will be achieved in the second part of the year, and the existing backlog is key for this. Please also consider that the backlog number is only for machine deliveries and does not include stand-alone service contracts. With that, I hand over back to Sam.
Thank you, Dirk. So the end of Q1 marks the annual release of the AM Power report. This is focused exclusively on metal additive manufacturing. Based on this report, which reconciles data from suppliers and end users, we delivered market share gains in all regions, with the strongest growth observed in EMEA and the U.S. We're perfectly placed to deliver continued growth in share gains based on strong and continued application of our existing portfolio, our broad industry coverage and existing customer base, of course, the ongoing commercialization of the game-changing NXG XII 600. And the release of additional features and product launches. What I can assure you is we will never stand still. Moving forward, the expectation is for strong growth in the metal additive market with a full recovery from the COVID-related slump. A view delivered not just by the producers of the equipment, but from the users and buyers of the technology. We expect to continue to exceed market growth. And finally, there was a very strong trend towards the continued adoption of multi-laser technology, where we are best placed as the market leader. Buyers forecast more than 75% of all system purchases will be multi-laser technology in the following 5 years. Quite simply, it's the key enabler for volume production and high-level adoption of this technology. So during the last earnings call, I introduced you to this road map of how a typical inquiry to backlog process and time line looks to the NXG XII 600. Today, I'm happy to give you an update on that progress. So we have current commitments for 10 machines already, 2 of which are included in our backlog. The remainder are covered by MoU and/or reservation fees. We only include these units in backlog once every last part of the process is confirmed and contractually committed. What's important is these MoUs become binding once technical requirements are met. They are immensely detailed and diligently agreed by both sides, and they represent a binding commitment to proceed once the technical milestones are met. In addition to that, we are currently in the latter stages of negotiating 2 further MoUs. What is even more positive is that we have industry coverage already from aerospace, automotive and energy. On top of that, our pipeline of interesting parties is extremely strong. Given how the NXG is enabling our customers to completely transform how they architect their manufacturing processes and how they think of leveraging additives, this means that there is a very rigorous selection process, one in which we are, of course, very closely involving. While this means the initial sales cycle can take several quarters, it also means that once a customer partners with us, the barriers to entry or replacement are extremely high. We believe that the technological lead that we have with the NXG puts us many months ahead of our competition. Progress continues to exceed even our high expectations. But I urge all to understand that this is not a kick the tires and sign a contract type of transaction. The process is long, conducted at high levels of our customers' organizations and is always based on detailed technical review and testing. This doesn't happen overnight and nor should it. So in summary, we delivered strong performance underpinned by industrialization of existing technology with existing customers, plus of course, adding new ones. We see continued application of our technology across all major industries, resulting in solid and defensible market share gains. Whilst we are happy to report strong and continued commercial progress, there exists plenty of room to further improve, and this is very much a work in progress. I won't bore you with the operational excellence statements, but what I will tell you is that we continue day by day to improve how we operate and simply, we are and will continue to run the business better, driving forward on the path to profitability. The reported results are entirely in line with our operating plan and guidance. And finally, as I mentioned, the NXG commercial progress continues to exceed our strong expectations. With that, I thank you for listening, and welcome your questions.
[Operator Instructions] The first question is by Uwe Schupp of Deutsche Bank.
Yes. I'll probably start with, I don't know, 3 or 4 questions and then jump back to see if anyone else is on the call that wants to ask questions. Firstly, on your guidance. If I see correctly, or my math would be as following, I would say. You got EUR 15 million or so of revenue in Q1, just above that. You just indicated that if I saw it correctly that EUR 25 million of the backlog will be earmarked for shipment this year. So that gets me to EUR 40 million already. And then you have obviously the services desk business, which, Dirk, you just said it will not be part of the order backlog traditionally. So that gives you another EUR 4 million per quarter will make it EUR 12 million for the rest of the year, already gets you to more than EUR 50 million compared to your guidance, which is obviously unchanged at roughly EUR 70 million. So is my math basically correct here? Or would you say something is missing? Because obviously, it will imply that you only need EUR 20 million or so of orders in the remaining 2 quarters or however the lead times might be. And I'll probably jump back and then ask further questions one by one.
Okay. Hi, Uwe, and thanks for the question. So I think your math is completely right. I think everything what you stated is accurate. So as we said before, like in Q1, like there is a possibility to have a significantly better result during the year, depending on kind of the growth in the second half. So if kind of the growth expectations are more on the positive side, we can definitely achieve a better result as what we guide. But I think there's a couple of question marks. I think the last couple of weeks were quite positive, especially in Europe and also in the U.S., continues to be on a positive momentum. So I think we are on a good track. But for the time being, we'll leave the guidance as it is, and we'll adjust if we have more clarity there.
Related to that, you indicate in the quarterly report that the second half is likely to see an acceleration in new orders. You obviously didn't mention the second quarter, and I was just wondering what's the reasoning behind, should we assume a dip in Q2? Or any particular reason to be more cautious? Any comments on April would be obviously supportive.
Yes. Thanks, Uwe, and thanks for the question. No, as Dirk pointed out and in the report, we do, of course, expect to see a strong second half to the year. That doesn't mean that we expect to see a dip in Q2. Progress is good. We're seeing good traction in key markets. So I wouldn't expect to see a poor performance in Q2.
And maybe to add, Uwe, like Q2 last year was kind of the first quarter where the full impact from the pandemic was like, really hitting us. So from that perspective, you can expect that there will be definitely an improvement. So yes, you will also see a growth in the second quarter.
Right. And can you update us on where lead times currently stands for the -- well, legacy without being disrespectful portfolio?
It's not disrespectful, but yes, it's very configuration dependent, Uwe. We generally run a -- somewhat of a build-to-order cycle, but there is the potential to convert within quarter for realistically all platforms other than the SLM 800.
So in theory, that means you could still -- like in particular, if I'm a customer that you know well and with configurations you know well, you could even convert an order that would be coming in, say, September or October time frame this year?
Absolutely, yes.
But in general, usually Uwe, we expect everything which comes, for example, by the end of Q3, which can be delivered in Q4, to be delivered in Q4. So if someone places an order on September 30, we still expect to deliver the order within the year. As long as it's not the SLM 800, as Sam mentioned.
That's very clear. And then, Sam, more strategic one. Some of my companies have actually indicated recently and is obviously hitting the news every day now that obviously, there is a component shortage out there for not only semis, but really across the board. I was just wondering whether that is also causing you some headache. And if there is anything that leads to a shortage or something of an impact with SLM, what component would we be talking about?
No. There's nothing of note, Uwe. Of course, there are some issues generally within global supply chains. We are generally well placed. We've taken some actions to ensure that we don't have a limitation in supply. In some areas, increase some safety stock. But as things stand now, Uwe, I do not expect to see any limitations to our capability to produce machines.
Okay. That's interesting. And obviously, good to hear. Okay. That's also -- yes, maybe a broader question then related to that in terms of raw material price increases. Obviously, your machines may require a fair amount of metal. And any impact -- have you clauses with your customers where you could basically increase prices and pass through any price increases? Or how does it usually happen?
Well, well, look, Uwe, we generally have agreements with our suppliers that do not rely for variability over the course of contracts, primarily on a call-off basis. So yes, I would note that there is naturally some raw material price increases. Again, it's something that I believe is manageable and something that I do not expect to impact the margins on our products in the foreseeable future, nor do I expect to pass this on to our customers.
Okay. So no margin squeeze from the raw material price increase as far as you can see from today's perspective?
As far as we can see from today, no, we're comfortable with the supply contracts that we've got with our key suppliers, and therefore, I feel comfortable in such a statement.
Excellent. Last one for me, for the first cycle. For the -- if you can just -- if you could explain to me the Page #7, which looks very interesting with regard to the NXG update. Basically, the numbers to the right, what would they indicate, like the number 50, for example, on the product introduction, is that number of customers that basically have seen the machine? Or what does it imply?
Yes. So I wanted to try and make it as clear as possible here. So when we -- there's much more than 50 customers interested. When I refer to this number of just more than 50, these are customers that we've done specific technical introductions to the product. So we've spent time generally with our product management team or technical team explaining the capabilities, the features of the machine. So a dedicated customer meeting is how you can consider those -- that number of 50.
And just to clarify the number 2 towards the bottom of that page, on the right-hand side. When you say 2 ongoing final stage MoUs, these are the 2 that you have reported, the second of one -- the second of which you have reported today?
No, these are additional ones, Uwe.
[Operator Instructions] Currently, there are no further questions, so I hand back to you.
Okay. Thank you very much. We appreciate the time. Sorry, Uwe, is -- there's more questions, sorry?
Yes. Uwe Schupp is coming back. Uwe Schupp from Deutsche Bank.
Yes. Sorry for that. I will actually make use of the opportunity, Sam, if you don't mind. Inventory was up EUR 3 million or so quarter-on-quarter. Should we read into that, that indeed the second quarter revenue will be up on Q1 by maybe even a fair amount?
So as you saw on the backlog number, there's already like significant like backlog for Q3. And there, so we also started like, for example, production of SLM 800 units where we have a couple of, like going out in this quarter and in the next quarter. Plus we also, for example, for the NXG beta unit, which will be shipped. So all of those putting together kind of explains a bit the majority of the inventory increase and all of them will convert into revenue over the next couple of quarters.
Okay. Got it. Then in terms of the 2 MoUs and the 2 other ones that you just reported, how happy are you with the conversion rate from MoUs into hard orders? Is that going according to plan? And what's really holding customers back from giving you an outright hard order with ideally, with a deposit, even?
So it's -- I mean we -- I'm happy with the progress. And of course, these are extremely deep technical discussions. The MoUs are significantly detailed documents. They contain not just a commitment of, hey, we're interested in the machine we'd like to purchase. They detail all of the technical requirements that need to be met, the productivity requirements, the material requirements. And what we do during the period of MoU execution is work with the customers to prove that, so that what they're doing then is committing to a system that they've already pre-validated in terms of technical output. And this is really important to us and also extremely important to the customer. So I -- whilst I would love to report all of the MoU units in the backlog, it's more important for me to ensure that the customer is satisfied with the system, is satisfied with the output and is in a position of complete understanding of technical performance, and this involves off-line calculations. This involves specific builds. In some cases, it can even involve component tests at the site of the customer as well. So there is little value on the customer side or on our side to push that through. So the conversions will keep coming throughout the course of the year, and we're very comfortable with the progress on those conversions, the detail of the commitments within the MoU and also the initial results that we're getting on some of the early MoUs with supplying build plates to customers and receiving their feedback in terms of the destructive testing, for example, of such build plates.
And Uwe, just to reemphasize the points Sam also made like, they are like specific requirements in those MoUs. If we fulfill them, the customer has to purchase it. So there's a legal obligation to -- for them to purchase it. I think, depending on the company, some would put potentially already in the backlog because we are quite comfortable that we will meet those specifications. But like our policy, as we stated already last year when we made those backlog adjustments that we rather run a conservative approach and only consider orders which are really legally binding.
Right. Okay, got it. And the first MoU you indicated earlier this year that was, if I'm not mistaken 4 machines or 5, or...
It was 5, Uwe.
Right. And the second one would be similar. So it's not just one, that is what I'm trying to get at.
No, it's not just one. It's multiple.
Got it. And then more strategically, Sam, have you -- over the last 2 months since we didn't speak, come closer to any thoughts regarding, a, an IPO in the -- or secondary listing rather, in the U.S.? And also related to that, any update on your potential movement towards the West Coast?
Yes. So let me start with the second part of the question. So from a West Coast perspective, we are exploring still a couple of options. I do fully expect us to proceed during the course of the year in one direction or another. And the analysis and discussions are ongoing. Whilst I do not have anything solid to report, we are moving forward with that direction, and I hope to be able to come back to you soon with something more substantial. Similarly, on the U.S. listing perspective, we're exploring the requirements and analyzing that. And once the analysis is complete, we'll define final directions. I mean, as I mentioned in the last call, this is purely cost benefit analysis, and we're working through that now, and we'll come back as soon as we have a clear answer.
Got it. And then I would just have 1, 2 housekeeping questions for Dirk, maybe. Dirk, I didn't see the number of employees towards the end of March. Did you -- do you -- could you provide this number?
I don't have it at hand, Uwe, but it's definitely a slight increase to the year-end number, but I don't have the exact number, but happy to shoot you a note afterwards.
Yes, it would be helpful. The reason I ask is, because of the EBITDA swing, which obviously was an improvement year-over-year, small, but still an improvement despite lower revenue. And I was just wondering what's behind. I get the comment that you made in the quarterly report where you say that there are savings, COVID-related savings because your sales force didn't travel, obviously so. But I was wondering whether there were any other impacts that would not snap back, so to speak, in the coming quarters?
Yes. So as the travel costs are definitely one point. We also spent significantly less on consultants, which we used, especially in the past very heavily, as we kind of have now more internal resources to not really require those third-party consultants. There was also some positive impact from FX as the euro appreciated against the U.S. dollar and the Chinese yuan. So there were a couple of things, but the maturity is really coming from like more focused cost. If we look at personnel expenses, last year, we had significant severance payments, as you might recall. So those didn't repeat this year. So if you kind of take those out, there would be actually an increase on the personnel cost side, which makes sense as we increase the workforce.
Okay. Is there any comment on mix as well, in terms of -- did you sell some bigger machines or smaller machines rather, in the quarter year-over-year?
I don't want to go into the exact details on the mix, but we see continued progress on the larger platform machines, so the 500 specifically, and of course, 800, too.
Right. And obviously, the 500 would be higher margin compared to the 125 in particular?
Yes, it was.
The next question is by Felix Eisel of CCA.
A quick one. You mentioned an MoU with an energy OEM. With an energy OEM. Is that oil and gas? Is that renewable?
Hi, Felix, and thanks for the question. So unfortunately, we are not allowed to give any specific at this point, like the customer specifically asked us not to put out the press release at this point. They kind of want to wait till the technical specifications are met. So we will not give further details to not kind of give an indication with these customers, but I can tell you that's one of like the really big brands in the world. So really a major group player.
All right. So then there are no further questions. So I hand back to you for closing remarks.
Okay. Thank you, everybody. I appreciate you taking the time and look forward to connecting again soon. Thank you and wish you a good day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.