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Dear ladies and gentlemen, welcome to the SLM Solutions Half Year 2021 Results. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Sam O'Leary, CEO, who will lead you through this conference. Please go ahead, sir.
Thank you, and good morning, good afternoon. Thank you for joining us today as we review H1 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 half of the year, update you on the commercial and technical progress of our NXG technology and give you some clarity on our new U.S. West Coast facility plans. Dirk will then run you through the numbers, and I will round things up with a closing summary prior to the Q&A. So H1 2021 represents, once again, continued progress both in terms of our commercial and operational performance. Our H1 backlog is up 57%, which is a key driver for growth in the second half and, of course, delivering on our guidance. 2Q revenue was also up 23% year-on-year, with H2 total revenue also increasing modestly. This is in line with our operating plan. So moving on to the NXG and the engineer in me has to start with the technical progress. What you see on the right-hand side of the slide is a proud CEO showing off one of our ongoing system stress test builds. We believe this to be the biggest and most productive metal laser powder bed fusion build ever produced. Aside from any world record, it's an important part of our ongoing multisystem validation work. Commercially, we've continued to deliver excellent progress on confirming NXG commitments, including an additional purchase order within the automotive industry and our first MoU and subsequent reservation fee from a U.S. aerospace OEM. Given our expectations to deliver between 10 to 15 NXG XII 600 machines to customers in 2022. This puts us already in a very favorable position with 3 machines in backlog, 3 machines covered by reservation fees and 6 machines covered by MoUs. We therefore expect to have a level of backlog by the end of the current year that covers the entire capacity for 2022. And of course, our existing portfolio continues to enable new and exciting applications across the world in all of our key target industries. We will also commence initial operations at our new U.S. West Coast facility in Q4 this year. This facility itself is in very close proximity to LAX Airport. The reason we're doing this is very simple, and that is to serve our existing and new customers in an extremely buoyant local market. The U.S. market for system sales accounted for around 30% of all global system sales in 2020 with an expected 3x growth by 2025. As you can imagine, the NXG can deliver a lot to aerospace customers, and there is a large concentration of existing and new potential, specifically in the U.S. West Coast area. The facility itself will be focused purely on nickel-based superalloys and will house hardware covering the majority of our portfolio along with aerospace application and materials engineers to develop new application cases and work together with our customers. Logistically, it will also be beneficial to ensure same-day shipment of locally held consumables and spare parts when needed. With that, I will pass it over to Dirk and we'll take a closer look at the numbers. Dirk, over to you.
Thanks, Sam. Looking at the financials, we showed a solid performance in the second quarter. Both order intake and revenue improved compared to the prior year period and underlying the improved business environment. For example, our service revenue improved compared to last year as the machines that our customers are now running mostly at pre-pandemic levels or even above. Generally, looking at our financials, our performance to date is well-aligned with our internal operating plan with most of the year-over-year growth materializing in the second half of the year. While EBITDA slightly decreased in the first half compared to last year, we consider our performance significantly better as we benefited last year from various positive one-off effects such as support payments for our U.S. entity as part of the payment protection program or lower personnel costs due to short-time work at our German side. Looking at our working capital and operating cash flow, we have been experiencing increasing pressure from our supply base as a result of the ongoing global supply constraints. To avoid potential limitations in the future we decided to increase our safety stocks for key parts, thereby negatively affecting our working capital and operating cash flow. In addition, as we start the production of the first [ zero ] machines of the NXG XII 600. Our inventory will further increase until the end of the year. At the same time, we expect our receivables balance, which has been increasing year-over-year, mainly due to unfavorable payment trends to normalize until the end of the year. On the next page, we want to provide more color on our backlog and our view for the rest of the year. Overall, backlog increased significantly compared to 2Q last year to EUR 30.2 million. Out of this, we expect around EUR 21 million to convert into revenue until the end of the year. On the right-hand side of the page, you can see how we think about the second half and the achievement of our guidance. As communicated previously, we expect revenue growth of at least 15% compared to 2020, which would be around EUR 71 million at the low end of the guidance. If we add the EUR 32 million of revenue in the first half, the EUR 21 million of convertible backlog and an EUR 8 million conservative run rate for our aftersales business, we require around EUR 10 million of convertible orders in the second half to achieve the low end of our guidance. If we look at our order pipeline for the second half and also consider historical performances into the second part of the year, we remain confident to meet our guidance. With that, I'm handing back to Sam for an overall summary.
Thank you, Dirk. So in summary, we are moving forward. I'm pleased to report a strong H1 performance, in line with our operating plan and guidance. we successfully completed an oversubscribed capital increase to strengthen our balance sheet. And signed the first U.S. aerospace industry MoU, followed by a subsequent reservation fee with the same customer. Alongside a further purchase order for an NXG XII 600 unit from an existing automotive customer. Our nickel-based superalloy Center of Excellence will commence operations in Q4 this year in L.A., to serve a very buoyant West Coast aerospace market that is excited by the NXG XII 600. Alongside that, we officially launched our new free float software, allowing support free printing, free of charge to our new and existing customers across our portfolio. From an IP perspective, an important patent was finally granted in Europe for our proprietary multi-laser overlap technology. Operationally, we continued to deliver a backlog increase, enabling our forecasted H2 revenue growth. And last but not least, our fund NXG technical and commercial milestones are progressing well, including what is thought to be the world's largest ever DMLM build and a total of 13 committed machines. With that, I thank you for listening, and we'll open it up for questions.
[Operator Instructions] And the first question received is from Uwe Schupp of Deutsche Bank..
Can we start with the guidance walk. First of all, thanks for that chart on Page 6 there. Would it be fair to say that the -- again, as you said, the after sales number of EUR 8 million for the second half is rather conservative. And also the shippable orders that you require in the second half of EUR 10 million or maybe even slightly below EUR 10 million is probably a relatively cautious number? Or do you think you've stretched it pretty much there?
Uwe, this is Sam, good to hear from you. I'll let Dirk give you direct feedback on the guidance walk.
Yes. Thanks for the question, Uwe. So I think generally, it's like we perform like well in the second half. There's that made room to kind of be like notably better than the guidance, but for the time being, also was kind of some of the unknowns, for example, how the U.S. will perform in the second half with kind of the COVID situation getting worse. I think for this point, we still feel comfortable for matching the guidance, but like there's definitely room if it's going well to over-deliver. But at this point, we remain cautious.
Related to that, I remember well that in the past and certainly on the previous management, the Formnext trade fair traditionally, we held in November in Frankfurt was actually a key event even for this year's numbers. A, is that still the case that the Formnext is still very important to you? And secondly, do you still expect -- or within the -- to reach this guidance, let me say this, to make the numbers basically? And to...
Let me take that. I think we probably all acknowledged the world has changed somewhat over the last 18 months or so. There is a reality, trade shows have a certain place in life. What they have historically not done, and I think you also understand this business, this is not an inquiry to order cycle that happens over the course of the trade show nor is it the situation that a trade show will deliver convertible orders for the same year. Now quite whether Formnext will go ahead this year and in what format is anybody's guess in the situation. We're taking a very proactive decision to not attend as an exhibitor as it is not the key driver to an annual growth. What is key is it was connecting with our customers personally and properly and really harnessing the opportunities that exist to drive things forward together with our customers. Historically, Formnext is a great place to meet and greet to see new pieces of technology but it's really not a driver of convertible revenue, for example, for this year, and it's not something that you should think of as significant in achieving our guidance at all for this year.
And did I hear correctly, you are not going to attend Formnext physically?
No, we've put out announcement and we'll continue to announce during the course of the day, we will not exhibit -- there are already significant restrictions on what can be done there, such as the inability to just kind of host events with large numbers of people. There will be extreme social distancing measures. So we've taken a proactive decision to do things differently. We will be attending a U.S. trade show in September, and we are going to be focusing our marketing efforts on focused digital marketing and customer proximity. This is essentially a consequence of how the world has changed and how we have adopted to interact with customers in a more direct and closer way.
Very understandably. So next question block would be on the NXG. If I may, obviously, you seem you are making very good progress from the announcements that you have been making. So congrats on that. I was slightly late on the call. Can you just please reiterate or state again how many machines are in the backlog and how many are MoU, so far?
Yes. Essentially, it's pretty simple. MoU is covering 6 machines, 3 machines covered by reservation fees, further 3 machines that have been included in the backlog.
And did I interpret you correctly in so far as you expect to have 15 or so machines totally in the backlog and/or MoU and/or reservations -- reservated by the end of this year?
Yes. I think based on the discussions that we're having, Uwe, and the kind of technical validations that we're doing, it is our expectation and plan that our final manufacturing number for 2022 is covered with the relevant backlog by the end of this year. Of course, there's still work to do on that, but I'm comfortable with the technical progress that we're making and obviously comfortable with the commercial progress there. That the prospect of this machine continues to excite. I think I'll reiterate, as I have done in all of the calls this year that the conversion process to get from inquiry through to MoU through to reservation fee through to purchase orders is not a quick one, it's a very technically involved one. Naturally, it's a large investment. But it's a process that we see working well and we see putting us in the position that we want to be in by the end of the year.
Got it. Related to that, a question on the backlog. So the backlog was about EUR 30 million, if I saw it correctly, at the end of the quarter. Dirk indicated that about EUR 21 million or so is for shipment of this year. So I assume that's not the NXG, which means that there's a roughly EUR 9 million or maybe EUR 10 million which must be for next year, which I presume is the NXG. Is that the way I should think about it? In other words, 3 NXG machines in the backlog for an average of EUR 10 million -- for a total sum of EUR 10 million? Or what is the right way to think about that?
Dirk, do you want to take that one?
Uwe, so it's not entirely correct. So there as of the 3 machines in backlog. One is actually a beta machine, which we will deliver this year. So kind of the remaining kind of EUR 9-ish million. There are 3 units and some other units from our existing portfolio in there.
But in total, in the backlog, there are 3, you say?
Correct.
And one of that is a beta unit, which we will deliver already this year. And there is 2 additional units, which we will deliver next year.
And the price for that must be lower than the normal selling price? Or how -- because obviously, if I take the EUR 10 million and divide it by 3, it would be barely -- again, it's probably closer to EUR 9 million or so. But anyway, it would be closer to EUR 3 million ASP? Or is that just the right way to think about it?
Like in this -- like EUR 9 million for kind of for next year, so you have 2 units in there with the NXG and you have, as I said, a couple of other orders in there as well. So from a price point, as we always said, we are around EUR 4 million ASP, plus/minus EUR 500,000 and all the orders we received so far are within this price range. So there is no change.
Got it. Okay. So okay, it's 1 machine this year. Sorry, I didn't get it the first time. Okay. Yes. right. And just 1 or 2 housekeeping questions, then I'll jump into the queue, Dirk, if I may. The personnel costs in the second quarter were actually up -- it was up by EUR 1 million or so. I was just wondering whether that's the normal run rate heading into the second half? Or were there any onetime items that we should be taking into account?
Yes, it's a good question, Uwe. So we had some negative impact from like vacation and overtime accruals as not many people were taking vacation in the first half. It kind of significantly goes up. We expect kind of an offset now in Q3 as people are taking now vacation with the vacation time starting. Same with the overtime that it goes a bit down now in Q3. There were also some -- a couple of additional like one-offs, which we didn't expect in the personnel cost. So all in all, I think it was around EUR 600,000 above kind of the normalized level.
[Operator Instructions]And there is a followup from Uwe Schupp.
As usual, I get the chance at least to ask questions for someone else. I don't want to bore you for too long, but maybe 2 or 3 additional questions. Sam, what is the ultimate goal with this U.S. subsidiary that you are now planning, which customer group in particular are you targeting also with the technology that you indicated in your prepared remarks there, which obviously sounds very interesting. But I assume it must be geared to a very specific customer group?And secondly, I would be interested in the total cost of this extra project, which I'm sure you didn't think about maybe last year same time? And then how many -- what's the total head count that you plan there call it, sometime next year on the West Coast?
Yes. So the marketplace around the West Coast of the U.S. is extremely buoyant from an aerospace perspective. There's an awful lot of opportunity with existing customers in the aerospace industry there and also new customers. The NXG purely with its productivity and build volume capabilities offers something that doesn't exist in the marketplace. What is beneficial is to have a local presence where we can work directly with the customers to accelerate the inquiry-to-order process. So where we can work directly with the customers in their time zone, close proximity to their working environment and just work together to accelerate that process. The reason that we are focusing on nickel-based super alloys is that is exactly what the market demand is in that area. And also a lot of the work is focused in aerospace applications on nickel-based super alloys and therefore, it makes sense for us to have the technical capabilities, to have the hardware capabilities and just to be there for our customers to work together and not have to have the logistical complications of working through, for example, a 9-hour time difference. We will have full coverage from the portfolio there. We will have the housing of our local service technicians there, which, of course, are already employed in the area. We will have our sales stuff there, and we'll have an engineering and operations team. It will be a relatively modest level of staffing. You can think of this in the order of around 10 people, and it will serve a great purpose. Dirk can give you a little bit more color in terms of the investment, which is primarily just having our equipment there. This is realistically the main requirement to invest there. I would love to share with you and also some more color and details on the exact customers in that area. I think it's also fair to say that aerospace customers are not usually very vocal or [ rogue ] in terms of who they're working with and why. And that's why it's difficult, of course, for us to give further clarity on specific customer names as much as I would like.
And, Uwe, maybe on just on the cost side. So from our OpEx levels, as Sam already mentioned like around 10 people. So if you estimate it was like an average sell a bit more than EUR 100,000 or a bit more than EUR 1 million. If you take the rent itself it's a low 6-digit amount. So it's not a crazy amount. So the maturity will be really those CapEx and the rest as I mentioned on the machine. So we will put like all kind of our major machines in there from the NXG to SLM 800 and 500 and so on. So -- but what is important, like usually, we, at some point, also can then resell it and also we produce benchmarks on those parts, so they can also create revenue. So we see it really more as a revenue opportunity than anything else.
And just from an accounting perspective, will you put these machines on inventory? Or where will this be shown?
[indiscernible] 6 assets and will then be basically depreciated over time. And generally, you always have the kind of internal like guidance that we should not have the demo machine more than 2 years in our kind of stock. So we continue to see them also reselling them and put kind of the latest configuration of a machine into those demo units.
Excellent. Sam, on the -- I'm sure, again, you can't talk about customers fully understandable there. But can you give us an indication of the expected backlog of, call it, around about 15 machines also at the end of this year, again, including MoUs, et cetera, how much of those would you estimate are from the aerospace customer field?
I think you can think of it very simply. And I certainly think of it very simply as well. I expect -- there will, of course, be variations, but I expect a relatively even split between installations in Europe, and installations in the U.S.. And I expect a relatively even split between aerospace applications and between automotive applications as well. Of course, this is subject to change. But at a high level, that is how I would suggest to think about it.
Got it. And if we bifurcate it maybe slightly more, is it fair to say that automotive is more single bigger customers, whereas aerospace you are really targeting 3, 4 or maybe even 5 customers?
Well, there is, I guess, from an aerospace perspective, there is, of course, the large OEMs that you are aware of. There is also a very buoyant even Tier 1 and Tier 2 supplier network there that moves that forward. When you think of OEMs from an automotive perspective, you're absolutely right, I expect us to be working primarily with the OEMs, specifically for the initial year or 2 with the NXG.
Excellent. I guess that's all I had. Thanks, guys. Good progress and keep it up.
[Operator Instructions] As we received no further questions, I hand back to the speakers.
Thank you for taking the time, everybody. I appreciate getting the opportunity to share this information with you, and we wish you a good day. Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.