Materialise NV — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; filed April 30, 2020. This is an annual report, not a standalone fourth-quarter filing. The filing does not provide clear consolidated Q4 revenue or earnings figures. Financial statements are prepared under IFRS.
Business context and key financial metrics
Materialise provides additive-manufacturing software, medical software and devices, and 3D-printing and manufacturing services. It reports three segments: Software, Medical and Manufacturing. In August 2019, it acquired a 75% interest in Brazil-based Engimplan, a medical implant and instruments manufacturer.
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | €196.7 million | €184.7 million |
| Gross profit / margin | €109.7 million / 55.8% | €102.4 million / 55.4% |
| Operating profit / margin | €7.0 million / 3.6% | €5.2 million / 2.8% |
| Net profit | €1.7 million | €3.0 million |
| Adjusted EBITDA (non-IFRS) | €26.7 million | €23.5 million |
| Operating cash flow | €28.4 million | €28.3 million |
| Cash and cash equivalents at year-end | €128.9 million | €115.5 million |
| Loans, borrowings and lease liabilities | €127.9 million | €106.0 million |
| Total assets / equity | €349.3 million / €142.7 million | €313.2 million / €136.0 million |
Net cash used in investing activities was €25.6 million, including capital expenditure and the Engimplan acquisition and Fluidda convertible loan. Capital expenditure on property, equipment and intangible assets was €15.7 million. Financing activities provided €10.8 million; the company drew the €25 million second tranche of its European Investment Bank loan. Year-end cash was slightly greater than reported loans and borrowings, including lease liabilities, but the company had no undrawn credit lines.
Material changes versus 2018
- Revenue rose 6.5%; gross margin increased 0.4 percentage points. Operating profit grew 35.9%, while net profit fell 43.0%, to €1.7 million, primarily amid higher operating costs and tax expense.
- Adjusted EBITDA increased about 13.3%. Sales and marketing expense rose 14.4% to €53.0 million; R&D expense rose 4.2% to €23.3 million. General and administrative expense declined 1.6%.
- Software revenue increased 11.4% to €41.7 million, supported by 20% growth in recurring revenue. Medical revenue increased 16.4% to €60.8 million, including €2.4 million from Engimplan. Manufacturing revenue declined 0.8% to €94.2 million.
- Manufacturing activity weakened late in the year: management cited an 11% Q4 segment revenue decline, offsetting moderate single-digit growth in the first three quarters. The filing does not give clear consolidated Q4 results.
- Operating cash flow was broadly unchanged. Cash increased by €13.4 million year over year, while debt and lease liabilities rose by approximately €21.9 million.
Outlook, risks and unusual items
- No formal quantified 2020 guidance is provided. Management said COVID-19 had no impact on 2019 results but expected a significant business impact in Q2 2020, with continued weakness and only gradual, partial recovery later in the year. Visibility beyond Q2 was described as very limited.
- Management anticipated reduced software sales as 3D-printer sales weakened; lower Medical sales due to postponed elective procedures; and softer Manufacturing demand, particularly in European automotive and industrial markets. It also expected increased bad debt, delayed customer payments and difficulty reducing costs in line with lower revenue.
- Under its then-current scenarios, management expected the going-concern basis to remain appropriate and principal credit covenants not to be breached. It cautioned that preserving innovation and limiting cost reductions could pressure cash if the crisis lasted longer. These assessments were uncertain, not assurances.
- Materialise reported material weaknesses in financial reporting controls: access controls for key financial systems; review and completeness controls for non-standard revenue contracts; and financial reporting and consolidation controls. Management deemed disclosure controls and internal control over financial reporting ineffective at year-end; the auditor issued an adverse ICFR opinion. The auditor gave an unqualified opinion on the IFRS financial statements. Engimplan controls were excluded from the assessment because of acquisition timing.
- A Dentsply Implants dispute concerns alleged wrongful termination of a supply agreement. A court of first instance ruled against Materialise; the company appealed. Dentsply seeks €2.7 million in damages. Management said it believed the decision would be overturned and did not consider the potential damages material.
- Brazilian regulator ANVISA inspected Engimplan facilities in 2019 following allegations involving unapproved products; no penalties or sanctions resulted, though increased oversight remained possible. Materialise also noted patent litigation against Zimmer Biomet that could affect its knee-guide business.
- Principal business risks include rapid technological change and competition, customer concentration by industry, supplier reliance, acquisitions and integration, foreign-exchange exposure, medical-device regulation and product liability, cybersecurity and privacy, and international operating risks.
- The company reported €127.9 million of loans, borrowings and lease liabilities, largely at fixed rates; certain facilities carry covenants and are secured. It had €145.4 million of contractual obligations in its maturity table, including debt, leases, scheduled interest and purchase obligations.
- Materialise reported no dividend paid and no present intention to pay dividends in the foreseeable future. IFRS 16 was adopted in 2019 using a modified retrospective approach, so 2018 comparatives were not restated.
Most important facts for investors to verify
- 2020 results and cash conversion against management’s COVID-19 scenarios, particularly Q2 impact, subsequent recovery, receivable collections and bad-debt expense.
- Progress in remediating the material weaknesses, the timing of any renewed effective-controls conclusion, and whether Engimplan controls are brought into scope.
- Manufacturing segment performance after the Q4 2019 decline, and the durability of Software recurring revenue and Medical growth.
- Debt maturities, covenant headroom, security and liquidity needs, including the lack of undrawn credit lines and obligations associated with leases and purchase commitments.
- Engimplan’s integration, full-year contribution and regulatory status; and the outcomes of the Dentsply appeal and Zimmer Biomet-related patent proceedings.
- Adjusted EBITDA is a non-IFRS measure; assess its reconciliation and compare it with IFRS operating profit, net income and cash flow.