Materialise NV — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; the supplied filing text does not provide clear Q4-only financial results. Financial statements are prepared under IFRS and amounts below are in euros unless stated otherwise.
Business context and key financial results
Materialise develops additive-manufacturing software, medical software and devices, and 3D-printing services. It reports three segments: Software, Medical and Manufacturing. Results include a full year of ACTech, acquired in October 2017, which materially increased Manufacturing revenue.
| Metric | FY2018 | FY2017, restated |
|---|---|---|
| Revenue | €184.7 million | €142.6 million |
| Gross profit / gross margin | €102.4 million / 55.4% | €79.6 million / 55.8% |
| Operating profit | €5.2 million | €0.4 million |
| Net profit (loss) | €3.0 million | (€2.1) million |
| Basic and diluted EPS | €0.06 | (€0.04) |
| EBITDA / Adjusted EBITDA | €22.5 million / €23.5 million | €13.0 million / €14.6 million |
| Operating cash flow | €28.3 million | €10.0 million |
| Capital expenditures | €20.9 million | €35.0 million |
| Cash and cash equivalents, year-end | €115.5 million | €43.2 million |
| Loans and borrowings, year-end | €106.0 million | €94.6 million |
Gross margin was 55.4%; operating margin was approximately 2.8%, net margin 1.6%, and Adjusted EBITDA margin 12.7%. Adjusted EBITDA is a non-IFRS measure and should not be treated as a substitute for IFRS earnings or cash flow.
Material changes versus the prior year
- Revenue grew 29.6% (about €42.1 million). Management attributed much of the increase to a full year of ACTech consolidation, alongside growth in Medical.
- Manufacturing revenue rose 49.1% to €95.0 million, including €43.4 million from ACTech. Medical revenue increased 22.0% to €52.3 million; Software increased 4.5% to €37.4 million.
- Medical segment EBITDA increased to €10.3 million from €4.4 million, with margin rising to 19.6% from 10.3%. Software EBITDA fell to €11.5 million from €13.9 million, and its margin declined to 30.9% from 38.9%, reflecting increased operating investment and a shift toward recurring revenue. Manufacturing EBITDA was €10.8 million; excluding ACTech’s €9.4 million contribution, management reported weaker underlying margin.
- The company returned to net profitability. Operating profit improved to €5.2 million, while gross margin edged down 0.4 percentage points. Selling, marketing and administrative expenses increased alongside revenue and investment.
- Operating cash flow increased to €28.3 million. Investing activities used €22.1 million, compared with €59.2 million in 2017, when the ACTech acquisition was a major cash outflow. Financing provided €65.2 million, primarily from the BASF private placement and follow-on offering.
- Cash increased by €71.4 million during the year. Total assets were €313.2 million and equity €136.0 million at year-end. Cash exceeded reported loans and borrowings by approximately €9.5 million; this comparison does not account for all other liabilities or restrictions.
Liquidity, debt and capital
Management stated that available liquidity was expected to meet operating requirements for the next 12 months. Year-end cash was €115.5 million; loans and borrowings were €106.0 million, of which €13.6 million was current and €92.4 million non-current. Debt is mainly at fixed rates and includes secured loans, finance leases and a €1.0 million convertible bond. The company also reported €1.0 million of undrawn ordinary credit lines; an EIB facility had up to €25.0 million of additional first-tranche availability, subject to its terms. Contractual obligations totaled €125.9 million, including debt, lease commitments, scheduled interest and purchase obligations.
In July 2018, Materialise raised aggregate net proceeds of approximately €55.9 million from a BASF-affiliated private placement and a follow-on offering. BASF also entered into a strategic alliance concerning development of 3D-printing materials. No dividends had been paid, and management stated there was no present intention to pay dividends in the foreseeable future.
Outlook, risks and unusual items
- Outlook: Management planned continued investment in R&D, sales and marketing, medical product development, and certified manufacturing capacity. It described longer-term growth opportunities in professional 3D-printing software, personalized medical applications and end-part production, but provided no numerical revenue or earnings guidance in the supplied text. Management cautioned that investment could affect near-term revenue and profitability.
- Accounting and comparability: IFRS 15 was adopted in 2018 using the modified retrospective method. It reduced opening reserves by €1.173 million and reduced reported 2018 revenue and profit by €0.410 million versus amounts without the standard. 2017 was restated for final ACTech purchase accounting and an income-statement reclassification; compare using the restated figures.
- Controls: Management concluded that internal control over financial reporting and disclosure controls were ineffective at December 31, 2018 due to a material weakness. Audit adjustments were identified and made. The financial statement audit opinion was unqualified, but the auditor did not provide an opinion on control effectiveness.
- Legal contingency: Materialise appealed a first-instance ruling in a dispute with Dentsply Implants concerning termination of a supply agreement. Dentsply claimed €2.7 million in damages; the amount had not been determined by the court. Management recorded no provision and said it believed any exposure would not be material.
- Other risks: The filing highlights rapid technological change and competition, dependence on key customers and partners, supplier constraints, execution and integration risks, medical-device approvals and quality requirements, privacy and cybersecurity, foreign-exchange exposure, and geopolitical disruption to operations in Ukraine. Approximately 70% of revenue and 74% of costs were euro-denominated.
- Subsequent event: In January 2019, Materialise granted Fluidda a €2.5 million convertible loan as part of a collaboration related to 3D printing and pulmonology.
- Lease accounting: IFRS 16 adoption from January 2019 was estimated to add about €5.0 million of lease liabilities and €2.5 million of annual depreciation expense.
Important facts for investors to verify
- Separate ACTech’s contribution from organic growth, particularly in Manufacturing revenue and EBITDA.
- Reconcile reported EBITDA, Adjusted EBITDA and segment EBITDA, and assess the decline in Software profitability and underlying Manufacturing margins.
- Review cash-flow sustainability and the effects of the 2018 equity raise, working capital, capital spending and debt repayments.
- Track remediation of the material weakness in financial reporting controls and whether future filings report effective controls.
- Monitor the Dentsply appeal and any change in the claimed damages or provision assessment.
- Assess debt covenants, secured assets, EIB drawdown conditions and the timing of contractual obligations.
- Review the effect of IFRS 15 and IFRS 16 on period comparability, revenue recognition and reported leverage.