Materialise NV (MTLS) Earnings Call Transcript & Summary

Good day, and welcome to the Second Quarter and Half Year 2026 Materialise NV Financial Results Conference Call. [Operator Instructions] Please note, this call may be recorded. I would now like to turn the call over to Jody Burfening, Alliance Advisors Investor Relations. Please go ahead.

Thank you, Michelle, and thank you, everyone, for joining us today for Materialise's quarterly conference call. With us on the call are Brigitte de Vet-Veithen, Chief Executive Officer; and Koen Berges, Chief Financial Officer. Today's call and webcast are being accompanied by a slide presentation that reviews materialize strategic, financial and operational performance for the second quarter and first half of 2026. To access the slides, if you have not already done so, please go to the Investor Relations section of the company's website at www.materialise.com. The earnings press release that was issued earlier today can also be found on that page. Before we get started, I'd like to remind you that management may make forward-looking statements regarding the company's plans, expectations and growth prospects, among other things. These forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed, including competitive dynamics and industry change. Any forward-looking statements, including those related to the company's future results and activities, represent management's estimates as of today and should not be relied upon as representing their estimates as of any subsequent day. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that may impact the company's future business or financial results can be found in the company's most recent report on Form 20-F filed with the SEC. Finally, management will discuss certain non-IFRS measures on today's conference call. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With that, I would now like to turn the call over to Brigitte. Good morning, Brigitte.

Good morning and good afternoon. Thank you, everyone, for joining us today. You can find the agenda for our call on Slide 3. I First, I will summarize the business highlights for the second quarter of 2026. Then I will pass the floor to Khun who will take you through the second quarter and half year financials. And finally, I will come back and explain what we expect the remaining month of 2026 to bring. When we've completed our prepared remarks, we'll be happy to respond response to questions. Moving to Slide 4 for the highlights of the second quarter 2026. I'd like to open by drawing your attention to our first half year report now available on our Investor Relations website. This report reflects our compliance with the European reporting requirements. Requirements that, as announced in our first quarter earnings call led us to deliberately schedule this second quarter earnings release later in the quarter. I'm also pleased to announce some changes in our executive committee, taking place as of early September. Those changes will further strengthen our leadership team and strategy execution. And a list Moten will join us as Chief Human Resource Officer to further strengthen our human restart agenda -- and brings more than 30 years of international agile leadership experience with a strong record in shaping people anomization strategies that support business growth, transformation and deploy engaging. Throughout our period, she has worked primarily in the life science sector as well as the telecom and fast-moving consumer goods in both Belgium and international environments. Most recently, analyst to serve the CHRO at Galapagos, now leave from BioTherapeutics, where she acted as a strategic adviser to the CEO and Executive Committee. and let the a function across all disciplines in an international sector. She plays an important role in supporting the company through periods of growth, transformation and organizational change while also strengthening HR as a strategic partner to the business. She brings a wealth of experience, strong energy and a people-centered leadership style that will help us further our people agenda across the organization. Second, Philip Feline will join us in the newly created role as Chief Digital and Information to. This new role reflects the strategic importance of digital capabilities to simplify, scale and execute more effectively. Philippe brings more than 35 years of experience in technology, digital and transformation leadership. He spent 26 years at Philips and most recently, he served as the Chief Digital and Information Officer at Bao wet-led IT and software across the global footprint. Throughout his career, he led large-scale technology, product and digital transformation initiatives across engineering, consumer, electronic and health care technology. He brings deep experience in cloud and connected pastor capabilities as well as AI to further drive our digital agenda across our units and markets. We are also making a leadership change in medical. Our medical unit is delivering strong results as evidenced by the strong broader quarter this -- strong growth this quarter. In addition, we see significant opportunities ahead. To fully capitalize on these opportunities, we have decided to look for a new leader for the Medical segment and Kopitswill leave the company in September. The second quarter also marked the 30th anniversary of Materialise in the United States, a market that has been central to our growth strategy from the beginning. Over the years, we made several strategic acquisitions in the U.S., including Octave, the market net orthopedic digital cheaper planning software, Link3D, an additive workload digital manufacturing software company and identify 3D, a company that developed copters to interact, distribute and trace the flow of digital parts across complex supply chains. Today, we are 1 of the leading players globally and our U.S. office and team have been very instrumental in our global success. Looking now further in our business segment highlights at the second quarter on Slide 5. Starting with Medical. In the second quarter, we saw further evidence of the growing maturity of personalized care and 3D printing during the position of our 3D planning and printing Hospital forum in us. Where we around 200 surgeons, medologists, clinical engineers on hospitals across Europe and beyond to discuss the use of 3D printing in the hospital. What stood out in this year's discussion was a clear shift from what is the value of personalized 3D solutions to how can we scale this in clinical practice. The continued rise of in-house hospital 3D lab is evidence that 3D printing is becoming more established and operational. Now the discussions also confirm that Materialise is at the center of this trend, not only as a software and service provider, but as a long-term partner, helping hospitals integrate personalized care more broadly into daily practice. In the second quarter, we also announced an investment in Replasia, the Belgium metacstart-up developing personalized 3D-printed solutions in anatomical analysis software for hip preservation. Our goal is more personalized, less invasive orthopedic treatments that help patients maintain their natural anatomy and their quality of life for as long as possible. Our current portfolio is focused on replacement. Strategically, the investment in Replasia strengthens our position across the full spectrum of personas here and complements our existing portfolio to hip preservation solutions. Preservation will play an important role as the market shifts towards less invasive approaches. A similar shift to less invasive approaches is happening in markets outside of orthopedics. One example in CMS, premium axolofacial is minimally invasive autognetic surgery. or Mia, the technique that allows surgeons to perform draw surgery to smaller acquisitions. Smaller decisions mean that more patients will offer surgery. At the same time, smaller incisions require a high level of precision during the surgery, and that is an area where Materialise is well positioned with our software and device portfolio. The strong proof point of our position was the international virus meeting in Brazil in June, which brought together more than 200 maximization experts from 13 countries. -- and where we train surgeons enhance on Caravela to perform the surgery in a safe and effective way. Turning now to Software. In the second quarter, we officially released CO-AM Pro to the market on May 15, 1 month ahead of schedule. CO-AM Pro is our cloud-based solution integrated with Magic that brings the data management and build corporation together in 1 workflow, making it easier for teams to collaborate, standardize processes and automate retiring tasks. It centralizes AM data if it uses 1 source of the truth of the data across teams. We also formally released the Goan Brix offering, our automation platform that helps users reduce manual work for example, in the new product introduction process and how the best know-how more easily into their daily operations. Early customer importing since launch gives us encouraging initial validation of the offering. In addition, we have started the early adopter program of OEM NCI and Golan enterprise. Together, these steps mark the structural expansion of our metrics installed base into a connected platform that grows with customers over time. Turning to Manufacturing now. Following the agreement, we announced at the end of the first quarter, we completed the transfer of our Rapid web business to its management team on April 30 and the transfer of our IA business on July 1. The -- with these closings, both businesses now continue independently under their existing leadership with greater focus and flexibility to pursue the next phase of growth. For Materialise, these completed transactions are an important step in sharpening our portfolio in concentrating capital, resources and leadership attention on the business lines with the strongest long-term scaling potential. In the case of Eyewear, we retain a 20% minority stake, reflecting our continued confidence in the business. Looking at the second quarter results in Manufacturing, Aerospace remains a strong growth area for us with 40% revenue growth realized in the second quarter. This reflects our strong position in this space. A good example of our capabilities is a recent project with Lufthansa Technik. The project involves a small part in an aircraft cabin that in an aircraft saving component that we set to be failed in service. It could not be sourced individually, meaning the entire assembly has to be replaced each time. By redesigning their part for additive manufacturing and producing it as a certified stand-alone component, Lufthansa Tecnicas able to turn a costly refined replacement into a fast up and significantly more cost-effective repay. Following this project, Materialise was named a usticial work range for Lufthansa Technik metal part, an important proof point of the trust we have built in certified aerospace production. Also, in the second quarter, we continued to build momentum in the defense market. Additive manufacturing can provide real value on defense by enabling spare parts and critical components to be produced closer to where they are needed, reducing dependence on vulnerable supply chains. With our combination of software and manufacturing capabilities, Materialise is well positioned to support that share. In the second quarter, the Belgian Cyber Force and the Royal Hire Institute for Defense selected Materialise to lead a research consortium with Sirius and Income Strike IP. The project focuses on secure and reliable digital manufacturing of spare parts, ensuring that digital sales remain perfected throughout the production process. Our identified 3D and OEM technology will be instrumental in this project to build a trust in additive manufacturing for mission-critical environments, like defense and help make digital supply chains more resin. Turning over to Koen now, who will present the financial results.

Thank you, Brigitte. Good morning or good afternoon to all of you on this call. I will begin with a brief overview of our key financial results for Q2 of 2026, shown on Slide 6. In the second quarter, we delivered broad-based growth across the business with consolidated revenue growing by more than 8% year-on-year to EUR 70.1 million. Gross profit increased to EUR 39.8 million, resulting in a gross margin of 56.8%. Importantly, profitability continued to scale faster than revenue with adjusted EBIT reaching now EUR 3.9 million, and our adjusted EBIT margin expanding to 5.5% reflecting stronger operating leverage across our business. Net profit for the quarter amounted to EUR 3.3 million or EUR 0.06 per share. Our balance sheet and cash generation remain key strategic strengths, giving us the flexibility to invest for future growth. Supported by strong operating cash flow and continued debt reduction, we increased our net cash position to EUR 74.2 million, up EUR 3.4 million compared to the start of the year. We also continued our share buyback program, investing EUR 5.2 million during the first half of 2026. I will now walk you through these results in more detail. As a reminder, all comparisons are versus the second quarter and the first 6 months of 2025. Slide 7 provides an overview of our consolidated revenue. In Q2 2026, a consolidated revenue reached EUR 70.1 million, up by 8% compared to the same period of last year. Growth continues to be led by Medical with revenue increasing by more than 12% in another quarter of double-digit expansion, reinforcing its position as our primary growth engine. Also Manufacturing grew by nearly 7% year-over-year, reflecting the benefits of our strategic repositioning towards higher-value series manufacturing. Software on the other hand, declined by 3%, reflecting cautious customer spending and extended sales cycles in the current industrial environments. Although the high level of recurring revenue continues to support resilience of our business model. As shown on the right-hand side, Medical represented 53% of total revenue in Q2 with manufacturing at 34% and software at 14%. For the half year 2026, our revenue totaled EUR 136.3 million up by nearly 4% compared to the same period last year. Our deferred revenue balance for software maintenance and license fees coming from both Medical and Software decreased in Q2 to $46.5 million but in line with normal seasonal renewal patterns. The total deferred revenue reported on our balance sheet stood at EUR 63 million at the end of the second quarter. Turning now to Slide 8. I'd like to highlight the progress we continue to make on profitability. In the second quarter, adjusted EBITDA reached EUR 9.6 million an increase of almost 16% year-on-year, resulting in an adjusted EBITDA margin of 13.7%. Adjusted EBIT improved to EUR 3.9 million compared to EUR 3.1 million in the prior year quarter, resulting in a 5.5% adjusted EBIT margin. For the half year, adjusted EBITDA rose to EUR 17.6 million, representing a margin of 12.9%, while adjusted EBIT increased sharply to EUR 6.4 million representing a margin of 4.7%. This clear margin expansion reflects revenue growth, disciplined cost management, operational efficiencies and a sharper focus on our core growth segments as we execute our strategy across our various business units. These results once more demonstrate the resilience of our business model and our ability to improve profitability despite the still challenging macroeconomic environment. Let me now turn to our business segments, starting with Materialise Medical as shown on Slide 9. Medical revenue increased by more than 12% year-on-year, and that growth was primarily driven by medical devices which grew 19% across our partner and direct sales channels, partly offset by a minus 4% realized in our Medical, Software segments. Adjusted EBITDA increased to $11.6 million, representing a strong 31% EBITDA margin, while we continued to increase targeted R&D investments to support future growth opportunities. For the half year, Medical segment revenue increased by nearly 10% to EUR 70 million, with adjusted EBITDA reaching EUR 20.8 million at a consistent margin of 30%. The Slide 10 summarizes the results of our Materialise Software segment. In Q2 2026, software revenue decreased offset by 3% to EUR 9.6 million reflecting the cautious customer spending and extended sales cycles, we continue to see the current industrial environments. During the quarter, 86% of our software revenue can now be considered to be recurring while we are approaching the final stages of our transition from perpetual licenses to recurring subscription model. Adjusted EBITDA in Q2 showed a decline to EUR 1 million reflecting the impact of lower revenue combined with ongoing investments in our new product functionality. As already mentioned by Brigitte, in Q2, we fully launched Con Pro ahead of plan. this release marks an important strategic milestone for our future growth. For the half year Software segment revenue totaled EUR 19.2 million, 2% below 2025. Despite softer revenue, profitability improved with adjusted EBITDA for the first half, reaching EUR 2.1 million, representing a margin of 10.9%. Turning now to Slide 11. This slide covers our Manufacturing segments. Manufacturing revenue increased nearly 7% to EUR 23.6 million despite the unfavorable revenue impact of the RapidFit divestments. The return to growth reflects continued traction in our strategic focus segments particularly aerospace and defense. This growth in series manufacturing was still partly offset by continued weakness in prototyping demand in Q2. Alongside top line growth, cost control drove an improved adjusted EBITDA, landing now at minus EUR 0.3 million compared to minus EUR 4.8 million in the prior year periods. This improvement demonstrates that our cost actions and portfolio optimization efforts are beginning to translate into improved operating performance. For the half year, the Manufacturing revenue remains fairly stable, climbing only slightly to EUR 47.1 million with an adjusted EBITDA margin -- sorry, adjusted EBITDA improving to breakeven. During the quarter, we successfully completed the divestment of RapidFit and announced also the sale of our Eyewear business, which in the meantime, was successfully closed on July 1. The latter was recorded as an asset held for sale in our consolidated Q2 financials with EUR 0.7 million of asset impairments impacting that we adjust for. These actions sharpen the strategic focus of our Manufacturing segment and allow us to allocate our capital and resources towards core growth priorities. With the segment results now covered, Slide 12 outlines our consolidated income statement, showing the drivers behind our improved profitability. Gross profit increased to EUR 39.8 million with the gross margin remaining fairly stable at 56.8%. Operating expenses in the quarter increased by 3.9% reflecting targeted growth investments while maintaining our overall cost discipline. We continue to invest in innovation with total R&D spending exceeding EUR 12 million for the quarter which reflects an increase of 11% year-on-year. For the half year, total operating expenses increased by only 2% compared to the prior year period. With increase, again driven by higher R&D investments, while G&A and S&M remained stable. Other operating income decreased in the quarter to EUR 0.8 million compared to EUR 1.3 million last year. The Q2 2026 figure includes nonrecurring charges of EUR 0.7 million related to an asset impairment on the transfer of eyewear. As a result of all this, operating profit reached EUR 2.8 million for the quarter. For the half year, this figure stood at EUR 4.9 million versus EUR 3.3 million in the first half of 2025. This improvement reflects the combined impact of revenue growth, stronger operational execution and disciplined cost management. The net financial income for the quarter was limited to EUR 0.2 million driven by interest income on cash balances and interest expense on debt. The impact from currency fluctuations remained limited in Q2 of this year. Income tax benefit amounted to EUR 0.3 million. Overall, this resulted in an increased net profit of EUR 3.3 million or EUR 0.06 per share. For the half year, net profit totaled EUR 5.1 million or EUR 0.09 per share. Finally, let's review our balance sheet and cash flow position, which remains a key strength for Materialise on Slide 13. Our cash reserve at the end of the quarter amounted to EUR 133.7 million, while our gross debt was further reduced to EUR 59.5 million. Our resulting net cash position increased to $74.2 million, up by more than EUR 3.4 million compared to the beginning of this year, primarily driven by strong operating cash flow generation. At the same time, we invested EUR 5.2 million over the first 6 months of this year through our share buyback program on NASDAC, acquiring close to 1.1 million ADSs. -- representing 1.8% of our total share base by June 30, 2026. Compared to the balance sheet at year-end 2025, net working capital components increased by $3.9 million, driven by higher inventory levels of finished products and work in progress, higher receivables and lower outstanding payables. Deferred income increased to EUR 62.6 million, including EUR 46.5 million related to software licenses and maintenance. As you can see from the graph on the right side of the page, operating cash flow in the second quarter amounted to more than EUR 8 million. Capital expenditures totaled EUR 2 million, almost all of which is recurring. Even with continued investments in growth initiatives, we again delivered solid free cash flow generation in this quarter, with cash flow after investing activities amounting to EUR 5.6 million. For the half year, operational cash flow was EUR 50 million, significantly up from the same period in 2025. Combined with lower CapEx, this resulted in a free cash flow of more than $11.4 million almost double of last year. For the first half of 2026, CapEx totaled $3.4 million and remained well below prior year levels. Recurring CapEx of EUR 2.7 million was primarily focused on machinery on nonrecurring CapEx so to EUR 0.1 million -- EUR 0.8 sorry, million primarily reflecting investments in our internal digital transformation programs. And with that, I'd like to hand the call back to Brigitte.

Thank you, Koen. Let's now turn to Page 14. A on my remarks with a discussion of our full year 2026 guidance. Our solid first half year performance reinforces our confidence in delivering on our financial targets. The strategic actions we are taking to sharpen our portfolio and to focus on strategic growth segments, combined with the targeted investments we are making across our 3 segments, are enhancing operational performance and positioning Materialise for profitable growth. Accordingly, we are reaffirming our full year 2026 revenue guidance of EUR 273 million to EUR 283 million fully absorbing the expected unfavorable revenue impact of the Rapid Fit and eyewear divestment. At the same time, we are increasing our full year adjusted EBIT guidance to EUR 12 million to EUR 14 million from the earlier communicated range of EUR 10 million to EUR 12 million, reflecting the strength of our execution and our continued discipline in managing costs and capital. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

[Operator Instructions] Our first question comes from Alexander Craeymeersch with Kepler Cheuvreux.

So the first 1 would be on medical. So we saw a reacceleration to 12% year-on-year growth. in Q2, and that came after that softer Q1. So I'm wondering what changed sequentially? And can we hold up this double-digit growth? I know that's the target, but like can we expect it to be sustained in H2 and also in 2027, perhaps? And then maybe a related question on this would be, if I look at the underlying drivers, we see medical software down 5%. And then devices and services increasing 19%. So the question on this is how do we need to look at this is basically less customers trying to make the design themselves and opting to outsource the design service to you and hence, there's less need for software. So that's the question on Medical. Then the second question I have, it would be on basically 2026 EBIT guidance. You guide for EUR 12 million to EUR 14 million in EBIT. Of course, you already delivered EUR 6.4 million in the first half. So -- in the past, the budget cycles always gave you a stronger Q4, especially in software. Is it safe to assume that you don't expect that same budget cycle to happen this year giving you guidance. I will stick to these 2.

Alan, thanks for your questions. I'll kick us off with a question on Medical. So I have previously always said that the structural growth rate for Medical is double digit, but low due digit. So reasonably, a sustainable growth number that I would expect for Medical is around which is essentially what you see for the first half of this year. And that is absolutely sustainable. And of course, there can be quarter-over-quarter differences, which again, is what you see in Q2 numbers and actually has to do with a couple of timing impact. Now your question on the underlying drivers. So we do indeed see software revenue a stronger device and service revenue. There's a couple of elements that explain that. One of the primary elements is on the software side, we have an academic segment that we serve and in particular, in the U.S. So those are academic centers that use our stock are to train their students but also to do research based on our product and product -- in the U.S., in particular, research grants have been reduced for the last year, and we see the impact of that in our software sales. So that's the segment that we serve with our software portfolio, but not with our device and service portfolio. So that's a structural difference between those 2 segments. The second aspect that we need to take into account is the domains in which we are playing and in which our FOX is used, which is slightly different from the market segment in which the device and services are positioned and are used. And of course, the different market segments, and then I'll talk about anatomical areas, they are subject to different trends in reimbursement, hence also affordability and our software products historically have been positioned a little more very strong year-on-year side, which is again, in particular in the U.S., a segment where reimbursement changes have left to a bit more cautiousness from our customers' side, and that's what we feel in our software revenue. So those are the underlying drivers that differentiate our software segment from our Devices & Services segment. And I'll hand it over for Koen to tackle your second question on the 2026 EBIT guidance. and the fact, as you mentioned, that we already delivered EUR 6.4 million in the first half of the year.

Alexander, and to add to that to answer that question. I think, indeed, what we've been able to demonstrate in the first half of this year, I think that we have been able to improve our profitability, expresses EBIT or EBITDA percentage. We believe that is also largely driven by the fact that we have been able to reduce our cost structure feeling that, that is also structural cost savings that we're doing there. So we are counting to continue them as well going forward. If you, of course, do an extrapolation of the current realized EBIT in the first half of the year, you would indeed end were in the middle of the guidance range that we put forward now. There is, of course, some seasonality in the quarter. The fourth quarter is typically a stronger quarter we hope to have that as well this year, of course. But on the other hand, the summer quarter in the third quarter typically is then maybe a bit of a softer quarter, typically, if you look over the trend over the past years. So by probably those will compensate each other to a certain extent. And that's why we see for ourselves a lending in the range between EUR 12 million to EUR 14 million of EBIT over the full year.