Good day, and thank you for standing by. Welcome to the Q3 2022 Materialise Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Harriet Fried of LHA. Please go ahead.
Thank you for joining us today for Materialise's Quarterly Conference Call. With us on the call are Fried Vancraen, Founder and Chief Executive Officer of Materialise, Peter Leys, Executive Chairman, and Johan Albrecht, Chief Financial Officer. Today's web call and webcast are being accompanied by a slide presentation that reviews Materialise's strategic, financial, and operational performance for the third quarter of 2022. To access the slides, if you've not already done so, please go to the investor relations section of the company's website. The earnings press release issued earlier today can also be found on that page. Before we get started, I would 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 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 results, 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 annual 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 today's slide presentation. With that, I'd like to turn the call over to Peter Leys. Please go ahead, Peter.
Thank you, Harriet, and thank you everyone for joining us today. You can find, as always, the agenda for this call on slide number three. As the first item on our agenda, I will set the stage by summarizing the highlights of our financial results for the past quarter. I will pass the floor to Fried, who will walk you through some of our recent business successes and initiatives. After that, Johan will go through our third quarter numbers in more detail. Finally, I will come back to give you some very quick observations about what we currently believe the last few months of the year may bring. When we have completed our prepared remarks, as always, we will be happy to take and respond to your questions. Let's turn to slide number four, which summarizes the highlights of our financial results.
In the third quarter of 2022, we recorded EUR 58.3 million in revenues, representing a growth of 12% compared to last year's period. Also, deferred revenue from maintenance and licenses further increased EUR 3.2 million compared to the end of last year, which was driven by strong sales performances of our medical segment. Our Adjusted EBITDA for the quarter amounted to EUR 5.1 million compared to EUR 9.7 million last year, and was impacted by both our continued investment, in particular in our GOM software solutions, but also by inflation-related higher expenses, in particular remuneration costs. Our earnings per share for the quarter were EUR 0.02. With this, I would like now to pass the floor to Fried. Fried?
Thank you, Peter. Good morning or good afternoon to all of you listening to this call. Even in the current uncertain economic climate, Materialise keeps consistently posting double-digit growth and investing in a sustainable future. Materialise Manufacturing posted a 14% growth in Q3 on a business that is going to exceed EUR 100 million this year. This result is a combination of reliable and profitable rapid prototyping activity in a mature market and growth of our certified manufacturing activities in selected vertical segments such as aerospace, med tech, alternative drive systems, and wearables. In those, we are building on early proven and long-term scalable opportunities for additive manufacturing. In aerospace, we have been consistently growing our customer base beyond our long-standing relation with Airbus. In last year's Q3 call, we talked about the Materialise contribution to the eVTOL of LIFT Aircraft, currently in regular production. A recent project that we can communicate about is shown on slide five.
It is the production of 60 components per plane in a new series of aerial surveyor drones for the company Atmos. At the beginning of 2022, we indicated we would invest in the future this year, and we are doing so consistently. During our Q2 call, we announced the acquisition of a second plant for ACTech. This quarter, we launched a complete new Materialise Foot scan Suite for Materialise Motion, and this one is illustrated on slide six. It is the result of a major product portfolio upgrade a year after integrating RSscan and RS Print into the newly formed Materialise Motion. The new foot scan software is now a CE-certified medical device, and the Phits+ insoles form a complete new line of medical-grade personalized insoles that are based on years of scientific research in collaboration with multiple academic institutes to cater specific feet pathologies.
Inflation is weighing on the current investments, but the outcome in the longer term looks very promising. Materialise Medical is also consistently maintaining its double-digit growth rate on ever-increasing numbers. This is true both for the 3D printed medical device business and for the medical device software business. In the medical device business, we are increasing our number of OEM partnerships in the ortho segment and growing both our partner sales and direct sales in the CMF segment. Simultaneously, we are increasing our software presence in medical device companies and point-of-care settings in hospitals. Our surgical planning platforms are systematically being extended from the workstation-based Mimics Suite and Mimics Enl ight planning environment to cloud-based Mimics platform planning systems. Those combine the benefits of our global clinical engineering services with the increasing use of artificial intelligence-based automations.
This variety of solutions allows us to cater to the need of large medical device companies with proprietary solutions, as well as those of smaller companies that prefer a more out-of-the-box approach. This combination is the most complete offering in the industry. It supports companies that develop new devices or hospitals that develop new therapies from the initial R&D phase over the clinical study phase up to the scale and rollout phase, with dedicated tools for each of those phases. It is obvious that in a world with increasing cybersecurity and privacy threats, all of the successful certified applications listed above need a secure software platform. That is why we acquired Identify3D in September. Identify3D has a proven software toolkit that has been field tested by companies and government organizations to allow distributed, secured, additive manufacturing operations and supply chains.
The tools of Identify3D are immediately compatible with the CO-AM platform we launched at Rapid earlier this year. Even more important is that we can build on the extensive experience of the Identify3D team to advise our customers in configuring and implementing their own secure version of CO-AM. CO-AM is currently operational at multiple customer sites. The use of CO-AM will also accelerate our own manufacturing and medical production lines. We will be proud to announce a new set of partnerships at Formnext with CO-AM. Multiple AM software suppliers and machine OEMs are joining the platform. We are looking forward to announce those in two weeks at Formnext, and we hope to see you there as well. Thank you for your attention, and over to Johan.
Thank you, Fried. I begin with a brief review of our consolidated revenue on slide seven. Please note that unless otherwise stated, all comparisons in this call are against our results for the third quarter of 2021. I apologize. Revenue increased 12% to EUR 58.3 million. The increase took place in all three segments. The growth in our software segment was 4%. Our medical segment grew by 13%, and revenue in manufacturing increased 14%. Importantly, deferred revenues from software license and maintenance fees further increased by EUR 3.2 million compared to the end of last year, further underscoring the strong software sales performance within our medical segment. For the third quarter of 2022, Materialise Software accounted for 18% of our total revenue, Materialise Medical for 37%, and Materialise Manufacturing for 45%.
Cross-segment revenue from software products represented 31% of our total revenue. Moving to slide eight, you will see our consolidated Adjusted EBITDA numbers for the third quarter of 2022. Consolidated Adjusted EBITDA was EUR 5.072 million, compared to EUR 9.739 million for the same period last year. Our Adjusted EBITDA reflected the negative effect from the investments in our new businesses, Link3D and Identify3D, labor cost, and inflation. Slide nine summarizes the results of our Materialise Software segment. Software revenue increased 3.8% to EUR 10.863 million, supported by 37% of sales from renewed licenses and by usage from deferred revenue. Revenue from non-recurring sales decreased 12%.
As mentioned in our Q2 earnings call, it will take some time to convert the positive feedback we've received on our CO-AM platform and applications into significant sales growth. We expect to see this growth only in the midterm because of the introduction time required and because of the nature of the cloud solutions we offer. In fact, in the beginning, the typical cloud pricing model has a temporary negative impact on revenue growth as a result of recognition of sales, but then boosts growth through renewed and growing licenses and services. In the third quarter, EBITDA margin was 1.9% or EUR 202 ,000, compared to EUR 3.708 million.
The accelerated investments in our new CO-AM business, which, as of September, also include expenditures of Identify3D, weighed on the segment's EBITDA as we increased our R&D efforts by 103%. Moving now to slide 10, you will see that Materialise Medical continued growing at a solid double-digit pace of 13%, with revenue increase from software of 19% and medical devices solutions of 10%. Software sales even grew 32%, partly deferred in terms of revenue recognition. Adjusted EBITDA amounted to EUR 4.765 million compared to EUR 5.251 million last year. Our EBITDA margin decreased to 22.3% as a result of various effects. First, the portion of revenue in our sales from complex implants of medical devices increased significantly.
Second, we continued investing in people and in R&D and sales and marketing to sustain our growth in new business lines. Third, the effects of inflation and the war for talent impacted our results before we could adjust our annual price increases. Now let us turn to slide 11 for an overview of the Q3 performance of our Materialise Manufacturing segment. Revenue grew 14.1% to EUR 26 million, driven by our core manufacturing business lines and by the automotive market in particular. Solid order intake also looks promising for revenue in the next few months. Our new growth business lines, Eyewear and Motion, are experiencing fluctuating quarterly growth rates and will require more time to contribute significantly to the total segment's revenue.
Meanwhile, our investment programs in these businesses are ongoing, and together with the effects of inflation, labor shortages, and temporarily higher cost of subcontracting, affect the segment's profit. Adjusted EBITDA for the quarter amounted to EUR 2.53 million and an EBITDA margin of 9.7% compared to EUR 3.546 million last year. Slide 12 provides the highlights of our income statement for the third quarter. Gross profit margin was 55% compared to 59.5% in Q3 last year. Our operating expenses increased EUR 6.6 million or 24.5% to EUR 33.5 million. We invested significantly in our growth businesses, including Link3D and, since September, also Identify3D. Our expenditures in R&D increased 41%. Sales and marketing rose 22%, and G&A growth was up 14%.
As explained in the previous sections, inflation and the war for talent also weighed on our costs. As a result of these factors, the group's operating result was negative EUR 282,000 compared to EUR 4,529,000. Net financial income for Q3 was EUR 2,173,000 and included currency exchange gains of EUR 2.7 million, mainly reflecting the strong U.S. dollar/euro position on intercompany positions. Net profit for the quarter was EUR 1,413,000 or EUR 0.02 per share, compared to a net profit of EUR 8,657,000. Now please turn to slide 13 for a recap of balance sheet and cash flow highlights. At the end of the third quarter of 2022, our balance sheet remained strong.
Cash amounted to EUR 150.6 million on a borrowings position, further decreased to EUR 83.9 million. Cash flow from operating activities for the third quarter of 2022 was EUR 3.8 million, compared to EUR 4.4 million. Capital expenditures for the quarter amounted to EUR 9.4 million and included the purchase of a building to support the expansion of the ACTech business line in Germany. Also this quarter, capital expenditures were not financed. After the close of this third quarter, we entered into a credit facility agreement with KBC Bank that provides for drawing a total of EUR 50 million during the next three and a half years at fixed interest rates and with full capital reimbursements between 2030 and 2033. This agreement will further strengthen our cash position in the future. Peter?
Thank you, Johan. Before opening the floor for questions, I would just like to confirm that the consolidation of Identify3D in our numbers as of September 1st of 2022 will not impact the financial guidance that we have provided earlier for the entire year. In other words, we expect our revenues to increase by at least 10% compared to last year, and we expect to post a full year Adjusted EBITDA this year between EUR 20 million and EUR 25 million. This concludes our prepared remarks, operator, so we are now ready to open the call to questions.
Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from Jacob Stephan from Lake Street Capital. Please go ahead.
Yeah. Hey, thanks for taking my questions. Congrats on the great results. Maybe looking at the medical software side, was that primarily from a single customer or is that just broad strength across the healthcare industry?
I want to say it's absolutely across a broader industry, covering multiple medical segments like orthopedics, cardiovascular, pulmonology, and craniomaxillofacial segments.1
Okay. Have you started to see any early indications that sales cycles on software are lengthening, just given the environment that we're entering?
As our numbers show, not on the medical side, but we do see weaker investments happening on the industrial side.
Okay. Maybe just on the inflationary kind of costs, have you been able to pass any of these subcontractor kind of, you know, increased wages or materials prices onto your customers at all? What have you guys been doing around that?
Well, we absolutely are doing so. Well, for some of our short-term activities, for instance, in the rapid prototyping, we can adjust our price levels, I would say, on a daily basis. But that's not really happening. It's rather on a regular basis, monthly or so. However, for all of the bigger contracts, we normally include indexation clauses that happen only once a year. For instance, the very big medical contracts, they are typically once a year adjusted in function of price indexes.
Okay, that was helpful. I'll take the rest of my questions offline. Thanks.
Okay. Thank you.
Thank you. Our next question comes from Noelle Dilts with Stifel.
Hi, thanks for taking my questions and congrats on the good results. First, I was just hoping you could comment on just how you're thinking about, you know, some of the risks that are out there. You know, obviously a lot of concern around what might happen with energy in Europe. Can you just give some thoughts on how you're thinking about, maybe even as you're looking out into 2023, how you're thinking about some of those risks and, where you think your business will be more resilient and less resilient in a, in a potentially in a weaker economy? Thanks.
I would like to say that we believe we will show resilience because in a more difficult supply chain economy, we are seeing increasing evidence that people turn more and more to additive manufacturing. While there may be a recession, we still believe that the additive manufacturing or the 3D printing industry is going to grow also in the coming year or years. That's the first fundamental we believe we will be able to benefit from. Secondly, Materialise has been attaching a big value to sustainability. As a consequence, we have in the previous years already shifted to renewable electricity contracts, which will also help us in the future to moderate the impact of increasing energy prices, be it that it will not totally offset the overall market dynamics.
Okay, great. That's very helpful. Could you just expand upon the labor front or the talent front? What are you seeing in terms of finding the people that you need and retaining folks? Could you just comment on that? Thanks.
No, what we have been doing in the past there, and something that we're really benefiting from now is we have talent centers and competence centers across the globe. We source our talent in Western Europe, but also in Eastern Europe, including in Kyiv. Actually we continue to hire in Kyiv. But we also have very important talent centers, as you know, in the East and in the West, both in North America, but also in South America, in Colombia. In the East, we have an increasing talent pool in Kuala Lumpur.
Here in Europe, we do not only source our people at HQ, but we're also actively looking for talent and finding talent in important countries like Germany and also we're moving to the south, countries like Spain and the like. By now by having this broad pool, global pool of places where we can actually source talent and where we already have people that are present on the markets and can actively talk to new recruits, we think that we can tackle the issue of the war for talent. Albeit that even with this broad reach for talent that we have, it remains a difficult market. Pressure on remuneration, obviously, as we've explained earlier, is there and is probably going to be still there in the coming quarters.
Okay. Thanks very much. I appreciate it.
Sure.
Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Alexander Craeymeersch of Kepler Cheuvreux. Please go ahead.
Yes, hello, Alexander from Kepler. I was just wondering if you could just give us some more granularity on what exactly was the impact of the raw material and wage inflation, and then also the higher investment costs from the Link3D and the Identify3D. I was just wondering that because especially in the software segment, it's difficult to split out these effects. Then a second question on the medical contracts. You say that you adjust once a year. I was just wondering what the timing exactly or what's the bulk of the contract timings and does it also adjust for the wage inflation of next year? Because if I remember correctly, you have a large wage pool in Belgium, so the
I guess that there it will be indexed to inflation. Just wondering that. I will start with that.
Alex, let me answer your second question first, and then we'll go back to the first one and just also make sure that we fully understood. The indication clauses on the large medical contracts, they typically take place at the end of the year.
Mm-hmm.
That is something that will be coming soon. In other words, in this year, we have not been able to fully recover our increased inflated costs in these large contracts with our larger medical device partners. The contracts have been drafted in a very standard and very straightforward way, referring to the Belgian index. That will allow us to recover quite a bit of the inflated remuneration costs, including as a result of the automatic indexation of remuneration costs in Belgium, which is a unique feature that I'm sure you are very much aware of. With respect to your first question, Alexander, I may not have taken notes of all the parts of your question.
You were asking to what extent Link3D and Identify3D have an impact on increased costs. Is that correct?
Yeah. Basically, you have your R&D that went up with EUR 3 million approximately. You also have, like, the marketing expense that went up with EUR 3 million. I was just wondering how much is that related to inflation, how much is that related to increase of higher investments due to Link3D, et cetera. If there would be a split, I mean, yeah, I know the wage is of course around 10% or 7%, but I'm just wondering how much it is exactly.
It's hard to give you an exact number, but if you look at the variance compared to last year's quarter, you see the difference in EBITDA. Half of that is due to the higher investment and half of the rest is because of the cost increase of the inflation that could not immediately be calculated to certain customers.
Okay, could you maybe give then on Link3D and Identify3D specifically a bit of a granularity?
That's effectively what I'm saying. The difference between the EBITDA of Q3 2021 and Q3 2022, half of the difference is due to the investments in Link3D and Identify3D. The vast majority-
Okay. All right. That's perfect. One final question. I remember a couple of calls ago you mentioned that you would go back in the software segment to an EBITDA margin of 30%-35% by the end of next year. Are you still confident you will reach that level or do we have to take that a bit on the weakness that we have seen recently? Just question if that's still maintainable in this high inflationary environment.
Alexander, just refer to my previous response, in which I said that we are investing a lot in the new businesses of Link3D and Identify3D that are part of the software segment. As I mentioned also in the prepared remarks, it will not come immediately in the short term, all the large profits from this new business. It will take a little bit more time.
Okay. All right. Thank you for that. That's all from me.
Thank you.
Thank you, Alexander.
Thank you. I'm seeing no further questions. I'd now like to turn it back to management for closing remarks.
Thank you, operator, and again, thank you all for joining us on the call today. We obviously look forward to seeing some of you at Formnext and to continuing our dialogue with all of you through investor conferences or through one-on-one virtual meetings or calls. If you have any questions, please feel free to reach out. Thank you again and goodbye for now.
Goodbye.
Bye.
Thank you for your participation in today's conference. This concludes the program. You may now disconnect.