Good day. Thank you for standing by. Welcome to the Q4 2022 Materialise NV Financial Results conference call. At this time, all participants are on 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'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jody Burfening. Please go ahead.
Thank you, Kevin, and thank you for joining us today for Materialise 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 call and webcast are being accompanied by a slide presentation that reviews Materialise's strategic, financial, and operational performance for the Q4 and full year 2022. To access the slides, if you haven't already done so, please go to the investor relations section of the company's website at www.materialise.com. The earnings 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 date. 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 could 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 call. A reconciliation 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 Peter. Go ahead, Peter.
Thank you, Jody, welcome to everybody on the call. Before turning to slide four, which summarizes the highlights of our Q4 and our full year financial results for 2022, I would like to thank all our employees, in particular, our Ukrainian colleagues, for the amazing mix of perseverance and flexibility that they have shown throughout the previous year, which was not an easy one. Johan will walk you through our Q4 results in more detail. In this introduction, I would like to focus on a few key numbers of our full year performance in 2022. Amidst the macroeconomic and geopolitical turbulences of 2022, our total revenue grew by 13% from EUR 205 million- EUR 232 million. Importantly, our deferred revenues from software sales grew by more than 20% to almost EUR 43 million.
From our perspective, this is a solid top-line performance, especially bearing in mind the difficult circumstances that resulted directly or indirectly from the war in Ukraine. In 2022, the increased costs of labor, of energy, and of materials weighed heavily on our margins. Nevertheless, backed by a strong balance sheet and supported by a solid positive cash flow from operating activities of almost EUR 25 million, we decided to stay the course with our growth strategy and not to compensate for these inflated costs by scaling back our R&D efforts. Obviously, this impacted our adjusted EBITDA, which decreased from EUR 32.5 million to EUR 19 million in 2022.
We are convinced that this was the right choice and that we will see the first positive results of this decision as early as in 2023, when we expect both our revenues and our adjusted EBITDA to grow robustly. I will come back to that in more detail when we discuss 2023 guidance towards the end of this call. Now I would like to pass the floor to Fried, who will walk you through some of the key operational achievements of our company in 2022, all of which we believe will form the basis for profitable growth going forward and coming as early as this year. Fried?
Thank you, Peter. Good morning or good afternoon to all of you listening to this call. Please turn to slide five. Even with some serious challenges, such as the war in Ukraine and its consequences on world trade, Materialise kept consistently posting double-digit growth in 2022. Despite the inflationary pressure, we kept investing heavily in a sustainable future through capacity expansion in our three segments and high R&D efforts, as we had planned at the beginning of the year. We expect these efforts to result in sustained double-digit revenue growth and even substantially faster EBITDA growth in 2023, while also reducing our climate impact. Let me review this in more detail. Materialise Software went through a major makeover in 2022.
We started the year with the acquisition of Link3D, which enabled the full integration of the Link3D cloud-based MES platform and the legacy code base of a range of leading Materialise software packages for AM, including the flagship Magics. Only five months into the year, at RAPID, we announced and demonstrated the CO-AM platform that enables Materialise Manufacturing and Medical. Which also enables our software customers to integrate and automate their AM manufacturing lines better. In Q3, we took another significant step with the acquisition of Identify3D. Identify3D has a proven software toolkit that has been field-tested by companies and government organizations to allow distributed, secure additive manufacturing operations and supply chains. Its tools and teams will ensure that CO-AM is the most secure operation system for AM production environments.
On top of that, the new CO-AM platform also accelerates the possibility to develop new software applications, not only for Materialise itself, but also for third-party developers that want to enhance additive manufacturing and its applications. This was demonstrated by the integration of ten third-party applications on CO-AM at Formnext 2022. Despite the war in Ukraine that severely disrupted our development activities, we delivered our cloud-based open CO-AM platform in operational status in 2022. This major achievement did come at a price, however. The combination of extra expenses we incurred to attract additional talent and to continue to support our workforce in Ukraine, the high inflation on global scale, and the restructuring resulting from the integration of our existing sales and development teams with the new Link3D and Identify3D teams significantly impacted the bottom line of Materialise Software.
Hence, the decline of software historically healthy EBITDA last year, particularly in the last quarter. While the development work on our CO-AM platform will continue in 2023, we are confident that the extensive efforts of 2022 will result in a gradual and sustainable increase of our sales and EBITDA, starting as of 2023. This due to the more scalable recurring licenses of the CO-AM applications. Materialise Manufacturing hosted a respectable 16% internal growth in 2022 on a business that reached EUR 103.5 million. We kept combining our existing reliable and profitable rapid prototyping activities with continuously growing certified manufacturing in selected vertical segments such as aerospace, med tech, alternative drive systems, and wearables. Our additive manufacturing activities earned a net promoter score of 70 from their customers in 2022. This is an extremely high mark in any industry.
It also demonstrates that we have a customer base that is willing to trust us for future work in a world with increasing AM application opportunities. Last year, we made the investments required to scale further the most meaningful manufacturing applications. We are more than doubling the plant size of ACTech in a second facility, where we can grow our capacities to support the new engine and traction systems for more sustainable energy sources, such as hydrogen, in the years to come. We launched a completely new Materialise Footscan Suite for Materialise Motion in Q3. The new phits+ insole line that enables better performing medical-grade insoles has already hit the market. Our efforts to introduce new materials and models in the eyewear market were once again recognized with 2 SILMO d'Or Awards in Paris, which can be considered the Oscars of the eyewear industry.
Our new fitting app in iOS for custom frames was developed and launched at Hundred Optical Stores. We prepared for the launch of a completely new online sales platform in 2023 in the core additive manufacturing activity. Despite inflationary cost pressures, Materialise Manufacturing increased its EBITDA 31% on the strength of the diligent execution of our investment plans in more capacity and in more new products. We are confident that the investments we have made in 2022 from a solid base for further growth in Materialise Manufacturing's revenue and EBITDA in 2023. Materialise Medical also consistently maintained its double-digit revenue growth rate at 16%, and it is poised to be the second Materialise segment to exceed EUR 100 million in revenue.
At the sales level, the annual growth was even 20%, reflecting a substantial increase of deferred revenues, especially thanks to the 29% growth of the medical software sales. The biggest investment of Materialise Medical in 2022 involved the installation and validation of a completely new production line for implants in the U.S.. This line will become operational mid-2023. In addition, Materialise Medical also made a considerable investment in new products. Our surgical planning platforms are systematically being extended from the workstation-based Mimics Enlight framework to cloud-based Mimics platforms that combine the benefits of our global clinical engineering services with an increased use of AI-based automation. At the start of 2023, we were able to launch a new planning tool, Mimics Enlight 3D Lung, that helps surgeons save lung lobes for patients with lung cancer.
Despite the disruptive nature of the war in Ukraine, our global clinical engineering service teams did not miss a single surgery due to capacity constraints. We could not prevent a combination of inflation, war-related costs, and our continued investment for the future from slightly reducing Materialise Medical's EBITDA compared to last year. For Materialise Medical, we believe that the investments we continue to make in 2022 form a solid foundation for revenue and EBITDA growth in 2023. At the staff level, we continued our investment for an aggregate amount of EUR 6.9 million in a new digital backbone that we began rolling out at the start of 2023. While we will still have transition-related costs in 2023 due to this rollout, we will start realizing the first savings of the improved system in our operations.
This completes my discussion about our strategic advances in 2022 and the plans for 2023. Please turn to slide six. During 2022, Materialise made substantial progress in enabling this choice for sustainability by AM to many companies around the world. We reduced stock levels by printing on demand. Our systems helped reduce transportation by printing delocalized. We helped reduce material use by printing first time right and personalized in both our own production and at the customer site. We are confident we will scale these benefits further, all while ensuring the reliable, repeatable quality that the end customer expects. Materialise enables companies to rethink products and solutions in a way that reduces their impact on the environment while increasing people's health and comfort. This can be achieved by using our software for production optimization or our manufacturing services in eco-friendly Materialise, in materials and processes such as Bluesint.
We are not shy about measuring our results according to stringent standards. In 2022, we reduced our carbon footprint by more than 40% compared to our reference year of 2019. This indicates that we are well on the way to reaching our sustainability target of 50% carbon reduction by 2025. Now I pass the work to Johan.
Thank you, Fried. I begin with a brief review of our consolidated revenue on slide seven. As a reminder, please note that unless otherwise stated, I will review Q4 and full year results to comparable periods in 2021. For the quarter, revenue increased 10% to EUR 62.7 million. Our software segment decreased 4%. Materialise Medical increased 17%, and revenue in manufacturing rose by 11%. For the quarter, Materialise Software accounted for 19% of our total revenue, Materialise Medical for 39%, and Materialise Manufacturing for 42%. For the full year, revenue grew EUR 27 million, or 12.9% to EUR 232 million.
The seven point EUR 6 million increase of deferred revenue from software license and maintenance fees compared to December 2021 underscores the strong license sales performance of our software and medical segments.Cross-segment revenue from software products represented 27% of our total revenue for the quarter, and 25% for the full year. Moving to slide eight, you will see our consolidated adjusted EBITDA numbers for the Q4. Consolidated EBITDA amounted to EUR 4.258 million , compared to ten point five million for Q4 last year. Our EBITDA margin was 6.8% Compared to 18.4% Last year. Full year EBITDA was EUR 19 million in 2022 compared to EUR 32.5 Million in 2021. EBITDA margin for the full year reached 8.2% Compared to 15.8% Last year.
Our adjusted EBITDA reflected the negative effects from the investments in our new businesses, Link3D and Identify3D, labor costs and inflation. Slide nine summarizes the results of our Materialise Software segment. Q4 software sales increased 9%, boosted by 29% growth of recurrent sales from license and maintenance fees. Over the full year, we posted license renewal rates of more than 90%, underscoring the value of our software products to our clients. Non-recurrent sales decreased this quarter as we noticed weaknesses in the market's equipment sales. As a reminder, we expect that the perpetual sales will suddenly switch to a cloud and subscription-based agreements with a temporary negative impact on revenue growth in the short term. Software revenue decreased 4% to EUR 11.699 million and was impacted negatively by EUR 3.6 million deferred revenue.
EBITDA decreased to a negative amount of EUR 1.441 million and was impacted by the accelerated R&D investments in our new CO-AM business, which in Q4 also include the expenditures of Identify3D, and also by the effect of non-recurrent restructuring expenditures resulting from the consolidation of Materialise and the Link3D and Identify3D development and sales teams, and the write-off of capitalized expenditures. Moving now to slide 10, you will see that the quarter's total revenue in our Materialise Medical segment increased 17% in Q4. A solid growth of 17% was realized by both medical software and medical devices and services. Revenue from medical software accounted for 31% of the segment revenue. Adjusted EBITDA amounted to EUR 6.4 million, flat compared to last year.
Our EBITDA margin decreased to a still respectable 26% as a result of a combination of various factors, including a different sales mix, increased R&D, and regulatory costs and inflation. Let's turn to slide 11 for an overview of the Q4 performance of our Materialise Manufacturing segment. Revenue also increased this quarter with double digits by 11% to EUR 26.8 million. The growth was driven by mParts manufacturing, which rose 23%, and our ACTech business that grew 20%. Adjusted EBITDA for the quarter grew to EUR 1.5 million, and EBITDA margin was 5.6% compared to 4.1% last year. Slide 12 provides the highlights of our income statement for the Q4 and the full year 2022.
For the Q4, gross profit margin was 66.9% compared to 58.3% last year. For the full year, this margin was 55.5%. Operating expenses increased 28.3% compared to last year's quarter. Executing our strategy, R&D expenses increased 67% compared to last year. Our sales and marketing spending increased 29%. G&A expenditure decreased 1%. Net other operating income was EUR 593,000 compared to EUR 1.3 million last year. This quarter included EUR 672,000 impairment costs related to capitalized development expenditure in Materialise Software. As a result of these elements, the group's operating result was -EUR 1.554 million compared to a profit of EUR 4.976 million in last year's period.
For the full year, the operating result was negative EUR 2.872 million compared to a profit of EUR 12.2 million. In Q4, net financial expense was EUR 3.436 million and included a currency exchange loss of EUR 3.4 million, mainly unrealized and reflecting the change US dollar/euro position on intercompany positions. This quarter, interest income from our cash position offset the interest expense over debt. Income tax income amounted to EUR 402,000 compared to an income tax expense of EUR 490,000 last year. This quarter included a deferred tax asset of EUR 912,000. Net loss for the Q4 was EUR 4.588 million, compared to a net profit of EUR 4.8 million for the 2021 period.
For the full year, net loss was EUR 2.2 million, resulting in EUR 0.04 per share from a net profit of EUR 13.1 million or EUR 0.23 per share. Please turn to slide 13 for a recap of balance sheet and cash flow highlights. In the Q4 of 2022, our balance sheet remained strong. Cash decreased to EUR 140.8 million from EUR 196 million on December 31st last year, reflecting the acquisition of Link3D and Identify3D and borrowing disbursements of EUR 80 million, which reduced our debt to EUR 81 million. Cash flow from operating activities for the full year amounted to EUR 24.7 million compared to EUR 25.8 million last year.
CapEx for the quarter amounted to EUR 5.3 million and EUR 24.8 million for the year and were not financed. Peter?
Thank you, Johan. Let's turn to page 14 for the financial outlook. Encouraged by our strong sales results in 2022 and building on our continued investments in our existing and new businesses, we believe that in 2023 we will post yet another solid top line growth of more than 10%, with revenues totaling between EUR 255 million and EUR 260 million. Like last year, Materialise Medical and Materialise Manufacturing, in that order, are expected to be the key contributors to our growth. We also expect the sales of Materialise Software to grow, but anticipate that as a result of our gradual switch to a subscription-based model, the sales growth will not be fully reflected in our revenues in 2023.
Assuming that inflation stabilizes in 2023, our continued sales growth will gradually result in a stronger adjusted EBITDA, which we currently anticipate will grow by more than 30%, totaling between EUR 25 million and EUR 30 million in 2023, with positive contributions from Materialise Medical, Materialise Manufacturing and Materialise Software, in that order. Unfortunately, like last year, we must note that the developments in Ukraine will likely impact the European and global economy as well as the important services that we source from our courageous workforce in Kyiv. These developments, which cannot currently be predicted, could have a significant effect on our results for 2023. On this note, operator, I would like to open the floor now for questions.
Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your touchtone telephone. If your question has been answered and you wish to remove yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Troy Jensen with Lake Street Capital. Your line is open.
Hey, gentlemen. Congrats on the nice results.
Thank you, Troy.
Hey, how about I guess any one of you guys, I saw during I think it was Johan's presentation that end parts were up 22.6% year-over-year. Have you guys disclosed what percent of the manufacturing business is end parts? Or what percent of total sales? I guess I'd care more what percent of manufacturing is end parts versus prototypes.
One second, Troy. Let me look up to give you some accurate numbers in there.
Perfect.
To present the end part manufacturing at this moment represents almost 30% of our manufacturing segment revenue.
30% manufacturing is end purchasing? The rest of it.
Prototypes.
Yeah. ACTech , which is not end part manufacturing.
Okay. All right. Perfect. It's good to note how big that is. How about, guys, and also just on margins, you know, obviously we've seen kind of gross margins come down slightly just because of lack of growth in software, and we're predicting that again for 2023. Looks like you guys were at 55.5% for gross margins for 2022. We expect that to stay stable, run lower. Just thoughts on the direction of the gross margin line.
We expect an improvement there because of the combination of two effects. We hope that rise of our material costs.
Due to inflation will stop. On the other hand, indeed, our product mix should again show an increased amount of software. Although I want to remain cautious there because in the revenue mix, the growth, as Peter indicated, of software will not be as big yet as in the sales, due to the fact that we have to defer a lot of our sales of recurring licenses.
Gotcha. All right. One last question for you guys. This is on OpEx, and Peter, you did approach it or address it on the prepared remarks. You know, I get that there was inflation, but it seems like there was inflation all last year. You guys did a good job of managing the big OpEx gap, jump ups. You know, something happened in the Q4 here where we saw just a real big material increase. Was that purely all just inflation, Peter?
Yeah, in the Q4 , we had a big increase in material costs. I think, yeah, some of the contracts we had were with fixed prices for most of the year, but we were under influence of inflation, especially at the end of the year, because then they expired.
We also had that already started in Q3, huh, Troy? We had labor cost inflation has been applied in full, especially in Belgium. That affected us around Q3, also the full effect in Q4.
Mm-hmm.
While the annual adjustments in some partner sales agreements can only be adjusted in the beginning of a new year, we didn't have that effect in Q4 already.
Got you.
The delay effect that we have.
Okay. Going forward, guys, should we think of the OpEx lines just growing, you know, slightly on an absolute basis throughout this year? Sounds like you're not gonna try to cut back spending. We're gonna continue to kind of stay on plan for the investment. Just kind of grow them slightly sequentially each quarter.
Yeah. Yeah. I mean, there was a significant increase, in particular in R&D, that's also because of the acquisitions of Identify3D and Link3D.
Right.
We'll see another uptick like that coming in 2023. It will be a gradual, much more gradual increase.
Got you.
We do not plan to cut back, huh?
Okay.
The increasing EBITDA margin will come from a stronger increase of our continuous increase of our revenues. Huh?
Yeah. All right. Understood, guys. Good luck going forward here.
Yeah.
One moment for our next question.
Thanks, Troy.
Our next question comes from Noelle Dilts with Stifel. Your line is open.
Hi, guys. Thanks for taking my question. First, Hi, good morning. I was just hoping you could maybe walk through just how you're thinking. I know you talked about this directionally a bit, maybe if you could just discuss in a little bit more detail how you're thinking about segment margins as we go into 23. I guess specifically on Software, I just wanna make sure we're all thinking about, you know, how to think about where margins are going in 23, also, you know, how you're thinking about the longer term, the longer term cadence there. Thank you.
Well, I mean, the margins of our software segment obviously were very bad in 2022 again, because of the significant investment we did there, including the acquisitions of Identify3D and Link3D. We do expect these margins to become positive again in 2023. There will be a good growth of the margins within software, albeit that they will not come back to the 35% + that we have, that we've seen in.
Twenty-one.
In 21. Huh?
Mm-hmm.
In the longer term, 2024, 2025, we do expect to return back to the, let's say, software margins we had in the past.
There's a delay effect that we have effectively from the switch of perpetual licenses to global subscription-based agreements. Where in the first place, the price, the individual prices are not as high as if when you sell perpetual licenses. The second item is the technical one, is where you cannot have the full revenue recognition as from the beginning. As one that it starts and it's growing, we have a kind of a snowball effect that we can count on in the years to come, but not yet in 23 to the same extent.
Okay. Oops, sorry.
Yeah. Well, you, just for the margin profile of the other two segments, medical has a very solid margin, huh, which from, relatively speaking, did not increase much in 2022 compared to 2021. We see some potential to grow the margin there in 2023 for medical, and also for manufacturing, huh, we expect that the margin will grow to a double-digit level.
Okay. Thank you. That's very helpful. I was just hoping you could expand a little bit just on the level of engagement and interest that you're seeing with the CO-AM platform, just how that sort of trended relative to your expectations and, you know, how you're seeing that sort of as you look out to next year translate into just more sales and growth. Thank you.
Well, we have really seen CO-AM enthusiastically accepted in the market. In the middle of the year, we could only talk about the, let's say, opinion we heard of several customers. By the end of the year, we could say real orders. We recently announced that Quickparts, one of the biggest AM service providers in the world, has fully switched to CO-AM in all of its activities. That's demonstrating that CO-AM is really a tool that is enabling the bigger players to scale. Secondly, I'm very proud on the achievement of our team that in less than a year's time, they could start the implementation of the product in such a big organization.
Also internally at Materialise, after one year, we have now started to run several of our activities on the full CO-AM platform.
Very helpful. Thank you.
Thank you, Noelle.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your touchtone telephone. We'll pause for a moment for our next question. Our next question comes from Alexander Craeymeersch with Kepler Cheuvreux. Your line is open.
Yes, hello. Do you hear me?
Hey, Alexander. We hear you perfectly.
That's perfect. I'm just wondering, you expect an adjusted EBITDA of EUR 25 million-EUR 30 million for 2023, which is significantly higher than the Q4 run rate. It's already been discussed somewhat, but what are you specifically banking on to reach these targets, and what would make you over perform or underperform on those targets? The second question would be, if you could just provide a bit of insights on what your customers are thinking at the moment. Because, I mean, a lot of your customers are related to CapEx budgets, what are their CapEx budgets going into 2023?
maybe as a last question, I have several more, but maybe as a last question, what would be the current usage rate of the ACTech existing machinery as you're expanding that plant? It would be interesting to know what's the current usage or capacity rate at the moment. Thank you for taking those questions.
Alexander, I will take your first question on the EBITDA guidance. As I already hinted at during the prepared remarks, a growth of the margin of the three segments will contribute to the 25%-30%. In absolute numbers, the Medical will contribute most. We see an increasing margin for Manufacturing contributing second, and third, Software rebounding, but not yet to the levels of 35%+, where they will be in a couple of years, but still will be bounding to double-digit margins, will be the third contributor to this growing EBITDA margin. What can make us over perform? Two things. If we further over perform on revenue, that should, with expanding margins, that should have a positive impact on our EBITDA. That would be excellent news.
Second, possibly not so good news, if we do not find the right talent to continue our investment programs because we will expand our margins and continue to invest as well. If we do not find the talent and cannot accelerate our R&D as much as we still want to in 2023, then that may have a positive impact on our margins for 2023. We definitely will not be managing the company in that direction. Those are two situations where I could see that could eventually result in an EBITDA in excess of the range that we guided. For the second question, which I really didn't take down very much in detail. Piet, can I look at you?
I'll just repeat the question maybe. It's just to wonder what your customers are thinking at the moment. How their CapEx budgets are going into 2023.
Well, I think in most cases, I want to say that we are not in the CapEx budgets, but rather in the OpEx budgets. That's one of the consequences of our growing shift towards cloud-based platforms and annual licenses. The amount of situations where we are in the CapEx budget has really become very limited. That's one element there. Indeed, we see in the market that there is uncertainty and people fear that the year 2023 could still be a difficult year. We can say we are rather optimistic because we believe we are in a large number of applications that are really very much on the rise, even in difficult economic circumstances.
Finally, with respect to your question on the capacity utilization of ACTech, that is really very high at the moment. Yeah, 85% and maybe even higher, which means that there is very little room on the existing capacity. That's exactly why we have started earlier last year, the expansion. During the remainder of this year, we expect extra machinery to come in in order to increase the capacity. In the meantime, we also have some subcontracting opportunities to support growth on very short notice.
Okay. Thank you for that. I'll leave the, I'll leave the floor to my colleagues. Bye.
Thank you.
I'm not showing any further questions at this time. I'd like to turn the call back over to Peter.
Thank you, operator, and thank you all for participating in the call today. As always, we look forward to continuing our dialogue with you, be it in one-on-one discussions or at any investor conference that we will be attending in the coming weeks and months. Thank you again for joining, and we wish all of you a good day. Goodbye.
Goodbye.
Ladies-
Bye.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.