Good day, and thank you for standing by. Welcome to the Q3 2023 Materialise Financial Results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Then you will hear an automated message advising that 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 call over to our first speaker for today. Let me please introduce Harriet Fried of LHA.
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 Koen Berges, 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 third quarter of 2023. To access the slides, if you've not already done so, please go to the investor relations section of the company's website at www.materialise.com. The earnings press release 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 annual report on Form 20-F, filed with the SEC. Finally, management will discuss non-IFRS measures on today's call. A reconciliation table is contained in the earnings release and also at the end of the slide presentation.
With that, I'd like to turn the call over to Peter Leys. Go ahead, please, Peter.
Thank you, Harriet, and thank you everyone for joining us today. As always, you can find the agenda for our call on slide number 3. First, I will summarize the highlights of our financial results for the third quarter of this year. Then I will pass the floor immediately to Koen, who will go through our third quarter numbers in more detail. And after that, Fried will give you some insights on the dynamics of the changing landscape of additive manufacturing software and also on the exciting upcoming changes within our company, Materialise. And finally, I will come back and explain what we believe the rest of the year will bring. When we've completed our prepared remarks, we will be happy to respond to any questions that you may have. So let's turn to slide 4, which summarizes the highlights of the previous quarter.
In the third quarter of 2023, we recorded EUR 60.1 million in revenues, which represents a growth of 3% compared to last year's period, and this in spite of the difficult economic circumstances. Our Adjusted EBITDA for the quarter increased by 55% to EUR 7.9 million, compared to EUR 5.1 million last year, representing an EBITDA margin of 13.1%. Our net results for the quarter amounts to EUR 4 million or $0.07 per share. And with that, I would like to now pass the floor to Koen. Koen?
Thank you, Peter. Good morning or good afternoon to all of you on this call. I'll begin with a brief review of our consolidated revenue on slide 5. Please note that unless stated otherwise, all comparisons in this call are against our results for the third quarter of 2022. As mentioned by Peter, revenue increased 3.2% to EUR 60.1 million. Over the past seven months, less favorable market conditions mainly impacted our manufacturing segment, which decreased by 4%, while our software segment remained stable. Our medical segment, on the other hand, continued its double-digit revenue growth and grew by 13%.
Deferred revenue from software licenses and maintenance fees carried on our balance sheet amounted to EUR 40.1 million at the end of September, representing a decrease of EUR 2.7 million compared to the end of 2022, but still up by EUR 1.7 million compared to September of last year. As you can see from the graph on the right, Materialise software accounted for 18% of our total Q3 revenue, Materialise Medical for 40%, and Materialise Manufacturing for 42%.... Moving on to slide 6, you will see that our consolidated Adjusted EBITDA numbers for the third quarter of 2023.
The consolidated adjusted EBITDA grew to EUR 7.9 million, representing an adjusted EBITDA margin of 13.1%, compared to EUR 5.1 million of adjusted EBITDA for the same period last year, which is an increase of almost 55%. Despite the more moderate revenue growth this quarter, we were able to significantly improve our profitability through a continued focus on scaling effects and cost control. At the same time, we continued R&D investment in our growth businesses. Slide 7 summarizes the results of our Materialise Software segment. Software revenue remained stable at EUR 10.8 million, while recurring revenue from maintenance contracts and renewed licenses, including CO-AM subscription fees, increased by 10%. Revenue from non-recurring sales, on the other hand, decreased 18%, reflecting our continued transition to recurring business model.
Adjusted EBITDA for the third quarter increased significantly from EUR 0.2 million last year to EUR 1.8 million this year, representing an improved adjusted EBITDA margin of 16.5%. Moving on then to slide eight, you will see that the Materialise Medical continued growing at a solid double-digit pace of more than 13%, with revenue increase coming both from medical software and from medical device solutions. Software revenue grew by 10%, while our medical device business expanded by an aggregate of 15%. Adjusted EBITDA amounted to EUR 7.1 million, compared to EUR 4.8 million last year, resulting in improved adjusted EBITDA margin of 29.4%. Now let's turn to slide nine for an overview of the Q3 performance of our Materialise Manufacturing segment.
As mentioned earlier, revenue decreased 3.8% to EUR 25.1 million, mainly due to a general slowdown in the prototyping markets. Adjusted EBITDA for the quarter dropped to EUR 1.1 million, representing an EBITDA margin of 4.3%. More challenging market conditions impacted the segment's revenue and gross margin. On the other hand, we contained indirect costs and continued investments in our motion and eyewear business lines as planned. Slide 10 provides the highlights of our consolidated income statement for the third quarter. Gross profit margin increased to 56%, compared to 55% last year. Continued cost focus helped us to further reduce our operating expenses by EUR 1.4 million or 4.2%.
While sales and marketing and general and administrative expenses decreased, respectively, by 8% and 4%, we continued investing and increased R&D expenditures by 2%. As a result of these factors, the group's operating result was positive at EUR 2.3 million, compared to a negative EUR 0.3 million last year. Net financial income for Q3 was positive, with EUR 1.3 million, including currency exchange gains of EUR 0.6 million, in addition to growing interest income on our cash deposits, which are more than offsetting the interest costs on outstanding loans. Net profit for the quarter significantly increased to EUR 4 million or EUR 0.07 per share, compared to a net profit of EUR 1.4 million or EUR 0.02 per share last year.
Now, please turn to slide 11 for the recap of balance sheet and cash flow highlights. At the end of the third quarter of 2023, our balance sheet remained strong. Cash reserves amounted to EUR 134 million, while our borrowings position further decreased to EUR 66.2 million, resulting in an improved net cash position of EUR 67.7 million. Cash flow from operating activities for the third quarter of 2023 increased to EUR 8.1 million, compared to EUR 3.8 million last year, mainly driven by a strong EBITDA. Working capital increased only slightly over the quarter by EUR 0.3 million.
Capital expenditures for the quarter amounted to EUR 3.9 million and included the completion of the new metal printing facility in the U.S. that we discussed in our previous earnings call, as well as further investments in the new ACTech plants. Also this quarter, none of our capital expenditures were externally financed. With that, I'd like to hand over to Fried.
Thank you, Koen. Good morning or good afternoon to all of you listening to this call. A steady bottom line performance, even in a quarter where the economic conditions of our industrial activities were unfavorable, confirms the build to last nature of Materialise. In 1990, my wife, Hilde, and I founded Materialise, driven by a desire to make use of 3D printing and to make a difference with this technology. Its applications, we thought, could contribute to a better and healthier world. Thanks to many people around us, all over the world, that started sharing the dream, we were able to build a sustainable organization called Materialise. An organization, a company that executes step by step on this mission of creating a better and healthier world. We are proud of the results we achieved through relentless focus on meaningful applications of 3D printing.
We are proud of the thousands and thousands of products we helped improve through prototyping, and we are proud about the thousands and thousands of patients we made healthier with patient-specific instruments and implants. The best news is that the journey we started will be continued in a sustainable way. In a built to last context, this means that we have to embrace change while preserving the core mission and values of Materialise. We are in front of significant changes, both in our environment, in the markets that we serve, and the top management structure of Materialise. Let me address both aspects. First, the market fundamentals and technology fundamentals. While I continue to believe that 3D printing is a slow revolution, the dynamic and some circumstances of the revolution are changing. For many years, the necessity of 3D printing as a manufacturing technology was questioned by many.
Why would you choose 3D printing? Was a key question to answer in order to build successful operations. But today, most companies and industrial sectors are convinced about the benefits that 3D printing can bring. Their key question has shifted to: how can 3D printing contribute to my success? AM materials and printing processes have proven their technical fit in a multitude of applications, but still need to be scaled to economic prosperity. The how to scale is in a large extent related to the successful development of digital backbones for the business processes and the user companies in general, and for AM production lines in particular. It's there that the scalability of 3D printing currently hits another roadblock.
In the 1990s and the early 2000s, the remarkable partnership between Intel and Microsoft, often referred to as Wintel, played a pivotal role in propelling the computer industry to new heights. It provided a standard platform for hardware and software. Wintel established a stable and harmonious ecosystem, and despite occasional concerns regarding competition, this interoperability led to rapid search in software development in an expansive range of applications. It helped a robust user experience, ushering in an era of PC revolution. Fast forward today, and we see an overnight landscape dramatically different. It's real, characterized by a myriad of platforms, interfaces, operating systems, cloud computing providers, IoT devices, and more. This diversity offers users a wealth of options and flexibility, but it also introduces complexity and escalated costs. In the context of 3D printing, an inherently digital technology, this complexity can be particularly problematic.
The companies in the 3D printing industry must commit resources to ensure that their printers and accompanying software are compatible with an array of devices, operating systems, and file formats. This does not only cause to incur costs, but also divert resources that could otherwise be channeled into innovation and growth. As such, this complexity may hinder growth of the 3D printing industry, where interoperability and compatibility are paramount, and as a consequence, the advent of distributed manufacturing is delayed. With our heavy investment in CO-AM, our digital manufacturing platform, Materialise has risen to meet these challenges, offering manufacturers an open software platform to manage, scale, and standardize their production workflows across intricate supply chains and diverse IT environments. The verticals of Materialise, the medical segment in particular, demonstrate our good digital backbone...
From patient data over surgical planning to automated design using advanced IT tools in a global context, enables to scale AM economically. We demonstrate it can happen personalized, with respect for patient privacy, in the cloud, also in tune with the legal requirements of many different countries. I believe the slow AM revolution will continue, and Materialise will continue to play a leading role in that revolution under the guidance of our new CEO, Brigitte de Vet-Veithen. Brigitte joined Materialise in 2016, with many years of experience in companies like Johnson & Johnson and Acertys already under her belt. She took over the general management of the Materialise Medical segment from me at that time. Over her tenure at the helm of Materialise Medical, she has grown this segment to become the most profitable of all the company segments today.
We are confident that under her leadership, Materialise will continue its track as a build-to-last company. Brigitte will provide continuity, as over the last 7 years, she delivered ample proof that she could guide her management team in delivering value to patients and all other stakeholders in the medical device, companies, and hospitals. In addition, during all those years, she was an active member of the executive committee that she will lead from the first of January 2024 onwards. In the executive committee, she will be able to rely on the stable team that has been in the operational leadership of Materialise for many years. We strongly believe that Brigitte and her executive committee will continue to bring innovation-- innovative solutions to the Materialise customer base. She will as well provide an inspiring work environment that fosters personal growth to the employees.
Peter, Hilde, and I have been preparing in coordination with the board for the current transition. We are convinced that the renewed but highly experienced executive committee will be well-placed to deliver value to the shareholders. Peter, Hilde, and I will also remain closely connected to the strategic positioning of Materialise as non-executive members of its board, where I will take over the presidency from Peter Leys. And I want to take this opportunity to thank Peter for his formidable contributions to Materialise. It is thanks to Peter that Materialise was able to enter the U.S. stock market, and that we have been able to fulfill all the legal requirements consistently. Our presence on the stock market has been an integral part of our strategy to operate as an independent platform and solutions provider in the many different markets that additive manufacturing can serve. But Peter's contributions go much further.
He has been instrumental to the performance of Materialise, keeping the balance between a healthy financial performance and the diligence in execution of projects that contribute to our mission. I believe that all of you who regularly participate in these quarterly calls have appreciated the forthright, but also humorous communication that has become a trademark for Materialise in its investor relations. I will certainly count on his continued input as I take over the presidency of the board. As board members, Hilde and I will keep traveling the world in support of Materialise in the years to come, representing the company at major sales and industry events. We remain committed to the value that Materialise will bring as a build-to-last company to society, and look forward to seeing some of you in just a few days at Formnext.
We will have the opportunity to discuss the future in more detail. Let me now pass the call back to Peter.
Thank you. Thank you so much, Fried. Currently, with respect to our financial outlook, we continue to expect our full year revenues to be between EUR 255 million and EUR 260 million, and this in spite of the more challenging macroeconomic conditions that we are in. When we reported our first quarter results in April, we increased, as you may remember, the expected range of our adjusted EBITDA for 2023 by 10% to an amount between EUR 28 million and EUR 33 million. Today, we are maintaining that increased EBITDA guidance. This concludes our prepared remarks.
... This actually also concludes my active participation in the quarterly calls with the investor community. I would like to thank everybody on the other side of the call for the constructive relationship that we have built over the last decade. It has been a pleasure and an honor to engage in dialogues with you about one of my, and hopefully also your, favorite topics, the execution of the mission and vision of Materialise. Together with Fried and Hilde, I will continue to serve Materialise and to support Brigitte and the entire executive management team as a member of the board. I have full confidence that in this new constellation, Materialise remains in good, safe, and innovative hands. With that, operator, I would like to open the call to questions.
Thank you. At this time, we will conduct the 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. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jacob Stephan from Lake Street Capital Markets. Your line is now open.
Thanks for your day, Peter. I just want to congratulate you guys on, you know, what you built and what you guys have accomplished, and, Brigitte, I want to congratulate you on the new role as well. Look forward to working with you. I just want to touch on kind of the medical device market. You know, what are the trends that you're seeing? And if you could kind of help us think about, you know, what does the pipeline look like over, let's say, the next 12 months?
Well, Jacob, sorry. We see real robust demand for our personalized instruments and guides, and implants, of course. We believe that we will be able to continue closing interesting contracts with medical device manufacturers. At the same time, the medical device industry is also a little bit, yeah, affected by the current economic situation and is being careful in its investments, and that waits a little bit on the growth of our software activities in medical. It's not dramatic, but at the same time, it is a little bit going a little bit slower than we expected in the beginning of the year, when, if you remember, we were overperforming.
So it's still a balanced view at the moment, but we definitely hope that the economic activities for the medical device companies will pick up again.
Okay. And maybe just in addition to kind of the med device, and implantables, you know, are there any other markets that you would kind of point to as areas of strength, or, you know, that are showing increasing interest in the medical segment?
In the medical segment, yeah, we have a couple of applications that we are starting to bring to the market, relating to, for instance, pneumology, where we see also opportunities for the personalization, especially in the context of tumor surgery, in which we launched earlier this year, a solution. So personalization is a fundamental tendency in the medical device sector, in which, as you know, we are well placed with our complete platform of research tools and later on, solutions to support the rollout of those personalized approaches, in different surgical disciplines.
Got it. And, you know, maybe just on the software side, is there anything you can talk about that would help us, you know, kind of quantify what percent of your customers are still kind of, you know, that non-recurring revenue? You know, so how much is kind of left to, you know, convert over to recurring?
Jacob, let me take that one. In our software revenue, about 30% is now non-recurring, and the recurring part represents currently about 70% of our revenue. It's gradually going up quarter after quarter.
Okay, great. That's, that's very helpful. That's all the questions I had. Best of luck going forward here, and congrats again, guys.
... Thank you, Jacob. Bye.
Thank you. 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 for our next question. Our next question comes from the line of Troy Jensen of Cantor Fitzgerald. Troy, your line is now open.
Hey, gentlemen. Big day today.
Hey, Troy.
Yes, it is. Life is full of changes, Troy.
It certainly is for both of us, right? For all of us here.
Yep.
I also want to say congratulations to Fried and Hilde for all you guys have done for the industry. It's been fantastic working with you guys. So, Fried, do I understand you're still gonna be the Executive Chairman, but not the President? And Peter, you're just gonna be a board member and no longer active?
Well, Troy, actually, I will be non-executive chairman of the board, so there will become a bigger separation between our board and the executive committee. In the past, we were with three people, Peter, Hilde, and myself, who were both in the board and in the executive committee. So the, the governance of Materialise will change a little bit, but we see that as the next step in the growth of the, the maturity of the company.
Oh, you guys will be missed. Thanks for all you've done, but, how about a couple quick questions for you guys? Link3D, I'd just love to get an update on where you guys are with kind of cloud-based software and your thoughts on kind of, you know, that segment of the business.
Well, we continue to invest and see a couple of companies pick up the cloud-based solutions that we offer. At the same time, that is what my key comments on the industry were about, is we are confronted with a situation that the cloud environment in a business-to-business context is actually a more difficult sale than just the Wintel-based, as I said, software programs that run on a laptop, because those cloud environments are so different. And the good thing is that we are really having our APIs, our libraries, that are compatible and that can be deployed in different server or cloud settings. The bad thing is that, of course, it requires a more intensive investment from our side in order to support all those platforms.
That's where we are confronted with, yeah, some delays and some issues in order to roll out more platforms. But what is even more important is that companies are doubting what choices they have to make. In a economic environment that is not that favorable, doubt is a reason to postpone.
Understood. All right, then how about a question for Koen. Can you just touch on deferred revs? You guys maxed out here at about EUR 43 million, and we've had a couple quarters, sequentially, that it's declined. I guess I would assume deferred continues to grow with, with the software's offerings, but, just can you help us out on that?
Yeah. Your statement is correct, Troy. We did see our deferred revenue going down in the third quarter, also in the second quarter. But you have to take into account that there is a timing effect, though, included in these numbers. If you look historically at our deferred revenue numbers, you will notice that we typically build up deferred revenue in the first and the last quarter of a year, and typically in the second quarter, you see a depletion. So if you look, if you compare the current number to beginning of the year, there is indeed a decline to EUR 0.7 million.
But if you, on the other hand, compare to where we were in September of last year and take a full year cycle, then there's still an increase of about EUR 1.7 million. Now, that being said, the depletion in the third quarter was a bit higher than we anticipated, and that is, in our belief, linked to the current economic situation. And it's definitely an attention point as we move now into the fourth quarter, where we should see, looking back at the historic trend, the deferred revenue pick up again.
Understood. Well, guys, congrats. Really solid results, given, you know, what we've seen from some of the other companies in the space here. So, congrats to you, and look forward to seeing you guys next week in Leuven and in Frankfurt.
Excellent, Troy. We'll see you then.
See you. Bye.
Thank you. This now concludes the question and answer session. I would now like to turn the call back over to Peter Leys for closing remarks.
Thank you, operator, and thank you all again for joining us on the call. As we are entering the transition phase, I would like to close this call by symbolically handing the floor to Brigitte.
Thank you, Peter, and good morning or good afternoon to all of you. I very much look forward to continuing the dialogue with all of you as of 2024, together with Koen, through investor conferences or one-on-one virtual meetings or calls. Upcoming Formnext in November will hopefully give the chance to already meet some of you in person. Thank you and goodbye for now.
Goodbye.
Bye.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.