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Voxeljet AG (NYSE:VJET)

Q4 2013 Results Earnings Conference Call

March 28, 2014 8:30 AM ET

Executives

Anthony Gerstein - Senior Vice President, ICR and Investor Relations, Voxeljet

Ingo Ederer - Chief Executive Officer

Rudy Franz - Chief Financial Officer

Analysts

Troy Jensen - Piper Jaffray

B.G. Dickey - Stephens Inc.

Rob Stone - Cowen and Company

Ken Wong - Citigroup

Peter Misek - Jefferies

Wamsi Mohan - Bank of America Merrill Lynch

Operator

Greetings and welcome to the Voxeljet Fourth Quarter and Full Year 2013 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Anthony Gerstein, Senior Vice President of ICR and Investor Relations for Voxeljet. Mr. Gerstein, you may now begin.

Anthony Gerstein

Thank you, operator and good morning everyone. With me on the call today are Ingo Ederer; Voxeljet's Chief Executive Officer and Rudy Franz, Voxeljet's Chief Financial Officer. Yesterday after the market closed Voxeljet issued a press release announcing its fourth quarter and full year financial results for the period ended December 31, 2013. The release is available in the Investor Relations section of our company's website at voxeljet.com.

During our call we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance and therefore one should not place undue reliance upon them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed.

For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission.

With that, I would now like to turn the call over to Ingo Ederer, Chief Executive Officer of Voxeljet. Ingo?

Ingo Ederer

Thank you Anthony and good morning everyone. Thank you for joining us today. You can follow along with our presentation on our webcast. Let me start with Slide 3. The agenda for today’s call begins with a brief review of the highlights and accomplishments for both Q4 and full year 2013.

I will then discuss some of these strategic initiatives that contribute to the long-term growth of our company. I will then turn the presentation over to my colleague, Rudy Franz, who will provide a more detailed review of our financial results for the periods and provide our initial guidance for the full year 2014. At the end of our remarks, we will open the call up to answer your questions.

Please turn now to Slide 4. We are very pleased with our results for the fourth quarter. Total revenues increased 78% to €3.7 million compared to €2.1 million in the same quarter last year.

System revenues increased to €2.5 million from €0.9 million as the company sold three new 3D printers in the fourth quarter of 2013 compared to one printer in last year's fourth quarter. Services revenues increased 8% in the fourth quarter to €1.2 million from €1.1 million with orders for on-demand parts continuing strong.

Please note that we still experience capacity constraints and ran at new full capacity at our German facility throughout the year. We have nearly completed first phase of our relocation into our new larger facility which I will discuss in greater detail momentarily.

Gross profit and gross margin in the quarter were €1.5 million and 41.3% respectively, compared to €0.8 million and 39.9% in the year ago quarter. You can see that our gross margin was affected by the inclusion of approximately €0.3 million of our long-term cash incentive plan. This program was initiated in 2013 and is allocated to cost of good sold by business segment.

The gross profit margin for our System segment increased to 48.2% in the fourth quarter 2013 from 25.3% in the fourth quarter of 2012 primarily reflecting increase in the number of 3D printers sold in this year’s fourth quarter. Gross profit margin for our Services segment decreased to 27.5% in the fourth quarter of 2013 from 51.8% in the fourth quarter of 2012 mostly because of the long-term cash incentive plan and sales mix. Excluding the long-term cash incentive plan, Services gross margin was closer to 40%.

Rudy will spend more time discussing the impact of our long-term cash incentive plan in his prepared remarks. As a highlight of the fourth quarter include the successful completion of our IPO, introduction of our newest 3D printer the VX2000 and the acquisition of the facilities and property that now make up our corporate headquarter and our German service centers.

Turning now please to Slide 5. Just briefly reviewing the financials for the full year 2013, revenue increased by €3 million to a record of €11.7 million from €8.7 million in the prior year. Systems revenue increased 83% to €6.3 million in 2013 from €3.5 million in 2012 as the company sold a total of nine 3D printers in 2013 compared to six 3D printers in the prior year.

Revenue from our Services segment increased approximately 2% to €5.3 million as we continued to experience strong demand for on-demand parts and continue to be constraint by capacity limitation. Gross profit increased to €4.6 million from €3.8 million while gross profit margin decreased to 39.7% from 43.1% in 2012. If you exclude the cost related to our long-term cash incentive plan, gross margin was closer to 43% in line with our expectations.

Moving now onto Slide 6 and 7. I want to take a few moments to update you on the several of our strategic initiative which are important to our long-term growth, strategy and which I have spoken about since the IPO. At the core of our growth strategy lies free distinctive initiatives.

First, we will continue to establish large phase service centers around the globe. In a moment, I will update you on the expansion of our European service center and our plans for our facility near Detroit, Michigan. Second, we will continue to be a leading industry innovator through ongoing research and development with a particular focus on our printing capabilities and the introduction of new material sets through the market. The third driver to our business is that we will grow our global sales and marketing presence which we believe will increase our market penetration in facility and adoption of our technology.

Please turn now to Slide 8, I will update you on our German facility. We’ve included several pictures in our presentation to share with you. Currently we are approaching the final stages of our relocations into our new larger facility. At approximately, 40,000 square feet, the facility is more than twice the size of our prior facility. It is currently supporting 10 3D printers, including one of our largest printer the VX4000 that you can see pictured here on Slide 9.

Our plan is to have some of the small and oldest printers replaced by larger machines with more capacity. We plan to have one additional VX4000 printer and two VX2000 printers fully operational by end of this year.

We expect to increase our printing capacity this year in Germany by approximately 50% compared to last year. It is important to note that we have experienced little if any disruption to our service business during the relocation. This is because we have moved our printers in stages whereby we continue to operate several machines in our old facility while we moved and assembled others in the new facility.

The cost of moving our printing equipment from one facility to the other is not so simple even if the buildings are located relatively close to each other. Our industry printers can’t simply be unplugged and moved, wrapped up because of their price and complexity, our printers must be completely disassembled and reassembled in the moving process.

To put this in context, it can take between two and three days to move one of our smaller printers like the VX200 or VX500 and up to four of five weeks for one of our larger printers like the VX4000. But because we have scheduled our moving phases, we have experienced very little disruption and we do not expect to see a material difference in segment revenues compared to last year’s first quarter.

We expect to have access to higher printing capacity by the end of the second quarter. Importantly, the relocation frees us from our prior capacity constraints in our service center and we are now prepared to support increased growth we are experiencing for on-demand parts.

Turn now, please to Slide 10. Today, we are pleased to announce that we have signed a lease for our first 3D printing service center located in Canton, Michigan. The facility is extremely well situated to serve the U.S. automotive industry as well as large number of potential customers in the Midwest region and Canada.

At approximately, 50,000 square feet, the facility will initially support four printers, which will likely consist of two sand printers and two plastic printers. It is an excellent facility in which we can grow and expand capacity over time. We expect the facility to eventually have similar printing capacity as our new German facility by 2016.

The first machine should be installed and operational towards end of the second quarter this year, and we expect to begin delivering on-demand printed parts in the third quarter of this year.

Turning now, please to Slide 11, I wanted to mention the successful introduction of our newest 3D printers, the VX2000, which we introduced at the Euromold show in Frankfurt back in December. The response has been extremely favorable and we recently received our first order for this printer.

The VX2000 is one of the largest commercially available 3D printing platforms in the market, uniquely suited to a variety of applications in the automotive or aviation industry at foundries, pump manufactures or the equipment building industry.

Please turn now to Slide 12. You can see how the VX2000 effectively bridges the gap between our VX1000 and the VX4000, and we now offer a balanced product portfolio of six different printer platforms that enables us to provide our customers with an industry 3D printer for pretty much any consumable application area.

I think it is very likely that we will receive additional orders for a number of VX2000 machines this year as interest appears to be strong and I look forward to sharing this development with you in the coming quarters.

Moving now on to Slide 13, I think this slide gives you a sense about our focus on continued innovations and advancement in technology through ongoing research and development. As a testament to our dedication to innovation, we currently have more than 50 active projects with proprietary intellectual property in various stages of development, which we believe will strengthen our position in the industry and contribute to our long-term future growth.

This is extremely important to our growth and the opportunity that it creates. We are currently in varying stages of developing new material sets including various capping materials, PMMA-based plastics, ceramics, silicon carbide, tungsten carbide, wood powder and cement.

For example, we have recently had great research printing cement based material. This is a factoring material set, containing no hazardous ingredients and can be used for design and construction applications. Because it can be run also now in our bigger platforms, it is perfectly suited to unique interior design element or [façade] (ph) elements.

Well, let’s take the ceramics. I think our printers can provide you unique application opportunities. We are already able to print very nice parted aluminum oxide, and it is very likely that you will see material set release later this year with a broad range of applications.

Furthermore, we have acquired a license for technology developed by a German public research institute called BAM, which specifically works for ceramics and fits perfectly into our technology platform. The main advantage here is that we can print denser and stronger parts than with the existing technology. We think we can bring this into a product within the next two years from now.

This can have a major impact of the ceramics industry because it allows them to work with their existing materials with only slide and no modifications whatever and all the benefits we can provide like freedom of design and productivity. That’s brings me to the end of my part of presentation.

One final point before I turn the call over to Rudy, as you maybe aware, we filed a stock offering yesterday evening, we are not able to get into the specific details of the offering on this call. But I’ll refer you to the registration statement and prospectus we filed with the SEC. We would appreciate if you have your questions at the end of the call to these specific results for the quarter and outlook and growth strategy.

With that, I will now turn the call over to Rudy who will discuss our financial results and as well provide you with our guidance for 2014. Rudy?

Rudy Franz

Thank you, Ingo. Good morning, everyone. Now turning to Slide 15, I’m going over to cover both the full year and fourth quarter revenue results at the same time. Total revenues increased 34% to €11.7 million in 2013, compared to €8.7 million in 2012.

Total revenues increased 78% in the fourth quarter to €3.7 million, compared to €2.1 million in the same quarter last year. The primary revenue driver was increased system sales as well we sold more printers in both periods.

You may now turn to Slide 16. I would like to give you a more detailed update about our long-term cash incentive plan. Before we review profitability aspect, we walk through the long-term cash incentive plan. I think this slide provides a very transparent overview of the plan.

To be clear, we were initially advised around the time of our IPO that the long-term cash incentive plan could be netted against the proceeds from the offering. That opinion has subsequently been changed and as a result, we are now obliged to expense it through the P&L. Also this affects our reported margins. Please understand that we are running our business at the levels of profitability we had anticipated, which is a very important message.

The long-term cash incentive plan was implemented in the fourth quarter of 2013 and totaled approximately €0.9 million, which as you can see is broken down by businesses and operating segment. Approximately, €0.3 million was allocated to cost of sales, which had an impact on both our total and segment gross margin.

Going forward, we expect to incur approximately a total of €150,000 per quarter or €600,000 per year related to our long-term cash incentive plan, of which more than one-third is expected to be included in cost of sales.

The reason we have a long-term cash incentive program is understandable to motivate and compensate our key employees. Importantly, the way the plan works with respect to performance goals is aligned with shareholders and the cash payout are pre-funded from the proceeds of the IPO. If you have any questions, I’m of course available to discuss with you in greater detail.

Moving now to Slide 17, gross profit and gross margin for 2013 were approximately €4.6 million and 40% respectively. This compares to gross profit of €3.8 million and the gross margin of 43% in the prior year. Excluding cost of sales related to the long-term cash incentive plan of €0.3 million, full year gross profit and gross margin were €5 million and 43%.

Gross profit and gross margin for the fourth quarter of 2013 were €1.5 million and 41% respectively, compared to €0.8 million and €39.9 million in the fourth quarter of 2012. If you again exclude cost of sales related to the long-term cash incentive plan, our total gross margin would have been about 50% for the fourth quarter.

On the next Slide 18, we’ve shown the segment reporting on a quarterly basis. System revenue increased more than 160% to €2.5 million from €0.9 million, as the company sold a total of three new 3D printers in the fourth quarter of 2013 compared to the one printer in the fourth quarter of 2012.

System revenue represented 67% of total revenues in the fourth quarter of 2013, compared to 33% in the same quarter of 2012. Gross profit for our system segment increased to €1.2 million in the fourth quarter of 2013 from €0.2 million in the fourth quarter of 2012 while the gross profit margin increased to 48.2% in the fourth quarter of 2013 from 25.3% in the fourth quarter of 2012.

The increase in gross margin is primarily related to the increase in 3D printers sold in this year’s fourth quarter, which more than offset the impact from the Long Term Cash Incentive Plan allocated to their business segment. Excluding cost of sales related to the Long Term Cash Incentive Plan of €0.2 million, gross profit and gross margin were €1.4 million and 56%.

Let’s go now to Slide 19. Service revenues increased 8% to €1.2 million compared to €1.1 million in fourth quarter 2012, which again we are pleased within light of the capacity constraints, we have been facing as well is the undertaking the initial move of our service center in Germany. Gross profits of our service segment decreased to €0.3 million in the fourth quarter of 2013 from €0.6 million in the fourth quarter of 2012.

While the gross profit margin decreased to 27.5% in the fourth quarter of 2013 from nearly 52% in the fourth quarter of 2012. Excluding cost of sales related to the Long Term Cash Incentive Plan allocated to services, our service gross margin would have been 40%, which is in line with our expected range. Service gross margin is expected by the sales mix in volumes. Parts printed with sand are generally less profitable than parts printed with plastic or PMMA.

So even through our reported service margin was mostly impacted by the increased cost of sales due to higher personal expenses related to the Long Term Cash Incentive Plan. Our sales mix had an impact on results in the quarter as well. If you remember the third quarter of 2013 our service gross margin was 53%, which at that time, I commented, benefited from a favorable mix and was toward the high end of our experience.

Let’s turn to Slide 20. Systems revenue increased to 83% to €6.3 million in 2013 from €3.5 million in 2012 as the company sold a total of nine 3D printers in 2013 compared to six 3D printers last year. Overall, the 3D printers sold in 2013 were average larger systems than in prior years, which also contributed to higher revenue as the larger systems are generally sold at higher prices. Systems revenues represented 54% of total revenue for the period compared to 40% a year ago. Systems revenue also includes all revenue from consumables, spare parts and maintenance.

Systems gross profit margin was 39.5% in 2013 compared to 40.4% in 2012. Excluding cost of sales related to the Long Term Cash Incentive Plan of €0.2 million, gross profit and gross margin were €2.5 million and 43% respectively. As the business continue to grow over the coming quarters, we expect gross margins to the system segment to be in the range of 40% to 45%.

Service revenues increased 2% to €5.3 million, primarily as a result of the capacity constraint at our service center in Germany. Visualization rate in the service segment is currently and approximately 80%. And as Ingo noted earlier, demand for on-demand part service remains robust and we should start to see meaningful increases in service revenues in the second half of this year as we have up our capacity in our new German facility and simultaneously, start production at our U.S. facility in Detroit.

The first anticipated sales of on-demand parts are accruing there in the third quarter. Service gross margin was 40% in 2013 compared to 45% in 2012. As said earlier, the gross margin services influenced our product mix and if we exclude the cost of sales related to the Long Term Cash Incentive Plan of €0.2 million, gross profit and gross margin were €2.3 million and 43% respectively. We expect service margin to remain in the range of 40% to 45% in the near term.

Now move to Slide 21 and I’ll provide an overview of the P&L for the quarter. We’ve already discussed revenues and gross margins, the important takeaways here are that selling expenses were €1.3 million compared to €0.3 million in the fourth quarter of 2012, an increase of €1 million as we supported the increase level of demand for both of our businesses. Excluding expenses related to the Long Term Cash Incentive Plan, selling expenses were €1.1 million.

Administrative expenses were €1 million compared to €0.2 million in the fourth quarter of 2012, partially due to increased headcount to support our growth strategy and cost associated with being a public traded company. Excluding expenses related to the Long Term Cash Incentive Plan, administrative expenses were €0.9 million.

Research and development expenses increased to €3 million in the fourth quarter of 2013 from €0.6 million in the prior year period as we continue to invest heavily in R&D with the number of active projects in various stages of development. If we exclude expenses related to the Long Term Cash Incentive Plan, research development expenses were €1 million.

If we talk about operating profits, the operating profit declined to a loss of €2.1 million in the fourth quarter of 2013 from a profit of €0.05 million in the prior year period. Excluding operating cost and cost of sales related to the Long Term Cash Incentive Plan, operating profit was a loss of €1.1 million for the fourth quarter of 2013. Loss for the fourth quarter of 2013 was €2.5 million or €0.85 per share as compared to a loss of €0.04 million or €0.02 per share in the fourth quarter of 2012.

Let’s move to Slide 22, where we see the P&L for the full year. Again we have already discussed revenues and gross margins in detail for looking more closely at operating expenses. Selling expenses were €2.6 in 2013 compared to €1.5 in 2012. The increase in selling expenses was in line with our efforts to grow our business. Excluding expenses related to the Long Term Cash Incentive Plan, selling expenses were €2.5 million.

Administrative expenses were €1.7 million in 2013 compared to €0.8 million in 2012, partially due to increased headcount to support our growth strategy and costs associated with being a public traded company. Excluding expenses related to the Long Term Cash Incentive Plan, administrative expenses were €1.6 million.

R&D expenses increased to €2.7 million in 2013. The increase in R&D expenses in 2013 reflects our emphasis on developing new 3D printing technology and improving our existing 3D printing technology. Excluding expenses related to the Long Term Cash Incentive Plan, research and development expenses were €2.4 million.

Other operating income was €0.9 million compared to €0.8 million in 2012. Other operating income includes primarily government grants received for ongoing research and development projects and finance lease income. Finance leases consists primarily of borrowings associated with sale and leaseback transactions of 3D printers that we manufacture and use in our Services segment. Have in mind that we did sale and leaseback transactions in the past and we don’t do this in the future anymore.

Operating profit declined to a loss of €2.0 million in 2013 from a profit of €0.7 in 2012. Excluding expenses related to the Long Term Cash Incentive Plan and the IPO, operating profit was a loss of €0.6 million in 2013.

Loss for the full year 2013 was €2.7 million, or €1.21 per share as compared to earnings of €0.2 million or €0.11 per share in 2012.

We are now going to go to Slide 23, which shows the [abbrievated] (ph) balance sheet. At December 31, 2013, the company had cash and equivalents of €33.5 million and approximately €6 million of total debt and finance lease obligations.

If we now move to Slide 24, with respect to guidance, we expect revenues for the ended December 31, 2014, to grow more than 50% and exceed €18 million. We expect gross margins to be in the range of 40% to 45%.

We expect the majority of our revenue growth to come from increased system sales. Our total backlog of 3D printers orders at March 15, 2014, and December 31, 2013, was €4.1 million and €2.3 million, representing seven and four 3D printers respectively. As production and delivery of our printers is generally not characterized by long lead times, backlog is more dependent on the timing of customers’ requested deliveries. We estimate that the majority of systems in our backlog at December 31, 2013, will ship prior to June 30, 2014, because the remainder expected to ship prior to December 31, 2014.

The increase in service revenue is expected to be more heavily weighted towards the second half of the year, as increased production capacity comes online at our new facilities in Friedberg, Germany and Canton, Michigan.

Finally, now going to Slide 25, we are confirming our long-term target operating model. We believe that we can continue to grow our revenues in excess of 50% over the next several years, with gross margins in the range of 45% to 50%. Our long-term EBITDA and EBIT margin targets remain between 25% to 30% and 10% to 15% respectively. The biggest factor to operating margin outflow is the rate we continue to invest in R&D. We think we have a leading technology in the market, and we will continue to invest accordingly to maintain our position. That essentially covers most of the financial discussion.

I wanted to now take the opportunity to address a couple of issues that has been raised since the IPO starting with our company’s reported financing activities. To be clear, Voxeljet does not have a formal financing program. Simply put, we do not offer a universal financing program to incentivize our customers to buy our machines.

Of the four financing that we have provided out of our total installed base of 58 printers, one of which was included in the fourth quarter, we have done this with customers, we have performed a significant amount of due diligence and often have had a longstanding relationship with. We have not experienced any defaults related to our financing and of the four we have provided, one has been fully repaid.

We go through financing in the future when it’s appropriate and the right opportunity, but we will not do so at the risk on determined to our business. Financing of capital equipments such as our printers is not unusual to industrial companies and please remember that the average list price of one of our printers is more than €500,000. I would simply add that none of the printers in our current backlog by March has any financing.

Moving on to another subject. As you may have read in our 6-K filing back in December, we purchased our new facilities with related office space in Germany for approximately €9.9 million with some of the proceeds to be raised from the IPO. This was a very good deal for us as you secured the property which contains two production halls and an office building. Note that one production hall had already been occupied by Voxeljet, but importantly, we obtained a 10-year auction over certain parcels of the real property pretty close to the acquired property, which gives us the option to further expand our Friedberg facility in the future.

As said, it is an excellent location, well situated for us and our customers with capability to support our expected growth in infrastructure, so we are very pleased with the transaction.

This concludes my formal remarks. Before we open it up to questions, I would once again remind you that we will not be discussing anything related to our filing and would request that you keep your questions to our results for the quarter and the year.

With that, we will now open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today is coming from Troy Jensen from Piper Jaffray. Please proceed with your question.

Troy Jensen - Piper Jaffray

So I have a quick on system backlog. I’m wondering if you could tell us what the number of systems were exiting last year I guess 2012 and 2013, and was there a dollar amount attach to the seven systems for this year?

Rudy Franz

Just let me go into, I have the number here. The actual backlog by March consists out of seven printers, and by end of December we had 4, and by end of last year December it -- I just have to check my numbers, that has been six.

Troy Jensen - Piper Jaffray

Six, so six last year, I don’t know if sure, okay. And was there a dollar amount for the seven systems this year, can you talk about it?

Rudy Franz

I just have to check it. I have all the relevant information there. Six, we had six printers last year in our backlog. Do we have the number? Actually, yes, but what’s the number in backlog that we bought it. I think it must have been -- let’s assume it’s an average for the 500, let’s assume between €2.5 million and €3 million, Troy.

Troy Jensen - Piper Jaffray

Okay. That’s fine. And then how about range, I want to come back Troy.

Rudy Franz

Troy, we have the correct number here, €3.2 million.

Troy Jensen - Piper Jaffray

€3.2 million, okay. Thank you. So in your revenue materials coming out, which one do you think is going to be the most impactful for the business?

Ingo Ederer

As I mentioned earlier in my talk, we are momentarily focusing on ceramics and cement-based materials. Both have different applications, and we are quite interested in the outcome. The ceramics will probably have on the industrial side the better impact. With the cement-based materials we are trying to looking forward to construction applications. I think this could be although unique opportunity because nobody has done similar things in 3D printing.

Troy Jensen - Piper Jaffray

And those two, I mean, timeline for launch both from the available and shipping by the end of the year?

Ingo Ederer

They are still underdevelopment. We are pretty far in those stages. I expect to have at least one release later this year, maybe also both of them.

Troy Jensen - Piper Jaffray

Okay. Back to really here financial questions. The 2014 outlook, you gave revenues and gross margins, just wondered what your thoughts on profitability at that revenue level, given the new long-term cash incentive plan, are we going to be ahead of profitability level?

Rudy Franz

The numbers which we gave -- so the target on gross margins included the long-term cash incentive plan, so we plan to be on the gross margin in the range of 40% to 45%, and in fact that includes the long-term cash incentive plan. The long-term cash incentive plan, it is our Q4 number because of all -- everything related to long-term cash incentive plan has to be booked in that quarter.

Troy Jensen - Piper Jaffray

Okay. How about just operating margin, I guess this is what I am trying to figure out for 2014?

Rudy Franz

The operating margin, we don’t give guidance on the operating margin, but we believe that we definitely improved in operating margin. Our main target actually is to grow our first line and if we opportunities to hire additional staff, we definitely go there.

Troy Jensen - Piper Jaffray

All right. Understood. The last question about -- go ahead, Rudy.

Rudy Franz

That doesn’t change our long-term target operating model. I think I explained this, we want to grow our revenues to 50% per year. We have a clear target on our gross margin of 45% to 50%. I think that’s long term and short term between I said 40% to 45% and EBITDA margin, operating margin, as well as discussed on Slide 25. Short term, our main driver is revenue growth. And if we have a chance to grow revenue faster, or if we have a chance to put more money into material development, we do so.

Troy Jensen - Piper Jaffray

All right. Understood. And then Rudy, just wanted to get your thoughts on Q1, I mean, obviously we’re pretty deep in the quarter here, just a couple of days left. Can you give us any color on what you think the March quarter is going to look like for your guys?

Rudy Franz

Actually, we’re very convinced with achieving our goals for 2014. And we are, as you said, and indicated, the quarter has almost gone, we are in our expectations for Q1.

Troy Jensen - Piper Jaffray

Okay, perfect. Good luck, gentlemen.

Rudy Franz

Thank you.

Operator

Thank you. Our next question today is coming from B.G. Dickey from Stephens Inc. Please proceed with your question.

B.G. Dickey - Stephens Inc.

2014 in terms of operating income, do you expect to be profitable in ’14?

Rudy Franz

We don’t give any guidance in respect of our operating margin. We just talk about revenue growth and our gross margin. As said, we plan to perform better even in our operating margin, but we don’t give guidance on that.

B.G. Dickey - Stephens Inc.

Okay.

Rudy Franz

The guidance we gave is on revenue growth. We plan to grow the revenues about €18 million and we plan the gross margin in the rage of 40% to 45% in total for both segments.

B.G. Dickey - Stephens Inc.

Okay, understood. Then just talking about the revenue split between your Systems and Services, given the fact that you got all this capacity coming online in the back half of the year, can you give us some trajectory in terms of what that split? It’s kind of around 50/50 today, but what that might look like at the end of ’14 and maybe even in the ’15 when that really starts to ramp up? Do you expect that service set of components to take over the machine sales?

Rudy Franz

Actually as explained in the previous earnings call, we expect that our Systems segment grows faster than the Service segment even with the increased capacity. And for the business year 2014, we expect the split between Systems and Services in the range of 60% to 40%, which means 60% System revenue and 40% Service revenue.

B.G. Dickey - Stephens Inc.

Okay, great. And then in terms of backlog, I believe in the third quarter call, your backlog, you talked about having four machines expected to ship in the fourth quarter, but I believe you sold three. First, is that correct, and if so, what happened to that fourth machine, was it just pushed, out or was that order cancelled, any color there?

Rudy Franz

The first I’d like to stay even if having shipped only three printers, we achieved our targets in respect of revenue growth first. And secondly, that four systems simply has to be moved in our first quarter and that's all. But nevertheless, as I think the more important messages even with having shipped only three printers as indicated four printers, we achieved our targets for Q4, which was more important to us and the skip of that printer was -- okay.

B.G. Dickey - Stephens Inc.

Okay, sorry, Rudy. Thanks every much. And then last question and I will pass it along. Can you just talk briefly about -- you got some cash on the balance sheet, can you talk about M&A landscape, kind of what you’re seeing out there and maybe kind of your priorities for use of cash? Are you looking for kind of -- if you want to a deal something in the software, materials, technology, any color there? And I will pass it on. Thank you.

Rudy Franz

Thank you for that question. I hand you over to Ingo to go into that question in more detail.

Ingo Ederer

Currently, we are looking forward to grow from our own sources, but anyhow we’re also looking very careful around. If there are targets coming on, we are definitely open to discuss. For the moment as such, we are convinced to grow through our own technology base and own sources.

B.G. Dickey - Stephens Inc.

Great. Thank you.

Rudy Franz

In respect of M&A activities, we watch the market very carefully. There are several options in respect. As Ingo said it, we have a very strong IP portfolio. We don’t see acquisitions on the IP side. We see more if have a chance in some specific regions to speed up our service centre activities that might be target but not on the IP side.

B.G. Dickey - Stephens Inc.

Great. Thank you. That's very helpful. I will pass it on.

Operator

Thank you. Our next question is coming from Rob Stone from Cowen and Company. Please proceed with your question.

Rob Stone - Cowen and Company

Hello, Ingo and Rudy. I wanted to ask first about, Ingo, if you think about strategic opportunities areas where you might increase investment, is that more likely to be prioritized in, say, new materials or evolution in system capabilities or is the most important thing just growing your global presence in new service areas?

Ingo Ederer

Thank you for that question. In general, I can say all three points you mentioned are very important to us. I think in all three areas we need to grow and we will grow. Materials are very important for future applications, but also we think systems we choose that we have a lot of growth opportunities with new service centers and new customers we can reach with them. So I think all of three of them are equivalent important to us.

Rob Stone - Cowen and Company

In terms of the systems portfolio, you have a pretty complete range now with six different formats. You talked about making additional improvement. Is that something where we should expect some kind of formal version 2.0 of one of the machines or just incremental updates on the way?

Ingo Ederer

You need to see, we have now actually mentioned a fully consistent platform strategy in terms of machines. Each new materials that however need some adjustments, some modifications on the machine maybe, so you will see small improvements to the machines, but also we are thinking of improved machines in terms of speed reliability for the future. We don’t expect new platform in the near term from us.

Rob Stone - Cowen and Company

Okay. And my last question is with respect to service centre expansion, I know Asia is pencilled in for next year and you have a certain amount of internal bandwidth to do expansions one by one. But are there any circumstances that might cause to you accelerate Asia, or do service centre expansion in some other locations? Thank you.

Ingo Ederer

So, as you know, one of our very important market is the automotive industry and Asia is very active in automotive. I was just recently traveling. Some countries in Asia looked at Korea very carefully where we are doing good business right now. I also worked in China and we are having, people currently being looking at Japan. So, Asia is a very important market for us. We are currently looking at opportunities and looking forward to follow our plan as mentioned.

Rob Stone - Cowen and Company

Okay. Thank you very much.

Operator

Thank you. Our next question is coming from Ken Wong from Citigroup. Please proceed with your question.

Ken Wong - Citigroup

Hi, guys. Thanks for taking my question. On your German facility, it seems like you guys are close to ramping that up, I mean did you guys see any revenue or should we expect to see any revenue contribution coming in Q1 or is that just going to be in Q2?

Rudy Franz

As Ingo indicated, we moved the equipment over in Q1 and we kept the level on the previous year, on the previous quarter. So answering your question, you won’t see any additional growth in services in Germany in Q1. We are very convinced or very happy with the results we achieved. We have no downturn on nothing. The growth will be seen in Q2 and more as indicated in the second half of the year. But we almost went up. We moved all equipment out of the old facility by end of April, early May and as said, we are already acting full in that new facility, so the team did a good work.

Ken Wong - Citigroup

Got you. And then I guess, how should we think about the impact on gross margins as you start to ramp that up? Should it dip a little early on and then pick up, or is it really going to be dependent on the kind of mix of services you guys get?

Rudy Franz

In respect of gross margin as said, we believe that we can drive growth margins near-term in the range of 40% to 45% and independently from product mix. Sometimes it’s more to 40%, sometimes it’s more to 45%. And as explained in Ingo’s presentation and mine, the gross margin is mainly driven by material. So if we sale more plastic parts, more complex plastic parts, it’s higher than towards less complex same products. And with additional products, which we offer on the ceramics side and on the concrete side, we definitely will see nice margins because we have seen zero competition compared to the others where we have some competition in plastics and also sand.

Ken Wong - Citigroup

Got it. And then as we think about your 2014 goals, I mean do you feel you guys have the necessary sales capacity right now or should we continue to expect you guys to ramp up headcount there?

Rudy Franz

We definitely ramped up headcount, that's what we do in all of our departments. And as well in marketing and sales, we will grow our team. Just to give you some numbers, our headcount grew in the second half of 2013 by 25 people and only in the first quarter, we hired by end of last week additional 10 people.

So we are very active in adding staff to all relevant departments. And in respect of guidance, we believe that we can achieve the guidance we gave for the existing staff. But we today look in 2015 and ’16, what needs to be done to really achieve the long-term growth target and therefore, I said actually, we are more focused on the first line on our gross profit and if we have a chance to add additional good stuff then we take it.

Ken Wong - Citigroup

Got it. And then last question for me. Can you guys -- either you or Ingo talk about just the change in the competitive landscape? I know it’s always been a competitive market but I guess in the last three months or so, you and all of your competitors have definitely increased your focus on this space and obviously increased the investments, maybe just update us on what you guys are seeing out there in the market?

Ingo Ederer

Currently, we are still strong in our services business. Of course, there is some competition out but we don’t see remarkable influence to our current business. And we can grow from our sources, all the materials that we have are going up. So as I said, competition makes also more market for us. I think it’s good for the overall business.

Ken Wong - Citigroup

Got it. Thanks a lot, guys. That's it for me.

Ingo Ederer

Thank you.

Operator

Thank you. Our next question is coming from Peter Misek from Jefferies. Please proceed with your question.

Peter Misek - Jefferies

Thank you, gentlemen. I just wanted ask more on the market dynamics and very importantly, the industrial groups. What do you think are the triggers that finally get them over the hump that’s starting to really deploy your technology and out of the manufacturing in broader production lines? I think that that's sort of an important aspect of modeling the medium to long-term. And in shorter term if you can help us understand free cash flow little bit more, love to understand the puts and takes as it relates to the rest of the year? Thank you.

Ingo Ederer

So from the product line, I can say, productivity is a very important factor for our products. The customers for our machines are professional users. They are looking forward to make business with those machines in very tough conditions means 24x7 operations. I think this is something which will drive our business. The demand for such a product is becoming stronger since 3D printing becomes more and more a message for manufacturing. I think the industrial application is really picking up also at the moment and referring to your second part of the question, I hand over to Rudy.

Rudy Franz

In respect of your question, can you repeat your question that very quickly you talked about cash flows and cash use?

Peter Misek - Jefferies

Yes. What we want to understand is, as we progress through the year, how should we think of cash inflows and cash outflows. And specifically as you are building and extending your production facilities and your distribution but also your sales channels and efforts, I want to understand how that cash flow looks as we move through the year? And trying to understand also the seasonality and what we are trying to drive out here is what kind of minimum cash balance should we be thinking about?

Rudy Franz

So from an investing point of view, cash flow in investments, we indicated that we invest approximately €5 million in a service centre. So we are actually ramping up our U.S. service centre, that we definitely see some investments in property plant and equipment. The same will be preparation of our Asian market. I think that's on that side. On the operational basis, we don’t aim to heavily cash burn.

We are very focused with our investments and we work along the business plan, which we indicated in the previous presentations than during the IPO. So we’re very focused in this year. Our target is set to ramp up the German facility which we already did -- did the ramp -- to the ramp up in the U.S. where we invest some of the 5 million which we indicated which we have to invest to fully ramp this up and the remaining amount should come out of our operational business.

So it might be -- that’s what I want to say about cash flow. So we don’t -- I don’t give a concrete guidance. The guidance we gave is revenue growth about 18 and gross margin in the range between 40 and 45. We do our -- we are very focused with what we do. We are a pure system manufacturer, investing heavily in material development and our printing platforms and as I said in marketing and sales activities.

We might open an office somewhere in Asia, simple as sales office to cover that market a little better and definitely we’re working on a service center in Asia.

Peter Misek - Jefferies

Perfect. Thank you very much.

Operator

Thank you. Our next question is coming from Wamsi Mohan from Bank of America Merrill Lynch. Please proceed with your question.

Wamsi Mohan - Bank of America Merrill Lynch

Hi. Yes. Thanks for taking my question this morning. Can you talk little bit about how much revenue in services you might have left on the table given the constraints that you have had from a capacity perspective and which end market were the ones where you saw demand that you could not fulfill?

Ingo Ederer

So this is a quite difficult question. So we have a fixed number of customers that we serve those customers very carefully. And we don’t want to lose them, means, we haven’t had much marketing presence with new customers. I think from that perspective, it’s very difficult for us to see how much business we left off the table. We believe that and we see that through the coming request for pieces printed that we can ramp up easily and hopefully this gives you some flavor what is going on in the market.

Wamsi Mohan - Bank of America Merrill Lynch

Okay. Thanks. And then as a follow-up, I think you mentioned an 80% utilization rate of your printers. Can you tell us how you measure that and given your new capacity additions that you are foreseeing here. How do you make that changes?

Ingo Ederer

It’s pretty simple. We count run rate. Means running hours and in service environment, you need to have some open space in terms of capacity to -- as a quickly regress for customers. So 80% utilization rate means really full coverage for utilization in services otherwise you can’t rate quickly. So we will add a bunch of new printers to our facility among those. Another VX4000 which is very large capacity possibility for us. So this is really exciting time and we will grow that service business out here in Germany but as well as in U.S.

Wamsi Mohan - Bank of America Merrill Lynch

Okay. Great. And then last one for me, I know you said that you don’t guide our operating margin explicitly. But conceptually should we think that the systems will have a much higher operating margin relative to the services operating margin as you layer them around your long-term operating margin targets?

Rudy Franz

As you saw from the previous quarters, both segments are doing quite similar in respect. So the total gross margin expectation as I said is in a range. The operating -- we are talking about operating margin. From operating margin, we don’t talk about this in numbers. However both segments are doing quite fine in their respective fields. So there is not much big difference.

Wamsi Mohan - Bank of America Merrill Lynch

Okay. Thank you very much.

Operator

Thank you. We have reached the end of our question-and-answer session. I’d like to turn the floor back over to Mr. Ederer for any further closing comments.

Ingo Ederer

Once again, thank you for your interest in Voxeljet. It’s a truly exciting time to be participating in this dynamic industry. We had Voxeljet see tremendous growth opportunities and we believe are well positioned to achieve long-term growth. So thank you again for your participation in our today’s call. Thank you.

Rudy Franz

Thank you.

Anthony Gerstein

Thank you.

Operator

That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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