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How Close Is Voxeljet To The Delivery Of 2020 Projections Of Sustained Profitability

Summary

Q2 results may be a poor indicator.

Break though New Products are the fuel for profitable growth.

China's Contribution hindered by Financing not Demand is easily Fixable.

Based upon Q2 results taken in a vacuum, the casual observer would have to conclude that perhaps this financial milestone seems farther away than an optimistic Management believes. With a 2.9% Q2 YoY revenue growth rate and a gross margin that was less than flat coming in at 39% compared to last year’s 40.9%, how possible is it for such a lofty goal to be achieved in such a short amount of time when the loss for the quarter was EUR 2.7m or EUR .15 per share on Revenue of EUR 5.3m

The answer resides in the acceptance and contribution of VJET HSS and VJET X technology and eventually the marriage of the two platforms melded into the VJET XHSS product line of machines and material sets as described by Management over the last several conference calls with analysts. Basically, this technology would become the “Holy Grail” of the AM evolution into the mass production of objects for use by both industrial giants and consumer markets. As per voxeljet’s CEO Ingo Ederer during the last EC on August 17.2018, “we are actively working with several OEMs from various industries, including sport equipment and consumer goods of the development and qualification of new materials for HSS. Our strategy is simple, qualify new materials in paid-for development projects and make sure it works on our VX200 platform, which was specifically designed for this purpose. Then when VJET X, HSS becomes available, mass commercializes. This approach resonates well with our customers and the results are simply outstanding.”

So where’s the evidence that any of the voxeljet strategy for 2020 is working. The fact that the backlog grew 46% from June 30, 2018 to August 17, 2018 – from E4.9m to E7.2m is a strong indicator that the claims concerning the new products acceptance and contribution are warranted.

Beyond that the Service Revenue fully supports the 2020 Profitability Thesis with Q2 YoY revenue growth of 29% and Gross Margins of more than 44%. This is not just a one quarter flash in the pan story as it has been the general pattern Q to Q over at least the last 8 Q’s.

By itself, the case for 2020 profitable performance, if not already made by the market’s acceptance of the new product innovations and independently the stellar performance of the Service Revenue side of the business, the one lagging variable to consider looms ever larger in the analysis. The success thus far has been made without any material contribution from the Chinese operation. And the problem is not demand but rather financing. A problem the CEO feels will be addressed most likely by bank to bank structured finance deals between the European Investment Bank and the Bank of China and similar syndicated banking arrangements. When that occurs, the results should begin to mirror the type of success seen in the Detroit operation in the US and the overall financial numbers will be vastly improved immediately.

In conclusion, anyone who generally accepts the high rate of growth prospects for AM applications globally as projected by the two leading industry experts - Wohlers & Associates and IDC, and is thinking about investing in the sector, then voxeljet warrants closer investigation as it appears to have the best risk/reward profile in the space. And yes, if the 2020 Thesis remains intact then a stock price that is closer to the IPO price levels of 2013 which were in the low teens can realistically be revisited.

Disclosure: I am/we are long VJET.