Under-the-Radar Stocks: Interview with Materialise Executive Chairman Peter Leys

Few companies can claim three decades of experience in the additive manufacturing sector. An established player in the industry, Belgium-based Materialise (NASDAQ: MTLS) was founded in 1990 by Wilfried Vancraen, a pioneer of 3D printing technology and its current CEO.

The company went public in 2014 and the stock has almost doubled over the past five years. However, stock performance in the trailing 12 months has been slightly disappointing, primarily driven by the weakness in the European automotive industry.

On the flip side, the immense potential of the 3D printing industry, combined with Materialise’s expertise and a recent acquisition, gives enough reasons to believe in this firm. In an exclusive interview with AlphaStreet, Materialise Executive Chairman Peter Leys shared his views on a wide array of topics including the firm’s growth strategy and profitability.     

On Formnext conference

Materialise is a regular participant at Formnext, an international conference dedicated to the additive manufacturing industry. Leys said the company witnessed great interest in its software offerings at the latest edition of the conference in November, especially for the processor offering, adding the conference offered a platform to bind the ties with existing clients and establish contact with new entrants.

On profitability

When asked about the company’s bottom-line performance that failed to surpass market expectations over the past year, the executive stressed that investors should merit the firm based on its revenue growth figures as well as the level of investments. “We try to run the company at a breakeven level, so the more we grow the more we can invest in future applications,” Leys said, adding investment flow would continue even during slow quarters.

“We don’t give guidance on earnings because they are so small that even tax assets may have a significant impact on EPS numbers,” he pointed out.  

On weakness in the European automotive industry

Materialise had been hit hard over the past few quarters by the weakness in the European automotive industry, which acts as a major client to its manufacturing segment. The company expects to see some recovery by the second half of 2020, when the European Commission is expected to announce the new norms for combustion engines.

LISTEN TO: Materialise Q3 2019 earnings conference call

Once the regulatory clarity is established, the gates for product development would go open, providing ample fillip to manufacturing activity, the executive asserted. However, if it takes longer-than-expected, Materialise might see some impact on pricing.  

On M&A strategy and Engimplan acquisition

“We are constantly looking for new M&A targets. We have quite a bit of cash flow in the balance sheet, so there is enough room for M&A strategy. The company makes roughly one acquisition per year, which includes Engimplan this year and ACTech in 2017.

“We are always keeping our eyes open, especially in the software and medical fields,” Leys stated. He said the Engimplan acquisition is progressing well and the entire revenue from the Brazil-based implants manufacturer will be recognized within the medical segment.

On growth strategy

Explaining Materialise’s growth strategy, Leys said it may be divided into a horizontal and vertical structure. The horizontal offerings such as the off-the-shelf Magics products within the software segment and Mimics Suite within the medical segment are expected to see continued growth going forward.

READ MORE: Q&A of Materialise Q3 2019 earnings conference call

On the vertical side, the company offers much more than off-the-shelf services. The partnerships in the healthcare side, including a deal with Johnson & Johnson (NYSE: JNJ), to develop individual new products, ensure consistent growth in this area as well.

Other verticals that are at an early stage, but are extremely promising are bioware products, footwear products, and the initiatives taken in the aviation market, Leys said.

In Q3, Materialise had reported a rebound in OEM sales, compared to the first half of the year. Leys attributed the reasons for this rebound to deals that were delayed in from Q1 and Q2, adding that the company’s expectations are not changing going forward.

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