Materialise: A Solid End To The Year, Despite The Market Reaction

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Materialise (NASDAQ:MTLS) reported their 4th fourth 2022 results connected nan 14th February 2023, and contempt a reasonably coagulated performance, nan stock value reacted highly negatively. While gross maturation successful nan 4th and guardant guidance were solid, investors look concerned astir nan ongoing diminution successful profit margins. 2022 was a twelvemonth of finance for Materialise, which has weighed connected margins. In addition, inflationary pressures successful Europe were ever going to person a antagonistic effect connected nan company, moreover if only temporarily. The company's caller strategical moves look to beryllium mounting nan institution up for agelong word occurrence though.

Software

2022 was a twelvemonth of important finance and translator for Materialise's package business. Materialise acquired Link3D and integrated Link3D's cloud-based MES level pinch their bequest codification base. This acquisition was successful support of their CO-AM platform, which gives manufacturers cloud-based entree to a scope of package devices that alteration them to plan, negociate and optimize each shape of their operations.

Materialise besides acquired Identify3D successful nan 3rd quarter. Identify3D provides devices that alteration unafraid distributed additive manufacturing operations. Identify3D is already compatible pinch nan CO-AM platform.

Materialise recently announced that QuickParts has switched to CO-AM for each of its activities. QuickParts is 1 of nan biggest additive manufacturing work providers successful nan world. The CO-AM level is targeted astatine organizations who run a comparatively ample number of printers, and hence this could beryllium seen arsenic validation of nan platform.

Manufacturing

Materialise is expanding their manufacturing business from accelerated prototyping to see certified manufacturing operations successful prime verticals, for illustration aerospace, medtech, replacement thrust systems and wearables. Within nan aerospace industry, Materialise has a longstanding narration pinch Airbus, but they are now expanding beyond this. For example, Materialise is contributing to nan manufacturing of eVTOL craft for Lift. They are besides producing 60 components per level successful a caller bid of aerial subsister drones for Atmos.

Materialise is doubling ACTech capacity pinch nan 2nd facility. ACTech is focused connected analyzable casted components for electrical car drive-trains and chassis.

Materialise launched a caller Footscan Suite for Materialise Motion successful nan 3rd 4th of 2022. The ft scan package is now a CE certified aesculapian device. While Materialise's foray into orthotics and eyewear is still nascent, it is simply a earthy fresh for their business and could thrust agelong word growth.

Medical

The aesculapian conception has been nan strongest performing portion of Materialise's business complete nan past fewer years. Materialise produces some civilization aesculapian devices and package for making civilization devices and helping doctors scheme surgeries.

Materialise invested successful nan installation and validation of a caller accumulation statement for implants successful nan US successful 2022. This statement is expected to beryllium operational astir nan mediate of 2023.

Materialise Medical has besides been investing successful caller products, for illustration introducing their surgical readying package to nan cloud-based Mimics platform. Materialise is besides trying to leverage their objective engineering services pinch AI-based automation for surgical planning.

Financial Analysis

Despite important macro headwinds successful Europe, Materialise still managed to summation gross by double digits successful 2022, and while package maturation has been weak, deferred gross from package income accrued by much than 20% successful 2022.

Materialise expects to summation gross by much than 10% successful 2023, pinch Materialise Medical and Materialise Manufacturing driving growth. Materialise Software income are besides expected to grow, but this will apt beryllium muted by nan move to a subscription-based model.

Figure 1: Materialise Revenue (source: Created by writer utilizing information from Materialise)

Figure 2: Materialise Segment Revenue Contribution (source: Created by writer utilizing information from Materialise)

In 2022, nan accrued costs of labour of power and of materials weighed heavy connected Materialise's margins. Despite this, Materialise has continued to put successful R&D and capacity description successful their 3 segments. The effect of ostentation was peculiarly salient successful nan 4th fourth arsenic a number of Materialise's contracts pinch fixed prices were adjusted. Assuming that ostentation stabilizes successful 2023, adjusted EBITDA is expected to summation by much than 30% successful 2023, implying important separator description .

Figure 3: Materialise Profit Margins (source: Created by writer utilizing information from Materialise)

Restructuring from nan integration of Materialise's income squad pinch nan Link3D and Identify3D teams contributed to nan deterioration successful package margins. The modulation to nan unreality is besides weighing connected nan package business, but a gradual summation successful income and margins is expected going forward. License renewal rates successful 2022 were greater than 90%, which indicates that nan package business remains coagulated contempt nan ongoing transformation.

Medical and manufacturing margins are besides expected to amended going forward, pinch manufacturing margins expected to summation to a double-digit level successful 2023.

Figure 4: Materialise Adjusted EBITDA Margins by Segment (source: Created by writer utilizing information from Materialise)

While Materialise is investing much heavy successful R&D astatine nan moment, nan load of R&D expenses is really still reasonably modest. Improvements successful nan productivity of income and trading expenditures will apt beryllium cardinal to expanding margins going forward.

Figure 5: Materialise Operating Expenses (source: Created by writer utilizing information from Materialise)

Valuation

After nan caller stock value decline, Materialise now appears attractively priced, but this does not mean nan stock value can't driblet further. Investors are presently myopically focused connected profits and short-term performance. This perchance creates an opportunity for longer word investors who are consenting to clasp done volatility.

Figure 6: Materialise Relative Valuation (source: Created by writer utilizing information from Seeking Alpha)

I person been managing my ain finance portfolio for nan past 9 years pinch a attraction connected basal investigation and heavy worth investing complete agelong clip horizons. My superior liking is uncovering early shape innovations which will create semipermanent value. I person a Bachelors grade successful finance, an MBA and person completed nan CFA and CMT exams.richarddurant.substack.com