The voxeljet (VJET) 3D Printing IPO

There are two things you need to know up front about the voxeljet (VJET) IPO: The first is that the company is voxeljet AG, with a small letter “v”. The second is that the IPO on the New York Stock Exchange will probably be big.

This article will look at why I believe the voxeljet IPO will be successful, provide a brief history and overview of the company, their technology and patents, products and services, and some key financials from the recent F-1 filing, including management’s discussion. I’ll conclude by listing several key competitive advantages that I see in the company as an investor.

Pricing of the IPO with lead underwriters Piper Jaffray and Citigroup has not been set at this time and will depend in part upon the level of interest from institutional and accredited investors.

I believe that level of interest will be high for three reasons: Advances in 3D printing technologies, projected 3D printing industry growth, and the market niche voxeljet occupies within the industry.



Advances in 3D Printing



Although 3D printing (also called “Additive Manufacturing”) has been around for 20 years or so in various forms, advances in technology and the addition of new materials have brought the industry to an inflection point. 3D printing is now moving from prototyping to larger scale manufacturing that provides savings in both time and cost. With new technologies available, NASA is now 3D printing rocket injectors for less than half the previous cost and cut production times from 6 months to 3 weeks. This type of industry progression is being seen across the globe in 3D printing, and is one reason why I’m expecting a robust subscription in the IPO.



Strong Industry Growth

While it is true there’s been some media hype about 3D printing, industry experts who’ve been around additive manufacturing for years are bullish on forward growth. Estimates for a CAGR (Compound Annual Growth Rate) in 3D printing between 25-30% for the next 5 years are common by industry experts, analysts, and insiders. Terry Wohlers, a leading industry consultant, speaker, and publisher of Wholers Report 2013 notes that the market for 3D printing in 2012, consisting of all products and services worldwide, grew at a CAGR of 28.6% to $2.2 billion, is expected to hit $4 billion in 2015 and approach $6 billion by 2017.



The voxeljet Niche

voxeljet printer systems and services are aimed squarely at commercial applications in the automotive, architecture, aerospace, medical/orthopedic, engineering, and defense industries. These industries are expected to benefit the most from 3D printing, thereby creating increasing demand going forward. In an interview I conducted with Terry Wohlers for Engineering.com, he explained that the vast majority of revenue from products and services will continue to come from industrial systems. Revenues from personal 3D printer sales in 2012 were only 6.5% of the total market for additive manufacturing/3D printing systems. While the personal 3D printer market has grown very quickly in the past five years, it’s still small compared to the industrial systems.

Now let’s take a look under the hood of voxeljet with a brief company overview, the company’s technology and patents, products and services, and key financials from their recent F-1 filing.

voxeljet Overview

voxeljet began in 1999 under the name Genesis GmbH. In 2004 the name was changed to “Voxeljet Technology GmbH” (with a large V at the time) and ultimately became “voxeljet AG” this year. “AG” is the abbreviation for Aktiengesellschaft, which is German for a corporation owned by shareholders and can trade a stock market.

voxeljet’s principal offices are located in Friedberg, Germany, about 60 km NW of Munich. The company sold their first 3D printer in 2002, has installed 52 printers worldwide as of June 30 of this year and received some fame in 2012 for fabricating stunt-double Aston Martin cars used in the James Bond action flick “Skyfall.”

The company’s production facilities now stand at 16,000 square feet and are undergoing expansion to over 40,000 square feet. Proceeds from the IPO are for the establishment of new service centers in North America and Asia, research and development, sales and marketing initiatives, and “general corporate purposes including potential acquisitions”.

Approximately 53% of sales to date have been outside of Germany and major customers include Ford Motor Company, The 3M Company, Daimler AG, BMW, and Hyundai. 3D Systems Corporation (DDD) has also been a distributor of voxeljet printers since 2011.

voxeljet is much smaller in terms of revenue generation than other 3D printing companies:

Company Stratasys 3D Systems ExOne Arcam AB voxeljet AG 2012 Revenue $359.0 million $ 353.6 million $28.7 million $21.6 million $11.3 million

Technology and Patents

voxeljet utilizes powder binding technology whereby a glue or ‘binder’ is jetted from an inkjet style print head to stick together successive powder layers. Powder binding typically has faster build speeds and lower materials costs relative to other technologies currently available in 3D printing. The company is currently developing new material sets including ceramics, silicon carbide, and tungsten carbide. The addition of ceramics in particular is noteworthy, as this is material is now being used in the burgeoning medical implant/orthopedic market for 3D printing.

voxeljet’s patent portfolio consists of over 170 U.S. and international patents and patent applications.

The company launched an innovative, new printer this year called the VXC800. Billed as “The world’s first continuous 3D printer” this system utilizes patented technology consisting of a horizontal conveyor belt that controls the layer building. Layers are built at the entrance of the conveyor while the unpacking takes place at the exit. As a result there are virtually no restrictions on build length. This new patented technology should create a strong competitive advantage for voxeljet.

Products and Services

voxeljet generates revenue from two primary segments: Direct sales of 5 different printer systems, and sales of on-demand printing through their services segment.

Their systems segment consists of five industrial 3D printer systems with a sixth system set for launch by the end of 2013. Build spaces run from 300 x 200 x 150 mm with the VX200 printer and run up to a whopping 4 x 2 x 1 meters with the VX4000. Due to the large build boxes and fast print speeds in their lineup, volumetric outputs range from 0.7 liters/hour to an industry-leading 123 liters/hour.

The services segment is comprised of one of Europe’s largest centers for on-demand production of metal-casting moulds and models. The company offers a complete solution from CAD-file to finished casting for prototypes and small series production.

The two segments are complimentary, and the new service centers for on-demand parts the company plans to launch in North America and Asia with proceeds from the IPO should lead to an increase in direct sales of printers. This “3D printing services to 3D printer sales” model is what ExOne and other companies in the space utilize.

Key Financials

Six Months Ended June 30, Full year 2013 2012 ($ in thousands) ($ in thousands) Revenues $ 5,826 $ 11,333 Cost of sales 3,857 6,449 Gross profit 1,968 4,884 Selling expenses 1,079 1,965 Administrative expenses 619 986 Research and development expenses 1,198 2,046 Other operating expenses 221 81 Other operating (income) (690) (1,069) Operating profit (loss) (459) 876 Finance expense 248 472 Finance (income) (17) (23) Financial result 232 449 Profit (loss) before income taxes (691) 427 Income tax expenses (benefit) (202) 151 Total comprehensive income (loss) $ (489) $ 277

A quick glance at the first half of 2013 would suggest the company is going in the wrong direction, but I believe this is likely a one-off event. I’ve included management’s discussion of the financials below for clarity.

Management’s Discussion of Financials

“The decrease in gross profit was mainly due to higher cost of sales in the first six months of 2013, which resulted primarily from the sale of one 3D printer at a higher than normal cost of sales and lower gross margin than we would achieve for a typical 3D printer sale. This 3D printer was one of the first produced of its type, requiring a longer production time and higher material usage than a 3D printer in regular production. Additionally, we delivered this 3D printer to our customer on very short notice, thereby incurring additional material and overtime costs, further depressing our margin. We intend to sell additional units of this 3D printer in the future and expect to achieve gross margins on these sales that are more in line with our prior result.”

“Our ability to grow Services segment revenues was constrained by continued capacity limitations in our service center. Although the volume of printed parts increased, our revenues decreased, due to the sale of lower-priced parts. To remain flexible and grow revenues in the future, we are in the process of increasing production capacity both by expanding our current facility and planning the opening of new facilities. Currently, our new fabrication building is being built at our premises in Germany.”

Revenue grew at a CAGR of 35% from 2010-2012. This is higher than the industry’s growth rate discussed previously for the same period. voxeljet sold just three printers in the first half of 2013 at a lower average price. That said, as of June 30th, voxeljet had backlog of 7 printers and $6.9 million in sales, the majority of which are expected to be shipped by the end of 2013. As a result their direct systems sales segment should experience 100%+ sequential half-year revenue growth.

The company also notes that their sales are typically seasonal, corresponding with the capital budgeting cycles of customers. As a result, sales have historically been stronger in the second and fourth fiscal quarters.

Competitive Advantages and Growth Drivers

I believe voxeljet has several substantial competitive advantages including the largest build platforms, fastest build speeds, and largest volumetric production capabilities in the industry. Moreover, the new and patented VXC800 continuous 3D printer is an amazing machine with virtually no limitations on build length. This machine has the potential to be a game-changing product for both voxeljet and in some ways, the industry.

The company operates exclusively in the industrial/commercial end of the 3D printing industry where forward growth has been predicted to be the strongest. While some believe growth in the desktop 3D printer market will surprise industry experts, I believe the landscape will be extremely competitive and margins squeezed.

With their European production facilities now undergoing expansion from 16,000 to 40,000 square feet, funds from the IPO earmarked for the launching of service centers in North America and Asia, and machines that lead the industry in build box size, speed, and volumetric production, I expect this company with a small “v” to make a big splash on the NYSE when it launches.