Flawless Execution, Materialise 2Q24 Revenues and Profits Exceed Expectations - STRONG BUY
Materialise MTLS 0.00%↑ reported robust Q2 results with record quarterly revenues and profits exceeding consensus expectations, which we anticipated in our 2Q24 earnings preview. In addition to showing growth across all 3 business segments, MTLS showed strong cost controls in the quarter that led to Y/Y margin expansion and reporting stronger than expected profits in Q2. Materialise also highlighted the fundamentals across all 3 segments remains strong and reiterated 2024 guidance.Â
We continue to pound the table on Materialise and believe another flawless quarter of execution proves Materialise is one of the most compelling stock opportunities in our universe. Materialise is currently trading at an all-time low valuation despite their ability to continue to grow in a tough macro environment. The company is currently trading at ~6x EV/EBITDA multiple based on 2025 consensus estimates, which compares to the 5-year average of 40x. Furthermore, given all 3 segments returned to growth in Q2 and the new CEO continued emphasis on profitability, we believe Materialise is well on their way to coming in at the high-end of their guidance range. Investors are likely pleased with the return to growth in all 3 categories, and in-turn shares are trading up 10%+ post 2Q24 results. That said, we believe Materialise shares have over 130%+ upside and remain STRONG buyers.
View detailed historical results in our full financial model here.
Source: Company Filings, FactSet; Data In Millions
Key 2Q24 Earnings Takeaways
Materialise reported 2Q24 revenues of €68.8M, which was up 6.2% Y/Y and came in better than consensus expectations (€67.7M). Growth in the quarter was driven by the company’s Medical segment with revenues accelerating 12.8% Y/Y to €28.1M. Medical device and software sales were up ~19% and ~7% Y/Y, respectively. Earlier this month, Materialise announced the acquisition of FEops, a Belgian company that develops AI-driven simulation technology to improve procedure efficiency and clinical outcomes for structural heart interventions. We expect the expansion into these new applications to be a robust long-term catalyst. Manufacturing revenues were up 2.1% Y/Y to €29.4M. Strong demand for certified production parts drove growth in the quarter, while sluggish prototyping demand due to the challenging macro, continues to impact sales. We are encouraged with the Y/Y growth as we believe the European manufacturing landscape continues to be challenging but improving. Furthermore, the Software segment was up 1.8% Y/Y driven by recurring software sales that were up ~5% Y/Y as they continue to shift to their recurring CO-AM cloud offering.Â
Materialise gross margin in 2Q24 was modestly down 20 bps Y/Y to 57.0%. Due to strong cost controls Materialise produced adjusted EBIT of €3.8M, which was better than consensus expectations of €3.2M. Adjusted EBITDA in the quarter was €9.2M, up 93.2% Y/Y. From a segment perspective, Medical adjusted EBITDA margins remain strong at 29.1% in the quarter. Software adjusted EBITDA margins of 12.2%, were down from 17.9% in 2Q23 as a result of continued elevated investments into their CO-AM platform. Meanwhile, Manufacturing adjusted EBITDA margins of 8.2% were down modestly from 9.4% in 2Q23. Stronger than expected profitability drove robust cash flow in the quarter, with the company generating €8.4M in cash from operations. Driven by expected accelerated capex investments in Q2, which is expected to continue in Q3, as a part of their planned ACTech expansion, free cash flow in the quarter was €1.6M
Materialise reiterated full year 2024 guidance and expects revenue to be in the range of €265 - 275M, which implies 5.4% Y/Y growth at the midpoint. Materialise expects 2024 adjusted EBIT in the range of €11-14M, which is up 26.4% Y/Y at the midpoint. Management acknowledged the EBIT guidance implies elevated investments related to their FEob acquisition. We believe the acceleration of growth in the medical segment, and return of growth in Software and Manufacturing divisions have eased investors growth concerns. Given strong execution in 1H24, we believe Materialise is well on their way to coming in at the high-end of their guidance range.
5-Year Financial Outlook
Following another flawless quarter, we have modestly raised our financial forecasts. As we highlight below, we are now expecting revenues to grow to €273.5M implying 6.8% Y/Y growth. We expect strong execution to allow gross margins to expand modestly in 2024, and operational efficiencies will increase operating margins by 340 bps to 5.4% for the year. We continue to expect Materialise can conservatively grow ~10% Y/Y as macro conditions improve. Coupled with sustained operating leverage, we forecast the Company growing EBIT 20%+ annually and generating mid-teen adjusted EBITDA margins by 2028.
Below is an overview of our 5 year outlook with a full downloadable financial model here.
Source: Industrial Tech Analyst, Data In Millions
Investment Thesis
Materialise is currently trading at an all-time low valuation despite their ability to continue to grow in a tough macro environment. While weakness in the stock performance has been largely attributed to poor sentiment across the entire additive manufacturing sector, we believe shares have been significantly oversold. Demand for 3D printing patient specific surgical tools and implants continues to rise, and driven expansion into new applications we expect the Medical business to continue to see double digit growth for the next several years. Furthermore, the Manufacturing segment has positioned itself as a leading service provider of 3D printed production parts, which we expect to drive high-single digit growth. Lastly, we expect profitability to improve under the company's new CEO. Materialise is currently trading at ~6x EV/EBITDA multiple based on 2025 consensus estimates, which compares to the 5-year average of 40x. These all support our bullish stance and expectation for multiple expansion.
As shown below, we use a 5 year DCF model to value MTLS shares. Based on our current forecast, which we convert into US dollars, and terminal EBITDA multiple of 15x, we value MTLS at $15.15 per share. We raised our price target from ~$14.63 as a result of modestly higher revenue estimates.
Source: Industrial Tech Analyst, Data In Millions Except Price Target
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