Why Did Voxeljet AG (ADR) Burn 20% of Its IPO Cash?

On Friday, voxeljet AG (NYSE: VJET  ) entered into an agreement to purchase its German headquarters and on-demand service center for 9,965,000 euros, or about $13.7 million in cash. To fund the purchase, the company will be tapping into the $65 million in proceeds it raised from its IPO. In other words, voxeljet just burned through more than 20% of its recently acquired cash hoard, which could signal that the company isn't a very good capital allocator.

Not the smartest use of capital
What I find surprising is that voxeljet went from spending 300,000 euros a year on leasing its headquarters and service center in 2012 to dropping nearly 10 million euros to own it. It's also quite baffling that the company made no explicit mention of its plans to purchase its headquarters when it filed to go public in October.

To be fair, this move could be part of voxeljet's bigger plan to expand its European service center, because along with the purchase, an additional production hall will be constructed, which will eventually serve as a second service center. Still, transparency was lacking, and I could see why investors didn't applaud the news on Friday, considering that shares finished the day about 3.5% lower.

Quick math
According to voxeljet's prospectus, the $65 million it raised from its IPO will be used for the following:

  • $40 million to expand its service center in Europe and establish service centers in North America and Asia
  • $10 million to be allocated for research and development, as well as sales and marketing initiatives
  • $15 million to be used for general corporate purposes, which may include an acquisition

When you look at it this way, it becomes clearer that this property purchase likely came from the $40 million allocated toward growing its European service center presence. However, I'm still having a tough time seeing why voxeljet didn't just lease additional property to expand its service center for what would have likely amounted to a fraction of the cash drain. With the additional savings, voxeljet could have improved its financial flexibility to a much greater degree.

Dilution ahead?
When a company has only been publicly traded for a number of months, it's often difficult to determine if management can effectively allocate capital. Voxeljet's move to purchase its headquarters makes me question management's ability to efficiently allocate capital. There seems to be a strong disconnection between what it was paying for rent relative to the price it paid to own and expand its headquarters. This concerns me because if the company isn't prudent with its capital, it could lead to future stock offerings and investor dilution down the road. Investors should definitely take notice and watch how management spends the remainder of its IPO proceeds.

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8/29/2016 4:02 PM
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