3D Systems Corp. (NYSE: DDD ) and the other pure-play 3-D printing stocks have had a tough go in 2014, but that's not stopping Belgium-based Materialise from throwing its hat into the publicly traded ring. The company filed for an initial public offering on April 2 to raise $125 million; it will be listed on the Nasdaq, though it didn't provide a proposed ticker symbol. The proposed date is "as soon as practicable" after the effective date of the registration.
Could Materialise be an attractive investment? And where does the company fit into the industry landscape, and how might it alter it?
Pricing terms weren't disclosed, so we can't get a feel for valuation. We can, however, look at its business and financials; notably, the company is profitable.
Materialise is a leading provider of 3-D printing software and printing services to customers in the medical, automotive, aerospace, consumer products, and design industries, among others. The company doesn't sell 3-D printers, so it's not competing with 3D Systems or the other pure-play 3-D printing companies on that end. Its business is nicely diversified by region, with Europe, the Americas, and Asia accounting for 55%, 36%, and 9% of revenue, respectively, in 2013.
The company was founded in 1990 by Wilfried Vancraen, its CEO. Vancraen has racked up prestigious honors in recent years, including being selected as the most influential person in 3-D printing by industry professionals and TCT Magazine, and named as one of the five leading players in the sector by the Financial Times.
The company's revenue was 68.7 million euros, or $94.6 million, in 2013. Revenue by segment was:
- Medical: 28.0 million euros (41% of total).
- Industrial production: 27.2 million euros (40%).
- Software: 13.4 million euros (20%).
Its medical segment sells 3-D printing medical software and produces customized medical implants and surgical guides. Over the past year, the company's medical engineering services have been assisting medical device companies with their designs of orthopedic and cardiovascular devices.
The company has collaborative agreements with leading global medical device manufacturers, including Johnson & Johnson and Zimmer. It prints joint replacement and cranio-maxillo facial guides that these partners distribute under their own brands in the U.S., Europe, Japan, and Australia. Additionally, for select specialty applications -- such as customized hip revision, CMF implants in a patented porous matrix configuration, and osteotomy guides -- the company provides its own CE-labeled implants and guides directly to the European market. (CE is the European equivalent of the FDA.)
The medical 3-D printing space is attractive because profit margins are typically higher than in other markets. So it's not surprising that action in this space has been heating up. Just last week, 3D Systems announced it was acquiring Medical Modeling, which uses 3-D imaging and printing to produce models for surgical planning and manufactures medical devices. Notably, this deal means that 3D Systems will possess the largest combined 3-D printing personalized surgery and medical device services and production operation. This move further enhances 3D Systems' health care portfolio, which accounted for 20% of the company's product revenue in 2013.
Materialise's proprietary software enables and enhances the functionality of commercial and industrial 3-D printers and 3-D printing operations. Its Magics software interfaces between almost all types of 3-D printers, and various software applications and capturing technologies, including computer-aided design packages and 3-D scanners. Streamics centralizes its customers' project data, which makes it easier for project members to communicate with each other and with customers.
This niche appears to offer the company a competitive advantage. Notably, the offerings of the major companies that sell CAD systems don't seem to fully overlap with its products. While there is competition from several other ends, it's rather fragmented.
The company has an installed base of more than 8,000 licenses. It sells its software to original equipment manufacturers, such as 3D Systems and the other major 3-D printer manufacturers, which bundle the software with some of their printers, and end users, including blue chip names such as Ford and Boeing.
Materialise's industrial production segment produces both prototypes and production parts. The company has service centers in Belgium (it believes its Leuven location is the world's largest single-site 3-D printing service center) and the Czech Republic. It offers a full range of 3-D printing technologies, including stereolithography, fused deposition modeling, PolyJet, powder binding, and laser sintering. Additionally, the company has 13 Mammoth systems; Mammoth is its proprietary stereolithography technology that it developed to print very large parts. Customers include many of the top companies in Europe.
The company has two newer operations that it groups in its industrial segment: RapidFit and i.materialise. RapidFit uses 3-D printing to provide the automotive market with customized, highly precise, and, in some cases, patented measurement and fixturing tools. The company recently opened a U.S. location near Detroit. i.materialise is an online 3-D printing service geared toward designers and consumers.
Materialise's revenue rose 16.3% to 68.7 million euros, or $94.6 million, in 2013. (Its growth from 2012 to 2013 was negatively affected by 2.1% because of unfavorable exchange rates, primarily with respect to the Japanese yen.) Gross, operating, and net margins were 60.4%, 6.4%, and 4.9%, respectively.
The software segment is the profitability driver, as it generated earnings before interest, taxes, depreciation, and amortization of 38.3%, compared with the medical segment's 17.8% and the industrial segment's 3.8%. Average EBITDA for the segments was 16.2%, while corporate-wide EBITDA was 11.1%. Growing the software and medical segments faster than the industrial segment will be the key to the company's ability to increase profitability.
The Foolish takeaway
Materialise appears to be a potentially attractive investment. Demand for its highly profitable software systems should continue to grow as global sales of 3-D printers continue to grow. Likewise, its medical niche is attractive from a profitability standpoint, though competition is heating up in this space, especially with 3D Systems expanding its health care portfolio.
Of course, pricing matters, so investors should wait until pricing information is released before deciding on a potential move. Stay tuned to the Fool; we'll keep you up to date on this IPO as more details "materialize."
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