Materialise NV (NASDAQ:MTLS) Q3 2024 Earnings Call Transcript

Materialise NV (NASDAQ:MTLS) Q3 2024 Earnings Call Transcript October 24, 2024

Operator: Good day, and thank you for standing by. Welcome to the Q3 2024 Materialise Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today Harriet Fried of LHA. Harriet?

Harriet Fried: Thank you for joining us today for Materialise’s quarterly conference call. With us on the call are Brigitte de Vet-Veithen, Chief Executive Officer; and Koen Berges, Chief Financial Officer. Today’s call and webcast are being accompanied by a slide presentation that reviews Materialise’s strategic, financial and operational performance for the third quarter of 2024. To access the slides, if you’ve not already done so, please go to the Investor Relations section of the company’s website at www.materialise.com. The earnings press release issued earlier today can also be found on that page. Before we get started, I’d like to remind you that management may make forward-looking statements regarding the company’s plans expectations and growth prospects among other things.

These forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed, including competitive dynamics and industry change. Any forward-looking statements, including those related to the company’s future results and activities represent management’s estimates as of today and should not be relied upon as representing their estimates as of any subsequent day. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that could impact the company’s future business or financial results can be found in the company’s most recent annual report on Form 20-F filed with the SEC.

Finally, management will discuss certain non-IFRS measures on today’s call. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With that, I’d like to turn the call over to Brigitte de Vet-Veithen. Brigitte, go ahead, please.

Brigitte de Vet-Veithen: Good morning and good afternoon and thank you everyone for joining us today. You can find our agenda on Slide 3. As always, I will now first summarize the highlights of our financial results for the third quarter in 2024. Then I will take you through some of the progress we’ve made in realizing our strategic priorities over the last couple of months and after that, I will pass the floor to Koen, who will go into our third quarter numbers in more detail. Finally, I will come back and explain how we view the remainder of 2024. When we’ve completed our prepared remarks, we’ll be happy to respond to questions. Now looking at our key results for the third quarter summarized on Page 4, I am very pleased to report that we performed strongly in all of our business segments and once more delivered profitable results this quarter with a strong improvement compared to last year.

We realized strong quarterly revenues of €68.7 million growing more than 14% compared to the third quarter last year and demonstrating growth in all segments. We realized a gross margin of 57.2% in the third quarter, which is up from the 56% for the comparable period of 2023. This solid performance enabled us to increase our adjusted EBIT to €4.4 million representing 6.4% of our revenue without compromising on our continued investments to drive future growth. This translates into a net profit of €3 million or €0.05 per share. Our net cash position at the end of the third quarter was €63.1 million. Koen will elaborate further on these results in his remarks later in this call. Now moving now to Slide 5. I’m very pleased with our progress made on the main strategic priorities.

First, in Medical. We accelerated our growth, thanks mainly to the progress made in our core markets. For the second time in our company’s history, medical was the strongest revenue generator accounting for 44% of revenue this quarter. Now this is evidence that our mass personalization strategy is working and that our investments are paying off. Now what do I mean by mass personalization? We continuously ask ourselves how we can serve more patients with personalized approaches rather than just benefiting a lucky few and in the last few years, we’ve made strategic investments to broaden the population we are reaching. Some examples. Thanks to our U.S. manufacturing plant, we have managed to bring our personalized solutions to trauma patients.

Trauma patients are patients that need to have a solution in days, not in weeks. As a reminder, the U.S. facility enables us to deliver parts with much shorter and more reliable lead times. Thanks to this plant and the investment we made there, we managed to triple the number of trauma cases we treated per quarter compared to the number we treated before the opening of the plant and we are now delivering solutions faster than any other provider in the U.S. market and we therefore expect our penetration of this market to continue and generate further growth in the future. Now as a second example, I would like to point to the investments we are making in our Mimics platform to expand our position in the research and engineering markets. In this market, we have traditionally built a strong position with our Mimics Innovation Suite, a software suite that is used by researchers and engineers to segment the medical images of a patient, create a 3D model and prepare treatment plan on this basis or design patient specific implant or instrument for the patient at hand.

In order to accelerate the adoption of these patient specific approaches, we need to make this workflow a lot easier and faster and integrate it with the rest of the healthcare ecosystem and this is what we are achieving with our cloud-based Mimics platform called Mimics Flow. Earlier this year, we released the case management capabilities on Mimics Flow. We released it to medical device companies earlier this year after a release to the hospitals end of last year. Among other benefits, this solution enables customers to manage their workflows end-to-end, enforce quality management and embed traceability in reporting, create visibility for all stakeholders on case status and enable easier collaboration with stakeholders across the ecosystem, for example, to get approvals.

This solution is a valuable extension of our offerings for customers that process a large number of personal cases per year and need to find ways to efficiently manage these larger volumes. It is seamlessly integrated with Mimics our market leading desktop-based segmentation and planning software. Since the launch of this solution, we have already managed to contract 10 customers and expect the uptake to continue in the fourth quarter and throughout 2025. In the coming years, we will continue to bring out additional cloud-based functionality that will make it easier and faster for customers to treat personalized cases. Now turning to software. We made significant progress on multiple fronts. First, we made progress in previously announced partnerships, delivering first results that are truly encouraging.

As an example, in the second quarter, we announced the collaboration with nTop in order to enable the processing of complex and large design and STL files. We announced an early access program at RAPID in June. We have now selected 12 companies for this program from 57 that applied, setting us up for demonstrating the value in additional use cases in the future. Another example, in the first quarter this year, we signed an agreement with DigiFabster, a cloud-based SaaS quoting and e-commerce solution for advanced manufacturing companies. In the third quarter, we signed our first OEM sale, including the DigiFabster solution in the configuration. Second, we also announced new partnerships, for example with Formlabs and Stratasys, but most importantly, we made significant progress in Materialise Magics, leveraging our new products to further strengthen our position in key strategic accounts in sectors like aerospace and on demand manufacturing.

As an example, we see increased adoption of our metal support workflows with more companies migrating to our advanced automated support generation solution, e-Stage for Metal+. E-Stage for Metal+ reduces the time spent on support design by up to 90%, while minimizing human error and build pressure. I’m also pleased to share that the usage and adoption of our latest version of Magics, Magics 28 is accelerating at a much faster rate compared to previous releases. After the release in June, almost 50% of our active customer base is already using the latest Magics release, while it is still in its early lifecycle phase compared to other supported versions. This version is quickly replacing legacy versions in the market, a clear indicator of how customers are recognizing the improved features such as the new Lattice model or the new nesting modules.

This is helping us drive a broader transition, ensuring that our customers stay up to date with the latest advances in 3D printing technology. And last, but certainly not least, I’m very pleased with the progress on our NxG Magic BPs. We released the desktop deployment of our NxG BPs in the frist quarter this year and have already contracted more than 20 partners. The advanced algorithms of the NxG BPs significantly improve build time and quality, thanks to, for example, its advancement strategies for multi lasers and enable a variety of collaboration models, including the possibility for customers to build their own BPs, thanks to the availability of our SDKs. Turning now to manufacturing. We celebrated the opening of our second plant at ACTech and will ship the first part in the fourth quarter.

With this second plant, we are expanding our capacity and enhancing our ability to handle huge and heavy parts. In addition, the extension of our capacity in the new equipment is a critical step to address the market for more complex metal parts and the market for small series. Now why is this important? First, this strengthens our position in a market that we are traditionally strong in, the automotive market, where the development of electric cars brings the need for more complex casted components for electrical drivetrains and chassis. Second, it opens market opportunities in new segments such as agriculture, mining, construction and marine vehicles where parts are typically larger and heavier and therefore more difficult to handle. The complexity of parts in these segments is increasing.

For example, to achieve better thermodynamic cycles in the engines with maximum fuel efficiency. The combination of high precision printing, casting and complex post treatment that we can offer at ACTech is ideal for this and we are therefore very well positioned to serve these needs. It’s interesting to note that customers in all of these segments are turning to ACTech for two reasons. First, they are looking for fast and reliable prototyping solutions but second, what is very exciting is that with the new plant, we are also able to deliver small series. Now the additional capacity in the new equipment strengthens our position for both types of offerings. We are gradually reorganizing our operational flow in the fourth quarter and will then ramp up our capacity throughout 2025 and 2026.

We expect the temporary impact of the operational start up in the fourth quarter. Now Koen will take you through the detailed financial results by segment.

Koen Berges: Thank you, Brigitte. Good morning or good afternoon to all of you on this call. I’ll begin with a brief review of our consolidated revenue on Slide 6. As a reminder, please note that unless stated otherwise, all comparisons in this call are against our results for the third quarter of 2023. In this year’s third quarter, total revenue increased 14% to €68.7 million. We reported growth in all three of our business segments, with strongest increase coming from our medical segment, which grew by more than 24% and posted record high quarterly revenue figures. In spite of the further conversion of our software business model to recurring revenue streams and the continued challenging market conditions that our manufacturing segment faced also both of these segments grew in the third quarter more specifically by 3% and 9% respectively.

As you can see in the graph on the right side of the page, Materialise Medical now accounted for 44%, Materialise Manufacturing for 40% and Materialise Software for 16% of total revenue. In the third quarter, our medical segment took over the role of largest revenue generator from manufacturing. Year-to-date, we now generated over €201 million of revenue which is 5.4% above the same period in 2023. The amount of deferred revenues in our balance sheet related to software license and maintenance fees amounted to €41.1 million at the end of September. Total deferred revenues on our balance sheet were €47.4 million also at the same moment at the end of the quarter. Now on Slide 7, you will see that our consolidated adjusted EBIT and EBITDA numbers for the Q3 of 2024.

Consolidated adjusted EBIT increased to €4.4 million compared to €2.3 million for the corresponding period of 2023. Top line growth in combination with continued focus on leveraging scaling effects and cost control led us to an 89% increase in operational performance, while we continued investing in our future growth businesses. The adjusted EBIT margin for the quarter was 6.4% compared to 3.9% last year. Consolidated adjusted EBITDA for the third quarter amounted to €9.9 million increasing from €7.9 million last year. Our adjusted EBITDA margin reached 14.4% compared to 13.1% the prior year. Year-to-date, we have now generated €10.9 million of adjusted EBIT and €27.2 million of adjusted EBITDA. Moving now on to Slide 8, you will notice that the quarter’s total revenue in our Materialise Medical segment increased as said by almost 25%.

This strong growth was generated by higher revenue coming from medical devices and services sales and by higher revenue from our medical software which grew respectively by 28% and 16%. Within our medical devices and services activity, we grew both direct and partner sales. As a result of top line growth and cost discipline, the adjusted EBITDA of the medical segment grew to €9.9 million with an adjusted EBITDA margin that increased to 32.8%. These numbers now also include the impact from sales, the acquisition that we completed in July and which in its current development phase is contributing negatively to our EBIT. Year-to-date, our medical segment realized €84.5 million of revenue, up by 15% from last year with an adjusted EBITDA of €26 million representing almost 31% of adjusted EBITDA margin.

Slide 9 summarizes results of our Materialise Software segment. In the third quarter software revenue grew by almost 3%. Negative revenue impact of our further transition to a cloud and subscription-based business model was more than offset by strong direct sales in our preprint segments. Recurring revenue from software maintenance and licenses sales including CO-AM increased by 9%. On the other hand, non-recurrent revenue decreased by 12%. The adjusted EBITDA in our software segment increased in the third quarter of this year to almost €2 million representing an adjusted EBITDA margin of 17.8%, while we continued the R&D development efforts in CO-AM and particularly on the factory management capabilities. Year-to-date, our software segment realized €32.8 million of revenue and an adjusted EBITDA of €4.4 million representing 13.5% of adjusted EBITDA margin.

Now let’s turn to Slide 10 for an overview of the performance of our Materialise Manufacturing segment. As in prior quarters also in Q3, our manufacturing segment faced a challenging market environment which was mainly reflected in continued weak prototyping demand. Nonetheless, we managed to grow revenue by 9% compared to the third quarter of last year fueled by growth in ACTech and in certified manufacturing. Here again we posted the strongest growth in our strategic aerospace and medtech focus areas. In spite of the top line growth and further realization of operational efficiencies, cost pressure and less consulting income led to a lower adjusted EBITDA of €4.7 million representing an adjusted EBITDA margin of 2.6%. Year-to-date, our manufacturing segments realized revenue of €83.8 million with an adjusted EBITDA of €4.6 million representing 5.5% of adjusted EBITDA margin.

Slide 11 provides the highlights of our consolidated income statement for the third quarter of this year. Our gross profit increased to €39.3 million representing a gross profit margin of 57.2%, an increase of 120 basis points compared to the gross profit margin realized in Q3 of last year. Direct cost increases were offset by efficiency gains and mix effects. Our operating expenses in the quarter increased by €3.8 million or 11.8% in aggregate with the largest increase coming again from the higher R&D spend, which grew by 16% compared to last year. R&D investments remain mainly focused in our medical segment on the Mimics platform developments and our Medical Devices business and in our software segment on CO-AM developments. Net operating income in the quarter was positive at €0.1 million compared to €0.7 million last year.

As a result of these elements, the group’s operating result in the quarter was positive at €4.3 million compared to €2.3 million in last year’s period. Now in Q3, the net financial results amounted to a negative minus €1.1 million mainly impacted by unfavorable currency exchange results of €1.8 million. The interest income from our cash reserves more than offset the decline in interest expense and our gradually decreasing financial debts. Income tax expenses in the quarter amounted to minus €0.1 million and all of this resulted once more in net profit for the quarter equaling €3 million representing €0.05 per share compared to €4 million or €0.07 per share for the same period of last year. Now please turn to Slide 12 for a recap of the key balance sheet and cash flow highlights.

Also in the third quarter of 2024, our balance sheet remains strong. Our cash reserve at the end of the quarter amounted to €116 million. Loan and risk repayments totaling almost €5 million over the quarter reduced our gross debt to €53 million. Since the beginning of this year, we further reduced our gross debt position by €11.5 million. The resulting net cash position at the end of the third quarter was €63.1 million remaining stable compared to the position at the beginning of this year, although down by €4.4 million from the position at the end of the second quarter. This decrease in the third quarter is mainly the result of increased CapEx investments and of the FEops acquisition that we funded from our own means. Compared to the end of last year, we reduced our net working capital by €2.6 million mainly as a result of reduced rate receivables.

The total deferred income position amounted to €47 million of which €41 million was related to deferred revenue from software license and maintenance contracts as mentioned earlier in the call. As you can see from the graph on the right side of the page, cash flow from operating activities for the third quarter amounted to €6.9 million slightly below the operational cash flow generated in the third quarter of last year and as a result of working capital movements. Capital expenditures for the quarter on the other hand amounted to a high €7.3 million higher than average mainly as a result of intensified investments in the new ACTech plant and the acquisition of FEops. As a result of this, our free cash flow over the third quarter of 2024 turned negative by €3.1 million.

The operational cash flow amounts to €25 million after nine months into 2024, which is up by 26% compared to the same period of last year, while also the year-to-date free cash flow is positive by €4.2 million in spite of a higher investment volume. As mentioned in our earlier calls, the CapEx investments in our new ACTech facility will continue for some time as we add additional machinery and gradually ramp up throughputs and with that, I’d like to hand the call back to Brigitte.

Brigitte de Vet-Veithen: Thank you, Koen. Let’s now turn to page 13. I’ll conclude my remarks with a discussion of our full year 2024 guidance. The consistently strong operational performance of our business segments throughout the first nine months of the year strengthens our confidence that we will land our full year revenue within the earlier communicated range of €265 million to €275 million. We’re also maintaining our adjusted EBIT guidance of €11 million to €14 million for 2024. We’re taking a conservative stance for the last quarter of 2024, given the weaker prototyping demand that we have seen in recent months. In addition, this guidance reflects the integration cost and further product portfolio investments of our recent FEops acquisition as well as the startup of the new ACTech plant. This concludes our prepared remarks. Operator, we are now ready to open the call for questions.

Q&A Session

Operator: Thank you. [Operator Instructions]. Our first question comes from Troy Jensen from Cantor Fitzgerald. Your line is now open.

Troy Jensen: Hey, good morning, good afternoon. Thanks for taking my questions. Hello, Brigetta. Congrats, I was really impressed. I thought the revenue upside, gross margins and OpEx being all above plan were pretty impressive. So keep up the good work, but to dive into the questions a little bit, a little bit on medical, just thoughts on the sustainability of the growth here and profitability, like what does flow through margins look like and what could EBITDA margins look like in the medical business if it continues to grow at this type of pace?

Brigitte de Vet-Veithen: So let me answer this question more qualitatively. As you know, we’re not giving a long-term quantitative guidance typically. So to reflect on the medical business going forward, so there’s still a lot of potential in the medical sector to adopt personalized solutions. The example I’ve given earlier on the trauma population, we’re now with the U.S. manufacturing plant. We are addressing part of that population. Honestly, we’re still scratching the surface of that population and it’s just one example where I do think we can still drive up the adoption of personalized solutions in many of the different markets in which we are playing. So in terms of the sustainability of the growth, I think there’s still a lot of potential in that segment.

There’s no reason why I would see that come at a different profitability level. If anything with larger volumes, typically it gets a little easier to manage our margins, but there’s no reason to believe why the profile will be different going forward.

Troy Jensen: Right, right. Well, to that point, Koen, could you confirm what the flow through margins look like for medical business?

Brigitte de Vet-Veithen: And when you say flow through margin, what exactly do you mean?

Troy Jensen: An incremental $1 million how much is going to go to the bottom, right? There’s typically the additional $1 million more accretive than the first $1 million in a quarter, right? So what does the flow through look like?

Koen Berges: I don’t know if I understand your question correctly, Troy, but the margins are currently around in the 30% range and the EBITDA margins, if that is what you’re referring to and that is I think what we see flowing through to our bottom line – EBITDA bottom line in the medical segments.

Troy Jensen: Okay, understood. I was just trying to get like what a forecast could be on EBITDA margins, but I’ll move on. So now comparing this, you got two businesses that are roughly the same size, medical is extremely profitable, but here we’ve got 3% EBITDA margins on the manufacturing business. So just thoughts on what you can do there, Brigitte, to improve profitability? Is scale going to be the answer? Or just some thoughts on that would be great.

Brigitte de Vet-Veithen: So there’s probably a couple of aspects that we need to mention here to answer your question. I mean, scale obviously, scale will help. That is just in all of our business lines, scale is a driver that helps us get to better margins. Now the second part of the answer I want to give is the shift that we are making and we need to continue to make away from prototyping more towards end-use part in the segments where we see that our proposition has added value. We’ve talked about certified manufacturing in the past. We’ve talked about aerospace, the medtech segment, et., being segments where the complexity and the requirements are such that our high level of knowhow and the fact that based on the long experience that we have, we can handle these more complex and high-quality requirements.

I think they position us well and those are the segments where we need to continue the journey that we’re on and continue to increase to get to a healthier position in terms of margins.

Troy Jensen: Yes. All right. Understood. Last question, then I’ll cede the floor. But just on OpEx going forward, you guys did a nice job here. It looks like it was down sequentially. I guess, I always assumed OpEx is going to grow modestly on a sequential basis, on an absolute basis. But just thoughts on kind of where OpEx is going to trend for the next few quarters?

Koen Berges: As you indicated Troy, a large part of our OpEx is related to staff cost and personnel cost. So there is continuous pressure on that where we see salaries gradually going up. So indeed that is something we certainly focus on to keep that under control same with third party spend where the larger we get the more negotiation power we have of course on these kind of expenses, but indeed there is the cost pressure that we try to mitigate by closely following up the costs that we are making.

Troy Jensen: So to be more specific, just like on an absolute basis for Q4, do you expect total expenses to be up flat or down sequentially?

Brigitte de Vet-Veithen: In absolute or percentage?

Troy Jensen: In absolute basis, yes. I mean, you’re not going through any cost. It seems like a lot of people in the industry now are going through cost cutting, right? So OpEx is shrinking on a quarterly basis, but I don’t think you guys are so much.

Brigitte de Vet-Veithen: I don’t see a particular reason why they would go down. In terms of absolute number. Now there’s one element that when it comes to OpEx and I’m talking more relative, so more percentage wise, I mean, you referred to scale earlier. Our percentagewise, our OpEx our revenue number is going to drive the OpEx percentage to a large extent. So scaling will help and now specifically for the fourth quarter, you’ve heard us being relatively conservative on the fourth quarter. So that is mainly on the revenue side. And therefore, the OpEx percentage in the fourth quarter will take a slightly different profile than we have this quarter. Maybe that helps in terms of some.

Troy Jensen: That helps. We’ll follow-up to you in a little bit. But congrats, and keep up the good work.

Operator: Thank you so much. Our next question comes from Alexander Kramer from Kepler Cheuvreux. Your line is now open.

Alexander Kramer: Hey, hello. Alexander from Kepler Cheuvreux here. Congrats on the nice set of results also from our side. Just I have three questions on the ACTech plants. First one would be, you mentioned that the ramp up weight and will still weigh on the manufacturing segment in terms of OpEx, but maybe could you specify that number? And second question would be couldn’t you mention that you expect some CapEx for this plant going forward as you are planning some additional machinery, etc. Maybe could you clarify how much CapEx you still budget? And what’s the timing of this so we can also get a bit of a grasp on the expansion CapEx going forward? And then, yes, how do we need to see this in terms of additional revenues next year?

So that’s the three questions on the ACTech plant specifically. Then I do have some other questions. Maybe one would be to actually coming back to a question of Troy before. I think he was more asking about the gross margins just to get a bit the sense of the operational leverage in that medical segment. If you could maybe give us some granularity in that respect and as I assume that the cost of goods sold is relatively stable in this segment and then maybe the last question. Yes, I think the new partnerships in software, how do you see that evolving in terms of the top line next year? Thank you.

Brigitte de Vet-Veithen: So let me try to answer some of your questions. I hope I can remember all of them Alexander.

Alexander Kramer: Maybe I’ll start with just on the ACTech plant and a bit of revenues.

Brigitte de Vet-Veithen: Yes, absolutely. And maybe just as a general comment, so I just want to tell you we’re not giving guidance on the on next year yet. So I’ll stay away from that and the second is we’re not giving guidance for the specific business lines. So that’s a it’s a bit more difficult. Now let me maybe give you a bit more color by what we expect in the fourth quarter on the ACTech plant and why so we expect an impact on the fourth quarter. Mainly that is a revenue impact by the fact that we operationally get the second plant ready which also involves transferring some of the equipment and the machines from one plant to the other, which obviously limits our capacity for a while and that’s why we do expect that impact.

Now I know you asked for quantifying that impact, but I can’t do that, but it is an impact that needs us to be most conservative with our guidance. So you can draw a conclusion a little from there. I can point you in that direction. Now I’ll let Koen answer the question on CapEx.

Koen Berges: Yes. To come back to the CapEx as Brigitte mentioned that we have started up the plants in the third quarter, which basically means that the investments on the building itself to a large extent have been completed. What remains and what will continue over some time is additional investments in machinery and we have post processing machinery already in place and we will be gradually adding additional machinery as time goes by. Taking into account that the delivery times on these machines are quite long. That will mean that also the CapEx tail off of this project will take us I would say at least a year, a year and a half to up to two years before the full investment program has been completed. Where we are today to give you an we have always indicated the total investment volume to be north of that between €30 million and €40 million and we have at this stage invested about 65% up to 70% of the total investment volume, but the rest will come we see the peak now, that will still continue a bit in the fourth quarter as there is also payment terms on the invoices from the suppliers that provides the goods that we include as investments, but biggest people then gradually come down in the coming quarters.

Hope that answers your question.

Brigitte de Vet-Veithen: And then maybe sticking to your question on the gross margin on medical. I think you do see our gross margins on Total. So just qualifying comment on the gross margin. So our gross margins on medical are relatively comparable to what typically you would expect in the medical device business. Now the scaling effect drives further efficiencies there, most on the longer term than on the shorter term. So the profile is going to stay relatively similar on the shorter term and certainly when we talk about the next quarter or two.

Alexander Kramer: Okay. That’s very clear. Thanks. And then, yes, the last question was just a small add on the software segment.

Brigitte de Vet-Veithen: Yes. So you’ve asked around the new partnerships. Now the so what was your specific question on the new partnerships?

Alexander Kramer: Well, I mean you’ve announced a lot of new partnerships and deals in the software segment. I was just wondering because I mean this segment has been a bit under pressure lately. Of course you have growth, but in terms of profitability, etc. So I’m just asking more specifically towards the growth of next year. Of course, you don’t give guidance, but at least we get a bit of a sense of what these deals look like.

Brigitte de Vet-Veithen: Yes. And maybe I give you a bit of a view on what these partnerships do for us and so two comments here. One is, so we have indeed announced some new partnerships. Now I’ve also reflected back on some of the partnerships that we closed earlier this year and I thought that was important to do because at the end of the day, we can all announce partnerships, but if they don’t lead to results, then what are they really doing? So I think what is important to note that in the third quarter we actually had real results on these partnerships that were previously announced and I’ve given the example of the nTop partnership and the DigiFabster partnership to illustrate that, that we see good traction there. Now second comment I want to make is that why is this so important for us and why do I see these partnerships as an important element, and why is that a good foundation for future growth next year and the year years after.

So at the end of the day, our customers need an end-to-end solution and rather than building an end-to-end solutions with all the capabilities ourselves. I believe in a model of collaboration. We’ve talked about that a number of times in the previous calls as well. I believe in collaboration and these partnerships illustrate that we can collaborate with others to bring that end-to-end solution, that complete solution without doing the R&D investments ourselves and having that end-to-end solution is, I believe, an important element for our customers and will drive further adoption over the software solutions in the future. Does that make sense?

Alexander Kramer: Okay. Yeah. Thank you. Thank you so much.

Operator: Our next question comes from Jacob Stephan from Lake Street Capital Markets. Your line is open.

Jacob Stephan: Hey, thanks for taking my questions. I’ll add my congratulations to the results here. I was just kind of wondering, on the medical segment, obviously, like Troy mentioned too, EBITDA margins have continued to impress, but I guess, can you help us kind of get a sense for at the new Michigan facility, I know trauma and personalized solutions are the kind of main things produced there, but maybe help us get a sense on the overall capacity at the new facility itself.

Brigitte de Vet-Veithen: So first clarification maybe, so our U.S. manufacturing plant is indeed fully dedicated to the medical business. So all we ship out of there are personalized devices, instrumentation or implants. The capacity is driven by two things. So one is obviously the number of machines and resources we have there and the second is the space. So at this point in time, we’re not at the capacity limit, let me put it that way. I won’t give you a — I can’t give you a specific number on, you know, what percentage of the capacity we are at, but there is, there’s room for adding capacity, and extending that in the future.

Jacob Stephan: Okay. And you made a comment, that, you know, essentially, you treated three times the number of trauma patients compared to kind of before the plant was up and running, but maybe help us understand, is there room to the 10x that, 20x that, any color there would be helpful?

Brigitte de Vet-Veithen: Yes. So I am without mentioning a specific number, I also made a comment earlier in this call that I said we’re only scratching the surface. So that’s more kind of the relations that we need to look at. So it’s not only we have potential to further double or triple, so the potential is effectively large here.

Jacob Stephan: Okay. And last one for me, just on kind of the software segment. Did I hear that correctly? You signed your first CO-AM customer?

Brigitte de Vet-Veithen: No. So maybe I wasn’t super clear here. So we have signed a whole range of CO-AM customers. I don’t have the exact number, but there’s a lot of CO-EM customers already since we launched the solutions a couple of years back. The first we now assigned the first customer that also has the DigiFabster solution and so my point was more to illustrate that the partnership that we announced earlier this year, we now have actual sales coming out of this and again, as I said earlier, it’s nice to announce the partnership, but what it really matters is what kind of growth that will drive for us with that partner.

Jacob Stephan: Got it. And I guess just kind of to follow-up on that. Any kind of sense on when we can see the last kind of perpetual customers roll off and essentially be 100% fast?

Brigitte de Vet-Veithen: Yes. So that’s going to take a very long time, because you know, the very last one. So I’m not saying that the significant amount of our business will stay perpetual because we’re really pushing out and making very good progress in that switchover, but I do expect that there will be some customer segments, market segments that remain on perpetual for quite a while.

Jacob Stephan: Okay. Got it. Appreciate the color. Thanks.

Operator: Thank you so much. I’m showing no further questions at this time. I would now like to turn it back to Brigitte for closing remarks.

Brigitte de Vet-Veithen: Well, thank you again for joining us today and we look forward to continuing our dialogue with you obviously through our investor conferences or one-on-one meetings or calls and we obviously hope to see many of you during the upcoming form next in November. Please reach out to us if you have any further questions. So for now, thank you and goodbye.

Operator: [Operator Closing Remarks].