ARCAM Q3 results

Investment Analysis Clubs Saul’s Investing Discussions
1

Guys
The results are out…
Here’s the announcement:
http://finance.yahoo.com/news/arcam-ab-reg-no-556539-0639006…
There will be a results call later today:
http://finance.yahoo.com/news/3d-systems-announces-conferenc…

and it looks good in terms of the top line but earnings seemed to take a hit for some reason:

For the third quarter:

· Net sales increased by 52% to 138.1 (90.8) MSEK

· Operating income increased to 12.6 (10.2) MSEK

· Net income amounted to 4.9 (38.0) MSEK

· Order intake increased to 12 (5) systems

· 11 (9) EBM systems were delivered in the third quarter

Continued strong growth

In the first 9 months we delivered 34 (20) EBM systems. Sales for the period amounts to 400.1 (201.8) MSEK and trailing twelve month sales amounts to 537.3 (268.8) MSEK.

We continue to grow rapidly and in the first nine months growth was 98% of which 62% was organic growth. Operating income for the first 9 month of the year was 36.2 (6.3) MSEK and trailing twelve months, operating income amounts to 51.5 (13.2) MSEK.

The order intake for the 9 months amounts to 29 (21) EBM systems orders, whereof 12 (5) orders were booked in the third quarter. Long-term, we see a continued strong demand, and we expect a continued strong order intake. The order book as of September 30 was 14 EBM systems…

I will update the order tracker thread with the info separately.
Cheers
Ant

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The Arcam, results look very strong to me, until you get to Net Income. Does anyone have an explanation for how they increased sales by 52% and Net Income nosedived? Mauser?

Just wondering,

Saul

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Also how could net income be almost four times operating income???

Saul

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Well, they did just double the size of the manufacturing facility.

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Well, they did just double the size of the manufacturing facility.

But shouldn’t they depreciate that over 20 years?

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Yes, but I would think there were a lot of associated short term expenses that went with it.

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Hello Saul,

In the prior year net income was aided by a tax credit that amounted to more than 60% of net income. There was still a decline but not as significant.

Best regards,

Mike

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That’s correct Mike.
Here’s the conference webcast link which should give some additional content. I’m about to go through this now.
Ant
https://event.onlineseminarsolutions.com/eventRegistration/E…

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Ant, Listening to Arcam CC, now. They seem very, very positive. Thanks for the link.
Saul

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They said the swings in net income are due to investing in R&D, but especially in G&A in terms of opening and staffing new offices, and other expenses.
Saul

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Ok additional facts from the conf call…

9 months revs breakdown:
Total: 401 msek
EBM systems: 241.5 (vs 142)
Metal powders: 79.0 (vs 52.1)
Contract manufacturing: 79.5 (vs 7.7)

Installation base ~200 systems.

9 month Op Inc (msek):
36.2 (vs 6.3)

Group amortization relating to acquisitions 5.4
Prior year non recurring costs of 6

Op Inc impacted by increased production capacity that has not been fully utilized yet.

9 months cash flow (msek):
-25.9
(flat for Q3)

Cash flow relating to acquisitions -71.4
Cash flow from new issues 245
Cash at end of period 453
Equity ratio 81%

Q&A (from Jeffries & Canaccord & Piper Jaffray & Edison)

Margin decline - due to capacity expansion in powders and EBM not price pressure and should turn up. Di Santo operates at a lower margin.

Production capacity increasing to 150-200 systems

High volume orders for Di Santo & EBM in China medical implants

Q3 is usually a slower quarter

Pipeline good across the business not just EBM and expecting similar sized orders in the future

Aerospace expected to be a bigger opportunity moving forward (confirmed by GE & P&W) but is a more cautious sector & with lower visibility than medical implants although starting to show signs of maturing in the latest quarter

Some FX impacts on the quarter (USD vs SEK)

Q2 was considerably higher margin due to system sale and Q2 should be the benchmark going forwards. Quarters are lumpy but TTM should normalize this.

Offices being set up in UK, US and China as well as plant expansion

Another dry powder reactor being activated - each reactor adds about 50 tons/year giving 250 tons in total. They will be the biggest titanium powder plant in the world

R&D spend has been lumpy

ARCAM doesn’t give guidance

200 installed base split 1/3rd medical, 1/3rd aerospace and 1/3rd other (mostly universities and research)

Unfortunately no mention of FastEBM or Big area manufacturing which have got to be pressing issues given developments at HP & carbon printing.

Ant

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By the way, I’d guess the reason that their 3rd quarter is usually seasonally lighter is because everything closes down in August in Europe.

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Yep and in particular Scandinavia. They literally shut down the offices/factories and lock the doors for a month. Everyone goes off to their log cabins etc.
Ant

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I am not a big fan of massive R&D., most of which never leads to real products. Apple never spent that much, Xerox did.

In any case what is nearly unique about Arcam is that they don’t pay for most of their R&D. It is done for them by the EU, some in the US at Oak Ridge, and industry groups. Gratis. Arcam is the only one able to do EBM , and likely to remain that way for a good number of years.

Way under reported is the research and hopefully progression making TiAl powder more consistent and cheaper. Because the process for making it are old , and it is far more costly than it should be. At least most of the unused powder can be recovered.

As long as it is making money I am far more interested in sales , and in the beginnings of mass produce of titanium EBM part- because if parts are going to be produced in numbers, sales of machines must necessarily grow. And they now have the physical capacity to produce 3 X as many machines. But lack the staff to do o at this time.

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R&D spend has been lumpy

Of course, when one has European agencies doing R&D for you and you are the sole direct beneficiary …

Unfortunately no mention of FastEBM or Big area manufacturing which have got to be pressing issues given developments at HP & carbon printing.

Carbon is strictly plastic at this point, I believe. And, somehow, I have a hard time believing anything from HP these days.

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Of course, when one has European agencies doing R&D for you and you are the sole direct beneficiary …

Whilst I understand the comment Tamhas, EU funding is nothing compared to the US military funding of private enterprise for civilian and military research grants.

Carbon is strictly plastic at this point, I believe. And, somehow, I have a hard time believing anything from HP these days.

Maybe maybe not but 1) if they deliver the 50x-100x advancements it is a real threat and anyway 2) the messaging of this is holding back investments by buyers.

Ant

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EU funding is nothing compared to the US military funding of private enterprise for civilian and military research grants.

In which respect? The part about the Arcam EU deal I find so amusing is that all the benefit goes to Arcam. Sure, the EU gets a better printer in the end, but Arcam has the patents. Are there comparable US 3DP beneficiaries?

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I tried to buy this in my Interactive brokers account… They didn’t accept ticker AMAVF.
Does anyone know what other ticker may be operating for this stock on US exchanges?

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That’s the ticker. The only other one is ARCM.SE which is on the Swedish exchange in Krone. Not everyone handles it, apparently.

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In which respect? The part about the Arcam EU deal I find so amusing is that all the benefit goes to Arcam. Sure, the EU gets a better printer in the end, but Arcam has the patents. Are there comparable US 3DP beneficiaries?

The US military and civilian institutions do way more sponsorship of hi tech etc with business grants and special projects funding than EU. EU blows money left right and center don’t get me wrong - with all the wrong kind of investments, like subsidies for sunset industries and French farmers doing medieval strip farming etc. It is not a criticism of the US it is actually a compliment. No I was not talking about 3DP specifically (although Sigma Labs is an example of a company that grew out of the Los Alamos National Lab - http://www.lanl.gov/). Usually it is to do with advanced research like silicon chip that drives IP development etc. (Cree is a company that benefits all the time from the ONR for example - http://www.onr.navy.mil/contracts-grants.aspx). Elon Musk’s ventures have attracted huge amounts of US funding support for example (like Solarcity’s new plant). Private business in these cases (American) walk away with the patents but Team America Inc benefits.

Ant