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As filed with the Securities and Exchange Commission on May 23, 2014

Registration No. 333-194982

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

MATERIALISE NV

(Exact name of Registrant as specified in its charter)

 

Kingdom of Belgium		7372		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

 

Technologielaan 15

3001 Leuven

Belgium

+32 (16) 39 66 11

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Materialise USA, LLC

44650 Helm Ct.

Plymouth, Michigan 48170

Attention: Chief Executive Officer

(734) 259-6445

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Alejandro E. Camacho, Esq. Per B. Chilstrom, Esq. Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 (212) 878-8000		William F. Schwitter, Esq. Paul Hastings LLP 75 East 55th Street New York, New York 10022 (212) 318-6000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a) may determine.

 

 

 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated May 23, 2014

 

                American Depositary Shares

Representing          Ordinary Shares

 

Materialise NV

$         per American Depositary Share

 

 

 

 

 

 

 

This investment involves risk. See “Risk Factors” beginning on page 18.

 

 

 

 

		Per ADS		Total
Public offering price		$		$
Underwriting discount(1)		$		$
Proceeds, before expenses, to Materialise NV		$		$
Proceeds, before expenses, to the selling shareholders		$		$

 

 

 

(1)	We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting.”

The underwriters have a 30-day option to purchase up to             additional ADSs from us to cover over-allotments, if any.

We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012 and, as such, will be subject to reduced public company reporting requirements for future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the ADSs will be made against payment in New York, New York on or about                     , 2014.

 

Piper Jaffray

Credit Suisse

 

BB&T Capital Markets		Janney Montgomery Scott		Stephens Inc.

 

KBC Securities USA

The date of this prospectus is                     , 2014.

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TABLE OF CONTENTS

 

 

		Page
Prospectus Summary			1
Risk Factors			18
Special Note Regarding Forward-Looking Statements			51
Exchange Rates			53
Use of Proceeds			54
Dividend Policy			55
Capitalization			56
Dilution			58
Selected Financial and Operating Data			60
Management’s Discussion and Analysis of Financial Condition and Results of Operations			62
Business			84
Management			115
Certain Relationships and Related Party Transactions			126
Principal and Selling Shareholders			128
Description of Share Capital			131
Description of American Depositary Shares			143
Shares Eligible for Future Sales			151
Taxation			154
Underwriting			162
Expenses Related to this Offering			170
Legal Matters			171
Experts			171
Service of Process and Enforcement of Civil Liabilities			171
Where You Can Find More Information			173
Index to Consolidated Financial Statements			F-1

 

 

 

 

You should rely only on the information contained in this prospectus or contained in any free writing prospectus we file with the Securities and Exchange Commission, or the SEC. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the SEC. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales of these securities are legally permitted. The information contained in this prospectus or in any free writing prospectus we file is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of the ADSs. Our business, financial condition, results of operation and prospects may have changed since that date. We will update this prospectus to the extent required by law.

We further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreement rather than establishing matters of fact. The information in the exhibits should not be read alone and instead should be read in conjunction with the information in this prospectus and other filings that we make with the SEC. Moreover, such representations, warranties or covenants were accurate only as of the date they were made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.

 

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Our trademark portfolio contained 80 registered trademarks and 19 pending trademark applications as of March 31, 2014. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the ^® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

All references in this prospectus to “U.S. dollars” or “$” are to the legal currency of the United States and all references to “€” or “euro” are to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the European Community, as amended. Solely for the convenience of the reader, unless otherwise indicated, all amounts in U.S. dollars have been converted from euros to U.S. dollars at an exchange rate of $1.3777 per euro, the exchange rate on March 31, 2014. These conversions should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate at that or any other date.

Certain figures included in this prospectus have been rounded for ease of presentation. Percentage figures included in this prospectus have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this prospectus may vary slightly from those obtained by performing the same calculations using the figures in our consolidated financial statements. Certain other amounts that appear in this prospectus may similarly not sum due to rounding.

 

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RISK FACTORS

Investing in the ADSs involves a high degree of risk. You should carefully consider the risks described below, which we believe are the material risks of our business and industry, our regulatory environment, our intellectual property, the ADSs and this offering, before making an investment decision. If any of the following risks actually occurs, our business, financial condition and results of operations could be harmed. In that case, the trading price of the ADSs could decline and you might lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto.

Risks Related to Our Business

We may not be able to maintain or increase the market share or reputation of our software and other products and services that they need to remain or become a market standard.

The additive manufacturing industry is rapidly growing on a global scale and is subject to constant innovation and technological change. A variety of technologies compete against one another in our market, which is driven, in part, by technological advances and end-user requirements and preferences, as well as by the emergence of new standards and practices. As the additive manufacturing market evolves, the industry standards that are adopted and adhered to are a function of the inherent qualities of the technology as well as the willingness of members of the industry to adopt them. To remain competitive, particularly with respect to our 3D printing software solutions, we depend in large part on our ability to increase and maintain market share and influence in the industry in order to be recognized as a market standard. Nonetheless, in the future, our influence in setting standards for the additive manufacturing industry may be limited and the standards adopted by the market may not be compatible with our present or future products and services.

We may not be successful in continuing to enhance and adapt our software, products and services in line with developments in market technologies and demands.

Our present or future software, products and services could be rendered obsolete or uneconomical by technological advances by one or more of our present or future competitors or by other technologies. Our ability to remain competitive will depend, in large part, on our ability to enhance and adapt our current software, product and services to developments in market technologies and demands and to enhance and develop new 3D printing software solutions, products and services. We believe that to remain competitive we must continuously enhance and expand the functionality and features of our products, services and technologies. However, there can be no assurance that we will be able to:

 

•

maintain and enhance the market share of our current products, services and technologies;

 

•

enhance our existing product, services and technologies;

 

•

continue to leverage advances in 3D printing technology;

 

•

develop new products, services and technologies that address the increasingly sophisticated and varied needs of prospective end-users;

 

•

respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis;

 

•

develop products and services that are cost effective or that otherwise gain market acceptance; or

 

•

adequately protect our intellectual property as we develop new products, services and technologies and anticipate intellectual property claims from third parties.

 

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The research and development programs that we are currently engaged in, or that we may establish in the future, may not be successful and our significant investments in these programs may be lost.

To remain competitive, we currently, and we intend to continue to, invest significant amounts in various research and development programs. There can be no assurances, however, that these research and development programs will improve our existing additive manufacturing software solutions, products and services or create new software, products or services. Even if some of these programs are successful, it is possible that the new software, products or services developed from such programs will not be commercially viable, that new 3D printing technologies that we, or others, develop will eventually supplant our current 3D printing technologies, that changes in the manufacturing or use of 3D printers will adversely affect the need or demand for our software, products or services or that our competitors will create or successfully market 3D printing technologies that will replace our solutions, products and services in the market. As a result, any of our software solutions, products or services may be rendered obsolete or uneconomical and our significant investments in all or some of our research and development programs may be lost.

Existing and increased competition may reduce our revenue and profits.

The 3D Printing Software, Medical and Industrial Production segments in which we operate are characterized by vigorous competition, both by entry of competitors with innovative technologies and by consolidation of companies with complementary products, services and technologies.

In particular, the barriers to enter the software, medical and industrial markets with 3D printing solutions are decreasing rapidly.

In the 3D Printing Software segment, the availability of computing devices with continually expanding performance at progressively lower prices contributes to the ease of market entry. Additionally, there are certain open source software applications that are being offered free of charge or for a nominal fee that can place additional competitive pressure on us. In addition, 3D printer manufacturers, which closely work with their customers, may successfully bundle their own software solutions with their equipment, which may make our independent software solutions obsolete. In addition, companies that currently have greater financial, technical, sales and marketing and other resources, including market leaders with significant in-house capacities in software development, or existing CAD software providers, may, at any point in time, enter the additive manufacturing market and very rapidly gain a significant share of the markets that we currently target.

In the Medical segment, medical device companies are investing in 3D printing solutions that may compete with our software solutions, products and services. Companies that initially rely on us to enter the additive manufacturing market for medical applications may, as they gain experience and as 3D printing technology gains strategic importance, decide to develop their own in-house solutions and enter the market themselves with their own software, products or services, thus becoming competitors and denying us continued access to their distribution channels.

In the Industrial Production segment, as additive manufacturing gains importance as a strategic technology, our customers are likely to bring 3D manufacturing in-house and reduce or even discontinue using our 3D printing services. In addition, competitors with more efficient or profitable business models, superior techniques or more advanced technologies may take market share away from us.

Because of these and other factors, competitive conditions in the industry are likely to intensify in the future. Increased competition could result in price reductions, reduced revenue and operating margins and loss of market share, any of which would likely harm our results of operations.

 

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We rely on collaborations with users of our additive manufacturing solutions to be present in certain large scale markets and, indirectly, to expand into potentially high-growth specialty markets. Our inability to continue to develop or maintain these relationships in the future could harm our ability to remain competitive in existing markets and expand into other markets.

Our strategy includes entering into collaborations with our customers in certain large-scale markets and leveraging these collaborations to enter into other underserved specialty markets. For example, in the medical market, we have entered into collaboration agreements with Biomet, DJO Surgical, Synthes and Zimmer. Increased adoption of our software, products and services, especially in potentially high-growth specialty markets, will depend in part on our current and future collaborators’ willingness to continue to adopt our additive manufacturing solutions in their markets and on our ability to continue to collaborate with these and other players. Certain of our customers that have initially relied on our 3D printing software and services have announced their intention to bring their 3D printing operations in-house and enter the market themselves, and other customers may also do so in the future as they gain experience and as 3D printing technology gains strategic importance, thus denying us continued access to their distribution channels. In addition, a change of control of any of our collaboration partners may negatively impact our relationship. In particular, two of our collaboration partners, Zimmer and Biomet, recently announced the entry into an agreement and plan of merger pursuant to which Zimmer will acquire Biomet. If we are not able to maintain our existing collaborations and develop new collaborative relationships, our foothold in larger markets and expansion into potentially high-growth specialty markets could be harmed significantly.

Our revenue and results of operations may fluctuate.

Our revenue and results of operations may fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which are not within our control. You should not rely on our past results as an indication of our future performance.

Fluctuations in our results of operations and financial condition may occur due to a number of factors, including, but not limited to, those listed below and those identified throughout this prospectus:

 

•

our ability to continue, renew or replace relationships with key customers;

 

•

the degree of market acceptance of our software and our products;

 

•

the mix of software, products and services that we sell during any period, as well as the mix of the various markets in which we make sales during said periods;

 

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a decline in new or renewed periodic licenses or maintenance contracts;

 

•

delays in the introduction of new features;

 

•

the entry of new competitors into our market;

 

•

the development and degree of market acceptance of new competitive systems or processes by others;

 

•

changes in our pricing policies or those of our competitors, including our responses to price competition;

 

•

changes in the amount we spend in our marketing and other efforts;

 

•

delays between our expenditures to develop, acquire or license new technologies and processes, and the generation of sales related thereto;

 

•

the amounts we spend on, and the success rate of, our research and development activities;

 

•

changes in the regulatory environment applicable to our software programs, products or services;

 

•

delays in obtaining regulatory approval for our software programs, products or services;

 

•

interruptions to or other problems with our website and interactive user interface, information technology systems, manufacturing processes or other operations;

 

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•

general economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing, including the adverse effects of current global economic uncertainties; and

 

•

changes in accounting rules and tax laws.

Demand for additive manufacturing generally and our additive manufacturing software solutions, products and services in particular may not increase adequately.

The industrial and medical industries are generally dominated by conventional production methods with limited use of additive manufacturing technology in certain specific instances. If additive manufacturing technology does not gain more mainstream market acceptance, or gains market acceptance at a significantly slower pace than currently expected, or if the marketplace adopts additive manufacturing based on a technology other than the technologies that we currently use or serve, we may not be able to meet our growth objectives or increase or sustain the level of sales of our additive manufacturing software solutions, products and services, and our results of operations would be adversely affected as a result.

We are dependent upon sales to certain industries.

Our revenue from products are currently relatively concentrated in the industrial and medical industries, and particularly in the automotive and orthopedic segments within such industries, respectively. To the extent any of these industries experiences a downturn and we are unable to penetrate and expand in other industries, our results of operations may be adversely affected. Additionally, if any of these industries or their respective suppliers or other providers of manufacturing services develop new technologies or alternatives to manufacture the products that are currently manufactured using our 3D printing software, products and services, it may adversely affect our results of operations.

If our relationships with suppliers, including with limited source suppliers of consumables, were to terminate or our manufacturing arrangements were to be disrupted, our business could be adversely affected.

We purchase consumables and other components that are used in our production from third-party suppliers. We currently use only a limited number of suppliers for several of the consumables for our print materials. Our reliance on a limited number of vendors involves a number of risks, including:

 

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potential shortages of some key consumables or other components;

 

•

printed material performance or quality shortfalls, if traceable to particular consumables or other components, since the supplier of the faulty consumable or component cannot readily be replaced;

 

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discontinuation of a consumable or other component on which we rely;

 

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potential insolvency of these vendors; and

 

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reduced control over delivery schedules, manufacturing capabilities, quality and costs.

If certain suppliers were to decide to discontinue production, or the supply to us, of a consumable or other component that we use, the unanticipated change in the availability of supplies, or unanticipated supply limitations, could cause delays in, or loss of, sales, increased production or related costs and, consequently, reduced margins, and damage to our reputation. In addition, because we use a limited number of suppliers, increases in the prices charged by our suppliers may have an adverse effect on our results of operations, as we may be unable to find a supplier who can supply us at a lower price. As a result, the loss of a limited source supplier could adversely affect our relationships with our customers and our results of operations and financial condition.

 

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We depend on the knowledge and skills of our senior management and other key personnel, and if we are unable to retain and motivate them or recruit additional qualified personnel, our operations could suffer.

Our success depends upon the continued service and performance of our senior management and other key personnel, including engineers, designers, software developers and product managers, and our ability to identify, hire, develop, motivate and retain qualified personnel in the future. Competition for senior management and key employees in our industry is intense and we cannot guarantee that we will be able to retain our personnel or attract new, qualified personnel. We may need to invest significant amounts of cash and equity to attract and retain new employees and we may not realize returns on these investments. The loss of the services of members of our senior management or key employees could prevent or delay the implementation and completion of our strategic objectives, could divert management’s attention to seeking certain qualified replacements or could adversely affect our ability to manage our company effectively. Each member of senior management as well as our key employees may resign at any time. Only some of the members of our senior management are subject to non-competition agreements, which may also be difficult to enforce. Accordingly, the adverse effect resulting from the loss of certain members of senior management or other key employees could be compounded by our inability to prevent them from competing with us. We do not carry key-man insurance on any member of our senior management team or other key personnel. If we lose the ability to hire and retain key executives and employees with a diversity and high level of skills in appropriate domains (such as research and development and sales), it could have a material adverse impact on our business activities and results of operations.

We may need to raise additional capital from time to time in order to meet our growth strategy and may be unable to do so on attractive terms, or at all.

We intend to continue to make investments to support the growth of our business and may require additional funds to respond to business challenges, including the need to implement our growth strategy, increase market share in our current markets or expand into other markets, or broaden our technology, intellectual property or service capabilities. Accordingly, we may require additional investments of capital from time to time, and our existing sources of cash and any funds generated from operations may not provide us with sufficient capital. For various reasons, including any noncompliance with existing or future lending arrangements, additional financing, may not be available when needed, or may not be available on terms favorable to us. If we fail to obtain adequate capital on a timely basis or if capital cannot be obtained on terms satisfactory to us, we may not be able to achieve our planned rate of growth, which will adversely affect our results of operations.

Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations.

We face significant operational risks as a result of doing business internationally, such as:

 

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fluctuations in foreign currency exchange rates;

 

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potentially longer sales and payment cycles;

 

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potentially greater difficulties in collecting accounts receivable;

 

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potentially adverse tax consequences, including liabilities imposed from inconsistent enforcement;

 

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challenges in providing solutions across a significant distance, in different languages and among different cultures;

 

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transportation delays;

 

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•

becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;

 

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reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries;

 

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difficulties in staffing and managing foreign operations, particularly in new geographic locations;

 

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restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modification of contracts;

 

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expropriation or nationalization of property;

 

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rapid changes in government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events;

 

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operating in countries with a higher incidence of corruption and fraudulent business practices;

 

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seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe;

 

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costs and difficulties of customizing products for foreign countries; and

 

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tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets.

We maintain important software research and development and engineering centers in Malaysia and Ukraine. In Malaysia, the government may exercise substantial control over certain sectors of the economy through regulation and state ownership. In Ukraine, the political and economic situation, in general, and the relations among Ukraine, United States, the European Union and Russia, in particular, are currently unstable. While we have been able to continue our operations and to service our customers throughout the recent periods of instability in Ukraine, there is a risk that escalation of the instability in that region could have a significant impact on our operations, in particular in the event where internet services would no longer be available in Ukraine or where the situation would become such that our employees would no longer be able to work, from the office or from their homes. Our facility in Ukraine does not focus on sales to the Ukrainian market and mainly provides supporting activities for our global operations. Any material disruption of these supporting activities, however, could significantly impact our ability to further develop our products and to continue to service our customers globally. Moreover, changes in the laws and regulations of Malaysia or Ukraine, or in their interpretation or enforcement, including with respect to operations such as ours, which rely to a large extent on local private entrepreneurs, may significantly impact our activities in Malaysia or Ukraine, which would limit our future growth and adversely affect our results of operations. In addition, we conduct certain operations in Venezuela where the risks of expropriation or nationalization of our assets or government interference with our business are particularly acute. Our failure to manage the market and operational risks associated with our international operations effectively could limit the future growth of our business and adversely affect our results of operations.

Our international operations pose currency risks, which may adversely affect our results of operations and net income.

Our results of operations may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction risks. In general, we conduct our business, earn revenue and incur costs in the local currency of the countries in which we operate. During the year ended December 31, 2013, approximately 75% of our revenue was generated, and approximately 78% of our total costs were incurred in, euros. As we continue to expand internationally, our exposure to currency

 

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risks will increase. Historically, we have not managed our foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates. Changes in exchange rates between the foreign currencies in which we do business and the euro will affect our revenue, cost of sales, and operating margins, and could result in exchange losses in any given reporting period.

Changes in tax laws, treaties or regulations could adversely affect our financial results.

Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both internationally and domestically, including possible changes to the patent income deduction regime in Belgium or the way it proportionately impacts our effective tax rate. An increase of our future effective tax rates could have a material adverse effect on our business, financial position, results of operations and cash flows.

We may engage in acquisitions or investments that could disrupt our business, cause dilution to our shareholders and harm our financial condition and results of operations.

We recently acquired e-prototypy SA, a 3D printing service center operator based in Poland. In the future, we intend to continue to make acquisitions of, or investments in, companies that we believe have products, services, competencies or capabilities that are a strategic or commercial fit with any of our businesses or that otherwise offer opportunities for our company. In connection with these acquisitions or investments, we may:

 

•

use a significant portion of the proceeds of this offering;

 

•

issue ADSs or other forms of equity that would dilute our existing shareholders’ percentage of ownership;

 

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incur debt and assume liabilities; and/or

 

•

incur amortization expenses related to intangible assets or incur large and immediate write-offs.

If we complete an acquisition or investment, we cannot assure you that it will ultimately strengthen our competitive position or that it will be viewed positively by customers, suppliers, employees, financial markets or investors. Furthermore, future acquisitions or investments could pose numerous additional risks to our operations, including:

 

•

problems integrating the purchased business, products, services or technologies;

 

•

challenges in achieving strategic objectives, cost savings and other anticipated benefits;

 

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increases to our expenses;

 

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the assumption of significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party;

 

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inability to maintain relationships with key customers, vendors and other business partners of our current or acquired businesses;

 

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diversion of management’s attention from their day-to-day responsibilities;

 

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difficulty in maintaining controls, procedures and policies during the transition and integration;

 

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entrance into marketplaces where we have no or limited prior experience and where competitors have stronger marketplace positions;

 

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potential loss of key employees, particularly those of the acquired entity; and

 

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historical financial information may no longer be representative or indicative of our results as a combined company.

 

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Alternatively, while certain acquisitions or investments may be of strategic importance for the execution of our business plan, we may not ultimately be able to complete such acquisitions or investments on favorable terms, or at all, which may in turn materially affect our ability to grow or even cause us to lose market share, and could have a material adverse effect on our business, financial condition and results of operations.

We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third parties that may not result in the development of commercially viable products or the generation of significant future revenue.

In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships to develop proposed products or services and to pursue new markets. For example, in our Medical segment, we have established collaboration relationships with leading medical device companies for the development and distribution of our surgical planning software, services, and products, including with Biomet, DJO Surgical, Synthes and Zimmer. For more information, see “Business—Our Medical Segment—Collaboration Partners.” Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not succeed in maintaining, renewing or extending existing collaborations or in identifying, securing, or completing any such new transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We may also not realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the development of products or services that achieve commercial success or result in significant revenue and could be terminated prior to developing any products or services.

Additionally, we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our collaboration partners may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our current or future collaboration partners, such as conflicts concerning the achievement of performance milestones, or the interpretation of terms under any agreement, such as those related to financial obligations or the ownership or license rights or control of intellectual property developed before or during the collaboration. If any conflicts arise with our current or future collaboration partners, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we have limited control over the amount and timing of resources that our current collaboration partners or any future collaboration partners devote to our collaboration partners’ or our future products or services. Disputes with our collaboration partners may result in litigation or arbitration that would increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may be terminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products or access to the markets relating to such transaction or arrangement or may need to purchase such rights at a premium.

Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

We operate in a number of countries throughout the world, and are committed to doing business in accordance with applicable anti-corruption laws. We are subject, however, to the risk that our officers, directors, employees, agents and collaboration partners may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010 and the Belgian Penal Code, as well as trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could result in substantial fines,

 

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sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our results of operations. In addition, actual or alleged violations could damage our reputation and ability to do business.

Errors or defects in our software or other products could cause us to incur additional costs, lose revenue and business opportunities, damage our reputation and expose us to potential liability.

Sophisticated software and complex 3D printed products may contain errors, defects or other performance problems at any point in the life of the product. If errors or defects are discovered in our current or future software or other products, we may not be able to correct them in a timely manner, or provide an adequate response to our customers. We may therefore need to expend significant financial, technical and management resources, or divert some of our development resources, in order to resolve or work around those defects. We may also experience an increase in our service and warranty costs. Particularly in the medical sector, errors or defects in our software or products could lead to claims by patients against us and our customers and expose us to lawsuits that may damage our and our customers’ reputations. Claims may be made by individuals or by classes of users. Our product liability and related insurance policies may not apply or sufficiently cover any product liability lawsuit that arises from defective software or products. Customers such as our collaboration partners may also seek indemnification for third party claims allegedly arising from breaches of warranties under our collaboration agreements.

Errors, defects or other performance problems in our software or other products may also result in the loss of, or delay in, the market acceptance of our software, our products and related 3D printing or engineering services or postponement of customer deployment. Such difficulties could also cause us to lose customers and, particularly in the case of our largest customers, the potentially substantial associated revenue which would have been generated by our sales to companies participating in our customer’s supply chain. Technical problems, or the loss of a customer with a particularly important global reputation, could also damage our own business reputation and cause us to lose new business opportunities.

We rely on our information technology systems to manage numerous aspects of our business and customer and supplier relationships, and a disruption of these systems could adversely affect our results of operations.

We rely on our information technology systems and databases to manage numerous aspects of our business and to provide analytical information to management. Our information technology systems allow us to, among other things, optimize our software development and research and development efforts, organize our in-house 3D printing services logistics, efficiently purchase products from our suppliers, provide other procurement and logistic services, ship and invoice products to our customers on a timely basis, maintain cost-effective operations and generally provide service to our customers. Our information technology systems are an essential component of our business and growth strategies, and a disruption to our information technology systems could significantly limit our ability to manage and operate our business efficiently. Although we take steps to secure our information technology systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to, among other things, damage and interruption from power loss, including as a result of natural disasters, computer system and network failures, loss of telecommunication services, operator negligence, loss of data, security breaches, computer viruses and other disruptive events. Any such disruption could adversely affect our reputation, brand and financial condition.

 

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A breach of security in our products or computer systems may compromise the integrity of our products, harm our reputation, create additional liability and adversely impact our financial results.

We make significant efforts to maintain the security and integrity of our product source code and computer systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. These threats include identity theft, unauthorized access, DNS attacks, wireless network attacks, viruses and worms, advanced persistent threat (APT), application centric attacks, peer-to-peer attacks, phishing, backdoor trojans and distributed denial of service (DDoS) attacks. Any of the foregoing could attack our products and computer systems. Despite significant efforts to create security barriers to such programs, it is virtually impossible for us to entirely eliminate this risk. Like all software products and computer systems, our software products and computer systems are vulnerable to such cyber attacks. The impact of cyber attacks could disrupt the proper functioning of our software products and computer systems, cause errors in the output of our or our customers’ work, allow unauthorized access to sensitive, proprietary or confidential information of our company, our customers or the patients that we and our customers serve through our medical solutions. Moreover, as we continue to invest in new lines of products and services we are exposed to increased security risks and the potential for unauthorized access to, or improper use of, the information of our product and service users. If any of the foregoing were to occur, our reputation may suffer, customers may stop buying our products or services, we could face lawsuits and potential liability, and our results of operations could be adversely affected.

We rely on third party technology, platform, carriers, server and hardware providers, and a failure of service by these providers could adversely affect our business and reputation.

We rely upon a third party provider to host our main servers. If this provider is unable to handle current or higher volumes of use, experiences any interruption in operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued hosting relationship, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may also be limited in our remedies against our third party hosting provider in the event of a failure of service. A failure or limitation of service or available capacity by our third party hosting provider could adversely affect our business and reputation.

Workplace accidents or environmental damage could result in substantial remedial obligations and damage to our reputation.

Accidents or other incidents that occur at our service centers and other facilities or involve our personnel or operations could result in claims for damages against us. In addition, in the event we are found to be financially responsible, as a result of environmental or other laws or by court order, for environmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages or undertake expensive remedial obligations. The amount of any costs, including fines or damages payments that we might incur under such circumstances could substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect on our business, financial condition and results of operations and could adversely affect our reputation.

Our operations are subject to environmental laws and other government regulations that could result in liabilities in the future.

We are subject to local environmental laws and regulations governing our operations, including, but not limited to, emissions into the air and water and the use, handling, disposal and remediation of hazardous substances. A certain risk of environmental liability is inherent in our production activities. Under certain

 

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environmental laws, we could be held solely or jointly and severally responsible, regardless of fault, for the remediation of any hazardous substance contamination at our service centers and other facilities and the respective consequences arising out of human exposure to such substances or other environmental damage. We may not have been and may not be at all times in complete compliance with environmental laws, regulations and permits, and the nature of our operations exposes us to the risk of liabilities or claims with respect to environmental and worker health and safety matters. If we violate or fail to comply with environmental laws, regulations and permits, we could be subject to penalties, fines, restrictions on operations or other sanctions, and our operations could be interrupted. The cost of complying with current and future environmental, health and safety laws applicable to our operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments, alone or in combination, could have a material adverse effect on our business, financial condition and results of operations.

If our service center operations are disrupted, sales of our 3D printing services, including the medical devices that we print, may be affected, which could have an adverse effect on our results of operations.

We have four 3D printing service centers in Europe and the United States, including our principal 3D printing service center located in Leuven, Belgium. If the operations of these facilities are materially disrupted, whether by fires or other industrial accidents, extreme weather, natural disasters, labor stoppages, acts of terror, or otherwise, we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognize revenue on orders, we could suffer damage to our reputation, and we might need to modify our standard sales terms to secure the commitment of new customers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy the disruption and resume providing 3D printing services. Such a disruption could have an adverse effect on our results of operations.

We could experience unforeseen difficulties in building and operating key portions of our 3D printing infrastructure.

We have designed and built our own 3D printing operations, 3D printer platforms and other key portions of our technical infrastructure through which we serve our products and services, and we plan to continue to expand the size of our infrastructure through expanding our 3D printing facilities. The infrastructure expansion we may undertake may be complex, and unanticipated delays in the completion of these projects or availability of components may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our products. In addition, there may be issues related to this infrastructure that are not identified during the design and implementation phases, which may only become evident after we have started to fully utilize the underlying equipment, that could further degrade the user experience or increase our costs.

We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.

In the ordinary course of business, we have been, and in the future may be, subject to various product and non-product related claims, lawsuits and administrative proceedings seeking damages or other remedies arising out of our commercial operations, including litigation related to defects in our software or other products. We maintain insurance to cover our potential exposure for a number of claims and losses. However, our insurance coverage is subject to various exclusions, self-retentions and deductibles, may be inadequate or unavailable to protect us fully, and may be cancelled or otherwise terminated by the insurer. Furthermore, we face the following additional risks related to our insurance coverage:

 

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we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, including with respect to our activities in the medical industry;

 

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we may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination or terrorist attacks, and that exceed any amounts that we may have reserved for such liabilities;

 

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the amount of any liabilities that we may face may exceed our policy limits; and

 

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we may incur losses resulting from the interruption of our business that may not be fully covered under our insurance policies.

Even a partially uninsured claim of significant size, if successful, could have a material adverse effect on our business, financial condition, results of operations and liquidity. However, even if we successfully defend ourselves against any such claim, we could be forced to spend a substantial amount of money in litigation expenses, our management could be required to spend valuable time defending these claims and our reputation could suffer, any of which could adversely affect our results of operations.

Current and future global economic uncertainties may adversely affect our results of operations.

Our results of operations could be substantially affected not only by global economic conditions, but also by local operating and economic conditions, which can vary substantially by market. Unfavorable conditions can depress sales in a given market and may result in actions that adversely affect our margins, constrain our operating flexibility or result in charges that are unusual or non-recurring. Certain macroeconomic events, such as the current adverse conditions in the global economy, including most recently with the market disruptions caused by the economic and political challenges facing specific Eurozone countries such as Greece, Ireland, Italy, Portugal, and Spain, could have a more wide-ranging and prolonged impact on the general business environment, which could also adversely affect us. These economic developments could affect us in numerous ways, many of which we cannot predict. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions, or the effects these disruptions and conditions could have on us.

We face potential liability related to the privacy and security of personal information we collect.

In particular, but not exclusively, in connection with our Medical segment, we may have access to personal information that is subject to a number of U.S. federal and state, E.U. and other applicable foreign laws protecting the confidentiality of certain patient health or other private information, including patient records, and restricting the use and disclosure of that protected information.

In the United States, we are subject to the Health Insurance Portability and Accountability Act, or HIPAA, the Health Information Technology for Economic and Clinical Health Act of 2009, regulations issued pursuant to these statutes, state privacy and security laws and regulations, and associated contractual obligations as a “business associate” of healthcare providers. These statutes, regulations and contractual obligations impose numerous requirements regarding the use and disclosure of personal health information with which we must comply. In the European Union, the Data Protection Directive, or DPD, imposes strict regulations and establishes a series of requirements regarding the storage of personally identifiable information on computers or recorded on other electronic media. This has been implemented by all E.U. member states through national laws. DPD provides for specific regulations requiring all non-E.U. countries doing business with E.U. member states to provide adequate data privacy protection when receiving personal data from persons in any of the E.U. member states. In addition, the use and disclosure of personal health and other private information is subject to regulation in other jurisdictions in which we do business or expect to do business in the future. Those jurisdictions may attempt to apply such laws extraterritorially or through treaties or other arrangements with European governmental entities. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future which may increase the chance that we violate them. Any such developments, or developments stemming from enactment or modification of other laws, or the failure by us to comply with their requirements or to accurately anticipate the application or interpretation of these laws could create material liability to us, result in adverse publicity and negatively affect our medical business.

Our failure to accurately anticipate the application or interpretation of these statutes, regulations and contractual obligations as we develop our medical and other products and services, a failure by us to comply with their requirements (e.g., evolving encryption and security requirements) or an allegation that

 

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defects in our medical or other products have resulted in noncompliance by our customers could create material civil and/or criminal liability for us, resulting in adverse publicity and negatively affecting our medical business. Any legislation or regulation in the area of privacy and security of personal information could affect the way we operate and could harm our business. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may prevent us from selling our solutions or increase the costs associated with selling our products and services, and may affect our ability to invest in or jointly develop our products and services in the United States, the European Union and in foreign jurisdictions. Further, we cannot assure you that our privacy and security policies and practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information.

Risks Related to Our Medical Segment and Regulatory Environment

Our medical business, financial condition, results of operations and cash flows could be significantly and negatively affected by substantial government regulations.

Our medical products are subject to rigorous regulation by the European Commission, the FDA and numerous other applicable governmental authorities. In general, the development, testing, manufacturing and marketing of our medical products are subject to extensive regulation and review by numerous governmental authorities in the European Union, the United States and in other markets where we are currently active or may become active in the future. The regulatory process requires the expenditure of significant time, effort and expense to bring new medical products to market. In addition, we are required to implement and maintain stringent reporting, labeling and record keeping procedures and make our facilities and operations subject to periodic inspections, both scheduled and unannounced, by the regulatory authorities. The medical device industry is also subject to a myriad of complex laws and regulations governing reimbursement, which varies from jurisdiction to jurisdiction in the European Union and which includes Medicare and Medicaid reimbursement in the United States as well as healthcare fraud and abuse laws, with these laws and regulations being subject to interpretation. In many instances, the industry does not have the benefit of significant regulatory or judicial interpretation of these laws and regulations. In certain public statements, governmental authorities have taken positions on issues for which little official interpretation was previously available. Some of these positions appear to be inconsistent with common practices within the industry but that have not previously been challenged.

Various governmental agencies have become increasingly vigilant in recent years in their investigation of various business practices. Governmental and regulatory actions against us can result in various actions that could adversely impact our medical operations, including:

 

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the recall or seizure of products;

 

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the suspension or revocation of the authority necessary for the production or sale of a product;

 

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the delay of our ability to introduce new products into the market;

 

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the suspension of shipments from particular manufacturing facilities;

 

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the issuance of warning letters or untitled letters;

 

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the imposition of operating restrictions;

 

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the imposition of injunctions;

 

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the imposition of fines and penalties;

 

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the exclusion of our products from being reimbursed by healthcare programs in the European Union or U.S. federal and state healthcare programs (such as Medicare, Medicaid, Veterans Administration health programs and Civilian Health and Medical Program of the Uniformed Services);

 

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the delay or denial of customs clearance of our products for import in certain jurisdictions; and

 

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other civil or criminal sanctions against us.

Failure to comply with applicable regulatory requirements could also result in civil actions against us and other unanticipated expenditures. Any of these actions, in combination or alone, or even a public announcement that we are being investigated for possible violations of these laws, could have a material adverse effect on our medical business, financial condition, results of operations and cash flows. If investigated, we cannot assure that the costs of defending or resolving those investigations or proceedings would not have a material adverse effect on our financial condition, results of operations and cash flows.

In many of the countries in which we market our medical products, we are subject to regulations affecting, among other things, clinical efficacy, product standards, packaging requirements, labeling requirements, import/ export restrictions, tariff regulations, duties and tax requirements. Many of the regulations applicable to our medical surgical guides, implants and software products in these countries are similar to those of the European Commission and the FDA. In addition, in many countries the national health or social security organizations require our medical products to be qualified before they can be marketed with the benefit of reimbursement eligibility. Failure to receive or delays in the receipt of relevant foreign qualifications also could have a material adverse effect on our medical business, financial condition, results of operations and cash flows.

As the government regulators in the European Union, United States and elsewhere have become increasingly stringent, we may be subject to more rigorous regulation by governmental authorities in the future.

Modifications to our medical products marketed in the United States may require new 510(k) clearances or premarket approvals, or may require us to cease marketing or recall the modified products until clearances are obtained.

Any modification to a 510(k)-cleared device that could significantly affect its safety or efficacy, or that would constitute a major change in its intended use, technology, materials, packaging and certain manufacturing processes, may require a new 510(k) clearance or, possibly, a premarket approval, or PMA. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) clearance or PMA in the first instance, but the FDA may (and often does) review the manufacturer’s decision. The FDA may not agree with a manufacturer’s decision regarding whether a new clearance or approval is necessary for a modification, and may retroactively require the manufacturer to submit a premarket notification requesting 510(k) clearance or an application for PMA. We have made modifications to our medical products in the past and may make additional modifications in the future that we believe did not or will not require additional clearances or approvals. No assurance can be given that the FDA would agree with any of our decisions not to seek 510(k) clearance or PMA. If the FDA requires us to cease marketing and recall the modified device until we obtain a new 510(k) clearance or PMA, our medical business, financial condition, results of operations and future growth prospects could be materially adversely affected. Further, our medical products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement that we seek additional approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA.

Our medical products must comply with the laws and regulations of the countries in which they are marketed, and compliance with applicable regulatory requirements may be costly and time-consuming.

In addition to complying with applicable healthcare regulations and requirements we must, and will be required in the future to, seek and obtain regulatory approvals, certifications or registrations and comply with the laws and regulations of the other countries in which we market and sell our medical products.

 

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These laws and regulations, including the requirements for approvals, certifications or registrations and the time required for regulatory review, vary from country to country. Obtaining and maintaining these regulatory approvals, certifications or registrations are expensive, and we cannot be certain that we will receive regulatory approvals, certifications or registrations in any country in which we plan to market our medical products. Once regulatory approval has been granted, we are also subject to continual review by regulatory authorities, including periodic routine inspections and audits of our facilities. If we fail to obtain or maintain regulatory approvals, certifications or registrations in any country in which we plan to market our medical products, our ability to generate revenue will be harmed.

The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain CE or FDA clearance or approval. The regulatory approval process outside the European Union and the United States may include all of the risks associated with obtaining CE or FDA clearance or approval in addition to other risks.

We may not obtain regulatory approvals or certifications outside the European Union and the United States on a timely basis, if at all. Clearance or approval by the FDA in the United States, or declaration of conformity assessment and affixing a CE mark in the EEA, does not ensure approval or certification by regulatory authorities in other countries, and approval or certification by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries. We may be required to perform additional pre-clinical or clinical studies even if FDA clearance or approval, or the right to bear the CE label, has been obtained. If we fail to receive necessary approvals to commercialize our medical products in jurisdictions outside the European Union and the United States on a timely basis, or at all, our medical business, financial condition and results of operations could be adversely affected.

Healthcare policy changes, including legislation to reform the U.S. healthcare system, could adversely affect us.

From time to time, legislation is drafted and introduced that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of a medical device. In addition, regulations and guidance are often revised or reinterpreted in ways that may significantly affect our medical business and our medical products. It is impossible to predict whether legislative changes will be enacted or regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.

For instance, the U.S. Patient Protection and Affordable Care Act, as amended by the U.S. Health Care and Education Affordability Reconciliation Act, collectively, the PPACA, substantially changes the way U.S. healthcare is financed by both governmental and private insurers, encourages improvements in the quality of U.S. healthcare items and services, and significantly impacts the U.S. medical device industry. The PPACA includes, among other things, the following measures:

 

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an excise tax on any entity that manufactures or imports medical devices offered for sale in the United States;

 

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research;

 

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new reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers, effective March 30, 2013 (referred to as the Physician Sunshine Payment Act), which reporting requirements will be difficult to define, track and report;

 

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payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models, beginning on or before January 1, 2013; and

 

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an independent payment advisory board that will submit recommendations to reduce Medicare spending if projected Medicare spending exceeds a specified growth rate.

We cannot predict what healthcare programs and regulations will be ultimately implemented at the U.S. federal or state level, or at the E.U. level or within the implementing legislation of the individual E.U. Member States, or the effect of any future legislation or regulation. However, these provisions as adopted could meaningfully change the way healthcare is delivered and financed, and may materially impact numerous aspects of our medical business. In particular, any changes that lower reimbursements or reduce medical procedure volumes could adversely affect our medical business and results of operations.

In addition, in the future there may continue to be additional proposals relating to the reform of the healthcare systems of the United States, the European Union, any individual Member State of the European Union or any other jurisdiction where we may operate. Certain of these proposals could limit the prices we are able to charge for our medical products, or the amounts of reimbursement available for our medical products, and could limit the acceptance and availability of our medical products. The adoption of some or all of these proposals could have a material adverse effect on our financial position and results of operations.

Furthermore, initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs, including price regulation and competitive pricing, are ongoing in markets where we do business. We could experience a negative impact on our results of operations due to increased pricing pressure in certain or all of the markets in which we operate. Governments, hospitals and other third-party payors could reduce the amount of approved reimbursements for our products. Reductions in reimbursement levels or coverage or other cost-containment measures could unfavorably affect our future results of operations.

Our financial performance may be adversely affected by medical device tax provisions in the health care reform laws.

The PPACA imposes a deductible excise tax equal to 2.3% of the price of a medical device on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, beginning in 2013. Under these provisions, the total cost to the medical device industry is estimated to be approximately $29 billion over 10 years. These taxes resulted in a significant increase in the tax burden on our industry, which could have a material, negative impact on our results of operations and our cash flows.

The use, including the misuse or off-label use, of our medical services and products may be deemed unauthorized use or improper promotion, which could harm our image in the marketplace or result in injuries that lead to product liability suits and could be costly to our business or result in regulatory sanctions.

Medical decisions may only be made and operations may only be executed by trained professionals who are authorized to do so in the jurisdictions in which they operate.

Our medical services and products are designed solely to support surgeons in the planning and performance of their operations. In our medical software products set up, training and engineering support, we make it very clear that responsibility for medical decisions rests exclusively with the responsible surgeon, who is responsible for carefully reviewing and explicitly approving the surgical plan that is proposed by our software and engineers. Nonetheless, we cannot assure you that patients, hospitals, surgeons or other parties will not try to hold us responsible for all or a part of the medical decisions underlying the operations that we support, exposing us to potential litigation or civil and criminal liability for unauthorized medical decision-making. Such actions or liability could lead governmental agencies to conclude that our products or services are used improperly, all of which could significantly damage our reputation and could materially impair the continued adoption of our medical services and product offering in the market.

 

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In the markets in which we operate, our medical promotional materials and training methods must comply with numerous applicable laws and regulations, including the prohibition on the promotion of a medical device for a use that has not been cleared or approved by the relevant regulator or supervisory body. Use of a device outside of its cleared or approved indication is known as “off-label” use. If a relevant governmental authority determines that our medical promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine and criminal penalties. Other U.S. federal or state, European or other applicable foreign governmental authorities also might take action if they consider our promotion or training materials to constitute promotion of an uncleared or unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of our medical products would be impaired. Although we train our sales force not to promote our medical products for off-label uses, and our instructions for use in all markets specify that our products are not intended for use outside of those indications cleared for use, competent regulatory agency could conclude that we have engaged in off-label promotion. In addition, there may be increased risk of injury if surgeons attempt to use our medical products off-label.

Surgeons also may misuse our medical products or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us. Any of these events could adversely affect our medical business, results of operations and reputation and our ability to attract and retain customers for our products and services.

If our marketed medical devices are defective or otherwise pose safety risks, the relevant governmental authorities could require their recall, or we may initiate a recall of our products voluntarily.

The relevant governmental authorities may require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture or in the event that a product poses an unacceptable risk to health. Manufacturers, on their own initiative, may recall a product if any material deficiency in a device is found. A government mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our medical products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. Any recall could impair our ability to produce our medical products in a cost-effective and timely manner in order to meet our customers’ demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue and our ability to generate profits. We may initiate voluntary recalls involving our medical products in the future that we determine do not require notification of the relevant regulatory body. If a governmental agency disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our revenue. In addition, the relevant authority could take enforcement action for failing to report the recalls when they were conducted.

If our Medical segment products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

Under the FDA medical device reporting regulations, or MDR, we are required to report to the FDA any incident in which our medical product has malfunctioned and would be likely to cause or contribute to a death or serious injury if the malfunction happened again. If we fail to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any adverse event involving our medical products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or other enforcement

 

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action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

In the European Economic Area, we must comply with the E.U. Medical Device Vigilance System, the purpose of which is to improve the protection of health and safety of patients, users and others by reducing the likelihood of reoccurrence of incidents related to the use of a medical device. Under this system, incidents must be reported to the competent authorities of the Member States of the European Economic Area. An incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. Incidents are evaluated by the European Economic Area competent authorities to whom they have been reported, and where appropriate, information is disseminated between them in the form of National Competent Authority Reports, or NCARs. The E.U. Medical Device Vigilance System is further intended to facilitate a direct, early and harmonized implementation of Field Safety Corrective Actions, or FSCAs, across the Member States of the European Economic Area where the device is in use. An FSCA is an action taken by a manufacturer to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices.

Our Medical segment’s 3D printing operations require us to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the manufacture and production of medical devices, which is costly and could subject us to enforcement action.

We are required to comply with the FDA’s Quality System Regulation, or QSR, which covers the methods of documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our medical products. We are also subject to the regulations of other jurisdictions regarding the manufacturing process for our medical products marketed outside of the United States, including the requirements of ISO 13485. The FDA enforces the QSR through periodic announced and unannounced inspections of manufacturing facilities. The failure by a manufacturer to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions:

 

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untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

 

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customer notifications or repair, replacement, refunds, recall, detention or seizure of our medical products;

 

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operating restrictions or partial suspension or total shutdown of production;

 

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refusing or delaying requests for 510(k) clearance or PMA of new products or modified products;

 

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withdrawing 510(k) clearances or PMAs that have already been granted;

 

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refusal to grant export approval for our medical products; or

 

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criminal prosecution.

Any of these actions could impair our ability to produce our medical products in a cost-effective and timely manner in order to meet our customers’ demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue and our ability to generate

 

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profits. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our medical products on a timely basis and in the required quantities, if at all.

We may be subject to or otherwise affected by U.S. federal and state, European or other healthcare laws, including fraud and abuse and health information privacy and security laws, and could face substantial penalties if we are unable to fully comply with such laws.

Healthcare regulation by U.S. federal and state, European or other governments could significantly impact our medical business. Healthcare fraud and abuse and health information privacy and security laws potentially applicable to our medical operations include:

 

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the U.S. federal Anti-Kickback Law, which constrains our marketing practices and those of our independent sales agencies, educational programs, pricing, bundling and rebate policies, grants for physician-initiated trials and continuing medical education, and other remunerative relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providing remuneration, intended to induce the purchase or recommendation of an item or service reimbursable under a U.S. federal healthcare program, such as the Medicare or Medicaid programs;

 

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U.S. federal false claims laws which prohibit, among other things, knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

 

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HIPAA, and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information;

 

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U.S. state laws analogous to each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of certain health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

 

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similar foreign laws and regulations governing healthcare fraud and abuse, patient data privacy, interactions with healthcare professionals and related laws and regulations that apply to us in the countries in which we operate.

If our past or present operations are found to be in violation of any of such laws or any other governmental regulations that may apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from U.S. federal healthcare programs and the curtailment or restructuring of our operations. Similarly, if the healthcare providers or entities with whom we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our medical business and our financial results. The risk of our company being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Further, the recently enacted PPACA, among other things, amends the intent requirement of the U.S. federal anti-kickback and criminal health care fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the U.S. federal anti-kickback statute constitutes a false or fraudulent claim

 

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for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

Risks Related to Our Intellectual Property

If we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.

We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality and other contractual arrangements with our employees, end-users and others to maintain our competitive position. Our success depends, in part, on our ability to obtain patent protection for or maintain as trade secrets our proprietary products, technologies and inventions and to maintain the confidentiality of our trade secrets and know-how, operate without infringing upon the proprietary rights of others and prevent others from infringing upon our business proprietary rights.

Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose or otherwise circumvent our technologies, software, inventions, processes or improvements. We cannot assure you that any of our existing or future patents or other intellectual property rights will be enforceable, will not be challenged, invalidated or circumvented, or will otherwise provide us with meaningful protection or any competitive advantage. In addition, our pending patent applications may not be granted, and we may not be able to obtain foreign patents or elect to file applications corresponding to our U.S., E.U. or other patents. We intend to expand our business to certain countries that may not provide the same level of patent or other intellectual property protection as the United States and the European Union. Even if we assert our patents or obtain additional patent or similar protection in such countries, effective enforcement of such patents or other rights may not be available. If our patents do not adequately protect our technology, our competitors may be able to offer products or services similar to ours or potential customers may gain illegal access to our proprietary technology. Our competitors may also be able to develop similar technology independently or design around our patents, and we may not be able to detect the unauthorized use of our proprietary technology or take appropriate steps to prevent such use. Any of the foregoing events would lead to increased competition and lower revenue or gross margins, which could adversely affect our results of operations.

Moreover, several recent changes to the U.S. patent laws may impact our ability to obtain and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, or the AIA, includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or USPTO, recently developed new regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our U.S. patent applications and the enforcement or defense of our issued U.S. patents, all of which could have a material adverse effect on our business and financial condition.

We may not be able to protect our trade secrets and intellectual property.

While some of our technology is licensed under patents belonging to others or is covered by process patents which are owned or applied for by us, much of our technology is not protected by patents. Furthermore, patents are jurisdictional in nature and therefore only protect us in certain markets, rather than globally. We have devoted substantial resources to the development of our technology, trade secrets, know-how and other unregistered proprietary rights. While we enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficult and costly to enforce or may not provide adequate remedies if violated. Such agreements may be breached and confidential information may be willfully or unintentionally used or disclosed in violation of the

 

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agreements, or our competitors or other parties may learn of the information in some other way. We cannot legally prevent one or more other companies from developing similar or identical technology to our unpatented technology and accordingly, it is likely that, over time, one or more other companies may be able to replicate our technology, thereby reducing our technological advantages. If we do not protect our technology or are unable to develop new technology that can be protected by patents or as trade secrets, we may face increased competition from other companies, which may adversely affect our results of operations.

We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.

In connection with the enforcement of our intellectual property rights, opposing third parties from obtaining patent rights or disputes related to the validity or alleged infringement of our or third-party intellectual property rights, including patent rights, we have been and may in the future be subject or party to claims, negotiations or complex, protracted litigation.

While we strive to avoid infringing the intellectual property rights of third parties, we cannot provide any assurances that we will be able to avoid any claims that our products and technology, including the technology that we license from others, infringe the intellectual property rights of third parties. Patent applications in the United States and most other countries are confidential for a period of time until they are published, and the publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, the nature of claims contained in unpublished patent filings around the world is unknown to us, and we cannot be certain that we were the first to conceive inventions covered by our patents or patent applications or that we were the first to file patent applications covering such inventions. Furthermore, it is not possible to know in which countries patent holders may choose to extend their filings under the Patent Cooperation Treaty or other mechanisms. In addition, we may be subject to intellectual property infringement claims from individuals, vendors and other companies, including those that are in the business of asserting patents, but are not commercializing products or services in the field of 3D printing, or our customers may seek to invoke indemnification obligations to involve us in such intellectual property infringement claims. Furthermore, although we maintain certain procedures to help to ensure that the items we 3D print on behalf of customers do not infringe upon the intellectual property rights of others, we cannot be certain that our procedures will be effective in preventing any such infringement.

Intellectual property disputes and litigation, regardless of the merit or resolution, could cause us to incur significant costs in enforcing, or responding to, defending and resolving such claims. In addition, such claims can be costly and disruptive to our business operations by diverting attention and energies of management and key technical personnel, by prohibiting or otherwise impairing our ability to commercialize new or existing products or services and by increasing our costs of doing business. We may not prevail in any such dispute or litigation, and an adverse decision in any legal action involving intellectual property rights, including any such action commenced by us, could limit the scope of our intellectual property rights and the value of the related technology. Third-party claims of intellectual property infringement successfully asserted against us may require us to redesign infringing technology or enter into costly settlement or license agreements on terms that are unfavorable to us, prevent us from manufacturing or licensing certain of our products, subject us to injunctions restricting our sale of products and use of infringing technology, cause severe disruptions to our operations or the markets in which we compete, impose costly damage awards or require indemnification of our sales agents and end-users. In addition, as a consequence of such claims, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products and services or developing non-infringing substitute technology. Any of the foregoing developments may have a material adverse effect on our business, financial condition and results of operations.

 

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Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to governmental patent agencies, including the USPTO in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our products and processes, our competitive position could be adversely affected.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Certain of our past and present employees were previously employed at other companies, including our competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual property rights. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

If we fail to comply with our obligations under our intellectual property-related agreements, we could lose rights that are important to our business or be subject to restrictions on the conduct of our business.

We have license agreements with respect to certain intellectual property that is important to our business and that may include exclusivity and non-competition undertakings. For example, we have an arrangement with Materialise Dental NV, the entity that resulted from the spinoff of our former dental related business and was acquired by a third party, that distinguishes the dental business that Materialise Dental NV now pursues from the businesses, such as CMF, that we continue to pursue following the sale. Disputes may arise between the counterparties to these agreements and us that could result in termination of these agreements. If we fail to comply with our obligations under our intellectual property-related agreements, or misconstrue the scope of the rights granted to us or restrictions imposed on us under these agreements, the counterparties may have the right to terminate these agreements or sue us for damages or equitable remedies, including injunctive relief. Termination of these agreements, the reduction or elimination of our rights under these agreements, or the imposition of restrictions under these agreements that we have not anticipated may result in our having to negotiate new or reinstated licenses with less favorable terms, or to cease commercialization of licensed technology and products. This could materially adversely affect our business.

 

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Certain technologies and patents have been developed with collaboration partners and we may face restrictions on this jointly developed intellectual property.

We have entered into collaboration agreements with a number of industrial and medical device companies, including Biomet, DJO Surgical, Synthes and Zimmer. We have, in some cases individually and in other cases along with our collaboration partners, filed for patent protection for a number of technologies developed under these agreements and may in the future file for further intellectual property protection and/or seek to commercialize such technologies. Under some of these agreements, certain intellectual property developed by us and the relevant partner may be subject to joint ownership by us and the partner and our commercial use of such intellectual property may be restricted, or may require written consent from, or a separate agreement with, the partner. In other cases, we may not have any rights to use intellectual property solely developed and owned by the partner. If we cannot obtain commercial use rights for such jointly-owned intellectual property or partner-owned intellectual property, our future product development and commercialization plans may be adversely affected. For additional information, see “Business—Intellectual Property.”

Our use of open source software may expose us to additional risks and harm our intellectual property.

Some of our proprietary software, including some of our 3D printing software, may use or incorporate open source software. Some open source software licenses require users who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or make available any derivative works of the open source code on unfavorable terms or at no cost. While we have assessed the use of open source software in our proprietary software, including that in our 3D printing software, and do not believe that we have used open source software in a manner that would require us to disclose the source code to any of our proprietary software, use requiring such disclosure could inadvertently occur and any requirement to disclose our proprietary source code could adversely affect our business.

Risks Related to the ADSs and this Offering

As a new investor, you will experience substantial dilution as a result of this offering.

The public offering price per ADS will be substantially higher than the net tangible consolidated book value per ADS prior to this offering. Consequently, if you purchase ADSs in this offering at an assumed initial public offering price of $        , the midpoint of the price range set forth on the cover page of this prospectus, you will incur immediate dilution of $         per ADS from an accounting perspective on a consolidated basis. For further information regarding the dilution resulting from this offering, please see the section entitled “Dilution” in this prospectus. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their ordinary shares. In addition, if the underwriters exercise the overallotment option, you will experience additional dilution.

There is no established trading market for the ADSs or our ordinary shares.

This offering constitutes our initial public offering of ADSs, and no public market for the ADSs or our ordinary shares currently exists. We intend to apply to list the ADSs on the NASDAQ Global Market subject to completion of customary procedures in the United States. Any delay in the commencement of trading of the ADSs on the NASDAQ Global Market would impair the liquidity of the market for the ADSs and make it more difficult for holders to sell the ADSs. We do not intend to list our ordinary shares on a trading market and therefore do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.

Even if the ADSs are listed on the NASDAQ Global Market, there can be no assurance that an active trading market for the ADSs will develop or be sustained after this offering is completed. The initial offering price has been determined by negotiations among the lead underwriters and us. Among the factors considered in determining the initial offering price were our future prospects and the prospects of

 

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our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the financial ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. However, there can be no assurance that following this offering the ADSs will trade at a price equal to or greater than the offering price.

The ADSs may experience price and volume fluctuations.

The stock market generally has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Broad market and industry factors may negatively affect the market price of the ADSs, regardless of our actual operating performance. The market price and liquidity of the market for the ADSs that will prevail in the market after this offering may be higher or lower than the price you pay and may be significantly affected by numerous factors, some of which are beyond our control. These factors include:

 

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significant volatility in the market price and trading volume of securities of companies in our sector, which is not necessarily related to the operating performance of these companies;

 

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the mix of products that we sell, and related services that we provide, during any period;

 

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delays between our expenditures to develop and market new products and the generation of sales from those products;

 

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changes in the amount that we spend to develop, acquire or license new products, technologies or businesses;

 

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changes in our expenditures to promote our products and services;

 

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success or failure of research and development projects of us or our competitors;

 

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announcements of acquisitions by us or one of our competitors;

 

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the general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation;

 

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changes in regulatory policies or tax guidelines;

 

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changes or perceived changes in earnings or variations in operating results;

 

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any shortfall in revenue or net income from levels expected by investors or securities analysts; and

 

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general economic trends and other external factors.

Any of these could result in a material decline in the price of the ADSs.

Members of our board of directors and senior management own a significant percentage of our ordinary shares and will be able to exert significant influence over matters subject to shareholder approval.

Prior to this offering, members of our board of directors and senior management beneficially owned approximately 90.4% of our ordinary shares and, upon consummation of this offering, that same group will hold approximately     % of our outstanding ordinary shares (including ordinary shares represented by ADSs), assuming no exercise of the underwriters’ over-allotment option. These existing shareholders will have significant influence over the election of members of our board of directors and the outcome of corporate actions requiring shareholder approval, including dividend policy, mergers, share capital increases, amendments of our articles of association and other extraordinary transactions. For example, these existing shareholders may be able to influence the outcome of elections of members of our board of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transactions. In addition, our articles of association provide that, as long as

 

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Wilfried Vancraen, our founder and Chief Executive Officer, Hilde Ingelaere, an Executive Vice President of our company who is also Mr. Vancraen’s spouse, and their three children, Linde, Sander and Jeroen Vancraen, or collectively the Family Shareholders, control, directly or indirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, a majority of our directors must be appointed by our shareholders from a list of candidates proposed by the Family Shareholders. See “Description of Share Capital.” This concentration of ownership within this group of existing shareholders and the rights of the Family Shareholders prevent or discourage unsolicited acquisition proposals or offers for our ordinary shares or ADSs that you may feel are in your best interest as one of our shareholders. The interests of these existing shareholders or the Family Shareholders may not always coincide with your interests or the interests of other shareholders, and they may act in a manner that advances their best interests and not necessarily those of other shareholders, including seeking a premium value for their ordinary shares, which might affect the prevailing market price for the ADSs.

Substantial future sales of our ordinary shares or ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

Additional sales of our ordinary shares or ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of the ADSs to decline. Upon completion of this offering, we will have              ADSs outstanding representing              ordinary shares. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The ordinary shares and ADSs held by the members of our board of directors, our senior management, key employees and certain shareholders, including the selling shareholders, will be available for sale upon the expiration of a lock-up period, which will expire 180 days after the date of this prospectus. Any or all of these ordinary shares or ADSs may be released prior to expiration of the lock-up period with the prior written consent of Piper Jaffray & Co. and Credit Suisse Securities (USA) LLC. To the extent ordinary shares or ADSs are released before the expiration of the lock-up period and these ordinary shares or ADSs are sold into the market, the market price of the ADSs could decline. See “Shares Eligible for Future Sales” and “Underwriting” for a more detailed description of the terms of these lock-up arrangements.

The dilutive effect of our warrants and convertible bonds could have an adverse effect on the future market price of the ADSs or otherwise adversely affect the interests of our shareholders.

Based on outstanding granted warrants and outstanding convertible bonds as of March 31, 2014, upon completion of this offering and taking into account the 4-for-1 stock split of our outstanding ordinary shares to be effected concurrently with the closing of this offering, there will be outstanding granted warrants to subscribe for an aggregate of 649,864 ordinary shares at a weighted average exercise price of €1.73 per share, and €1.0 million of outstanding convertible bonds convertible into an aggregate of 508,905 ordinary shares at a conversion price of €1.97 per share. These securities likely will be exercised or converted if the market price of the ADSs equals or exceeds the applicable exercise or conversion price. To the extent such securities are exercised or converted, additional ordinary shares will be issued, which would dilute the ownership of existing shareholders.

You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this prospectus and the deposit agreement, holders of ADSs will not be able to exercise voting rights attaching to the ordinary shares evidenced by the ADSs on an individual basis. Under the terms of the deposit agreement, holders of ADSs may instruct the depositary to vote the ordinary shares underlying their ADSs, but only if we ask the depository to ask for their instructions. Otherwise, holders of ADSs will not be able to exercise their right to vote, unless they withdraw our ordinary shares underlying the ADSs they hold to vote them in person or by proxy. However, holders of ADSs may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of ADSs, the depositary, upon timely notice from us, will notify

 

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holders of ADSs of the upcoming vote and arrange to deliver our voting materials to them. Upon our

request, the depositary will mail to holders of ADSs a shareholder meeting notice which contains, among other things, a statement as to the manner in which voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from holders of ADSs on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) substantial opposition exists, or (ii) such matter materially and adversely affects the rights of shareholders. We cannot guarantee that holders of ADSs will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, the depositary’s liability to holders of ADSs for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or our company if their shares are not voted as they have requested or if their shares cannot be voted.

You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

Under the terms of the deposit agreement, the depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of the ADSs appreciates.

We have no present intention to pay dividends on our ordinary shares in the foreseeable future. Any recommendation by our board of directors to pay dividends will depend on many factors, including our financial condition, results of operations, legal requirements and other factors. Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory financial statements prepared under generally accepted accounting principles in Belgium, or Belgian GAAP. In addition, in accordance with Belgian law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our statutory non-consolidated accounts (prepared in accordance with Belgian GAAP) to a legal reserve until the reserve equals 10% of our share capital. Our legal reserve currently meets this requirement. As a consequence of these facts there can be no assurance as to whether dividends or other distributions will be paid out in the future or, if they are paid, their amount. If the price of the ADSs declines in the foreseeable future, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. domestic issuers. This may limit the information available to holders of ADSs.

We are a “foreign private issuer,” as defined in the SEC rules and regulations, and, consequently, we are not subject to all of the disclosure requirements applicable to U.S. domestic issuers. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security

 

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registered under the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. domestic issuers. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies. As a foreign private issuer, we will file an annual report on Form 20-F within four months of the close of each year ended December 31 and furnish reports on Form 6-K relating to certain material events promptly after we publicly announce these events. However, although we intend to issue quarterly financial information, because of the above exemptions for foreign private issuers, we are not required to do so, and, therefore, our shareholders will not be afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. Accordingly, we will next make a determination with respect to our foreign private issuer status on June 30, 2014. There is a risk that we will lose our foreign private issuer status in the future.

We would lose our foreign private issuer status if, for example, more than 50% of our assets are located in the United States and more than 50% of our outstanding ordinary shares are held of record by U.S. residents. As of December 31, 2013, an immaterial amount of our assets were located in the United States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our consolidated financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve significant additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in the ADSs being less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting and governance requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and other public filings. We cannot predict if investors will find the ADSs less attractive because we will rely on such exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the price of the ADSs may be more volatile. We may take advantage of these reporting and governance exemptions until we are no longer an emerging growth company, which in certain circumstances could be as late as the last day of our fiscal year following the fifth anniversary of the date of the first sale of ADSs in this offering. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our consolidated financial statements in accordance with IFRS, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transition period and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements may not be comparable to other companies that comply with all public company accounting standards.

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, in the future, we will be required, under Section 404 of the Sarbanes-Oxley Act, to perform system and process evaluations and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accounting firm attestation requirement. At the time when we are no longer an emerging growth company, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.

Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of the ADSs could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

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We will incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, and our management will be required to devote substantial time to new compliance initiatives.

As a company whose ADSs will be publicly traded in the United States, we will incur significant legal, accounting, insurance and other expenses that we did not previously incur. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and the NASDAQ Stock Market have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. These costs will increase at the time when we are no longer an emerging growth company eligible to rely on exemptions under the JOBS Act from certain disclosure and governance requirements. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These laws and regulations could also make it more difficult and expensive for us to attract and retain qualified persons to serve on our board of directors or its committees. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civil litigation.

You may be subject to limitations on the transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems doing so expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs when you wish to.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.

The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline.

It may be difficult for investors outside Belgium to serve process on or enforce foreign judgments against us or our directors and senior management.

We are a Belgian limited liability company. None of the members of our board of directors and senior management is a resident of the United States. All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process upon such persons or on us or to enforce against them or us a judgment obtained in U.S. courts. Original actions or actions for the enforcement of judgments of U.S. courts relating to the civil liability provisions of the federal or state securities laws of the United States are

 

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not directly enforceable in Belgium. The United States and Belgium do not currently have a multilateral or bilateral treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for the payment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, it is accordingly required that this judgment be recognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004 Belgian Code of Private International Law. Recognition or enforcement does not imply a review of the merits of the case and is irrespective of any reciprocity requirement. A U.S. judgment will, however, not be recognized or declared enforceable in Belgium if it infringes upon one or more of the grounds for refusal which are exhaustively listed in Article 25 of the Belgian Code of Private International Law. These grounds mainly require that the recognition or enforcement of the foreign judgment should not be a manifest violation of public policy, that the foreign courts must have respected the rights of the defense, that the foreign judgment should be final, and that the assumption of jurisdiction by the foreign court may not have breached certain principles of Belgian law. In addition to recognition or enforcement, a judgment by a federal or state court in the United States against us may also serve as evidence in a similar action in a Belgian court if it meets the conditions required for the authenticity of judgments according to the law of the state where it was rendered. The findings of a federal or state court in the United States will not, however, be taken into account to the extent they appear incompatible with Belgian public policy.

Holders of ADSs are not treated as shareholders of our company.

By participating in this offering you will become a holder of ADSs with underlying shares in a Belgian limited liability company. You should be aware that holders of ADSs are not treated as shareholders of our company, unless they withdraw our ordinary shares underlying the ADSs that they hold. The depository is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement.

We are a Belgian limited liability company but will not be a listed company in Belgium, and shareholders of our company may have different and in some cases more limited shareholder rights than shareholders of a listed company in Belgium or of a U.S. listed corporation.

We are organized as a limited liability company (naamloze vennootschap / société anonyme) under the laws of Belgium. Our corporate affairs are governed by Belgian corporate law. From a Belgian corporate law point of view, we qualify as a public company (een vennootschap die een openbaar beroep op het spaarwezen heeft gedaan / une société ayant fait publiquement appel à l’épargne), but not as a listed company (genoteerde vennootschap / société cotée) because none of our securities are listed on any regulated market in the European Economic Area. The Belgian corporate law provisions that are applicable to Belgian listed companies do therefore not apply to us. Furthermore, we are not subject to most of the disclosure obligations applicable to Belgian listed companies. As a result, shareholders of our company may not enjoy certain of the rights and protection generally afforded to shareholders of a Belgian listed company.

You should also be aware that the rights provided to our shareholders under Belgian corporate law and our articles of association differ in certain respects from the rights that you would typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws.

Under Belgian corporate law, except in certain limited circumstances, our shareholders may not ask for an inspection of our corporate records, while under Delaware corporate law any shareholder, irrespective of the size of his or her shareholdings, may do so. Shareholders of a Belgian corporation are also unable to initiate a derivative action, a remedy typically available to shareholders of U.S. companies, in order to enforce a right of our company, in case we fail to enforce such right ourselves, other than in certain cases of director liability under limited circumstances. In addition, a majority of our shareholders may release a director from any claim of liability we may have, including if he or she has acted in bad faith or has

 

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breached his or her duty of loyalty, provided, in some cases, that the relevant acts were specifically mentioned in the convening notice to the shareholders’ meeting deliberating on the discharge. In contrast, most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if he or she has acted in bad faith or has breached his or her duty of loyalty to the company. Finally, Belgian corporate law does not provide any form of appraisal rights in the case of a business combination.

For additional information on these and other aspects of Belgian corporate law and our articles of association, see “Description of Share Capital.” As a result of these differences between Belgian corporate law and our articles of association, on the one hand, and U.S. federal and state laws, on the other hand, in certain instances, you could receive less protection as a shareholder of our company than you would as a shareholder of a U.S. corporation.

As a foreign private issuer, we are not subject to certain NASDAQ Stock Market corporate governance rules applicable to U.S. listed companies.

In connection with this offering, we will be relying on provisions in the Listing Rules of the NASDAQ Stock Market that permit us to follow our home country corporate governance practices with regard to certain aspects of corporate governance. This allows us to follow Belgian corporate law and the Belgian Company Code, which differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on the NASDAQ Global Market. See “Management—Differences between Our Corporate Governance Practices and Those Set Forth in the NASDAQ Stock Market Listing Requirements.”

Holders of ADSs or ordinary shares have limited rights to call shareholders’ meetings or to submit shareholder proposals, which could adversely affect their ability to participate in the governance of our company.

Except under limited circumstances, only the board of directors may call a shareholders’ meeting. Shareholders who collectively own at least 20% of the ordinary shares of our company may require the board of directors or the statutory auditor to convene a special or an extraordinary general meeting of shareholders. As a result, the ability of holders of the ADSs or ordinary shares to participate in and influence the governance of our company is limited.

Holders of the ADSs have limited recourse if we or the depositary fail to meet our respective obligations under the deposit agreement or if they wish to involve us or the depositary in a legal proceeding.

The deposit agreement expressly limits the obligations and liability of us and the depositary. Neither we nor the depositary will be liable to the extent that liability results from the fact that we:

 

•

are prevented or hindered in performing any obligation by circumstances beyond their control;

 

•

exercise or fail to exercise discretion under the deposit agreement;

 

•

perform our obligations without negligence or bad faith;

 

•

take any action based upon advice of or information from legal counsel, accountants, any person presenting shares for deposit, any holder of the ADSs or any other qualified person; or

 

•

rely on any documents we believe in good faith to be genuine and properly executed.

In addition, neither we nor the depositary has any obligation to participate in any action, suit or other proceeding in respect of the ADSs which may involve it in expense or liability unless it is indemnified to its satisfaction. These provisions of the deposit agreement will limit the ability of holders of the ADSs to obtain recourse if we or the depositary fails to meet our respective obligations under the deposit agreement or if they wish to involve us or the depositary in a legal proceeding.

 

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Investors may not be able to participate in equity offerings, and ADS holders may not receive any value for rights that we may grant.

In accordance with Belgian corporate law, our articles of association provide for preferential subscription rights to be granted to our existing shareholders to subscribe on a pro rata basis for any issue for cash of new shares, convertible bonds or warrants that are exercisable for cash, unless such rights are canceled or limited by resolution of our shareholders’ meeting or the board of directors. Our shareholders’ meeting or board of directors may cancel or restrict such rights in future equity offerings. In addition, certain shareholders (including those in the United States, Australia, Canada or Japan) may not be entitled to exercise such rights even if they are not canceled unless the rights and related shares are registered or qualified for sale under the relevant legislation or regulatory framework. As a result, there is the risk that investors may suffer dilution of their shareholding should they not be permitted to participate in preference right equity or other offerings that we may conduct in the future.

If rights are granted to our shareholders, as the case may be, but the depositary is unable to sell rights corresponding to shares represented by ADSs that are not exercised by, or distributed to, ADS holders, or if the sale of such rights is not lawful or reasonably practicable, the depositary may allow the rights to lapse, in which case ADS holders will receive no value for such rights.

Shareholders in jurisdictions with currencies other than the euro face additional investment risk from currency exchange rate fluctuations in connection with their holding of our shares.

Any future payments of dividends on shares will be denominated in euro. The U.S. dollar—or other currency—equivalent of any dividends paid on our shares or received in connection with any sale of our shares could be adversely affected by the depreciation of the euro against these other currencies.

We have broad discretion to determine how to use the funds raised in this offering and may use them in ways that may not enhance our results of operations or the price of the ADSs.

Our management will have broad discretion over the use of proceeds from this offering, and we could spend the proceeds from this offering in ways the holders of the ADSs may not agree with or that do not yield a favorable return, if any. We intend to use the net proceeds of this offering for the following purposes: (i) to expand our 3D printing service center capacity, including the addition of new printers and additional technologies; (ii) to increase our sales and marketing teams worldwide; (iii) additional research and development activities; and (iv) general corporate purposes (including, but not limited to, potential acquisitions or partnerships). However, our use of these proceeds may differ substantially from our current plans. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. If we do not invest or apply the proceeds of this offering in ways that improve our results of operations, we may fail to achieve expected financial results, which could cause the price of the ADSs to decline.

In order to satisfy our obligations as a public company, we may need to hire qualified accounting and financial personnel with appropriate public company experience.

As a newly public company, we will need to establish and maintain effective disclosure and financial controls and make changes in our corporate governance practices. We may need to hire additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and retain such personnel. Even if we are able to hire appropriate personnel, our existing operating expenses and operations will be impacted by the direct costs of their employment and the indirect consequences related to the diversion of management resources from research and development efforts.

 

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We do not expect to be a passive foreign investment company for U.S. federal income tax purposes; however, there is a risk that we may be classified as a passive foreign investment company, which could result in materially adverse U.S. federal income tax consequences to U.S. investors.

We do not expect to be a passive foreign investment company, or a PFIC. However, the relevant rules are not entirely clear and certain aspects of the tests will be outside our control; therefore, no assurance can be given that we will not be classified as a PFIC for any taxable year. If you are a U.S. taxpayer and we are determined to be a PFIC at any time during your holding period, you may be subject to materially adverse consequences, including additional tax liability and tax filing obligations. See “Taxation—U.S. Taxation of ADSs and Ordinary Shares—Passive Foreign Investment Company.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements that are not of historical facts may be deemed to be forward-looking statements. You can identify these forward-looking statements by words such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “aims,” or other similar expressions that convey uncertainty of future events or outcomes. Forward-looking statements appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, our intellectual property position, research and development projects, results of operations, cash needs, spending of the proceeds from this offering, capital expenditures, financial condition, liquidity, prospects, growth and strategies, regulatory approvals and clearances, the markets and industry in which we operate and the trends and competition that may affect the markets, industry or us. For example, under “Prospectus Summary—Recent Developments,” we have included certain preliminary estimates of our financial results for the three months ended March 31, 2014.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from our expectations.

Actual results could differ materially from our forward-looking statements due to a number of factors, including, without limitation, risks related to:

 

•

our ability to enhance and adapt our software, products and services to meet changing technology and customer needs;

 

•

fluctuations in our revenue and results of operations;

 

•

our ability to operate in a highly competitive and rapidly changing industry;

 

•

our ability to adequately increase demand for our products and services;

 

•

our collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third-parties;

 

•

our dependence upon sales to certain industries;

 

•

our relationships with suppliers;

 

•

our ability to attract and retain senior management and other key employees;

 

•

any disruptions to our service center operations, including by accidents, natural disasters or otherwise;

 

•

our ability to raise additional capital on attractive terms, or at all, if needed to meet our growth strategy;

 

•

our ability to adequately protect our intellectual property and proprietary technology;

 

•

our international operations;

 

•

our ability to comply with applicable governmental laws and regulations to which our products, services and operations are subject; and

 

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•

the other factors listed in the “Risk Factors” section of this prospectus and elsewhere in this prospectus.

Any forward-looking statements that we make in this prospectus speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information.”

You should also read carefully the factors described in the “Risk Factors” section of this prospectus and elsewhere to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties, some of which may not be publicly available. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them.

 

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EXCHANGE RATES

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of the ADSs on conversion of dividends, if any, paid in euro on the ordinary shares and will affect the U.S. dollar price of the ADSs on the NASDAQ Global Market. The table below shows the period end, average, high and low exchange rates of U.S. dollars per euro for the periods shown. Average rates are computed by using the noon buying rate of the Federal Reserve Bank of New York for the euro on the last business day of each month during the relevant year indicated or each business day during the relevant month indicated. The rates set forth below are provided solely for your convenience and may differ from the actual rates used in the preparation of the consolidated financial statements included in this prospectus and other financial data appearing in this prospectus.

 

Year Ended December 31,		High				Low				Average				Year End
2010			1.4536				1.1959				1.3261				1.3269
2011			1.4875				1.2926				1.3931				1.2973
2012			1.3463				1.2062				1.2859				1.3186
2013			1.3816				1.2774				1.3284				1.3779
Month		High				Low				Average				Month End
January 2014			1.3682				1.3500				1.3618				1.3500
February 2014			1.3806				1.3507				1.3665				1.3806
March 2014			1.3927				1.3731				1.3828				1.3777
April 2014			1.3898				1.3704				1.3810				1.3864
May 2014 (through May 16, 2014)			1.3924				1.3708				1.3808				1.3708

The noon buying rate of the Federal Reserve Bank of New York for the euro on May 16, 2014 was €1.00 = $1.3708.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $        , assuming an initial public offering price of $         per ADS, the midpoint of the price range set forth on the cover page of this prospectus.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per ADS would increase (decrease) the net proceeds from this offering to us by approximately $        , assuming no change to the number of ADSs offered as set forth on the cover page of this prospectus. An increase (decrease) of 1.0 million ADSs in the number of ADSs offered by us would increase (decrease) the net proceeds to us by approximately $        .

The selling shareholders will receive approximately $         in net proceeds from their sale of              ADSs in this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the selling shareholders, which will be approximately $        , based on the initial public offering price of $         per ADS. If the underwriters’ over-allotment option is exercised in full, we estimate the selling shareholders will receive net proceeds of approximately $        . We will not receive any proceeds from the sale of ADSs by the selling shareholders. See “Principal and Selling Shareholders” and “Underwriting.”

We intend to use the net proceeds of this offering for the following purposes:

 

•

to expand our 3D printing service center capacity, including the addition of new printers and additional technologies (between $         million and $         million);

 

•

to increase our sales and marketing teams worldwide (between $         million and $         million);

 

•

to fund additional research and development activities (between $         million and $         million); and

 

•

the remainder for general corporate purposes (including, but not limited to, potential acquisitions or partnerships).

The foregoing represents our current intentions with respect to the use and allocation of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of proceeds will vary depending on numerous factors, including the factors described under the heading “Risk Factors” in this prospectus. For example, management may determine that market conditions warrant slowing or accelerating the expansion of our 3D printing service center capacity and/or the increase or decrease of our sales and marketing efforts in certain regions or segments. Management may also discontinue certain research and development activities in the event where management were to conclude that such activities are unlikely to reach the desired results within the foreseen budgets or timing. Also, the occurrence of unforeseen events or business opportunities could result in our management deciding not to allocate the funds entirely as currently anticipated. In the event where funds would not be fully allocated to certain of the currently foreseen purposes, then we currently expect that these funds will be used for general corporate purposes. Pending our use of the net proceeds as described above, we may invest the net proceeds in short-term bank deposits or invest them in interest-bearing, investment-grade securities.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our shares, and we have no present intention of declaring or paying any dividends in the foreseeable future. Any recommendation by our board of directors to pay dividends, subject to compliance with applicable law and any contractual provisions that restrict or limit our ability to pay dividends, including under agreements for indebtedness that we may incur, will depend on many factors, including our financial condition, results of operations, legal requirements, capital requirements, business prospects and other factors that our board of directors deems relevant.

All of the shares represented by the ADSs offered by this prospectus will have the same dividend rights as all of our other outstanding shares. In general, distributions of dividends proposed by our board of directors require the approval of our shareholders at a shareholders’ meeting, although our board of directors may declare interim dividends without shareholder approval. See “Description of Share Capital.”

Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory Belgian GAAP financial statements. In addition, in accordance with Belgian law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our statutory non-consolidated accounts (prepared in accordance with Belgian GAAP) to a legal reserve until the reserve equals 10% of our share capital. Our legal reserve currently meets this requirement. As a consequence of these facts there can be no assurance as to whether dividends or other distributions will be paid out in the future or, if they are paid, their amount.

For information regarding the Belgian withholding tax applicable to dividends and related U.S. reimbursement procedures, see “Taxation—Belgian Taxation.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2014:

 

•

on an actual basis; and

 

•

on a pro forma basis to give effect to:

 

•

the conversion of all Class A ordinary shares, Class B ordinary shares and Class C ordinary shares outstanding as of March 31, 2014 into an aggregate of 9,768,014 ordinary shares;

 

•

the 4-for-1 stock split of our ordinary shares into 39,072,056 ordinary shares; and

 

•

the effectiveness of our amended and restated articles of association concurrently with the closing of this offering; and

 

•

on a pro forma as adjusted basis to reflect the sale by us of              ADSs in this offering at an assumed initial public offering price of $         per ADS, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma information below is for illustrative purposes only. Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. This table should be read in conjunction with the sections entitled “Use of Proceeds,” “Selected Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 

		As of March 31, 2014
		Actual				Pro Forma		Pro Forma As Adjusted
						(unaudited)		(unaudited)
		(in thousands of €)
Cash and cash equivalents			11,636
Loans & borrowings			16,845
Shareholders’ equity:
Ordinary shares (no nominal value, at par value), no ordinary shares and 7,645,267 Class A ordinary shares, 668,174 Class B ordinary shares and 1,454,573 Class C ordinary shares issued and outstanding actual; 39,072,056 ordinary shares and no Class A ordinary shares, Class B ordinary shares or Class C ordinary shares issued and outstanding pro forma; and              ordinary shares and no Class A ordinary shares, Class B ordinary shares or Class C ordinary shares issued and outstanding pro forma as adjusted			2,235
Share premium			12,321
Reserves			3,341
Other comprehensive income			(69	)
Equity attributable to the owners of Materialise NV			17,828
Non-controlling interest			5
Total equity			17,833
Total capitalization			34,678

 

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The table set forth above is based on the number of ordinary shares and Class A, B and C ordinary shares outstanding as of March 31, 2014. This table excludes:

 

•

162,466 Class B ordinary shares issuable upon exercise of outstanding granted warrants as of March 31, 2014, at a weighted-average exercise price of €6.93 per share, which will become warrants that are exercisable for an aggregate of 649,864 ordinary shares, at a weighted average exercise price of €1.73 per share, upon closing of this offering;

 

•

127,226 Class A ordinary shares issuable upon conversion of €1.0 million of outstanding convertible bonds as of March 31, 2014, at a conversion price of €7.86 per share, which will become bonds that are convertible into an aggregate of 508,905 ordinary shares, at a conversion price of €1.97 per share, upon closing of this offering;

 

•

1,200,000 ordinary shares issuable upon exercise of warrants to be granted under the 2014 Warrant Plan, at an exercise price per warrant equal to the euro-equivalent of the ADSs being offered in this offering; and

 

•

ordinary shares represented by the ADSs subject to the underwriters’ over-allotment option to purchase              additional ADSs.

 

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DILUTION

If you invest in the ADSs in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per ADS and the pro forma net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ADS is substantially in excess of the net tangible book value per ADS attributable to our existing shareholders for our ordinary shares that will be outstanding immediately prior to the closing of this offering. We calculate net tangible book value per ordinary share by dividing the net tangible book value (total assets less intangible assets and total liabilities) by the number of outstanding ordinary shares. For purposes of illustration, the following discussion gives effect to the 4-for-1 stock split of our outstanding ordinary shares to be effected concurrently with the closing of this offering and assumes that all of our outstanding shares both before and after this offering are in the form of ADSs, each representing one ordinary share. Dilution is determined by subtracting net tangible book value per ADS from the initial public offering price per ADS.

Our net tangible book value as of March 31, 2014 was $        , or $         per ADS. Investors participating in this offering will incur immediate and substantial dilution. After giving effect to the conversion of all Class A ordinary shares, Class B ordinary shares and Class C ordinary shares into ordinary shares upon the closing of this offering and the sale by us of the ADSs in this offering at an assumed initial public offering price of $         per ADS, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of March 31, 2014 would have been approximately $        , or $         per ADS. This amount represents an immediate increase in our pro forma net tangible book value of $         per ADS to our existing shareholders and an immediate dilution of $         per ADS to new investors purchasing the ADSs in this offering at the initial public offering price.

The following table illustrates this dilution per ADS, giving effect to the stock split that will be effected concurrently with the closing of this offering:

 

				Per ADS (in $)
Assumed initial public offering price				$
Historical net tangible book value before the change attributable to investors purchasing ADSs in this offering		$
Pro forma increase in net tangible book value attributable to the conversion of all outstanding Class A ordinary shares, Class B ordinary shares and Class C ordinary shares to 39,072,056 ordinary shares
Pro forma net tangible book value
Increase in net tangible book value attributable to investors purchasing ADSs in this offering
Pro forma as adjusted net tangible book value after giving effect to this offering
Dilution to new investors purchasing in this offering				$

A $1.00 increase (decrease) in the assumed initial public offering price of $         per ADS, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma net tangible book value after this offering by $         per ADS, and the dilution in pro forma net tangible book value to new investors by $         per ADS, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million ADSs in the number of ADSs offered by us would increase (decrease) our pro forma net tangible book value after this offering by $         per ADS and decrease (increase) the dilution to

 

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investors participating in this offering by approximately $         per ADS, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes on a pro forma basis, as of March 31, 2014, the differences between the shareholders as of March 31, 2014 and the new investors with respect to the number of ordinary shares purchased from us and the selling shareholders, the total consideration paid and the average price per ordinary share paid by existing shareholders and by investors participating in this offering at an assumed initial public offering price of $         per ADS, the midpoint of the price range set forth on the cover page of the prospectus, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us:

 

		Ordinary Shares Purchased						Total Consideration						Average Price per Ordinary Share				Average Price per ADS
		Number		Percent				Amount		Percent
								(in $)						(in $)				(in $)
Existing shareholders						%						%		$				$
New investors						%						%
Total					100.0	%					100.0	%		$				$

A $1.00 increase (decrease) in the assumed initial public offering price of $         per ADS, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $         million, assuming that the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full, our existing shareholders would              own              ADSs or,     %, in the aggregate, and our new investors would own              ADSs or,     %, in the aggregate, of the total number of ADSs outstanding after this offering. If the underwriters exercise their over-allotment option in full, our pro forma net tangible book value would be $         per ADS and the dilution to investors participating in this offering would be $         per ADS.

The table set forth above excludes the following shares:

 

•

162,466 Class B ordinary shares issuable upon exercise of outstanding granted warrants as of March 31, 2014, at a weighted-average exercise price of €6.93 per share, which will become warrants that are exercisable for an aggregate of 649,864 ordinary shares, at a weighted average exercise price of €1.73 per share, upon closing of this offering;

 

•

127,226 Class A ordinary shares issuable upon conversion of €1.0 million of outstanding convertible bonds as of March 31, 2014, at a conversion price of €7.86 per share, which will become bonds that are convertible into an aggregate of 508,905 ordinary shares, at a conversion price of €1.97 per share, upon closing of this offering;

 

•

1,200,000 ordinary shares issuable upon exercise of warrants to be granted under the 2014 Warrant Plan, at an exercise price per warrant equal to the euro-equivalent of the ADSs being offered in this offering; and

 

•

ordinary shares represented by the ADSs subject to the underwriters’ over-allotment option to purchase              additional ADSs.

To the extent that we grant warrants or other equity awards to our directors, senior management or employees in the future, and those warrants or other equity awards are exercised or become vested or other issuances of our ordinary shares are made, there will be further dilution to investors participating in this offering.

 

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SELECTED FINANCIAL AND OPERATING DATA

We present below our selected historical financial and operating data. The historical financial data as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012 have been derived from our audited consolidated financial statements and the related notes, which are included elsewhere in this prospectus and which have been prepared in accordance with IFRS. The historical financial data as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been derived from our unaudited interim condensed consolidated financial statements and the related notes thereto, which are included elsewhere in this prospectus.

Our historical results are not necessarily indicative of the financial results to be expected in any future periods. You should read this information in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus, as well as the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Capitalization.”

Consolidated Income Statements Data:

 

		For the Three Month Period Ended March 31,												Year Ended December 31,
		2014				2014				2013				2013				2013				2012
		(unaudited)				(unaudited)								(unaudited)
		(in thousands of $, except per share data)(1)				(in thousands of €, except per share data)								(in thousands of $, except per share data)(1)				(in thousands of €, except per share data)
Revenue			25,753				18,693				15,523				94,678				68,722				59,107
Cost of sales.			(10,524	)			(7,639	)			(6,285	)			(37,458	)			(27,189	)			(23,792	)
Gross profit			15,229				11,054				9,238				57,220				41,533				35,315
Research and development expenses			(4,380	)			(3,179	)			(2,515	)			(14,598	)			(10,596	)			(9,424	)
Sales and marketing expenses			(7,825	)			(5,680	)			(4,929	)			(30,805	)			(22,360	)			(19,768	)
General and administrative expenses			(3,742	)			(2,716	)			(2,118	)			(11,916	)			(8,649	)			(8,101	)
Other operating income			1,474				1,070				716				7,036				5,107				4,577
Other operating expenses			(154	)			(112	)			32				(847	)			(615	)			(488	)
Operating profit			602				437				424				6,089				4,420				2,111
Financial expenses			(274	)			(199	)			(144	)			(1,736	)			(1,260	)			(1,049	)
Financial income			45				33				21				376				273				512
Profit before taxes			373				271				301				4,730				3,433				1,574
Income taxes			(260	)			(189	)			(115	)			(29	)			(21	)			(121	)
Net profit			113				82				186				4,701				3,412				1,453
Net profit (loss) attributable to:
The owners of the parent			167				121				219				4,834				3,509				1,551
Non-controlling interest			(54	)			(39	)			(33	)			(134	)			(97	)			(98	)
Earnings per share attributable to the owners of the parent
Basic		$	0.01				€    0.01				€    0.02			$	0.51				€    0.37				€    0.16
Diluted		$	0.01				€    0.01				€    0.02			$	0.51				€    0.37				€    0.16
Weighted average number of ordinary shares for basic earnings per share							9,768				9,432								9,460				9,431
Weighted average number of ordinary shares adjusted for effect of dilution							9,976				9,509								9,551				9,516
Pro forma basic(2)		$	0.07				€    0.05							$	2.04				€    1.48
Pro forma diluted(2)		$	0.07				€    0.05							$	2.03				€    1.47
Pro forma weighted average number of ordinary shares for basic earnings per share(2)							2,442												2,365
Pro forma weighted average number of ordinary shares adjusted for effect of dilution(2)							2,494												2,388
Consolidated Statements of Comprehensive Income Data:
Net profit			113				82				186				4,701				3,412				1,453
Other comprehensive income (loss), net of taxes			(55	)			(40	)			(27	)			(43	)			(31	)			(19	)
Total comprehensive income for the year, net of taxes			58				42				159				4,658				3,381				1,434

 

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(1)	Amounts in this column have been converted from euros to U.S. dollars solely for the convenience of the reader at an exchange rate of $1.3777 per euro, the exchange rate on March 31, 2014. See “Exchange Rates.”

(2)

Pro forma figures give effect to the 4-for-1 stock split of our outstanding ordinary shares to be effected after effectiveness of the registration statement of which this prospectus forms a part and concurrently with the closing of this offering as if such transaction was completed at the beginning of such period. Ordinary shares to be issued in connection with this offering are excluded from the pro forma calculations.

Consolidated Statements of Financial Position Data:

 

		As of March 31,								As of December 31,
		2014				2014				2013				2013				2012
		(unaudited)				(unaudited)				(unaudited)
		(in thousands of $)(1)				(in thousands of €)				(in thousands of $)(1)				(in thousands of €)
Inventory			3,652				2,651				4,585				3,328				3,487
Trade receivables			19,215				13,947				17,059				12,382				11,109
Cash and cash equivalents			16,031				11,636				17,356				12,598				6,417
Total assets			80,024				58,085				76,721				55,688				46,675
Total liabilities			55,455				40,252				52,288				37,953				33,338
Net assets(2)			24,569				17,833				24,434				17,735				13,337
Total equity			24,569				17,833				24,434				17,735				13,337

 

(1)	Amounts in this column have been converted from euros to U.S. dollars solely for the convenience of the reader at an exchange rate of $1.3777 per euro, the exchange rate on March 31, 2014. See “Exchange Rates.”

(2)	Net assets represents total assets less total liabilities.

Other Data:

 

		For the Three Month Period Ended March 31,												Year Ended December 31,
		2014				2014				2013				2013				2013				2012
		(in thousands of $)(1)				(in thousands of €)								(in thousands of $)(1)				(in thousands of €)
EBITDA(2) (unaudited)			1,926				1,398				1,200				10,484				7,610				5,023

 

(1)	Amounts in this column have been converted from euros to U.S. dollars solely for the convenience of the reader at an exchange rate of $1.3777 per euro, the exchange rate on March 31, 2014. See “Exchange Rates.”

(2)

We calculate EBITDA as net profit plus income taxes, financial expenses (less financial income) and depreciation and amortization. Disclosure in this prospectus of EBITDA, which is a non-IFRS financial measure, is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, IFRS. EBITDA should not be considered as an alternative to net profit or any other performance measure derived in accordance with IFRS. Our presentation of EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Financial Information.”

The following table reconciles net profit to EBITDA for the periods presented:

 

		For the Three Month Period Ended March 31,												Year Ended December 31,
		2014				2014				2013				2013				2013				2012
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
		(in thousands of $)(A)				(in thousands of €)								(in thousands of $)(A)				(in thousands of €)
Net profit			113				82				186				4,701				3,412				1,453
Income taxes			260				189				115				29				21				121
Financial expenses			274				199				144				1,736				1,260				1,049
Financial income			(45	)			(33	)			(21	)			(376	)			(273	)			(512	)
Depreciation and amortization			1,324				961				776				4,395				3,190				2,911
EBITDA (unaudited)			1,926				1,398				1,200				10,484				7,610				5,023

 

(A)

Amounts in this column have been converted from euros to U.S. dollars solely for the convenience of the reader at an exchange rate of $1.3777 per euro, the exchange rate on March 31, 2014. See “Exchange Rates.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the information set forth in “Selected Financial and Operating Data,” and our consolidated financial statements and accompanying notes included elsewhere herein.

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in forward-looking statements. Factors that could cause or contribute to such differences include, without limitation, those discussed in the sections entitled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Business” and elsewhere in this prospectus.

Overview

Company Overview

We are a leading provider of additive manufacturing software and of sophisticated 3D printing services. Our customers are active in a wide variety of industries, including healthcare, automotive, aerospace, art and design and consumer products. Since our founding in 1990 by our Chief Executive Officer, Wilfried Vancraen, we have consistently focused on developing innovative applications of additive manufacturing technologies. We believe our proprietary software platforms, which enable and enhance the functionality of 3D printers and of 3D printing operations, have become a market standard for professional 3D printing, with a current installed base of more than 8,000 licenses. We believe that our commitment to enabling 3D printing technologies has significantly supported and accelerated the acceptance and proliferation of additive manufacturing and will continue to play an instrumental role as the industry evolves. In the healthcare sector, our technology was directly responsible for the design and manufacture of over 146,000 customized, patient-specific medical devices during 2013. In our 3D printing service centers, including what we believe to be the world’s largest single-site additive manufacturing service center in Leuven, Belgium, we printed more than 500,000 medical devices, prototypes, production parts, and consumer products during 2013. As of March 31, 2014, our team consisted of 997 FTEs and fully dedicated consultants, holding 410 masters degrees, of whom 48 had PhDs. Our portfolio of intellectual property features 62 patents and 101 pending patent applications as of March 31, 2014. For the year ended December 31, 2013, we generated €68.7 million of revenue, representing 16.3% growth over the prior year, EBITDA of €7.6 million and net profit of €3.4 million. For the three months ended March 31, 2014, we generated €18.7 million of revenue, representing 20.4% growth over the same period in the prior year, EBITDA of €1.4 million and net profit of €0.1 million. For a description of EBITDA and a reconciliation of our net profit to our EBITDA, see “—Other Financial Information” below.

Seasonality

Although end markets such as healthcare, automotive, aerospace and consumer products may experience some seasonality, the historical impact on our Medical and Industrial Production segments has not been material. Historically, the revenue of our 3D Printing Software segment have been stronger in the fourth quarter of the calendar year (which is also our fiscal year) as compared to the revenue of each of the other quarters. A number of our customers have purchased their first release in the fourth quarter and tend to renew, extend and/or broaden the scope of their license on the anniversary date of their first purchase. In addition, we have in the past often released new software products and versions in the third quarter of the calendar year, which may also have an impact on sales in the subsequent quarter.

Growth Strategy

In our 3D Printing Software segment, we expect that the demand for software platforms such as ours, which interface with virtually all 3D printers, is likely to grow as sales of 3D printing systems, in particular for professional use, continue to grow. We believe that we can continue to increase the market penetration of our software platforms by expanding relationships with OEMs as well as with industrial

 

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users of 3D printers. In order to be able to do so, we intend to bring our teams closer to our customer base worldwide, which will require important investments in the expansion of our marketing and sales presence. In order to be able to meet, in particular, the demands of new entrants to the OEM market, we intend to also invest significantly in the development of our software products, including to further their compatibility with almost all 3D printers on the market.

In our Medical segment, we intend to invest significantly in the development of new clinical services offerings, in both large scale and specialty markets, because we believe that there are growth opportunities for new applications and because we acknowledge that some of our collaboration partners will bring their own solutions to the market replacing certain of our current product offerings. We also intend to invest in the expansion of the distribution channels for our clinical services. Because customized medical products and treatments can only be brought to the market in compliance with very strict regulatory requirements, we believe there is an opportunity for providers of safe medical software tools, such as our company, that can pass significant regulatory scrutiny. In order to form the basis of stable annual revenue growth in the longer term, we are transitioning from a perpetual to a time-based license model for certain of our medical software products. This transition may affect revenue levels in the near term, but we believe it will ensure the continuing strength of our business model going forward. Over the last year, our medical engineering services offerings, which we continue to build, have been assisting medical device companies in their designs. Our engineers not only serve the orthopedic field but also the cardiovascular field where new and customized approaches are being developed and sizing of devices is an important development area. As product managers in the medical device industry continue to recognize the value of, and need for, specialized advice and assistance in the design of new 3D printable devices, our medical engineering services may grow accordingly.

In our Industrial Production segment, we believe that demand for 3D printing services will continue to grow across geographies. We believe that there is particular potential to grow our presence in the markets for additive manufacturing of industrial end products, fixtures for the automotive industry and consumer 3D printed products. For industrial end parts, we intend to continue to invest in the expansion and creation of certified 3D manufacturing environments that meet the high standards of the specialized segments of the industrial market that we focus on. In addition, we believe that the cooperation between our local sales teams, which are in close proximity to our customers, and our engineering teams, which can bring in additional expertise where required, is an important asset to further increase our customer base. Our RapidFit Inc. subsidiary was recently established in the United States to directly serve the U.S. market with our fixturing technology. If we successfully establish the RapidFit+ products in the United States, we may consider further expansion to other regions. We believe that, in the highly consolidated and still consolidating automotive market, a high added value technology such as ours can be a driver for the consolidation of the currently fragmented submarket of measurement fixtures. We consider i.materialise as a component of our long-term strategy that may eventually penetrate the large consumer market once the general public becomes more familiar with 3D printing technology and logistic chains become more suitable to address this vast market. We intend to gradually invest in growing our presence in this market by initially addressing more focused customer groups such as “home professionals.”

Recent Developments

On April 10, 2014, we executed a binding term sheet with RS Scan International NV, a Belgian company that designs and sells, among other things, foot scanning equipment and customized footwear, with respect to the establishment of a 50/50 joint venture that will be active in the combined business of (i) providing technology for the design and additive manufacturing of customized footwear and footwear components and (ii) producing, with additive manufacturing technology, such footwear products. Each party will initially contribute €500,000 to the joint venture at its incorporation and will commit to contribute an additional €1.5 million. Although the term sheet is binding on the parties, completion of the joint venture will be subject to the negotiation of and entry into definitive transaction documentation and, accordingly, there can be no assurance that we will enter into this joint venture.

 

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There has been no other significant change in our financial condition or results of operations since March 31, 2014.

Key Income Statement Items

Revenue

Revenue is generated primarily by the sale of our software and 3D printed products and services.

In our 3D Printing Software segment, we generate revenues from software licenses, maintenance contracts and custom software development services.

In our Medical segment, we generate revenue through the sale of medical devices that we print for our customers and from the sale of licenses on our medical software packages, software maintenance contracts and custom software development and engineering services.

In our Industrial Production segment, we generate revenue through the sale of parts that we print for our customers.

Software.    Software revenue is comprised of perpetual and time-based licenses, maintenance revenue and software development service fees. Our software products are mainly licensed pursuant to one of two payment structures: (i) perpetual licenses, for which the customer pays an initial fee for a perpetual license and subsequently pays fees for maintenance under separate maintenance contracts, generally on an annual basis, or (ii) time-based licenses (generally annual licenses), for which the customer pays equal periodic fees to keep the license active. Perpetual licenses require the payment of fees for maintenance, technical support and product updates. Time-based licenses entitle the customer to corrective maintenance and product updates without additional charge. We generally recognize revenue from our time-based licenses and our maintenance revenue ratably on a straight-line basis over the term of the applicable license or maintenance contracts. Our software revenue depends upon both incremental sales of software licenses to both new and existing customers and renewals of existing time-based licenses and maintenance contracts. Sales and renewals are also driven by our customers’ usage and budget cycle. Software development services are typically charged either on a time and materials basis or on a fixed fee basis.

3D printed products and services.    3D printed products revenue is derived from our network of 3D printing service centers. Our service centers not only utilize our 3D printing technology to print products but are also full-service operations that provide support and services such as pre-production collaboration prior to printing the product. Revenue from 3D printed products depends upon the volume of products that we print for our customers. Sales of these products are linked to the number of our 3D printing machines that are installed and active worldwide. In our Medical segment, 3D printed products can often be sold at higher margins than in our Industrial Production segment because medical products require a highly regulated production environment and are often sold in combination with software solutions and engineering services.

Cost of Sales

Our cost of sales includes raw materials, external subcontracting services, labor costs, manufacturing overhead expenses, depreciation and reserves for inventory obsolescence. Our manufacturing overhead expenses include quality assurance, manufacturing engineering, material procurement, inventory control, facilities, equipment and information technology and operations supervision and management.

Research and Development Expenses

Our research and development activities primarily consist of engineering and research programs associated with our products under development as well as research and development activities associated with our core technologies and processes. Research and development expenses are primarily related to employee compensation, including salary, fringe benefits, share-based compensation and

 

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temporary employee expenses. We also incur expenses for software and materials, supplies, costs for facilities and equipment, depreciation, and outside design and outside research support.

Development expenditures on an individual project are recognized as an intangible asset when we can demonstrate:

 

•

the technical feasibility of completing the intangible asset so that the asset will be available for use or sale;

 

•

the intention to complete and the ability to use or sell the asset;

 

•

how the asset will generate future economic benefits;

 

•

the availability of resources to complete the asset; and

 

•

the ability to measure reliably the expenditure during development.

We have determined that the conditions for recognizing internally generated intangible assets from proprietary software, surgical guide and other product development activities are not met until shortly before the products are available for sale. Development costs incurred after the recognition criteria are met have not been material. As such, all research and development costs are expensed as incurred.

Sales and Marketing Expenses

Our sales and marketing expenses primarily consist of employee compensation, including salary, fringe benefits and share-based compensation for our marketing, sales and business development functions. Other significant expenses include travel, depreciation, product demonstration samples, brochures, websites and trade show expenses.

General and Administrative Expenses

Our general and administrative expenses consist of employee compensation, including salary, fringe benefits and share-based compensation for our executive, financial, human resources, information technology support and regulatory affairs and administrative functions. Other significant expenses include outside legal counsel, independent auditors and other outside consultants, insurance, facilities, depreciation and information technologies expenses.

Other Operating Income

Other operating income mainly consists of government grants, withholding tax exemptions for qualifying researchers and recharges of costs incurred for third parties. The government grants are directly related to our research and development effort conducted in our business segments or in our central research and development department. Similarly, the withholding tax exemptions are granted as a cost reduction for qualifying researchers, and are as such directly related to the level of research and development activity.

Government grants are recognized as income on a systematic basis over the periods in which we recognize expenses for the related costs for which the grants are intended to compensate.

Financial Expenses

Our financial expenses primarily include costs associated with our interest payments on our debt obligations.

Other Financial Information

We believe EBITDA (earnings before interest, taxes, depreciation and amortization) is meaningful to our investors to enhance their understanding of our financial performance. Although EBITDA is not

 

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necessarily a measure of our ability to fund our cash needs, we understand that it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report EBITDA. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.

We calculate EBITDA as net profit plus income taxes, financial expenses (less financial income) and depreciation and amortization of intangible assets and property, plant and equipment. Disclosure in this prospectus of EBITDA, which is a non-IFRS financial measure, is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, IFRS. EBITDA should not be considered as an alternative to net profit or any other performance measure derived in accordance with IFRS. Our presentation of EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

Reconciliation of Net Profit to EBITDA

 

		For the Three Month Period Ended March 31,								Year Ended December 31,
		2014				2013				2013				2012
		(in thousands of €)
Net profit			82				186				3,412				1,453
Income taxes			189				115				21				121
Financial expenses			199				144				1,260				1,049
Financial income			(33	)			(21	)			(273	)			(512	)
Depreciation and amortization			961				776				3,190				2,911
EBITDA (unaudited)			1,398				1,200				7,610				5,023

Results of Operations

Comparison of the Three Months Ended March 31, 2014 and 2013

 

		For the Three Month Period Ended March 31,
		2014				2013				% Change
		(in thousands of €)								(%)
Revenue			18,693				15,523				20.4	%
Cost of sales			(7,639	)			(6,285	)			21.5	%
Gross profit			11,054				9,238				19.7	%
Research and development expenses			(3,179	)			(2,515	)			26.4	%
Sales and marketing expenses			(5,680	)			(4,929	)			15.2	%
General and administrative expenses			(2,716	)			(2,118	)			28.2	%
Other operating income			1,070				716				49.4	%
Other operating expenses			(112	)			32				(450.0	)%
Operating profit			437				424				3.1	%
Financial expenses			(199	)			(144	)			38.2	%
Financial income			33				21				57.1	%
Profit before taxes			271				301				(10.0	)%
Income taxes			(189	)			(115	)			64.3	%
Net profit			82				186				(55.9	)%

 

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Comparison for the Three Months Ended March 31, 2014 and 2013 by Segment

 

		3D Printing Software				Medical				Industrial Production				Total Segments				Adjustments & Eliminations(1)				Consolidated
		(in thousands of €, except percentages)
For the three month period ended March 31, 2014
Revenue			4,035				6,968				7,483				18,486				207				18,693
Segment EBITDA (unaudited)			1,707				946				(71	)			2,583				(1,185	)			1,398
Segment EBITDA %			42.3	%			13.6	%			(0.9	)%			14.0	%							7.5	%
For the three month period ended March 31, 2013
Revenue			3,109				6,563				5,829				15,500				23				15,523
Segment EBITDA (unaudited)			1,163				1,027				(69	)			2,121				(921	)			1,200
Segment EBITDA %			37.4	%			15.6	%			(1.2	)%			13.7	%							7.7	%

 

(1)	Adjustments & Eliminations to Revenue consist of occasional one-off sales by our core competencies not allocated to any of our segments. Adjustments & Eliminations to Segment EBITDA consist of corporate research and development, corporate headquarter costs and other operating income (expense).

Revenue.    Revenue was €18.7 million in the three months ended March 31, 2014 compared to €15.5 million in the three months ended March 31, 2013, an increase of €3.2 million, or 20.4%.

Our consolidated growth from 2013 to 2014 was impacted negatively by currency exchange losses, mainly as a result of the weaker U.S. dollar and Japanese Yen. If our revenue for the three months ended March 31, 2014 was based on average currency exchange rates during the first quarter of 2013, our revenue would have been close to €19.0 million (instead of €18.7 million), which would have represented an increase of 22.6% (instead of 20.4%) as compared to the three months ended March 31, 2013.

Revenue by geographical area is presented as follows:

 

		For the Three Month Period Ended March 31,
		2014				2013
		(in thousands of €)
United States			5,526				5,301
Americas other than the United States			277				188
Europe			10,956				8,564
Asia			1,933				1,470
Total			18,693				15,523

Revenue generated in Europe increased by €2.4 million, or 27.9%, in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, mainly as a result of increased revenue in our Industrial Production segment, including both prototyping and manufacturing, as well as increased revenue in our 3D Printing Software segment. Revenue generated throughout the Americas increased by €0.3 million, or 5.7%, in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, primarily as a result of increased revenue in our 3D Printing Software segment. Revenue generated in Asia increased by €0.5 million, or 31.5%, primarily as a result of increased revenue in our 3D Printing Software segment. As described above, revenue in the Americas as well as in Asia have been negatively affected by the weaker U.S. dollar and Japanese Yen.

 

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Revenue from our 3D Printing Software segment increased from €3.1 million in the three months ended March 31, 2013 to €4.0 million in the three months ended March 31, 2014, which represented an increase of €0.9 million, or 29.8%. This increase was mainly due to an increase of sales of new software licenses (new perpetual licenses and first time annual licenses), which increased by 57.9% from the three months ended March 31, 2013 to the three months ended March 31, 2014. Over the same period, our recurring software related revenue (maintenance contracts and renewals of annual licenses) increased by 35.4% and our service revenues increased by 5.8%. In our 3D Printing Software segment, we consider both our first time annual license sales and our new perpetual license sales as important sources of potential follow on revenue. Our first time annual licenses create potential for renewals, while our perpetual licenses, which are in many instances sold together with the sale of a 3D printer by a manufacturer, not only create potential for future maintenance revenue but are also an important source for follow on sales of additional software modules to the customer. These follow on sales are considered new software sales.

Revenue from our Medical segment increased from €6.6 million in the three months ended March 31, 2013 to €7.0 million in the three months ended March 31, 2014, representing an increase of €0.4 million, or 6.2%. Revenue from clinical services (which is derived from the sale of clinical devices, which we bring to the market in combination with software solutions and engineering services) increased by 2.3%, while revenue from the sale of medical software and related services increased by 19.2%. Revenue from new medical software licenses (new perpetual licenses and first time annual licenses) and related services increased by 22.1%, while our recurring medical software related revenue (maintenance contracts and renewals of annual licenses) increased by 17.7%. Our medical software is modular, with some modules licensed out as a perpetual license which include a maintenance scheme, while the newer modules are licensed on an annual basis. As of April 2014, we have adopted a new model, whereby, except for research and academic centers, our medical software will only be offered through time-based licenses (and no longer on a perpetual basis).

Revenue from our Industrial Production segment increased from €5.8 million in the three months ended March 31, 2013 to €7.5 million in the three months ended March 31, 2014, which represented an increase of €1.7 million, or 28.4%. We increased the number of 3D printers that we operated from 90 3D printers and five vacuum casting machines at March 31, 2013 to 103 3D printers and six vacuum casting machines at March 31, 2014.

Two of our potential growth businesses (i.materialise and Rapid Fit) are part of our Industrial Production segment. Both businesses are currently in a pre-profitability investment phase, which adversely impacts overall profit for the segment, although i.materialise showed the greatest relative growth in revenue within the segment between the years ended December 31, 2013 and 2012. Revenue from our Industrial Production segment excluding i.materialise and RapidFit (which we sometimes refer to as our “additive manufacturing solutions” business) increased from €5.3 million in the three months ended March 31, 2013 to €6.3 million in the three months ended March 31, 2014, representing an increase of €1.0 million, or 18.5%. Our additive manufacturing solutions business sold, in the three months ended March 31, 2013 as well as in the same period in 2014, a wide variety of products (most of which are uniquely customized), based on a wide variety of materials and produced by means of multiple 3D printing technologies. In the three months ended March 31, 2014, our additive manufacturing solutions business experienced stronger growth in its manufacturing of end parts than in its prototyping activities, with 58.6% and 17.2% growth, respectively.

 

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During the three months ended March 31, 2014, and across our various segments, 28.3% of our revenue was derived from 3D Printing and Medical software licenses and related services, as compared to 27.0% in the three months ended March 31, 2013, 41.1% of our revenues was derived from the sale of printed industrial and consumer products, as compared to 37.7% in the three months ended March 31, 2013, and 23.6% of our revenues was derived from the sale of medical devices (guides as well as implants) that were brought to the market together with complex software planning solutions, including royalties and other fees, as compared to 24.6% in the three months ended March 31, 2013.

Cost of sales.    Cost of sales was €7.6 million in the three months ended March 31, 2014 compared to €6.3 million in the three months ended March 31, 2013, an increase of €1.3 million, or 21.5%. This increase in cost of sales was primarily attributable to the increase in raw materials and external subcontracting services, which increased by €0.7 million as compared to the three months ended March 31, 2013. The remaining increase was mainly attributable to increased salaries, which increased by €0.7 million as compared to the three months ended March 31, 2013.

Gross profit.    As a result of the lower than expected revenue growth in the Medical segment, the overall gross profit margin (our gross profit divided by our revenue) decreased to 59.1% in the three months ended March 31, 2014 from 59.5% in the three months ended March 31, 2013, a decrease of 0.4 percentage points. For the three months ended March 31, 2014, the increase in gross profit of €1.8 million reflected growth of 19.7% compared to the same period in the prior year.

Research and development expenses.    Research and development expenses were €3.2 million in the three months ended March 31, 2014 compared to €2.5 million in the three months ended March 31, 2013, an increase of €0.7 million, or 26.4%. This increase in research and development expenses was primarily attributable to an increased investment in medical research projects, which increased by €0.4 million, and software development, which increased by €0.2 million, as compared to the three months ended March 31, 2013.

Sales and marketing expenses.    Sales and marketing expenses increased from €4.9 million in the three months ended March 31, 2013 to €5.7 million in the three months ended March 31, 2014, an increase of €0.8 million, or 15.2%. This increase was primarily attributable to an increase in headcount in connection with our efforts to increase our sales volume, resulting in increased payroll expenses related to sales and marketing expenses.

General and administrative expenses.    General and administrative expenses were €2.7 million in the three months ended March 31, 2014 compared to €2.1 million in the three months ended March 31, 2013, an increase of €0.6 million, or 28.2%. This increase reflects investment in corporate functions such as human resources and finance, as well as increased legal, accounting and other services of €0.1 million in connection with preparation for this offering.

Other operating income.    Other operating income increased from €0.7 million in the three months ended March 31, 2013 to €1.1 million in the three months ended March 31, 2014. This increase in other operating income was primarily attributable to an increase in funding for research and development projects of approximately €0.2 million. In the three months ended March 31, 2014, €0.4 million of the €1.1 million of other operating income was a release of grant income directly related to the level of research and development effort, consisting of withholding tax exemptions for qualifying researchers and partial funding of research and development contracts, as compared to €0.3 million in the three months ended March 31, 2013.

Financial expenses.    Financial expenses increased from €0.1 million in the three months ended March 31, 2013 to €0.2 million in the three months ended March 31, 2014, an increase of €0.1 million, due to increased foreign currency exchange losses.

 

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Income taxes.    Income taxes in the three months ended March 31, 2014 remained small mainly due to research and development tax credits and patent income deduction (which is a favorable tax regime for income derived from patents).

Net profit.    As a result of the factors described above, net profit was €0.1 million in the three months ended March 31, 2014, compared to net profit of €0.2 million realized in the three months ended March 31, 2013.

EBITDA.    As a result of the factors described above, our consolidated EBITDA increased from €1.2 million in the three months ended March 31, 2013 to €1.4 million in the three months ended March 31, 2014, an increase of €0.2 million, or 16.5%, and our total segment EBITDA increased from €2.1 million in the three months ended March 31, 2013 to €2.6 million in the three months ended March 31, 2014, an increase of €0.5 million, or 21.8%.

Our 3D Printing Software segment’s EBITDA increased from €1.2 million in the three months ended March 31, 2013 to €1.7 million in the three months ended March 31, 2014, an increase of €0.5 million, or 46.8%. As a result of the strong increase in revenue and operating leverage (a higher proportion of fixed costs relative to variable costs), this segment’s EBITDA margin (the segment’s EBITDA divided by the segment’s revenue) increased from 37.4% for the three months ended March 31, 2013 to 42.3% in the three months ended March 31, 2014.

Our Medical segment’s EBITDA decreased from €1.0 million in the three months ended March 31, 2013 to €0.9 million in the three months ended March 31, 2014. The segment’s EBITDA margin decreased from 15.6% in the three months ended March 31, 2013 to 13.6% in the three months ended March 31, 2014, which was mainly the result of increased research and development activities and relatively low revenue growth.

Our Industrial Production segment’s EBITDA remained unchanged at €(0.1) million in the three months ended March 31, 2014. The EBITDA of our “additive manufacturing solutions” business (which excludes i.materialise and RapidFit) increased from €0.5 million in the three months ended March 31, 2013 to €0.8 million in the three months ended March 31, 2014, resulting in EBITDA margins increasing from 9.6% in the three months ended March 31, 2013 to 12.1% in the three months ended March 31, 2014. This increase in EBITDA was the result of an increased capacity in the three months ended March 31, 2013 as compared to the three months ended March 31, 2014, and a higher average utilization rate of our 3D printing machines, as well as efficiencies realized through the increased internal use of our 3D printing software solutions and our in-house process engineering capabilities.

Reconciliation of Segment EBITDA

 

		For the Three Month Period Ended March 31,
		2014				2013
		(in thousands of €)
		(unaudited)
Segment EBITDA			2,583				2,121
Depreciation and amortization			(961	)			(776	)
Corporate research and development			(615	)			(563	)
Corporate headquarter costs			(1,217	)			(808	)
Other operating income (expense)			647				450
Operating profit			437				424
Financial expenses			(199	)			(144	)
Financial income			33				21
Income taxes			(189	)			(115	)
Net profit			82				186

 

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Comparison of the Years Ended December 31, 2013 and 2012

 

		Year Ended December 31,
		2013				2012				% Change
		(in thousands of €)								(%)
Revenue			68,722				59,107				16.3	%
Cost of sales			(27,189	)			(23,792	)			14.3	%
Gross profit			41,533				35,315				17.6	%
Research and development expenses			(10,596	)			(9,424	)			12.4	%
Sales and marketing expenses			(22,360	)			(19,768	)			13.1	%
General and administrative expenses			(8,649	)			(8,101	)			6.8	%
Other operating income			5,107				4,577				11.6	%
Other operating expenses			(615	)			(488	)			26.0	%
Operating profit			4,420				2,111				109.4	%
Financial expenses			(1,260	)			(1,049	)			20.1	%
Financial income			273				512				(46.7	)%
Profit before taxes			3,433				1,574				118.1	%
Income taxes			(21	)			(121	)			(82.6	)%
Net profit			3,412				1,453				134.8	%

Comparison for the Years Ended December 31, 2013 and 2012 by Segment

 

		3D Printing Software				Medical				Industrial Production				Total Segments				Adjustments & Eliminations(1)				Consolidated
		(in thousands of €, except percentages)
For the year ended December 31, 2013
Revenue			13,432				27,992				27,239				68,663				59				68,722
Segment EBITDA (unaudited)			5,141				4,973				1,026				11,140				(3,530	)			7,610
Segment EBITDA %			38.3	%			17.8	%			3.8	%			16.2	%							11.1	%
For the year ended December 31, 2012
Revenue			11,198				25,106				22,562				58,866				241				59,107
Segment EBITDA (unaudited)			3,546				4,796				(292	)			8,050				(3,027	)			5,023
Segment EBITDA %			31.7	%			19.1	%			(1.3	)%			13.7	%							8.5	%

 

(1)	Adjustments & Eliminations to Revenue consist of occasional one-off sales by our core competencies not allocated to any of our segments. Adjustments & Eliminations to Segment EBITDA consist of corporate research and development, corporate headquarter costs and other operating income (expense).

Revenue.    Revenue was €68.7 million in the year ended December 31, 2013 compared to €59.1 million in the year ended December 31, 2012, an increase of €9.6 million, or 16.3%.

Our consolidated growth from 2012 to 2013 was impacted negatively by currency exchange losses, mainly as a result of a weaker Japanese Yen and, to a lesser extent, a weaker U.S. dollar and British pound. If our revenue for the year ended December 31, 2013 was based on average 2012 currency exchange rates, our revenue would have been close to €70.0 million (instead of €68.7 million), which would have represented an increase of 18.4% (instead of 16.3%) as compared to the year ended December 31, 2012.

 

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Revenue by geographical area is presented as follows:

 

		Year Ended December 31,
		2013				2012
		(in thousands of €)
United States			23,807				21,177
Americas other than the United States			1,039				1,334
Europe			37,964				31,324
Asia			5,912				5,272
Total			68,722				59,107

Revenue generated in Europe increased by €6.6 million, or 21.2%, in the year ended December 31, 2013 compared to the year ended December 31, 2012, mainly as a result of increased revenue in the Industrial Production and 3D Printing Software segments. Revenue generated throughout the Americas increased by €2.4 million, or 10.4%, in the year ended December 31, 2013 compared to the year ended December 31, 2012, primarily as a result of increased revenue in the Medical and 3D Printing Software segments. Revenue generated in Asia increased by €0.6 million, primarily in the 3D Printing Software segment. As described above, revenue in the Americas as well as in Asia have been negatively affected by the weaker U.S. dollar and Japanese Yen.

Revenue from our 3D Printing Software segment increased from €11.2 million in the year ended December 31, 2012 to €13.4 million in the year ended December 31, 2013, which represented an increase of €2.2 million, or 19.9%. This increase was mainly due to an increase of sales of new software licenses (new perpetual licenses and first time annual licenses), which increased by 26.1% from the year ended December 31, 2012 to the year ended December 31, 2013. Over the same period, our recurring software related revenue (maintenance contracts and renewals of annual licenses) increased by 13.7% and our service revenues increased by 14.0%.

Revenue from our Medical segment increased from €25.1 million in the year ended December 31, 2012 to €28.0 million in the year ended December 31, 2013, representing an increase of €2.9 million, or 11.6%. Revenue from clinical services (which is derived from the sale of clinical devices, which we bring to the market in combination with software solutions and engineering services) increased by 11.0%, while revenue from the sale of medical software and related services increased by 13.3%. Revenue from new medical software licenses (new perpetual licenses and first time annual licenses) and related services increased by 16.1%, while our recurring medical software related revenue (maintenance contracts and renewals of annual licenses) increased by 6.2%.

Revenue from our Industrial Production segment increased from €22.6 million in the year ended December 31, 2012 to €27.2 million in the year ended December 31, 2013, representing an increase of €4.6 million, or 20.4%. We increased the number of 3D printers that we operated from 92 at the end of 2012 to 103 at the end of 2013. In 2013, we were also able to realize efficiency improvements on our installed machine base (through the partial introduction of additional shifts).

Revenue from our “additive manufacturing solutions” business (our Industrial Production segment excluding i.materialise and RapidFit, the potential growth businesses of this segment) increased from €20.5 million in the year ended December 31, 2012 to €24.2 million in the year ended December 31, 2013, representing an increase of €3.7 million, or 18.0%. Our additive manufacturing solutions business sold, in 2012 as well as in 2013, a wide variety of products (most of which are uniquely customized), based on a wide variety of materials and produced by means of multiple 3D printing technologies. In the year ended December 31, 2013, our additive manufacturing solutions business experienced stronger growth in its manufacturing of end parts business than in its prototyping activities.

 

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During the year ended December 31, 2013, and across our various segments, 29.7% of our revenue was derived from 3D Printing and Medical software licenses and related services (as compared to 29.2% in the year ended December 31, 2012), 39.6% of our revenues was derived from the sale of printed industrial and consumer products (as compared to 38.2% in the year ended December 31, 2012) and 30.7% of our revenues was derived from the sale of medical devices (guides as well as implants) that were brought to the market together with complex software planning solutions, including royalties and other fees (as compared to 32.6% in the year ended December 31, 2012).

Cost of sales.    Cost of sales was €27.2 million in the year ended December 31, 2013 compared to €23.8 million in the year ended December 31, 2012, an increase of €3.4 million, or 14.3%. This increase in cost of sales was primarily attributable to the increase in raw materials and external subcontracting services, which increased by €2.5 million, or 16.5%, as compared to the year ended December 31, 2012, and were primarily reflected in purchase of goods and services related to cost of sales. The remaining increase was mainly attributable to increased salaries, which increased payroll expenses related to cost of sales by €0.5 million, or 7.8%, as compared to the year ended December 31, 2012.

Gross profit.    As a result of the proportionally larger increase in software revenues and increased productivity realized in our Medical and Industrial Production segments, the overall gross profit margin increased to 60.4% in the year ended December 31, 2013 from 59.7% in the year ended December 31, 2012, an increase of 0.7 percentage points. For the year ended December 31, 2013, gross profit of €41.5 million reflected growth of 17.6% compared to the prior year.

Research and development expenses.    Research and development expenses were €10.6 million in the year ended December 31, 2013 compared to €9.4 million in the year ended December 31, 2012, an increase of €1.2 million, or 12.4%. This increase in research and development expenses was primarily attributable to an increased investment in medical research projects, which increased by €0.7 million, and software development, which increased by €0.4 million, as compared to the year ended December 31, 2012.

Sales and marketing expenses.    Sales and marketing expenses increased from €19.8 million in the year ended December 31, 2012 to €22.4 million in the year ended December 31, 2013, an increase of €2.6 million, or 13.1%. This increase was primarily attributable to a significant increase in headcount in connection with our efforts to increase our sales volume, mainly in the Medical and Industrial Production segments, resulting in increased payroll expenses related to sales and marketing expenses of €1.5 million and €0.7 million, respectively, as compared to the year ended December 31, 2012.

General and administrative expenses.    General and administrative expenses were €8.7 million in the year ended December 31, 2013 compared to €8.1 million in the year ended December 31, 2012, an increase of €0.6 million, or 6.8%. This increase reflects investment in corporate functions such as human resources and finance, as well as increased legal, accounting and other services of €0.2 million in connection with preparation for this offering.

Other operating income.    Other operating income increased from €4.6 million in the year ended December 31, 2012 to €5.1 million in the year ended December 31, 2013. This increase in other operating income was primarily attributable to an increase in funding for research and development projects. In the year ended December 31, 2013, €3.2 million out of the €5.1 million other operating income was a release of grant income directly related to the level of research and development effort, consisting of withholding tax exemptions for qualifying researchers and partial funding of research and development contracts.

Financial expenses.    Financial expenses increased from €1.1 million in the year ended December 31, 2012 to €1.3 million in the year ended December 31, 2013, an increase of €0.2 million, due to an

 

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increase in foreign currency losses of €0.1 million and an increase in other financial expenses of €0.1 million.

Income taxes.    Income taxes in the year ended December 31, 2013 remained small mainly due to research and development tax credits and patent income deduction (which is a favorable tax regime for income derived from patents).

Net profit.    As a result of the factors described above, net profit was €3.4 million in the year ended December 31, 2013 compared to a net profit of €1.5 million in the year ended December 31, 2012, an increase of €1.9 million.

EBITDA.    As a result of the factors described above, our consolidated EBITDA increased from €5.0 million in the year ended December 31, 2012 to €7.6 million in the year ended December 31, 2013, an increase of €2.6 million, or 52.0%, and our total segment EBITDA increased from €8.1 million in the year ended December 31, 2012 to €11.1 million in the year ended December 31, 2013, an increase of €3.0 million, or 37.0%.

Our 3D Printing Software segment’s EBITDA increased from €3.5 million in the year ended December 31, 2012 to €5.1 million in the year ended December 31, 2013, an increase of €1.6 million, or 45.7%. As a result of the strong increase in revenue and operating leverage, this segment’s EBITDA margin increased from 31.7% for the year ended December 31, 2012 to 38.3% in the year ended December 31, 2013.

Our Medical segment’s EBITDA increased from €4.8 million in the year ended December 31, 2012 to €5.0 million in the year ended December 31, 2013. The segment’s EBITDA margin slightly decreased from 19.1% in the year ended December 31, 2012 to 17.8% in the year ended December 31, 2013, which was mainly the result of increased research and development activities.

Our Industrial Production segment’s EBITDA increased from €(0.3) million in the year ended December 31, 2012 to €1.0 million in the year ended December 31, 2013. The EBITDA of our “additive manufacturing solutions” business (which excludes i.materialise and RapidFit) increased from €1.5 million in the year ended December 31, 2012 to €3.5 million in the year ended December 31, 2013, resulting in EBITDA margins increasing from 7.3% in the year ended December 31, 2012 to 14.5% in the year ended December 31, 2013. This increase in EBITDA was the result of an increased capacity in 2012 as compared to 2013, a higher average utilization rate of our 3D printing machines, as well as efficiencies realized through the increased internal use of our 3D printing software solutions and our in-house process engineering capabilities.

 

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Reconciliation of Segment EBITDA

 

		Year Ended December 31,
		2013				2012
		(in thousands of €)
		(unaudited)
Segment EBITDA			11,140				8,050
Depreciation and amortization			(3,190	)			(2,911	)
Corporate research and development			(2,339	)			(2,320	)
Corporate headquarter costs			(4,113	)			(3,621	)
Other operating income (expense)			2,922				2,913
Operating profit			4,420				2,111
Financial income			273				512
Financial expenses			(1,260	)			(1,049	)
Income taxes			(21	)			(121	)
Net profit			3,412				1,453

Liquidity and Capital Resources

We have historically funded our operations principally from cash generated from operations and borrowings. As we continue to grow our business, we envision funding our operations through multiple sources, including the expected proceeds from this offering, future earnings and cash flow from operations and borrowings.

We expect our main uses of cash in the future will be funding our business operations and capital expenditures, as in the past. We believe that we will have sufficient liquidity to satisfy the operating requirements of our business through the next 12 months.

Our liquidity plans are subject to a number of risks and uncertainties, including those described in the section of this prospectus titled “Risk Factors,” some of which are outside of our control. Macro-economic conditions could hinder our business plans, which could, in turn, adversely affect our financing strategy.

Cash Flows

The table below summarizes our cash flows from operating activities, investing activities and financing activities for the three months ended March 31, 2014 and 2013, and the years ended December 31, 2013 and 2012.

 

		For the Three Month Period Ended March 31,								Year Ended December 31,
		2014				2013				2013				2012
		(in thousands of €)
Net cash flow from operating activities			1,996				1,639				8,881				6,114
Net cash flow from/(used in) investing activities			(2,117	)			(619	)			(3,300	)			(4,962	)
Net cash flow from/(used in) financing activities			(855	)			(1,007	)			729				2,381
Net increase in cash and cash equivalents			(976	)			13				6,310				3,533

Comparison of Three Months Ended March 31, 2014 and 2013

Net cash flow from operating activities was €2.0 million in the three months ended March 31, 2014 compared to €1.6 million in the three months ended March 31, 2013, an increase of €0.4 million, or

 

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21.7%. The increase in cash flow from operating activities was primarily the result of a net decrease in working capital, which in turn related primarily to an increase in trade and other receivables.

Net cash flow used in investing activities was €2.1 million in the three months ended March 31, 2014 compared to €0.6 million in the three months ended March 31, 2013, an increase of €1.5 million, or 242%. The increase in cash flow used in investing activities was primarily the result of the acquisition of e-prototypy.

Net cash flow used in financing activities was €0.9 million for the three months ended March 31, 2014 compared to €1.0 million in the three months ended March 31, 2013, a decrease of €0.1 million, or 15.1%. The decrease in cash flow used in financing activities was primarily related to the repayment of loans to finance the purchase of printing machines.

Comparison of Years Ended December 31, 2013 and 2012

Net cash flow from operating activities was €8.9 million in the year ended December 31, 2013 compared to €6.1 million in the year ended December 31, 2012, an increase of €2.8 million, or 45.3%. The increase in cash flow from operating activities was primarily the result of increased cash generated from our operations due to the growth our business, as described above under “—Results of Operations.”

Net cash flow used in investing activities was €3.3 million in the year ended December 31, 2013 compared to €5.0 million in the year ended December 31, 2012, a decrease of €1.7 million, or 33.5%. The decrease in cash flow used in investing activities was primarily the result of decreased purchases of property, plant and equipment. In 2013, these purchases related to investments in new machines and installations and, in 2012, these purchases related to investments in a new building at our headquarters in Leuven, Belgium.

Net cash flow from financing activities was €0.7 million in the year ended December 31, 2013 compared to €2.4 million in the year ended December 31, 2012, a decrease of €1.7 million, or 69.4%. The decrease in cash flow from financing activities was primarily related to decreased proceeds from loans and borrowings and decreased repayment of loans and borrowings. In 2013, our new borrowings included our issuance of €1.0 million of convertible bonds and, in 2012, our new borrowings included secured bank loans used to finance the construction of the new building at our headquarters in Leuven, Belgium. In addition, in 2013, net cash flow from financing activities was supported by an investment by PMV NV in our RapidFit NV subsidiary.

Investments in Property, Plant and Equipment and Intangible Assets

Our operations require investments in new manufacturing lines, equipment and plant refurbishments, patents and information technology. During the three months ended March 31, 2014 and the year ended December 31, 2013, we incurred €1.0 million and €2.9 million, respectively, in such investments.

The table below describes our investments in property, plant and equipment and intangible assets for the three months ended March 31, 2014 and 2013, and the years ended December 31, 2013 and 2012:

 

		For the Three Month Period Ended March 31,								Year Ended December 31,
		2014				2013				2013				2012
		(in thousands of €)
Purchase of property, plant and equipment			744				491				2,415				4,242
Purchase of intangible assets			290				153				533				805
Total			1,034				644				2,948				5,047

 

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Indebtedness

As of December 31, 2013, we had long-term loans and borrowings in the amount of €11.7 million, with fixed interest rates varying from 1.78% to 5.40%. As of March 31, 2014, we had long-term loans and borrowings in the amount of €12.2 million, with fixed interest rates varying from 1.78% to 5.40%. These loans include secured bank loans used to finance the construction of office and production facilities and loans and finance leases with Ailanthus NV, a related party.

The following table sets forth our principal indebtedness as of the dates indicated:

 

										Outstanding as of
										March 31,								December 31,
		Interest Rate				Maturity				2014				2013				2013				2012
										(in thousands of €)
€5,000,000 secured bank loan			4.61	%			June 2027				4,579				4,823				4,642				4,884
€2,000,000 secured bank loan			4.43	%			November 2020				1,055				1,188				1,089				1,221
€1,750,000 secured bank loan			5.40	%