Materialise N.V. (NASDAQ:MTLS) Q2 2025 Earnings Call Transcript

Materialise N.V. (NASDAQ:MTLS) Q2 2025 Earnings Call Transcript July 24, 2025

Operator: Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Materialise NV Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Harriet Fried of Alliance Advisors. Please go ahead.

Harriet Fried: Thank you for joining us today for Materialise’s quarterly conference call. With us on the call are Brigitte de Vet, Chief Executive Officer; and Koen Berges, Chief Financial Officer. Today’s call and webcast are being accompanied by a slide presentation that reviews Materialise’s strategic, financial and operational performance for the second quarter of 2025. To access the slides, if you’ve not already done so, please go to the Investor Relations section of the company’s website at www.materialise.com. The earnings press release that was issued earlier today can also be found on that page. Before we get started, I’d like to remind you that management may make forward-looking statements regarding the company’s plans, expectations and growth prospects, among other things.

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

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

Brigitte de Vet-Veithen: Good morning, and good afternoon to all of you. Thank you for joining us today. You can find the agenda for our call on Slide 3. First, I will summarize the business highlights for the second quarter of 2025. Then I will pass the floor to Koen, who will take you through the second quarter financials. Finally, I will come back and explain what we expect the remaining months of 2025 to bring. When we’ve completed our prepared remarks, we will be happy to respond to questions. Moving to Slide 4 for the highlights of the second quarter 2025. We celebrated our 35th anniversary in the second quarter of this year. 35 years ago, our founders, Wilfried Vancraen and Hilde Ingelaere started their journey to build a better and healthier world, thanks to the power of additive manufacturing.

I’d like to take this opportunity to thank all of our employees for the incredible energy and hardship they put into growing the adoption of additive manufacturing every single day. In the 35 years, we have grown into a leading profitable cash flow positive company in this sector, and we keep pushing the boundaries. Our strategic position remains excellent as we benefit from the ongoing R&D investments in strategic areas, driving long-term value creation in our growth segments. I am very proud that this quarter again, we made significant progress in our medical business. As you know, in our medical business, our strategy is to grow in existing markets and in new markets in order to reach more patients with our personalized solutions. This is what we call our mass personalization strategy.

Now one of the new markets that we are developing is the respiratory market. Two years ago, we launched a dedicated 3D surgical planning solution with a focus on addressing the challenges in thoracic surgery to treat lung cancer patients. The Mimics thoracic planner, now advances in screening and surgical techniques in that area have created an opportunity for earlier diagnosis and less invasive lung sparing procedures. But these approaches in the respiratory field are technically demanding. To remove a tumor from the patient’s lungs, surgeons want to remove as much as needed for the tumor to be gone, but as little as possible in order to leave as much lung capacity for the patient after surgery. All of this while minimizing the incision to enable speedy recovery of the patient.

To plan these complex interventions properly, the surgeon uses our 3-dimensional view on the lung lobes and segments and the airways and blood vessels that he or she cannot only view but also engineer on. That means that he or she can simulate what happens when she takes a 3-centimeter margin around the tumor rather than a 4-centimeter margin and what lobes or segments are impacted. Now surgeons using our Mimic thoracic planner have reported that the Software has actively helped them better understand each patient’s unique anatomy and plan surgeries with precision, supporting the shift from minimally invasive care — sorry towards minimally invasive care and lung-sparing procedures. Now building on these encouraging results, we are proud to announce a pilot collaboration with Johnson & Johnson’s Surgical business in EMEA to advance the adoption of this solution in the region.

As a leader in surgical technologies that help clinicians and patients in the lung cancer community, J&J will offer surgeons our planning solution alongside their full portfolio of surgical technologies. And we also keep making progress in our existing markets. One of our oldest and most mature markets is the orthopedic market and in particular, our knee guides. Knee guides are amongst the most well-known and mature applications of 3D printing in the medical market. Knee guides are used to provide surgeons with surgical instrumentation that is customized to the patient’s anatomy using pre-op CTs or MIs and help surgeons to make accurate bone got resections and ensure a better knee implant position. Traditionally, knee implants were positioned using standardized angles, aligning them to the straight mechanical axis of the leg.

Now today, there is a growing trend in the market to restore the natural alignment of a patient’s knee by positioning the implants based on the unique anatomy and cartilage wear, mimicking how the knee was before it was damaged. In the second quarter, we received 510(k) U.S. market clearance for this personalized alignment feature in our knee planner that is used by surgeons that choose to perform surgery with our personalized knee guides in the U.S. And this feature allows surgeons to tailor the knee implant positioning to each patient’s unique anatomy rather than getting the leg straight, so to speak. And with this clearance, surgeons can now choose between traditional mechanical straight alignment and the new personal alignment mode. We believe that this innovation will not only provide surgeons with greater flexibility, but also advance the field of knee surgery, creating positive impact for more patients.

We will bring this feature to the U.S. market in the third quarter. And Software and Manufacturing, we continue to face headwinds due to geopolitical volatility, and the macroeconomic uncertainty impacting many of the market segments we are operating in. Customers worldwide are delaying investment decisions in order to get greater clarity around tariffs and interest rates. Now that being said, we continue to see confirmation of our strategy to focus on specific customer and market segments, both in Software and Manufacturing. And this is particularly true in the current market reality where the growth in additives as far as industrial markets are concerned, comes primarily from specific sectors and from users that are already familiar with additive rather than from new adopters.

As a result of the specific focus on our strategic market segments within Software and Manufacturing, we delivered growth again on the basis of an already strong quarter 2 last year in those market segments. As another strategic milestone in the second quarter, we have formally announced our decision to broadly engaging and support the defense sector in light of the current geopolitical landscape and the breakdown of traditional global alliances. Given the close connection between the defense and aerospace sectors, we believe our expertise will be particularly relevant in enhancing the regional defense capabilities across land, sea and space. Additionally, we anticipate that this broader engagement will strengthen our position in the aerospace segment and open up new opportunities in the future for both our Manufacturing as well as our Software segment.

Last but not least, we continue to make progress on our strategic road map in our Software segment to build partnerships to complement our end-to-end workflows and enable customers to scale their additive operations more efficiently. In this context, we announced the collaboration with Synera to establish direct connectivity between Magics SDKs and Synera’s agenetic AI platform for engineers. Additive manufacturing organizations often lose significant production time to manual build preparation workflows with human intervention driving up operational costs. The collaboration between Synera and us allows users to deploy additive manufacturing agents that handle design to print as autonomously helping scale throughput while reducing manual effort and cost.

The new Magics SDK launched in 2024 allows for platform integration with Magics powerful build preparation algorithms to prepare even the most complex models for successful printing, reducing field builds and improving part quality. The collaboration with Synera will enable users to create end-to-end automation workflows for additive manufacturing, significantly reducing build failures, ensuring models are properly prepared for printing and reducing manual efforts throughout the process. Combined with other additive manufacturing solutions in the Synera marketplace, users can manage the complete AM workflow from design to production with an integration between design and build preparation workflows, providing the designers with immediate feedback on manufacturability and build optimization directly within one environment.

Now while our top line remains under pressure in the current market environment for the Industrial division, we continue to control our costs. In the second quarter, we have announced and successfully implemented a restructuring in our Manufacturing division. As part of this process, we reassessed what activities are core to our future portfolio and re-classed some of our assets as assets held for sale on our balance sheet as a result of this evaluation. These assets and activities are nonmaterial to our activities. As the pressure on our top line persists, we will continue to manage our costs. By taking steps to reduce costs while continuing focused investments in our strategic areas, we are well positioned to capitalize on opportunities as market conditions improve.

I will now turn over to Koen, who will present the financial results.

Koen Berges: Thank you, Brigitte. Good morning or good afternoon to all of you on this call. I’ll begin with a brief overview of our key financial results, as shown on Slide 5. While our Medical segment once again achieved high double-digit growth this quarter, total consolidated revenue decreased year-over-year by 5.8% to EUR 64.8 million. Our gross profit margin remained strong and increased to 58.3% in the second quarter of this year, reflecting changes in our revenue mix, but also as a result of our ability to optimize direct production costs despite inflationary pressure. Adjusted EBIT for the second quarter of 2025 amounted to EUR 3.1 million, showing a strong increase compared to prior quarters despite the lower revenue that was generated, reflecting once more the positive impact of targeted cost control.

The net result for the quarter amounted to a profit of EUR 0.2 million despite being impacted by large unfavorable effects from exchange rate fluctuations. During the first half of 2025, we generated a positive free cash flow, which led to a net cash position of EUR 63 million at the end of Q2, an increase of EUR 2 million versus the beginning of the year. In the following slides, I will elaborate further on these results. As a reminder, please note that unless stated otherwise, all comparisons are against our results for the second quarter of 2024. I would also like to draw your attention to a modification we have made in the adjustments definition that we apply to our adjusted EBIT and adjusted EBITDA. As of this quarter, we will also be adjusting these non-IFRS metrics for costs related to nonrecurring corporate initiatives, restructurings and reorganizations.

We believe this modification will allow for a more correct comparison across periods, while it brings us in line with general market practices. We do not anticipate that this modification will require restatements of prior period results. Also in the current period, the adjustment made is immaterial to our overall results. Now turning to Slide 6. You will see an overview of our consolidated revenue. As already mentioned, Materialise Medical continued its strong performance, delivering consistent high double-digit growth with revenue increasing by almost 17% this quarter and once again posting a quarterly revenue record. On the other hand, revenues from Software and Manufacturing segments were further impacted by intensified geopolitical and macroeconomic turbulence.

As a result, revenue in both segments declined by 12% and 25%, respectively, leading also to a decrease of 5.8% of our consolidated revenue compared to the same period of last year. Now this revenue decrease also reflects the unfavorable effect from a weaker U.S. dollar in the second quarter of 2025. As you can see in the graph on the right side of the page, Materialise Medical accounted for 51%, Materialise Software for 15% and Materialise Manufacturing for 34% of our total revenue for the second quarter of 2025. In the first half of this year, we generated over EUR 131 million of revenue, which is stable versus last year’s same period. At the same time, our deferred revenue balance related to Software maintenance and license fees coming both from our Medical and Software segments decreased in the second quarter of this year, in line with the annual seasonality pattern.

Over the last 12 months, however, the balance increased by EUR 3 million, bringing the total amount carried on our balance sheet at the end of the second quarter of 2025 to EUR 46.7 million. On Slide 7, you will see our consolidated adjusted EBIT and EBITDA numbers for the second quarter of 2025. Consolidated adjusted EBIT totaled EUR 3.1 million compared to EUR 3.9 million for the same period of ’24, representing an adjusted EBIT margin of 4.7%. Consolidated adjusted EBITDA for the second quarter amounted to EUR 8.3 million, decreasing from the EUR 9.2 million last year, representing an adjusted EBITDA margin of 12.8%. Given current market volatility, we believe it’s also important to compare our operational performance on a quarter-over-quarter basis.

In this context, we saw significant improvement in both adjusted EBIT and EBITDA compared to the first quarter of this year. Our adjusted EBIT increased from EUR 0.6 million to EUR 3.1 million, while adjusted EBITDA also increased by EUR 2.1 million. These improvements reflect the positive impact of disciplined cost control and targeted cost reduction measures that we have taken to safeguard operational profitability. Over the first half of 2025, we generated EUR 3.7 million of adjusted EBIT and EUR 14.4 million of adjusted EBITDA. Moving now to Slide 8. You will notice that the revenue in our Materialise Medical segment increased by almost 17% compared to the second quarter of ’24. This solid growth was generated by both Medical Software and by revenue for Medical Devices sales, which grew respectively by 14% and 18%.

Within our Medical Devices and Services activity, we saw continued growth, both in our direct and our partner sales. In line with top line growth, adjusted EBITDA grew further to over EUR 10.7 million, resulting in an increased adjusted EBITDA margin of 32.7%. We continued our planned R&D investments in Medical to drive future growth, while we achieved strategically important milestones during the second quarter of this year, as mentioned earlier by Brigitte. Over the first half of this year, our Materialise Medical segment realized EUR 64 million of revenue, up by 18% from last year, with an adjusted EBITDA of EUR 19.8 million, representing a 31% adjusted EBITDA margin. Slide 9 summarizes the results of our Materialise Software segment. In the second quarter, Software revenue decreased by 12% to EUR 9.9 million.

This was partly due to the further conversion to our recurring revenue model, but macroeconomic uncertainty and ForEx evolutions put also pressure on our sales volumes, especially in the U.S. market. During the second quarter, we continued our transition to a cloud subscription-based business model. Over the quarter, around 84% of our Software revenue was of a recurring nature versus 80% in the previous quarter, demonstrating the progress we keep making. Despite the lower top line compared to the same period of last year, effective cost management allowed us to maintain a stable adjusted EBITDA of EUR 1.4 million, representing an adjusted EBITDA margin of 14%. Over the first half of this year, our Software segment realized EUR 19.6 million of revenue and adjusted EBITDA of EUR 2 million, representing a 10% adjusted EBITDA margin.

Now let’s turn to Slide 10 for an overview of the performance of our Materialise Manufacturing segment. In the second quarter of 2025, geopolitical uncertainty added to the macroeconomic headwinds that we have been facing for some time and drove our Manufacturing revenue down by almost 25% compared to last year’s same period, realizing quarterly revenue of EUR 22.1 million. Also in the second quarter of this year, we realized further growth in our strategic focus areas, while the Automotive segment specifically continued to be under severe pressure. As a response to revenue pressure, we took further steps to bring the cost of our Manufacturing segment structurally down. In addition to strict cost control, we reviewed in depth the performance and potential of our Manufacturing portfolio.

And as an outcome of this review, we decided to stop our metal prototyping operations and to focus exclusively on metal series production, which resulted in a nonrecurring severance cost that we adjusted in our quarterly numbers. Furthermore, we reclassified some of our Manufacturing business assets on our balance sheet as assets held for sale. The operating results and net assets of this reclassification are immaterial to our consolidated results of operation and our financial position. Mainly as a result of the lower top line, the adjusted EBITDA of our Manufacturing segment still ended negatively at minus EUR 0.8 million in the second quarter, slightly below the result of the first quarter of this year, which was at minus EUR 0.4 million but significantly up from the minus EUR 3 million adjusted EBITDA realized in the last quarter of 2024.

Over the first half of this year, our Manufacturing segment realized revenue of EUR 47.6 million with an adjusted EBITDA of minus EUR 1.2 million. Slide 11 provides the highlights of our consolidated income statement for the second quarter of 2025. Over the period, our gross profit amounted to EUR 37.8 million, representing a gross profit margin of 58.3%, significantly up from the 57% realized in the second quarter of 2024. As mentioned earlier, this increase can be linked to mix effects, but it’s also the outcome of the efforts we made to generate further production efficiencies. Our operating expenses in the quarter decreased by EUR 0.3 million or close to 1% in aggregate compared to the same period of last year, with R&D expenses remaining flat year-over-year.

During the quarter, we invested again over EUR 11 million in R&D, the majority of which in our Medical segment. Sales and marketing and G&A expenses decreased by 1.1% and 1.6%, respectively, reflecting the impact from further indirect cost optimizations, compensating inflationary pressure. Net operating income in the quarter was EUR 1.3 million compared to EUR 1.2 million last year. As a result of these elements, the group’s operating result in the quarter was positive at EUR 2.7 million. In Q2 2025, the net financial result amounted to a loss of EUR 3.1 million, which includes interest income of EUR 0.7 million from our cash reserves and interest expense on our financial debt of EUR 0.4 million and a significant negative impact from foreign exchange fluctuations of minus EUR 3.3 million.

In last year’s corresponding period, the net financial result was positive by EUR 1 million as we benefited from higher interest rates on our cash deposits and from favorable exchange rates effects at that time. Income tax in the quarter amounted to a positive EUR 0.5 million, resulting from the recognition of deferred tax assets compared to a tax expense of EUR 1 million in the corresponding period of last year. Despite the large negative effect from exchange rate fluctuations, we were still able to report a net profit for the second quarter of EUR 0.2 million. Now please turn to Slide 12 for a recap of balance sheet and cash flow highlights. Also for the second quarter of 2025, we can report a strong balance sheet. As already mentioned during the review of our Manufacturing segment, we reclassified a limited amount of business assets as held for sale, representing a net asset value of EUR 3.6 million, which can be considered immaterial compared to the total consolidated balance sheet.

Our cash reserve increased to EUR 117 million by the end of the quarter. At the same time, also our gross debt increased to EUR 54 million. Both changes were largely impacted by EUR 20 million drawing we made on an existing bank credit facility in line with earlier contractually agreed drawing periods. In the next 12 months, we will be drawing the remaining EUR 30 million of this facility. The net cash position at the end of the quarter amounted to EUR 63 million, up by EUR 2 million compared to the beginning of this year, and was as such not impacted by the previously mentioned drawing. Trade receivables, inventory and payables positions on our balance sheet all decreased. But when corrected for the asset held for sale reclassification, the net working capital slightly increased by EUR 0.7 million compared to the beginning of this year.

Total deferred income position increased to EUR 60 million, out of which EUR 47 million was related to deferred revenues from Software license and maintenance contracts, as mentioned before. As you can see on the graph on the right side of the page, the operating cash flow in the second quarter of this year was just negative as the cash flow generated from P&L was entirely offset by a negative evolution of working capital components. Over the first 6 months of this year, however, the operating cash flow is positive at EUR 9.7 million. Capital expenditures for the second quarter amounted to EUR 4.7 million, including EUR 3.1 million of nonrecurring CapEx, mainly spent on remaining machinery for the new ACTech plants. Over the first half of this year, total CapEx amounted to EUR 6.6 million, out of which 60% can be considered to be of a nonrecurring nature.

Taking into account also cash inflows from limited asset sales and from government grants received for the ACTech investments, the free cash flow over the first half of this year is positive and amounts to EUR 6 million. And with that, I’d like to hand the call back to Brigitte.

Brigitte de Vet-Veithen: Thank you, Koen. Let’s turn to Page 13. I’ll conclude my remarks with a discussion of our full year 2025 guidance. As we move through 2025, we see a risk that geopolitical volatility and macroeconomic uncertainty intensified and also further impact the business climate for the remainder of this year. Unfavorable foreign exchange fluctuations might also add to the pressure on our revenue line and reported net results. We, therefore, believe it is prudent to slightly reduce our revenue guidance for the full year from the earlier communicated range of EUR 270 million to EUR 285 million to a range of EUR 265 million to EUR 280 million. We remain convinced, though, that the fundamentals of our business are solid and resilient and believe that further structural cost efficiencies will allow us to safeguard operational profitability.

So despite the slightly lower revenue outlook, we, therefore, are confirming, reconfirming our adjusted EBIT guidance range of EUR 6 million to EUR 10 million for fiscal year 2025, in line with our earlier communications in February and April of this year. This concludes our prepared remarks. Operator, we’re now ready to open the call to questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Troy Jensen from Cantor Fitzgerald.

Troy Donavon Jensen: So maybe just a quick question on — well, congrats on the opportunity here with J&J on the respiratory side. I wondered maybe could you quantify that opportunity? Is that something that could be as big as this maxillo craniofacial opportunity you’ve had with them? Or just if you could help size it a little bit, that would be helpful.

Brigitte de Vet-Veithen: Yes. So that’s obviously a very good question. I think — so I want to make a couple of comments on this. So first, I think we need to keep in mind that this is a very new market. So the craniomaxillofacial and the orthopedic markets are existing mature markets, where the respiratory market is a new market. Now when we say new markets, it’s really markets that we still are building. So it’s the very start of a long journey. So to reach the size of some of our existing markets, we’re taking years. So that gives you a bit of a feeling for when to expect some of that impact. The second comment I want to make is, certainly, revenue impact is not to be expected this year. At the very earliest, it’s going to be next year.

Third comment is that this is a pilot collaboration. So it’s a very first step in the direction in this respiratory market. So while this is a really important milestone that will open up the respiratory market and in this collaboration, I’m really convinced that this is a game changer. It is a new market and opening up new markets and developing markets as a leader in those markets, it’s a long journey.

Troy Donavon Jensen: Maybe a couple of questions for Koen. First of all, EUR 20 million in debt you guys took out during the quarter. And did I hear you say there’s — you’re taking out more? I’m sorry, I tuned a little bit during the end of the call, but is that correct?

Koen Berges: No, that is correct, Troy. It is part of an earlier agreement we made a couple of years ago, where we had — where we signed into a new additional facility of EUR 50 million, 5-0, and which was — which foresaw a delayed drawing in 3 tranches, 2 tranches in the course of 2025 and the last tranche in the middle of 2026. So we are honoring those commitments on engagements, and we are now — we have made the first drawing of EUR 20 million in the second quarter.

Troy Donavon Jensen: Interesting. So I guess my first thought was that maybe you guys had a change of thoughts on acquisitions, but this is — I mean, what would you do all of this additional cash on the balance sheet because, obviously cash flow positive and EBITDA positive and you kind of don’t need it, but there are a lot of assets out there in the market right now. So I don’t know.

Koen Berges: Yes, that cash was indeed — I think that was also the intention when the agreement with the bank was made and it’s still the intention to put that cash to work, of course, not to put it on our bank account. So that is — it’s a bullet loan. So it is targeted at being used for CapEx or M&A investments in the future.

Troy Donavon Jensen: Okay. All right. Good luck. And then how about — just quickly on the gross margins. I mean, they were obviously great this quarter despite the lower revenues. I’m assuming it’s mainly mix or just given less Manufacturing sales, but was there other stuff behind that driving it better?

Koen Berges: No, it’s a combination of mix effects, indeed, like you said, more Medical, less Manufacturing. But it’s also coming from the fact that we are able to reduce the production costs or the direct costs, both in our Medical segment and in our Manufacturing segment where they play a role. That’s correct.

Operator: One moment for our next question. Our next question comes from the line of Alexander Craeymeersch from Kepler Cheuvreux.

Alexander Craeymeersch: Alexander Craeymeersch from Kepler Cheuvreux here. So maybe to pick up on that first question of Troy. So you have these new features and new pilots coming up. But the next it is, of course, you have still the markets that you’re already active in and already very much growing in. I was just wondering if we could maybe get like a glimpse into the next years. Can we continue to expect like double-digit growth in this segment? That would be the first question. Second question would be on the revised top line guidance. It’s down just 2%, but I’m just wondering what parameter you used? Is this just like the FX rate on the U.S. dollar that is declining? Or what was exactly used to — that it prompted just a 2% decline? And then maybe if you could just talk a bit about the volume price dynamics in the Manufacturing segment.

Brigitte de Vet-Veithen: Yes. So let me get started on your first question. So on the Medical segment, so the medical market as such, so structurally, again, I don’t see a reason to see a change in the growth that we see in the — currently in the medical market. So in the mix, obviously, we grow in the existing lines, we grow in the — and then concurrently, we build the new market. And so the mix between existing and new as we go over the next couple of years, the mix might change, but in total, there’s a lot of promise in the medical market, a lot of growth today. And there’s — in the future, continued promise in the medical market. I see that growth continue on an ongoing basis over the next couple of years, again, with potentially a different mix in the different markets that we are serving.

That is why we are investing in the new markets to keep the growth going over the next couple of years. But overall, the medical business will keep on growing. So that was your first question. I forgot the second and the third. In the meantime, I should be writing down.

Alexander Craeymeersch: So the question on the guidance is just 2%, what was like exactly the reason why you said, okay, 2% cut instead of like, let’s say, a 5% cut? Like what was the parameter you used for?

Brigitte de Vet-Veithen: Yes. So the way we approach our guidance or the reforecast every quarter is obviously we — so it’s not a top down. Koen and I look at each other, and we look out of the window and think what percentage can we apply. It’s a detailed exercise that we have with the different units, and we go through different business lines to estimate in the different business lines, how we look at what happens throughout the rest of the quarter. And every business line has a different forecast. Obviously, we look at medical difference in a different way than some of the Industrial segments. But within the Industrial segment, our focus segments, that are today growing very well. We think they will continue to grow, whereas others, I mean, automotive is one of them.

We believe that they will continue to have a difficult time throughout the rest of the year. The U.S. market will continue to have a more difficult time than other geographies. So it’s that whole mix that we go through, and it’s that balance that has led us to this new estimation of our top line. So it’s not one parameter, but it’s a more detailed exercise that we have gone through. One of the factors that helps us, obviously, in those business lines where we have an order book to base our judgment on that is obviously a parameter that is helpful. Now you know that for not all of our business — for some of our business lines that are more transactional, we don’t have an order book to base our estimations on. So the more we have an order book that we can base ourselves on, the more visibility we have on the next quarter, but that’s not the case for all of our business lines.

So all of that taken into account led us to this new guidance that we have now issued.

Alexander Craeymeersch: And maybe if I then just can ask a small follow-up. Like which segment was then, let’s say, underperforming versus the initial guidance or expectation?

Brigitte de Vet-Veithen: So I think what you see in our current results, those that we have discussed today, it’s pretty much for the second half of the year, I think the trend is pretty much what we see continue. I don’t think I see — so in the forecast that we’ve done for the next 6 months, there’s no dramatic change in the trends when we look at the different business lines.

Alexander Craeymeersch: Yes. And then the last one was a bit on the volume price dynamics in Manufacturing.

Brigitte de Vet-Veithen: The foreign price dynamics. Can you…

Alexander Craeymeersch: The volume price dynamics.

Koen Berges: To reply to your question, Alexander, from a more financial point of view, I think as in any manufacturing environment, the challenge we also have in our Manufacturing segment is that part of the costs are, I would say, semi-fixed. So if the top line becomes under pressure and the semi-fixed cost is then typically related to the labor costs that the direct labor costs in order to complete the manufacturing processes. And that’s, of course, always the challenge if the volume is under pressure to protect the margin, and that is difficult to a certain extent. And that is what we have been working hard on, I think, also in the second quarter to make that balance or to reduce the cost base in line with the top line that continues to be under pressure.

Alexander Craeymeersch: Yes. That’s clear. And maybe if I can also ask a small follow-up, which would be — so of the decline that we saw in the second half, like how much — is that then mostly related to volumes? Or have you also seeing a decline in basically the cost base considering that effect?

Koen Berges: In Manufacturing, you mean?

Alexander Craeymeersch: Yes.

Koen Berges: You see a significant top line drop. And so that is a pure volume effect, certainly if you compare to last year. But I think if you also make the comparison to last quarter, you see that there is top line, which is volume pressure. We try to offset that, and you see that certainly if you compare the gross margin to the prior quarters that we try to compensate that to a certain extent in making our costs as variable as possible the direct costs, but that is only possible to a certain extent. So top line pressure adds to the gross margin result.

Operator: Thank you. At this time, I would now like to turn the conference back over to Brigitte de Vet for closing remarks.

Brigitte de Vet-Veithen: Thanks again for joining us today. We, of course, look forward to continuing our dialogue with you through investor conference or one-on-ones or virtual meetings or calls. And please reach out if you have any questions. Thank you for now, and goodbye to you all.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.