Markforged Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Markforged Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Austin Bollig, Director of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Good afternoon. I'm Austin Bollig, are Director of Investor Relations of Markforged Holding Corporation. Welcome to our Q3 of 2023 results conference call. Will be discussing the results announced in our earnings press release issued after market close today. With me on the call is our President and CEO, will be Shai Turem and our acting CFO of Saas Sipuri.

Speaker 1

Before we get started, I'd like to remind everyone that management will be making statements during this call that include estimates and other forward looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements. And other stakeholders are subject to material risks and uncertainties that could cause actual results to differ materially. Markforged disclaims any intention or obligation, except as required by law, will be able to update or revise forward looking statements. Also during the course of today's call, we refer to certain non GAAP financial measures. There's a reconciliation schedule showing the GAAP versus non GAAP results currently available in our press release issued after market close today, which can also be found on our website at investors.

Speaker 1

Markforge.com. I'll now turn the call over to Shay Turan, President and CEO of Markforged.

Speaker 2

Thank you, Austin, and thank you everyone for joining us on our Q3 2023 earnings call. While the medium to long term opportunity for Markforged to help manufacturers reduce costs and strengthen supply chain resiliency remains intact, We were disappointed with our Q3 results with top line of $20,000,000 The current macroeconomic uncertainty In increasing interest rates and a material impact on our ability to close deals in the last 2 weeks of the quarter. As we shared on our October 23, we have also updated our full year 2023 outlook to reflect our current view. At our Investor Day, in mid September, we still believe our 2023 targets were attainable, But macroeconomic headwinds dramatically accelerated in the final weeks of the quarter, and we saw delays in several large deals that we had expected to close. As we progress into the Q4, we believe that the persistent high cost of capital and uncertainty in the macro environment will continue to restrict capital investment in the short term.

Speaker 2

In light of these headwinds, we remain laser focused on our path to profitability and have accelerated have a strong quarter of record and adjusted EBITDA margin. These efforts supported our ability to reduce our cash burn in the Q3 to $10,000,000 and end of quarter Cash balance of $126,000,000 Today, in addition, we're announcing a restructuring initiative that we believe will improve operating efficiencies and strengthen our balance sheet resiliency even further, are in the range of $1,000,000 but without compromising on our ability to innovate and grow to profitability. This initiative, coupled with other cost reduction efforts, is expected to deliver operating cost savings of approximately $9,000,000 to $12,000,000 in 2024, driven by an approximate 10% headcount reduction. With that, remain confident in our long term growth trajectory. The fundamentals driving manufacturers to reduce cost and seek more resilient and flexible supply chain remain.

Speaker 2

And as we heard directly from our customers, Ford, Vesta Twin Systems, Azuk, Triumph Aerospace, Musashi Autopart, Dana and Automation Ali at our Investor Day, The Digital Forge provides a powerful platform for achieving this goal. This strengthens our conviction That as macroeconomic uncertainty clears, Park Forge is well positioned for strong growth. To expand on one of these examples, Musashi Autoport, a leading manufacturer of a differential beer and established have gained substantial benefit from its investment in the digital forge. Musashi began by printing grippers and other industrial end effectors using our Mark II and Aetelix printers in their Michigan facility. Over 80% cost savings and significant operational efficiencies achieved led Musashi to expand their Mark 4 gs deployment are available to free additional facilities across the globe.

Speaker 2

Musashi now uses the Digital Forge for over 40 different manufacturing applications. With over 34 facilities worldwide, we're excited about further expansion opportunities with Musashi. In Q3, we achieved another critical milestone towards the future of distributed manufacturing with the launch of the DigitalSource. DigitalSource is an on demand parts platform for the licensing and 3 d printing of manufacturer certified parts, When and where they are needed, without the cost or hassle of physical inventory. While our focus in 2024 is building out the platform, we believe the opportunity for high margin revenue stream will be a growth catalyst in the years to come, as we are already seeing early signs of excitement from customers who help us expand Markforged solution into their own customer base.

Speaker 2

1 of our early digital source adopters is BMS, A specialized manufacturer of complex sandblasting machine with over 200 installations worldwide. Each BMS machine features 60 printed components, which are typically replaced every 3 to 4 months. When the machines are running at full capacity, with DigitalSource, BMS customers can print replacement components on-site the moment a failure or wear is detected, are minimizing downtime as well as shipping and inventory costs. Continuing our track record of innovation, Markforged announced 2 new products last week at Formix. The first, the FX10, is Markforged next generation composite 3 d printer For the factory floor, building on the precision and reliability of the X7 was nearly twice as large and twice as fast as its predecessor.

Speaker 2

FX10 is built to supercharge manufacturing productivity and profitability. The excitement in our booth around this product was beyond words. We are already building a backlog of orders as the balance between value and price to our customers is extremely attractive, even under challenging cost of capital time. In addition, we also announced Vega, an ultra high performance carbon fiber field pack material For 3 d printing aerospace part, Vega is highly compatible with carbon fiber reinforcement, are Unlocking aluminum strength part for aerospace applications and high value tooling. Our aerospace FX20 customers visiting Formex were highly impressed and eagerly waiting for 1st shipment.

Speaker 2

Both these new innovations are complementary to the Digital Forge and further increased our addressable market by helping our customers to have more application and deliver strong, So while the current macroeconomics environment is challenging, Especially after coming back from Foam Next week, we strongly believe that the FX10, the FX20, the PX100 and the digital source on top of our legacy solution are meeting critical industry needs to strengthen manufacturing resiliency and supply chain. There is clearly pent up demand, which is waiting for new platforms to start shipping. I am very proud of the OneTEAM effort over the last few years to reach this critical innovation milestone that will position the company for long term success. With strong cost controls in place and a sharp focus on achieving profitability, we believe our future is bright. With that, I'll now turn the call over to Asaf Tipori, are acting CFO, who will offer more details on our financial performance and guidance for the remainder of the year.

Speaker 3

Thank you, Shay, and good evening, everyone. I will be covering our financial results for the Q3 of 2023. Please note that my comments reflect our non GAAP results and outlook. For your reference, our earnings press release issued earlier this afternoon to our Investor Relations website includes our GAAP and non GAAP reconciliation to assist with my commentary. So let's begin.

Speaker 3

In line with our preliminary announced results, revenue for Q3 was $20,100,000 compared to 25 $200,000 in the Q3 of 2022. The revenue decline was driven by Stronger than expected macroeconomic headwinds to delayed orders towards the end of the quarter. Revenue for the 1st 9 months of 2023 was $69,600,000 compared to $71,300,000 in the 1st 9 months of 2022. In spite of the lower sales volume, gross profit margin for the quarter was 46.9% compared to 49.2% in the Q3 of 2022. Gross margins were also impacted by the continued ramp of the FX 2020 production, which is expected to continue until mid-twenty 24.

Speaker 3

Our operating expenses were $24,900,000 for the Q3 of 2023, down from $28,500,000

Speaker 2

are in the

Operator

Q3 of 2022.

Speaker 3

This improvement in operating expenses is a result of our continued effort Net loss for the Q3 of 2023 was $13,800,000 or a loss of $0.07 per share are based on our weighted average shares outstanding for the quarter of 197,400,000. Our net cash used in operating activities in the 1st 9 months of 2023 decreased by 20 are $5,300,000 or approximately 39% from the 1st 9 months of 2022. Our cash, cash equivalents and short term investments were $126,000,000 as of September 30, 2023, down from $136,000,000 at the close of Q2 2023. We expect our cash utilization to continue to decrease with time as a result of higher revenue, continued focus on OpEx Management and working capital efficiencies. Now moving on to our guidance.

Speaker 3

The uncertain macro environment and relatively high cost of capital have weighed on our customers' purchasing behavior more than expected. Therefore, we are maintaining our revised revenue guidance of $90,000,000 to 95,000,000 We expect gross margins to be within the range of 47% to 48%, still within the range of our previous guidance. As previously communicated, we are committed to balance between revenue and expenses. As such, We have recently announced a restructuring initiative that together with other cost reduction efforts are expected to generate Annualized OpEx cost reduction of $9,000,000 to $12,000,000 in 2024 based on our 2023 OpEx range of approximately $104,000,000

Operator

Furthermore,

Speaker 3

we remain committed to continuously optimize our cash utilization. Our operating loss for the year is expected to be within the range of $59,000,000 to $61,000,000 including a one time restructuring cost of approximately $900,000 EPS loss are expected to be between $0.26 and $0.28 including the restructuring costs. With our recent product introductions and excitement that it has generated, we are confident in our ability to grow and increase our market share in 2024 and beyond. Furthermore, we are confident that the cost reduction measures that we have taken together with our growth trajectory keep us on a path for profitability. That concludes our prepared remarks today.

Speaker 3

Let's please open up the call for questions.

Operator

Are welcome to take questions. Are now ready to take questions. Our first question comes from Greg Palm with Craig Hallum Capital Group. Please state your question.

Speaker 4

Yes. Thanks for taking the questions. Just starting off with kind of what you saw end of quarter. I'm just Curious if you can give us a little bit more color on whether, A, you were relying on several large orders that I didn't close, whether it was certain kind of end customers or end verticals that you saw the most weakness, maybe just a little bit more detail on sort of what kind of drove the end of quarter weakness. And just to be clear, Did some of those orders that get delayed, have those closed here in Q4 or are those still getting pushed?

Speaker 2

Thank you, Greg. Yes, so as we indicated previously, some of the large deals That we're expecting to close in the end of the quarter unfortunately got delayed Mainly due to the macro uncertainty, I would say, and mainly in APAC and the Americas, as you can see from the detailed performances. Per question. Some of them already closed in Q4, but a bigger portion of them got delayed into 2024. And it was fairly large deals that were fully funded and we were expecting them to close based on the knowledge that we had.

Speaker 2

But the owners and the decision makers decided in the last second to pull out due to the sentiment and the uncertainty on the macro environment and they ask to wait until the next quarter or even 2024. With that, As you can see, we came back from FoamNext, which was fairly successful. So we have time to build the confidence back.

Speaker 4

Got it. Okay. And one item that maybe stood out to us Was consumables, I wouldn't think of consumables as having nearly the same kind of magnitude of Sort of volatility and that was a lot lower both on a year over year and a sequential basis. So what kind of drove that? How much of that was based on the other phenomenon you saw?

Speaker 4

And then going forward, just In terms of usage rates of the installed base out there, are you seeing a significant difference in recent months versus Where we've been trending before?

Speaker 2

Thank you. I think there are 2 Kind of points around that. The first one, usually when our customers buy from us printers, they immediately also buy materials. So when there is significant drop in the purchasing of printers, with that comes a point in time of reduction of The purchase of materials. The second, which I think for your question, we do not see a drop in utilization.

Speaker 2

But as you know, we're fairly still a small company. So a point of time could move a few pallets Right or left with our channel partners that usually sell the materials through them. And as such, it was a point of time. We already see a recovery right after the end of the quarter and utilization stay in the right direction. So we don't have any concerns on that front.

Speaker 4

Understood. I will get back in the queue. Best of luck. Thanks.

Speaker 2

Thank you, Greg.

Operator

Thank you. Our next question comes from Jacob Stefan with Lake Street Capital Markets. Please state your question.

Speaker 5

Hey, guys. Thanks for taking my questions. Maybe I'll just touch on the restructuring initiative a little bit. Could you help us kind of think about What percentage of the $9,000,000 to $12,000,000 comes out of the model and how that lays out over 2024?

Speaker 3

So yes, thanks for the question. So we're looking at a reduction of $9,000,000 to $12,000,000 From a run rate of $104,000,000 approximately in OpEx, the reduction is going to be Across the board and we're across all departments without any compromise On our ability to grow and innovate, so it's across all departments and we are well are positioned and encouraged with the outlook for 2024.

Speaker 5

Okay. And Maybe I could just get a better sense on kind of the quarterly, I guess, impact of that. I mean, are we thinking Q1 as we see the majority of the $9,000,000 to $12,000,000 in Q2, Q3, Q4 kind of steps are down to get to know, I guess.

Speaker 3

Yes, of course. So when you look at the numbers, so basically The bottom line is that the OpEx run rate would be between €92,000,000 €95,000,000 annually. It should kick in, in Q1 2024. And obviously, there's a certain level of fluctuation between the queues given the Events that we have in sales, marketing and so on. So but the annual run rate would be $92,000,000 to $95,000,000

Speaker 5

Okay, got it. And

Speaker 2

I just want

Speaker 5

to touch on Services revenue was up 33% year over year. Could you just kind of touch on the strength in what you're seeing in the services business. Is that blacksmith? Is that digital or forge?

Speaker 2

Yes. Jacob, if you remember about a year ago, we talked about changing our service model to subscription And adding to it the tools around software with simulation and the automated inspection, and we're starting to see the fruits of it. So we are starting to See higher level of attach rate right out of the box when people are buying the printers, but also a higher level of renewal rates. And I think this is where it's starting to kick in. So we did some revisions to this modem.

Speaker 2

About a year ago, we announced it and now we're starting to see the fruits of it.

Operator

Our next question comes from Brian Drab with William Blair. Please state your question.

Speaker 6

Hi, guys. Good evening. This is Blake Keating on for Brian. If I could just ask, can you guys provide some additional details about the FX-ten backlog you guys mentioned in the prepared remarks? Are these existing are customers looking to upgrade from the X7 or add to the fleet?

Speaker 6

Or is it new customers who are beginning to use 3 d printing?

Speaker 2

Thank you for your question. It's actually both. We are just coming back from FoamNext. And if You can see videos of the event. It was very, very impressive and encouraging.

Speaker 2

Right after we launched it, we had hundreds of Potential prospects kind of reaching out into the printer, trying to touch it. So we currently see backlog of System customers, but also new customers, which are really interested in this solution. We're already looking on dozens of orders. What's really nice about this printer that it's building up on the legacy X7, the reliability of the solution, but also the price So the price material is around $100,000 which is a very good sweet spot to our channel partners, But also to our customers, especially in times like this with very strict cost of capital environment, A sub $100,000 solution can easily pass the bar, for example, much better than the FX 'twenty in times like this.

Speaker 6

Understood. Appreciate the color. And then just building on that, do you anticipate the launch of the digital source That could cannibalize some of these new the demand from the new customers that you're seeing for newer products like the FX10, PX100 or FX20?

Speaker 2

Actually, exactly the opposite. The Digital Source was launched successfully and actually last week in Formnext, we officially started the GA. We see a lot of traction from big OEMs that are looking into this solution. And what we've seen for the first step Is that these big OEMs are pushing our solution into their supply chain or into their customer base. So what we actually see in reality Increased adoption of our digital source of the printers and materials and software and not the cannibalization of it.

Speaker 2

It's actually very impressive.

Speaker 6

Understood. And then just lastly, I know you guys have kind of mentioned that you expect You're encouraged by what you're seeing so far for 2024. But can you provide additional detail on how we should think about growth in 2024? Are you You kind of touched how you're going to balance revenue growth and profitability, but is there any more focus with the macro where it is on profitability or how should we think about that?

Speaker 2

Yes. So I would say the macro uncertainties are still out there and we cannot control them. With that, especially coming out of FoamNext, We are coming with a very strong product portfolio, which is complementary to our legacy product portfolio. And we really believe that we can still grow even in tough environment and especially because some of the new products are in the right price point. So we believe we're in the right direction, but the final will be decided by the macro environment and how it clears up.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll hand the floor back to management for closing remarks.

Speaker 2

Thank you very much, everyone, for joining us on our call. And looking forward to see you in our next quarter. Thank you.

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Key Takeaways

  • Markforged reported Q3 revenue of $20.1M (down from $25.2M y/y) due to macro headwinds and delayed large deals, and updated its full‐year revenue outlook to $90–95M.
  • Accelerated its path to profitability by achieving record adjusted EBITDA margins, cutting Q3 cash burn to $10M, ending with $126M cash, and announcing a ~10% headcount reduction to save $9–12M in 2024 OpEx.
  • Launched DigitalSource, an on-demand parts licensing and 3D printing platform, gaining early traction with OEMs like BMS and positioning for a high-margin revenue stream.
  • Unveiled new offerings at Formnext—FX10 composite printer (twice the size and speed of X7 at ~$100K) and Vega carbon fiber material with the FX20—driving strong customer interest and backlog.
  • Services revenue grew 33% y/y following a revamped subscription model, higher software attach rates, and improved renewal rates, underscoring deeper customer engagement.
AI Generated. May Contain Errors.
Earnings Conference Call
Markforged Q3 2023
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