Markforged Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 7 speakers on the call.

Operator

Hello, and welcome to the Markforged First Quarter 20 24 Earnings Conference Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Austin Bullig, Director of Investor Relations. Please go ahead.

Speaker 1

Good afternoon. I'm Austin Bullock, Director of Investor Relations of Markforged Holding Corporation. Welcome to our Q1 of 2024 results conference call. We 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, Shay Turem and CFO, Azaf Sapore.

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. These statements represent management's views as of today, May 8, 2024, and 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, to update or revise forward looking statements. Also during the course of today's call, we refer to certain non GAAP financial measures.

Speaker 1

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

Speaker 2

Thank you, Austin, and thank you, everyone, for joining us on our Q1 2024 earnings call. We started 2024 with strong execution, setting a solid foundation for the year ahead. While the CapEx environment remained challenging in Q1, the market response to our new product has been very encouraging, and we are optimistic about the opportunities these products will bring in the second half. With FX10, FX20, VX100 and digital source, we believe we are positioned for growth as we drive the adoption of additive manufacturing on the factory floor to increase efficiency, reduce costs and improve supply chain resiliency. I want to begin by providing an update on the patent lawsuit with Continuous Composites.

Speaker 2

In April 2023, the court eliminated 20 of the 22 patent infringement claims made against Markforged. Last month, a jury found that Markforged had infringed on 1 of the 2 remaining claims and awarded monetary damages in the amount of $17,300,000 We strongly disagree with this verdict and intend to seek to overturn the verdict in post trial motions with the District Court. We're exploring all available options, including seeking to overturn the resulting judgment through the appeals process. We continue to believe that there is a massive opportunity to help manufacturers bring industrial production to the point of need. With effective cost controls, prudent cash management and new innovative product line, we remain focused and excited about the future of the company and our ability to continue to drive the adoption of additive manufacturing on the factory floor.

Speaker 2

We reached a pivotal milestone in Q1 by shipping the first FX10 units, which is Markforged's next generation 3 d printer for the factory floor. FX10 delivers high print quality at print speeds that are nearly twice as fast and print size that are up to twice as large compared to its predecessor, the X7. The initial market feedback has been encouraging. Customers are already printing mission critical parts for the factory floor. In fact, Toyota is one of our first customers accelerating part production for a towing application on their assembly line with FX10.

Speaker 2

As we enter Q2, our FX10 pipeline continues to grow and we remain on plan to accelerate deliveries in the coming quarters as we continue to scale up production. We believe the FX 10 meaningfully enhances the digital forge and our massive opportunity on the factory floor. Manufacturers need to reduce cost and build more resilient supply chains remain a secular tailwind driving demand for the Digital Forge. Our customers across the world increasingly recognize the Digital Forge as a powerful platform to achieve these goals and more. Harvest Stance, a design and engineering customer specializing in additive manufacturing provides another example of Markforged on the factory floor.

Speaker 2

Harvest Tents needed a solution to produce customized, lightweight and strong vacuum grippers for collaborative robots and at automation production lines. Only with the Digital Forge could harvest ants meet the structural and impact strength these parts required for certification. With the combination of Onyx and carbon fiber reinforcement, our stance reduced the gripper's weight 80% while improving strength and reducing delivery time from 2 weeks to 2 days compared to conventional machine grippers. Hover stand turned to the FX20 when they needed to print larger tools such as customized grippers or palletizing and heavy pick and carry tools for large industrial robots. We believe growing demand for industrial automation technologies is a robust tailwind for the Digital Forge, as similar robotic applications continue to spread across the factory floor.

Speaker 2

Looking ahead, currently, we remain on plan to achieve the 2024 targets we laid out at the beginning of the year. We believe we are positioned for growth in the second half of twenty twenty four, driven by our new product, robust fleet utilization and improving efficiencies in our go to market operations. With that, I now turn the call over to Asafdi Bori, our 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 Q1 of 2024 and the outlook for the full year. Please note that my comments reflect our non GAAP results and outlook. For your reference, our earnings press release issued earlier this afternoon and posted to our Investor Relations website includes our GAAP to non GAAP reconciliation to assist with my commentary. So let's begin.

Speaker 3

Revenue for Q1 was CAD20.5 million which is 15% down from the Q1 of 2023. Our revenue performance was largely driven by lower system revenue, which continues to be impacted by a challenging macroeconomic environment with high interest rates. That said, utilization rates remained healthy in the quarter. Consumable revenues were essentially flat year over year. Furthermore, we are pleased with the adoption rate of our subscription based software and services with revenue growing 18% year over year in the Q1.

Speaker 3

Gross margin for the quarter was 51.3%, representing 1.8 percentage point increase from Q4 and up 2 points from the Q1 of 2023. This margin expansion was positively impacted by operational efficiencies and product mix. A key goal for us in 2024 is to sustain this positive momentum, scaling up our business and enhancing operational efficiencies even further. Operating expenses were CHF 24,100,000 in the Q1 of 2024, down from CHF 26,700,000 in the Q1 of 2023. This improvement is a result of our ongoing efforts to reduce operating expenses and optimize our cash utilization.

Speaker 3

We expect our operational efficiencies to further lower our quarterly OpEx run rate in 2024. Furthermore, we continue to take actions to lower our OpEx in 2025. Operating loss was €13,500,000 for the Q1 of 2024, an improvement from $14,800,000 in the Q1 of 2023. Net loss in the first quarter of 2024 was CAD 12,200,000 an improvement from a loss of CAD 13,300,000 in Q1 2023. 1st quarter loss per share was 0 point 06 dollars based on our weighted average shares outstanding for the quarter of 199,300,000.

Speaker 3

Dollars Driven by improving operational and working capital efficiencies, our net cash used in operating activities in Q1 was $7,400,000 This is an improvement of approximately 52% from the Q1 of 2023. While we expect our cash utilization to increase in Q2 as a result of annual compensation payout, we expect our cash utilization to improve in 2024 as a result of higher revenue, gross margin expansion, strong OpEx controls and working capital efficiencies. Our cash and cash equivalents were $107,900,000 at the end of Q1, down from $8,900,000 from the end of Q4 2023. We also want to provide the financial impact related to the continuous composite lawsuit verdict in Q1 2024. First, we strongly disagree with this verdict and we are actively exploring all possible options to overturn the verdict.

Speaker 3

In Q1 2024, we accrued a GAAP expense of CAD17.3 million to reflect the judgment awarded by the jury. This is excluded from our non GAAP results. No cash payment has been made at this point. Given the nature of this ongoing dispute, we are limited in commenting on this matter beyond what we have publicly stated. Furthermore, our guidance does not reflect additional action that Continuous Composites may take, which may include seeking additional relief through post trial motions for royalty payments on future revenue as described in our April 12 press release.

Speaker 3

Now moving on to our guidance. We are reiterating our 2024 guidance provided at the beginning of the year. We continue to anticipate fiscal year 2024 revenues to be within the range of $95,000,000 to $105,000,000 which acknowledges the persistence of macroeconomic headwinds throughout the year. We expect revenue to grow mid single digits quarter over quarter in Q2 and we continue to see an opportunity for accelerated growth in the second half underpinned by new products and particularly the FX10. We expect gross margins to be within the range of 48% to 50% as we continue to ramp up our new product lines.

Speaker 3

We are encouraged by our strong Q1 gross margins performance and see a path to the upper end of our guidance pending our revenue performance in the second half of the year. We expect non GAAP operating loss in the range of $42,500,000 to $47,000,000 for the year, which is an improvement from a loss of $57,600,000 in 2023. In turn, we expect non GAAP EPS results for the full year to be a loss in the range of $0.19 to $0.22 per share. That concludes our prepared remarks today. Please open up the call for questions.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Greg Palm from Craig Hallum. Your line is now live.

Speaker 4

Yes, thanks. Good afternoon, everybody. Congrats on the initial shipments of FX10. Can you just give us some sense in sort of where the pipeline stands today, kind of what capacity is like and maybe a little bit more color on how you sort of see that playing out throughout the end of the year?

Speaker 2

Sure. Hi, Greg. Thank you. I would say the Q1 was great. We're able to ship some of this FX-ten.

Speaker 2

The initial feedback from the customers is really good and strong. We have great customers that were able to print right out of the box, very, very long prints and amazing parts, including Toyota, as we suggested. The pipeline is building up as expected and maybe even more as we discussed before. We expect this to be our next flagship product and so far it's building up correctly. I would say from production perspective, it's going to probably take a

Operator

quarter or 2 until

Speaker 2

the supply will meet the demand. And after that, we're going to be in the regular course of business.

Speaker 4

So theoretically, you could be kind of at a full run rate where supply matches demand by maybe Q4 this year?

Speaker 2

Potentially, even earlier, yes.

Speaker 4

Yes, okay. And cognizant of what you can or can't say regarded to the comprised of? Just trying to get

Speaker 2

a sense of like what the worst

Speaker 4

case scenario is here? Yes. Comprised of? Just trying to get a sense of like what the worst case scenario is here.

Speaker 3

Thank you, Greg. This is Asaf. So this is related to our hardware and more specifically this is related to the continuous carbon fiber technology within our hardware. This is an IP based in the or the claim is related to the US and it's at this point it's just too early to give additional indications and I can tell you that we obviously disagree with the verdict and we are acting, we're doing whatever we can to overturn the verdict and we are evaluating all of our options.

Operator

Thank you. Next question is coming from Brian Drab from William Blair. Your line is now live.

Speaker 5

Hey, thanks for taking my question. This is Tyler on for Brian. Just looking at your international performance, it looks like that had a pretty large year over year impact. Can you just explain kind of what's going on in Europe and Asia?

Speaker 2

Sure. I think it's very common at least for Mike, I mean, the industry, but you see the cycles of challenges go around the world. And I think what we saw in the U. S. And the Americas a couple of quarters ago, now we see in the EMEA and APAC, and I do believe that we're going to see the recovery soon with these regions as well based on the pipeline that we see.

Speaker 5

Okay, that's great. And the FX10 shipments, did those mostly go to existing customers? And if so, when will they start to kind of be shipped out to new customers that put in orders?

Speaker 2

Sure. So I would say, as usual, when we release a new product, we ship first some of these printers to our channel partners and distribution network to make sure that we continue to create the demand, bring the printer closer to the customers to the field. So that will continue in Q2 as well. And the initial orders usually are coming from existing customers that expanding like Toyota, but there is also a lot of new customers due to the capabilities of the solution. We're expecting Q2 to see both.

Speaker 5

Okay. Thank you. I'll pass it on.

Speaker 2

Thank you.

Operator

Thank you. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now

Speaker 6

live. Hey, gentlemen, congrats on the decent results here in a tough environment. Maybe for you, Shay, I'd love to just hear you just start on DigitalSource and traction you're getting with that and just maybe more customer success stories or?

Speaker 2

Sure. So we actually see great engagement around the digital source, and I would say especially around enterprise accounts, which are really looking how to change their business model and their supply chain and the new way that they're going to do MRO for their manufacturing floors. As we expected, there's not going to be material revenue at the current stage, but adoption of the solution and changing of their base model into the solution. But so far, the engagement is very high, and we are very encouraged around it.

Speaker 6

Okay, perfect. I would just press you guys a little bit on gross margins. I mean, you guys were well above the range for the year here in Q1 and I get the FX 10 launch is going to dilute it. But I mean, I would assume once FX 10 is shipping at more full volumes, it's probably accretive to gross margins, not dilutive to where we are now. So just maybe a sense on where do you think gross margins are going to be in Q2 with the FX launch?

Speaker 6

Or just kind of help kind of square that circle for me.

Speaker 3

Yes. Troy, that's a great question. We are very encouraged with the expansion that we've seen in Q1. That's a great indication to our ability to reach our long term targets of mid-50s in terms of gross margins. Now the way that we look at it at the moment is that we're still facing a tough market and we are about to release more technologies and we are ramping up the FX then, we're going to release the PX-one hundred and all of that could put pressure on our gross margins.

Speaker 3

So currently we feel comfortable with the range that we have provided, but there's an opportunity to be closer to the upper range as we see revenue picking up in the second half of the year.

Speaker 6

Great. Okay. And how about I know you can't talk much about the litigation. Can you just tell us how much historical legal expense has been in the OpEx numbers?

Speaker 3

Historically, we're not breaking it out.

Speaker 6

It's not something just Just wondering is this going to be what drives the 2025 OpEx lower? Is it just going to have dramatically lower G and A expense because of the lack of litigation hopefully? I mean, you can't give color, I get it, but that's just Yes. I think

Speaker 2

there's a few more operational activities that we are doing that this is what we believe is going to drive the lower OpEx over time. It has nothing to do with the litigation directly.

Speaker 6

Okay. All right, perfect. Well, congrats guys and good luck going forward here.

Speaker 2

Thank you.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Speaker 2

Thank you very much everyone for joining us for the Q1 earnings call. Looking forward to see you in the next quarter. Thank you.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Powered by Quartr

Key Takeaways

  • Markforged reported Q1 2024 revenue of $20.5 million, down 15% year-over-year due to a challenging CapEx environment, but achieved gross margin expansion to 51.3% and improved its non-GAAP operating loss to $13.5 million.
  • The company shipped its first FX10 3D printers—delivering nearly twice the speed and size of the X7—and secured early validation from customers like Toyota, with a growing pipeline expected to drive accelerated growth in H2 2024.
  • Consumables revenue was flat year-over-year while subscription software and services climbed 18%, underlining strong adoption of the Digital Forge platform for factory-floor applications and efficiency gains.
  • Markforged accrued $17.3 million related to an adverse patent infringement verdict in its Continuous Composites lawsuit, but strongly disagrees with the ruling, plans to appeal, and has not made any cash payment to date.
  • The company reaffirmed its full-year 2024 guidance of $95–105 million in revenue, 48–50% gross margins, and a non-GAAP operating loss of $42.5–47 million, expecting mid-single-digit Q2 growth and stronger momentum in the second half.
AI Generated. May Contain Errors.
Earnings Conference Call
Markforged Q1 2024
00:00 / 00:00