Markforged Holding Corporation (NYSE:MKFG) Q4 2022 Earnings Call Transcript

Markforged Holding Corporation Q4 2022 Earnings Transcript March 6, 20,23

Operator: We are pleased to welcome you to the Markforged’s fourth quarter 2022 earnings conference call. This conference will be recorded, just to remind you. It is my pleasure now to introduce Austin Bohlig Director of Investor Relations. Austin, thank you. You may begin.

Austin Bohlig: Good afternoon. Austin Bohlig, Director for Investor Relations at Markforged Holding Corporation. We are pleased to invite you to join us for our fourth quarter and fiscal 2022 results conference call. We will be discussing our earnings press release, which was issued shortly after the close of market today. Shai Terem, the President and CEO of our company, and Mark Schwartz, the Chief Financial Officer, will join me for this call. Before we start, I would like to remind everyone, that this call will feature statements by management that include estimates or other forward-looking statements. These statements are made pursuant to Safe Harbor provisions under the Private Securities Litigation Reform Act 1995. Any statements made during this conference that are not historical facts should be considered forward-looking statements.

These statements reflect management’s current views as of March 6, 2023. Actual results could differ from those stated. Markforged disclaims any obligation or intention, except as required under law, to update and revise forward looking statements. During today’s call we will also refer to non-GAAP financial measurements. 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 Shai Term, President and Chief Executive Officer of Markforged, will now take the call.

Shai Terem: Austin, thank you for being with us during our Q4 2022 earnings conference. The year ended strong, with record quarterly revenues. This was due to the continued growth of the Digital Forge worldwide, despite the difficult operating environment. We saw more and more manufacturers solving mission-critical metal applications on their factory floors using a combination of our metal and advanced components solutions throughout 2022. We were able to meet our earnings per share target thanks to our cost control strategies, which kept us on the path of profitability. Our long-term business fundamentals continue to be a powerful differenceiator as we gain more momentum in our target market. In addition, supply chain disruption is a catalyst to growth because manufacturers have shortened their supply chains via industrial point of needs production.

We are excited about our vision of making manufacturing more resilient, flexible and adaptable by using the Digital Forge. This will allow us to take advantage of the $43 billion market opportunity. Dixie Iron Works, a Texas-based company that harnesses the digital forge’s innovation is a great example. The user solution that gives customers an advantage in the global oil and gas industry. Dixie had to make an engineering modification and their supplier was able to quarter the cost of their product. They instead designed a better, less expensive version of their part with our X7 Printer and have since grown to six Markforged X7 Printers that produce parts on-site in Texas. Dixie grew further after the success of Markforged’s Metal X solution.

Our solution is now used to produce critical steel parts instead of traditional CNCs. This is an excellent example of how manufacturing companies can have a competitive advantage by onshoring their industrial production at the moment they need it. We still have a wait-and see mentality for our manufacturing customers, who are worried about the macroeconomic uncertainty. So, we are still not able to fully realize the potential growth of our product range. We are optimistic that the world will get out of this cycle and our growth will accelerate. However, we have taken the necessary steps to adjust our cost base to ensure that we remain on our way to profitability. After the 2022 acquisitions, nearly $20 million has been taken out of our cost structure since the end of the second quarter.

Notably, we reduced our costs while investing over $70 million in our innovation pipeline through M&A and R&D. We expect to see a $30 million decrease in cash burn in 2023 due to increased operational leverage. We are seeing delayed purchases in the Americas as a result near-term macro uncertainty. In the fourth quarter 2022, we implemented our growth strategy for both the EMEA region and APAC regions. Revenues grew 36% in EMEA year-over-year and 20% in APAC. Both these regions are expected to experience outside growth in 2023. We are improving our go-to market model in the Americas to speed growth and to anticipate the benefits from onshoring in years to come.

We made significant progress in 2022 towards profitable growth. The introduction of FX20, as well as inorganic acquisitions of Teton Simulations and Digital Metal, significantly increased our market. We believe that we will experience accelerated growth over the next few years thanks to our enhanced product offerings and we will continue to increase operational leverage through strong cost control until profitability. FX20 is our largest, most ready-to-commercialize composite solution, and it has been available for manufacturing companies that require high temperatures resistance and industrial strength. We have exceeded our expectations for the FX20, as we already mentioned. In fact, multiple customers placed multi-system orders for FX20 during its first year of availability.

To meet anticipated demand levels for 2023, FX20 capacity is being increased. We were unable to meet our FX20 costs target despite strong demand. In Q4, our gross margins were reduced due to this shortfall. We expect cost improvement in Q1 as well as throughout 2023, and plan to achieve our production cost target within the next year. We successfully executed on our M&A strategy in 2022 acquiring two companies with products that we expect to expand our addressable market opportunity in 2023 and beyond. Tetan Simulation, the first, gave manufacturers greater assurance that their parts would meet mission-critical specifications. This eliminated a major barrier to adopting additive manufacturing. The technology was integrated into the Digital Forge to create a Simulation feature. We also released a beta version of the software free to all our customers in Q4.

Our customers have responded positively with thousands of trial registrations to date. They also simulated part of our software before it went into production. In Q2, we will launch a tiered SaaS subscription that will include simulation. Digital Metal was our second acquisition. It closed in Q3 2022. The expansion of our market to high throughput production and precise and use metal parts is a key strategy for long-term growth. We plan to launch TX100 in Q1 2023. The TX100 doubles the speed of the model and can produce up to 1000 CC per hour. It also has a build size of 10 liters. This allows for high volume production at lower costs per part. The initial customer response has been positive. We expect this line to help us grow our revenue in 2023 and beyond.

Our digital metal solution’s greatest success is opening new markets for Markforged from Distalmotion, a Swiss-based medical device company that produces cutting-edge robotic surgical systems. The serial production parts of our metal binder jellytting solution are used in real medical procedures. This is a great example how our solution provides manufacturers with the flexibility needed to make life-changing decisions. Manufacturing has changed. As manufacturers turn to our Digital Forge for more flexible and resilient solutions, we are now at an important turning point. Our strong balance sheet and innovation pipeline support us in executing our strategy to profitable growth. We feel confident about our business fundamentals.

Now, I’m going to pass the call on to Mark Schwartz, our Chief Financial Officer, who will provide more information about our financial performance and offer guidance for the rest of the year.


Mark Schwartz: Thanks, Shai. Let’s now look at our financial results for the fourth and full year of 2022 as well as our guidance in fiscal year 2023. My comments are not GAAP and reflect our outlook. To assist me with my commentary, the GAAP to non GAAP reconciliation was included in our earnings press release. This was posted to our Investor Relations site earlier today. The fourth quarter 2022 revenue rose 11% to $29.7million, compared with $26.6 million in 2021. Gross profit for 2022’s fourth quarter was $14.1million, compared to $15.3million in 2021’s fourth quarter. This resulted in a net 47.5% gross margin for the fourth period 2022, as compared with 57.6% for 2021.

The fourth quarter 2022 operating expenses were $29.4 millions, compared with $26.3 million in the fourth-quarter 2021. Research and development costs in the fourth-quarter 2022 rose to $10.7million, compared to $8.8million in the fourth-quarter 2021. Based on the weighted average number of shares outstanding for the quarter, which was 194.3 million shares, the net loss for the fourth quarter 2022 totaled $13.3 million. This is $0.07 per share. Our revenue increased 11%, to $101 million, in comparison with $91.2 million for 2021. Our revenue grew by hardware, consumables and service. EMEA and APAC regions saw a 41% and 18% increase respectively in the fiscal year 2021. Gross profit for fiscal year 2022 was $51.3million, while it was $53.4million in fiscal 2021. This represents a 50.8% gross profits margin in 2022 as compared with 58.5% in 2021.

We are confident that we can maintain our strong gross margins due to our cost control and focus on the most demanding markets for machine and automation, maintenance and repair, and operation, as well as mission critical part production. Our operating expenses for fiscal year 2022 were $114.3 Million. Our research and development expenses were $37.8 million in 2022, compared with $27.5 million in 2021 as we ramped up our R&D teams consistent with our commitment to accelerate new product time to market. We will continue to pursue our strategy of expanding our market by product innovation with every new software release and additional material. Our customers will see an increase in the value of Digital Forge.

Our net loss for the fiscal year 2022 was $60.1 million, or $0.32 per share. This is based on our weighted annual shares outstanding of 189.7million shares. Our guidance indicates that fiscal year 2023 revenues will be in the $101 million-$110 million range. We cannot predict the macro environment so this guidance assumes that there will be continued global economic uncertainty and challenges. As I have mentioned, we expect strong gross margins to continue. Fiscal year 2023 non GAAP gross margin is expected to be between 47% and 49%. We will continue to leverage the expense controls we have over our operating costs in 2023. Operating expenses will decline as a percentage our revenue, including the impact from the two acquisitions in 2022. This will result in an operating loss non-GAAP of between $55 million and $58 million for the entire year.

We expect non-GAAP earnings per share to fall between $0.27 and $0.29 for the entire year. Shai made the following remarks: Since the second quarter in 2022, approximately $20,000,000 has been removed from our cost structure, after taking into account the two acquisitions that were completed in 2022. However, our cost controls are not simply the result of realizing cost synergies through M&A. Our operating expenses are reduced by prioritizing innovation and customer-facing activities. We first align our teams to these priorities using moats operational leverage. Then, we focus on the most important initiatives. Further in 2023, we expect to reduce our annual cash burn, excluding any potential M&A activities by $32 million or 39% to approximately $50 million.

This will be made possible by increased gross profit due to higher revenues, inventory decreases, working capital improvement and higher yields on our cash, equivalents, and short-term instrument. In 2023, we expect to have approximately $120million in cash and other short-term investments. We made significant investments in 2021 and 2022 to build an infrastructure that will support long-term innovation as well as our go-to market goals for profitable growth. Our innovation roadmap, product portfolio and cost control are all factors that support our belief in our ability to achieve our goals. We are looking forward to the future. Our prepared remarks for today are over. Operator, you can open the call to ask questions.

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