Q3 2021 Markforged Holding Corp Earnings Call
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Please continue to hold for today's Mark Foertsch Conference call. The presentation will begin momentarily.
Once again, please continue to hold for the Mark forged conference call.
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Critics and welcome to the Mark forged third quarter, 20th 21 earnings Conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Stephen Karp General Counsel. Please go ahead.
Good afternoon, I'm, Steven Karp General counsel of Mark for its Toiling Corporation, and I would like to welcome you to our third quarter of 2021 results conference call will.
We will be discussing the results announced in our earnings press release issued aftermarket close today with me on the call is our president and CEO shy Tara and our CFO Mark Schwartz.
Before we get started I would like to remind everyone that management will be making statements. During this call. It include forward looking statements within the meaning federal Securities laws, 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. All forward looking statements, including without limitation statements regarding our business strategy in future financial and operating performance projected revenue in gross profit for the current year.
Spectate growth, our new material qualification process and market opportunity Ah based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward looking statements accordingly.
You should not place undue reliance on these statements for a description of the risks and uncertainties associated with our business. Please see our SEC filings, including our most recent report on Form 10-Q, and the most recent registration statement on form echelon.
The information provided in this conference call speaks only as of the date hereof, Mark forged disclaims any intention or obligation except as required by law to update our revised 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 gap versus non-GAAP results currently available in our press release issued aftermarket closed today, which can be found on our investor website at https investors Dot Mark Ford.
<unk> Dot com.
I'll now turn the call over to Chi town, President and CEO of Mark porch.
Thank you for the introduction, Steve and thank you all for joining us on our first quarter earnings call.
For those of you or might be near to Mark for an hour story I would like to reiterate our strategy before offering commentary on our first quarter performance.
Mark toward your vision to reinvent manufacturing today. So it can build anything you imagine tomorrow.
We are transferring the manufacturing across many industries by enabling our customers to print and use mission critical industrial applications at the point of neat.
Together with our customers we are building the future of distributed manufacturing.
Since our founding eight years ago, we had experienced high growth.
We support more than 10000 customers with printed more than 10 million parts without connected platform could they do get that forge are integrated carbon fiber and made them additive manufacturing but.
Did you get that for which is made up of free elements first cloud first software architecture.
Second is it to you with industrial grade pretty printers, and third 16 proprietary materials, including advanced meadows and continuous composites.
These three elements come together to help our customers is it is certified and use mission critical applications in the most demanding environment.
It is important to note our focus on industrial grade Andrew sports as opposed to prototyping applications.
Customers designing a printing prototype generally used depart two eight and design development or other single use cases.
Those parts are not expected to be functional and as such and to be price sensitive.
Mark for just one day out of hand is focused on solving high value mission critical manufacturing applications.
Oh, it's printed on our digital forge often required prolong testing and quantity certifications to meet the demanding requirement of the manufacturing night.
Mark was printed parts I expected to perform to process pacification to avoid failure between maintenance cycles.
A line down can quickly cause they manufacture hundreds of thousands of or millions of dollars in lost production.
Our customers are able to solve for mission critical application, but you said I think that they get that forge to reduce manufacturing costs address supply chain challenges moved from physical inventory to dig it in inventory overcomes the limits of traditional manufacturing and solve problems directly at the point.
Importantly, composite spark printed on a dig at that forge often replace traditional manufactured metal parts.
Mark 40 composite parts printed with continuous fiber reinforcement or CFR, a charity lighter and stronger than the metal parts David placed.
As a result or see if our technology is often used in demand in industries, such as aerospace what the motive and defense among others.
So our goal with each new product release is to sulfa additional manufacturing line and used spot that may be replaced with our solution, increasing our addressable market and the adoption of the additive manufacturing into the manufacturing industry.
Because the ticket that 40th relied upon to produce hi Fi do mission critical parts. We believe we have an opportunity to sustain the highest gross margin in the industry.
They figured that fortune platform is a nurse by our software, which incorporate sophisticated technology and uses our global network of connected printers to learn from each other and get better with each print.
Is high quality printed bartz created greater demand for a new printers, and consumables and grow our fleet, which scales are platform and generates even more data, which then accelerates demand for our products. This modest set us up for scalable growth as we move to robust production of mission critical parts.
Oh, the last year and a half COVID-19 is disrupted global supply chains, our digital afford solution surfaces in many factory that can be placed anywhere in the world to help our customers overcome these charges and print parts at the point of need.
We've done on operations, we have really printed parts on every production line to ensure we can print on demand instead of shipping them from all over the world, which reduces our outside dependencies and bedroom ensures business continuity.
Now onto our business update for the quarter.
We enjoyed the strong third quarter, achieving revenue of $24 million, which represented 54% growth year over year.
We are very pleased with our strong performance despite global supply chain disruptions.
We announced two important additions do they think it's unfortunate that form during the border with innovations to our software and materials.
First we introduced either fleets to our software portfolio, our cloudless enterprise software solution designed to provide access controls management and visibility and accelerate the adoption of Edison manufacturing operations at global scale.
Software is the engine of our platform. When you think about large globally connected fleets of mark towards manufactories at the future of the truth of manufacturing I guess it provides to secure cloud based operating system to do so.
Vestas wind systems, a global leader in sustainable energy solutions implemented that they get that unfortunately, I could fleet to manage the production of parts and tools for their global asleep.
<unk> yeah.
Decorated it ecotype constant inventory system, enabling the printed parts on demark, which really printer nearest to them with the click of a button.
With the implementation of Agra fleet versus was able to cut lead time and cost for example, a marketing tool critical for Winter Bank Blade Assembly previously required the lead time, a few weeks and cost of thousands of dollars now it requires only three days and cost on it $100.
Second we launched two new aerospace ready composite materials as a major strategic step to support of highly regulated industries like aerospace and defense.
These new materials are undergoing qualification program for the National Center for advanced material performance or <unk>.
Which is part of the National Institute for Aviation Research.
Completion of this process is expected in early 20th 23, we do golfing Christian Mark Forge addressable market with the first continues fibers additive manufacturing process qualified by income, allowing our customers to more broadly used did you get that Ford in highly regulated industries.
It's Mark <unk>, our team is the greatest assets in the third quarter. We grew to 361 and please with a clear focus on engineering to accelerate product development and deliver a product roadmap.
In particular on the leadership front.
We welcome John Howard as Vice President of Engineering John.
John brings more than 30 years of experience in engineering and product design to Mark fortunes in your own team.
Do you want us to have senior positions at Amazon and Apple among others and his creative thinking and innovation skills will help drive our product roadmap.
Before turning the call over to March what our CFO I would like to spend a minute talking about our new products the ethics 20th.
The ethics Winnie is our biggest fastest hottest and smartest sprinter. We ever built it is aimed at solving robust production requirements, particularly in aerospace defense and automotive industries.
<unk>, 20th first to bring ultimate <unk> strengthened by Mark forged proprietary continues February enforcement.
We anticipate this innovation, we allow us to maturity increase our addressable market into bigger parts and higher volume production parts for mission critical applications, requiring stronger lighter and heat resistant forests.
We expect to ship the ethics 20 in volume in the second half of 2022.
This would drive out growth and amplify the normal Susan entity with journey experiencing differed in fourth quarter of the year.
I will now turn the call tomorrow to offer more detail overview of our financial performance.
Thanks shy.
Let's turn to our third quarter financial results in our guidance for the full year of 2021.
Third quarter revenue increased 53.8% year over year to $24 million compared with revenue of $15.6 million for the three months ended September 30th 2020.
We experienced growth across all products and services and across all geographic regions.
Hardware sales increased 58.4% compared with the same period last year.
Third quarter gross profit increased 47.2% year over year to 13.7 million.
Compared to $9.3 million for the three months ended September 30 2020.
Our third quarter gross margin was 57% compared to 59.6% for the third quarter of 2020.
The decline in our gross margins year over year is largely attributable to disruptions in the global supply chain that have increased our cost of materials.
We continue to address supply chain challenges and a number of ways, including procuring larger order quantities.
Adding complimentary sources of certain materials.
And otherwise mitigating manufacturing constraints to fulfill demand and meet our growth objectives.
Where necessary we have also purchased materials of higher prices to secure sources of supply.
That said are gross margins remains strong.
Which we believe is attributable to our focus on serving mission critical needs of the manufacturing industry.
Are differentiated platform the digital forge drives our revenue growth and supports our gross Martin.
Our third quarter operating expense was $33.9 million adjusted for stock based compensation charges of $6.1 million.
Third quarter operating expense was $27.8 million compared with $12.5 million in the year ago quarter.
Stock based compensation expense included 3.4 million related to earn out shares granted to mark forged employees as part of the public merger in July of this year and subject to performance based best thing.
The balance of the stock based compensation expense for the third quarter of $2.7 million was attributed to ongoing besting of equity periodically granted to mark forged employees consultants and Nonemployee directors.
Operating expenses in the quarter also included $2 million a transaction costs related to our public merger.
The increase in third quarter operating expense was in line with our plans for public company preparedness and includes head count insurances and other expenses across departments to support our public company infrastructure and growth plans.
Third quarter research and development expenses increased 134.5% year over year to $9.5 million compared with 4 million in the year ago quarter.
We invest heavily in innovation.
<unk> mentioned in his remarks, our goal is to materially increase the use cases for our customers with every software development hardware release or additional material.
Thus, increasing the value of our digital <unk> platform and expanding our addressable market.
We are intent on increasing our spend in innovation to expand and accelerate our research and development efforts and ultimately increase the velocity of new product introduction, which will fuel our longer term growth.
Third quarter adjusted EBITDA was the loss of 11.6 million or six cents per share based on 186 million shares outstanding as of September 30th 2021.
And seven cents per share based on a weighted average outstanding share count of $163.4 million as of September 30th 2021.
Adjusted EBITDA excludes stock based compensation expense of 6.2 million non.
Non-recurring audit legal and other expenses associated with this back a transaction of 2 million.
And other income of 44.1 million, representing the mark to market adjustment of the derivative liabilities related to the merger with our spec sponsor a star.
Now onto guidance.
We anticipate full year 2021 revenues of $88 million to $90 million and.
And we expect to end the year with gross margins, 57% to 58% within the range of our target for the year.
We anticipate adjusted EBITDA for the full year 2021 will also be within the range provided in our previous public filings.
We intend to guide within a range of revenues gross margin and adjusted earnings for fiscal year 2022 next March in our earnings call to discuss the results of our 2021 fiscal year.
That concludes our prepared remarks today.
Operator, please open up the call for questions.
Thank you.
At this time will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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For participants using speaker equipment, it may be necessary to pick up your handset before pressing the sarkies.
Our first question today is from Troy Johnson of Lake Street. Please proceed with your question.
Okay, gentlemen, congrats on great results here.
Extra thank you.
Hey, let's start with you say you know ethics, 20th settled you'll see it next week in Germany.
Yeah, well first of all is it is it gonna be running <unk> <unk> I will this also Glen Onyx I'd imagine this HED stuff like Pete impact, but just as it ultimate ruling currently.
No the ethics 20 would be able to bring all of them.
Onyx and continues farmers.
Okay, perfect I said, and obviously going against the Florida the lines with Stratasys, you know, they're gonna claim consistency durability reliability right that had millions of dollars on on these hanging for this machine set just curious if you don't need benchmarks in it.
Can talk about just and how this really stacks up against.
Competitor out there.
I think it would be great to focus on our capabilities and the next week. When we'll see you in for me if you can see the part yourselves.
Right now we have is you know 10000, very happy customers with 10 million parts printed over a platform and they they fix twenties taken it completely to the next level.
Alright, perfect I respect that how about a quick remark could you just give us a couple of just.
This modeling questions here for Ya, specifically other income what we should start to think about the chairs.
Chairs and Kevin as as Texas anytime soon but just that some of those to the Apple.
Yeah. Thanks, Troy. So this is a cough.
Complicated accounting.
A result of the spec transaction and uhm derivative.
Liabilities associated with marking to market.
The earn out shares associated with that transaction and negotiated this part of it so far.
Fortunately or unfortunately, it's something that will deal with every quarter based on changes in our share price.
And and it will sit in other income.
Okay, and then as far as like Cirque onto you, though in Texas still gonna be zero for quite some time.
Uhm.
Taxes will be nominal for certain the.
Again as a as a merged entity from this the the spec transaction our weighted average share count will continue to climb through the end of this year and then it'll just be an adjusted a I'm sorry, a outstanding share account uhm that would that would mirror any other publicly traded company.
Our outstanding sure count today or as of September 30 was about 186 million. The weighted number is a bit less than that as it gets to averaged.
From the pre public.
Mark forged through the post public Mark forged in battle ketchup by the end of the year.
Okay perfect. Thank you Mark and maybe just one last one for shy blacksmith update on that number of appointments customer feedback would be helpful. Thank you.
Yeah, we don't Ya exactly because there, but the as you can throw in and release messed US is a great example of a big company it that day.
Have a massive adoption of our solution and we death Tuesday I go straight for example to help them manage their.
Their platforms all over the world between different continents.
We do have some more customers when the blechman side that they can do full advantage of different and we continue to see that to be your customers and as you know we have.
A lot of them that have more than one printer, yeah, taking name.
A good look how can they take the full advantage and exploit the full potential of all connected to touch one.
Perfect Alright, guys, Congrats again and keep up the good work I'll see you next week.
Thank you all right.
The next question is from Brian Drab of William Blair. Please proceed with your question.
Hi, Good evening. This is blake heating on for Brian.
I was just curious were there any large customer orders from aqua machines in the corner or any expectation that might come about in the near term.
Can you repeat the question please.
Yeah were there any large customer orders for multiple machines and a quarter.
Oh sure well, you'll you'll remember from our one of our press releases.
Noting the release of our Iger fleet software. This is specifically aimed to support those customers that do own multiple or purchase multiple uhm and one shadow over the course of a year and build up their portfolio. Many many many of our customers have multiple and it's not.
Uncommon at all to sell five or more even in one uhm and one order. So absolutely that is the case and it's part of the reason why they would be part of the reason why we are now.
Providing the aggro fleet software to our customers.
Alright. Thank you and then at just how should we think about gross margin you might you get guidance for 2021, and I know you said you provide guidance.
On that four cute.
One call, but how should we think about gross margin in 2022 puts.
Puts it takes on it.
Yeah, I think the biggest the biggest unknown, if you will or variable out of our collective control.
Is around the supply chain pressures, most notably related to COVID-19, but that we're all experiencing.
And I think.
We we are positioned the way we want to be positioned in terms of the value, we're providing our customers and that value is what allows us to differentiate ourselves with industry, leading gross margins. We believe that will continue and we believe that we are on a great trajectory uhm, we are all experiencing.
Supply chain the volatility in the supply chain currently and we expect that's going to continue at least through the first half of next year, possibly longer.
So there is some challenge there in the short term, but in the medium and the longer term, we remain very bullish on our on our gross margins.
Alright. Thank you that's all.
You're very welcome.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad or.
Our next question is from Jim Suva of Citigroup. Please proceed with your question.
Thank you for all the details so far.
As most people are aware, there's a global supply constraint on materials and I wanted to see if that's impacting your pipeline ahead. Both for you obey able to procure and put together your own machines, but also importantly, any changes to consumer.
Behave now consumer enterprise behavior.
Are they looking at putting in orders earlier are they shifting their priorities simply to make things work in between now and when this resolved or deferrals are accelerants can you just kind of talk about the global supply chain impact on both your company and then your customers. Thank you.
And could you for the question. So I would say at least on the front end with differently H N C. A changing behavior. If <unk>. If you look on those tests that could easily get to help people understand that they have a problem and later on you need to help them understand that we can solve at Fordham today. The first part is already very clear.
We have a lot of customers coming to us and they understand that they must be much more resilient supply chains, they must be able to bring that <unk> in house to make sure that they can continue building their products and continue sending their products.
And so I would say that we definitely accelerated demand and accelerating that a little bit of the <unk> process. The results and I think this is why are you able to see that we had a very strong quarter in queue free and I believe that it would continue into the next few quarters, because everyone for Ya and the supply chain shortages, Mark you want to add a little bit on the back end of it yeah.
Inc.
Hi, James Good to talk with you I think the back end.
It is simply that we continue to aggressively address these issues like no doubt others are and and in some cases to make certain that we do have source of supply we have proactively determined that we need to bring another source on even if that source is more expensive source for us and.
Can we do so to ensure continent continuity of supply. So so we haven't had any issues today that are creating backlog are causing us to not be able to fulfil demand.
Thank you so much for the details and clarifications.
You're very welcome.
Thank you.
The next question is from Noel built up Stifel. Please proceed with your question.
I guess I'll start with a very general question and then I have a more specific question but.
You know with <unk>.
<unk> worsening supply of tennis shoes curious if there are any particular industry, it's where your soul.
More inbound interest regarding kind of the value that mark twice can provide them with pictures that now you talked about that desperate any others that are sort of them are getting a really accelerating in terms of industries, where you're saying increased interest. Thanks.
I think you free was a strong across the board and across all industries name.
From Susan our perspective, Federer was extremely strong pain, but we definitely see it across all the industries I think it's related to the question that you must before but we see.
People come in to us and they initially to try to find a solution in the tradition of an infection. What could maybe is C. N C machine, but they they cannot get it then they buy them at the Knicks in advance because we can deliver so I think maybe from that front weird getting another an event back weaned from the current situation.
Yeah, Noel I'll, just add onto that uhm note that in a very particular customer instance, the customer reached out to us and and told us that they were attempting to buy a C. N C machine, but couldn't get it and they were back ordered and if we could deliver them our system immediately they would make the sale right away. So we are we are seeing.
Some of that.
Okay.
Okay, Great and and second question I guess is sort of that they're given that you said you would provide 2022 that and uhm later next year, but I mean, just given where.
We are with supply chain of shoes, I mean is it kind of fair to assume.
Gross profit Martin's at more of the back half of the right as we move into that really part of 2022 I guess another way to ask that question would be you know if you look at these dual multiple sources of supply and and some of the costs you're taking on you know is it is it fair to assume they're reasonably permanent heading into or at least.
Going to sustain heading into that the first half of next year. Thanks.
What I would tell you is that we are actively working Miss every day and it's probably the main reason why we're not comfortable guiding next year, yet we think there's an opportunity for us to continue to meet the <unk> the the the strong.
Expectations that were setting for ourselves, but it's too early to tell and the market is just too volatile. So I I think there's there's some truth in what you say, but we are we are not we're not giving up on that yet.
Okay. That's very helpful. Thank you.
Very welcome.
There are no additional questions at this time I'd like to turn the call back over to <unk> for closing remarks.
Thank you very much everyone for joining us and then if you have any more questions for you. Good for you to reach out and we'd love to discuss further thank you very much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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