Q4 2021 Fathom Digital Manufacturing Corp Earnings Call

Thank you for your patience, the FAP and digital manufacturing conference call will begin in approximately one minute.

[music].

Hello, and welcome everyone to the father of two manufacturing conference call. This call is being recorded on a replay will be available later today.

After the company's presentation there'll be a Q&A session with instructions to felt like Oh, that's fine.

I would now like to turn the Kool aid that Smuggles, Timothy Robbins director of Investor Relations. Michael. Please go ahead.

Thank you Lauren and good morning, everyone. Welcome to Fathom is fourth quarter and full year 2021 earnings conference call.

Before we begin I'd like to mention that today's presentation and earnings press release are available on fathoms website at Fathom M. S. G Dot com.

Also find links to our SEC filings along with other important information about our company.

Turning to slide two we note that this presentation contains forward looking statements within the meaning of the Securities Exchange Act. We encourage you to read the risk factors contained in our filings with the SEC become aware of the risks and uncertainties in our business and understand that forward looking statements are only estimates of future performance and should be taken as such.

The forward looking statements represent management's expectations only as of today and the company disclaims any obligation to update them.

On slide three today's presentation includes non-GAAP financial measures to describe the way in which we manage and operate our business. We reconcile these measures to the most comparable GAAP measure and you are encouraged to examine those reconciliations which are found in the appendix to both the press release and the slide presentation.

We also know fathom has not yet completed its reporting process for the three and 12 months ended December 31, 2021 full financial statements for these periods will be filed on or before March 31, 2022, our preliminary unaudited results are based on fathoms reasonable estimates and information available as of.

This time.

With us today are Ryan Martin Fathoms, Chief Executive Officer, and Mark Frost, Our Chief Financial Officer, I will now hand, it over to Ryan.

Thanks, Michael and welcome everyone to Fathom first earnings conference call since becoming a publicly traded company in December we're excited to be here today and have a full agenda as outlined on slide four I will begin by providing a brief overview of battle I will then provide a business update before turning the call over.

To mark to discuss our results for the fourth quarter and full year 'twenty 'twenty. One Mark will also provide an overview on our strong capital position and outline our financial guidance for 2022, I will then provide some closing remarks before we open the call up for questions.

Turning to slide five fathoms mission is to accelerate manufacturing innovation for the most product driven companies in the world.

We are an industry leader in on demand digital manufacturing with over 35 years of experience in providing enterprise level customers with integrated solutions across both additive manufacturing and advanced traditional manufacturing technologies.

We do this by leveraging our 12 domestic manufacturing facilities as well as our domestic and international supply chain partners, we enable our customers to accelerate their product development and production manufacturing by giving them access to more than 25 different manufacturing processes.

Fathoms comprehensive capabilities provide corporate customers with the ability to capitalize on their increasing adoption of industry 4.0 practices, including the digitization of manufacturing further adoption of additive manufacturing the re shoring of company supply chains. These.

These evolving macro trends are shortening product life cycles, driven not only by higher consumer demands, but also by the advanced technologies that allowed new products to be developed faster than ever before.

At the same time companies are taking steps to ensure their supply chains are more agile and resilient given the numerous constraints that have extended beyond the ongoing COVID-19 pandemic, whether it's the port congestion challenges severe weather disruptions labor shortages companies have had to rethink their.

As supply chains, and Covid has only accelerated this transformation.

And fathom is uniquely poised to take full advantage of these secular tailwind. We believe that we are the only add scale end to end solution. Within this highly fragmented 25 billion dollar market, serving the low to mid volume manufacturing and we are uniquely positioned fathom to meet the.

Needs of some of the largest and most innovative product driven companies in the world today.

With our broad Ondemand platform, we provide turnaround times in as little as 24 hours combined with a unified digital approach dedicated customer facing engineers design support and material expertise our customers are able to iterate more efficiently in there.

Our development pipeline and ultimately get their products to market faster because of us.

This helps the companies we work with the gang of competitive advantage over their competition as we become an extension of their R&D efforts and manufacturing teams.

The application of our breath of offerings spans multiple industries as we are proud to say we work with many of the top 10 fortune 500 tier customers within the aerospace automotive consumer industrial medical and technology sectors and as Mark will discuss.

In more detail later in the call Fathom has an attractive financial profile with a history of profitability and cash generation. This is yet another core differentiator.

More differentiation of our company.

We also have a leadership team with decades of combined experience and a track record of scaling high growth companies along with a stellar board comprised of a diverse group of business leaders with a track record of advising and driving innovation for some of the worlds leading companies.

Moving onto slide six we will illustrate how fathom is focused uniquely on the high margin rapid prototyping and low to mid volume production, we work with enterprise customers to help them develop their initial product transforming their digital file into a physical product utilizing our deep expertise.

Peace in additive manufacturing CNC machining injection molding and precision sheet metal fabrication and many more applications as well by them is a service business and our service is manufacturing.

So you won't see a product in the market with Adams name on it you are still interacting with hundreds if not thousands of products that we were directly impacted by our company whether it's the smartphone waking you up in the morning or the machine you maybe got your coffee from the food that's in your fridge or the shoes, you put on your feet. The car you.

Drive or the play New board, we are impacting all of those products and so many more.

As I mentioned earlier in the call we offer more than 25 different manufacturing processes across our 12 domestic manufacturing facilities. This allows us to produce anywhere from one to tens of thousands and in some cases hundreds of thousands of parts for certain customers.

However, we're not producing the same part over and over again in a commoditized fashion. Instead, we focus on complex orders with high mix and low volume, which ultimately helps our customers accelerate the pace of their manufacturing innovation in a way that we believe no other company can replicate.

And we do this at scale.

Now turning to slide seven we outline fathoms differentiated strategy enterprise customers choose fathom due to our focus on speed.

Adaptive technic technical responsiveness flexible problem solving.

Our ability to handle quality full service support and comprehensive capabilities as I've outlined.

We pull all of this together with our proprietary software suite that allows our customers to interact with us regarding quoting project management design, all the way through to production acting as a key enablement tool for us at bad we serve at the inflection between traditional.

Manufacturing and additive manufacturing to solve the complex challenges for some of the world's most product driven companies, helping them to iterate faster and often shortening their development cycles from months down two days, we are a pioneer in the on demand digital manufacturing space and an early adopter.

Are both plastic and metal additive manufacturing importantly, we utilized our over three decades of manufacturing expertise and our technology agnostic approach to apply the best manufacturing process to deliver the most effective solution that achieves the desired outcome for our customer this <unk>.

<unk> is a differentiated customer experience during the process.

We continue to adopt the latest technologies and materials that take hold in the evolving digital manufacturing market. So that our customers can leverage them in a more efficient manner as opposed to trying to bring them. All in house. This allows our customers to consolidate their supply chain by sourcing through are you not unified.

Wire to meet their various needs our unique ability to essentially act as an ETF for the digital manufacturing market combined with our in depth knowledge and insights into future trends allows fathom to serve as a trusted adviser for our customers. We have become an entrenched partner to some of the world's most innovative.

Fortune 500 companies some of which are noted on the bottom of this slide we have partnered with some of our top customers for over 15 years working with them across multiple sites and in many cases, we're developing hundreds of contacts within each of these companies providing highly reoccurring revenue streams for <unk>.

Our business.

On slide eight.

We highlight some of our key business wins during the fourth quarter and year to date.

The acceleration of our customer engagement is directly attributed to the ongoing execution of our strategy to both increased penetration among our existing customer base and expand through new enterprise customer relationships. Once we established an existing relationship we seek to broaden the number of customer contacts for.

Each account using our automated software solution and commercial operations. This land and expand model has been very effective for fathom, allowing us to leverage initial customer acquisition cost within these individual accounts and continue to deliver profitable growth.

As you can see on this slide.

This includes several multimillion dollar orders, we continue to have success in expanding our share of wallet with blue chip customers and adding new corporate accounts as well also of note on this slide is the diversity of the end markets, which are largely high growth sectors across medical.

<unk> electric vehicles robotics semiconductors, and others, we have an intense focus on accelerating the time to market for these customers and maintaining a more local and more agile supply chain for them.

Yeah.

Turning now to slide nine we provide our financial highlights for the fourth quarter fathoms unique go to market strategy, which combines our broad set of manufacturing capabilities and advanced software and deep technical expertise allows us to adapt our manufacturing process to our customers' specific needs.

They do not need to sacrifice their design intent to match our capabilities. This has led to robust customer engagement that we have translated into positive financial results for our company. Our total orders in fourth quarter increased year over year by approximately 26.

<unk> to a record $49 $1 million further expanding our backlog of new business and increasing our visibility into future revenues, while Mark will review our financials in more detail our reported revenue for the quarter totaled $44 3 million for a year over year increase of 130.

Eight 3% of which $6 9 million was organic and $18 3 million was through acquisition related activity. We expect a record orders growth in Q4 to contribute to revenue throughout 2022 as shipments for new orders often extend beyond a quarter or two depending on the size and order.

Also in Q4, we continued to deliver profitable growth with reported adjusted EBITDA, increasing to $10 5 million, representing a margin of 23, 8%. We believe our solid performance in Q4 reflects the strength of fathoms unique business model.

And reinforces the strong fundamentals of our industry as we continue to build upon our positive momentum we remain focused on achieving greater market share for our additive and traditional manufacturing technologies among enterprise customers and continue to solve complex manufacturing challenges that exist throughout our large and fast growing.

The industry with that I will now turn the call over to Mark.

Thank you Ryan and good morning, everyone I'll begin my remarks of our preliminary unaudited results on slide 10, now for the fourth quarter, our reported revenue increased 133% to $44 3 million due to an increase in the volume of customer served primarily through revenue from new acquisitions in 2021.

Completed five acquisitions focused mainly on CNC machining.

I don't know organic basis, which excludes the impact of acquisitions, our revenue climbed 18, 4% in the fourth quarter as we continued to take advantage of the strong demand for our comprehensive services and executed on our growth strategy.

During the quarter, we experienced an uptick in shipments for injection molding and precision sheet metal primarily based on cross selling activities from acquisitions completed in 2020 now.

Now looking at our quarter four reported revenue by product line. It was as follows.

Additive manufacturing was up four 5% to $4 5 million or 10, 2% of total revenue injection molding increased 84% to $9 million or 24% of total revenue.

CNC machining increased $5 seven X to $14 2 million or 32% of total revenue precision sheet metal was up about 138% to $13 9 million or 31, 3% total revenue and ancillary technologies increased 75% to $2 7 million or six 2%.

Of total revenue now for the full year 2021 reported revenue increased approximately 149% to $152 2 million on an organic basis, our revenue for the full year increased approximately 9% to $162 6 million, which surpassed the high end of our previously stated guidance range.

That we issued in early January .

Now on slide 11, we provide our adjusted EBITDA performance for the fourth quarter and full year 2021 for the fourth quarter. Our reported adjusted EBITDA of $10 5 million was up significantly compared to $1 5 million in the prior year period, our adjusted EBITDA margin in the quarter.

Was 23, 8% representing a year over year improvement of approximately 16 percentage points.

During the fourth quarter, we benefited from higher volume leverage due to the strong demand for our quick turn manufacturing services as we mentioned earlier. This notable performance was partially offset by our sales mix stemming from the 2021 acquisitions in a relatively lower margin CNC machining product line.

SG&A increased 41% to $12 3 million in quarter, four primarily due to higher expenses from acquisitions, but also included expenses related to building, our public company infrastructure and fully integrating the operations from our recent acquisitions, including <unk> standardization and ERP implementation.

We expect further investments in these areas in 2022.

Now. Additionally, we continue to mitigate the impact of rising inflation through the nature of our on demand platform and related customer pass through agreements, while actively managing our own supply days supply base to help offset higher material cost for the full year 2021 reported adjusted EBITDA increased three four.

So the $34 4 million for a margin of 22, 6% up 430 basis points from 2020.

Now on slide 12, we highlight our liquidity and capital resources as mentioned earlier, we commenced trading on the New York Stock Exchange effective December 27th.

The net proceeds from this transaction further enhanced our financial flexibility as we ended the year with available liquidity of $43 1 million. This includes $20 1 million in cash and cash equivalents and approximately 23 million of Undrawn commitments under our new 50 million revolving credit facility, which we.

We entered into upon closing our business combination.

Our new credit facility also includes a five year $125 million term loan, which was used to refinance the more expensive debt. We had as a private company. We currently expect our overall cost of debt to average approximately 5% for both the revolver and the term loan all this although this rate could fluctuate based on our net.

Average ratio at the end of each quarter and potential changes in LIBOR from federal rate actions.

Now as of December 31, our total gross debt, excluding cash was $152 million and our net debt totaled $132 million approximately now our ability to service debt is predicated upon our strong adjusted EBITDA performance as we mentioned earlier in terms of leverage our net debt to reported adjusted EBITDA was three <unk>.

Eight acts as of December 31.

Now we also issued two classes of common stock upon going public under our umbrella partnership C Corp structure or up sea structure. There are approximately $51 6 million in conventional class a common shares issued and outstanding outstanding with one vote per share and economic rights. These shares are listed on the New York.

Stock exchange under the ticker fast.

In addition, there are approximately $84 3 million class B common shares with one vote per share, but no economic rights based on the combination of our class a and class B shares fathoms market cap was approximately $1 two 4 billion as of March one.

Now going forward, we believe fathoms financial flexibility combined with our positive financial results and cash generation generation supports our ability to create long term value for shareholders.

Now turning to slide 13, we provide our current forecast for the full year 2022.

Now, we expect to accelerate fathoms financial performance to take advantage of future growth opportunities and believe we will continue to benefit from positive tailwind that our industry. Specifically, we anticipate continued acceleration in plastic and metal additive manufacturing as well as injection molding technologies along.

With further gains in CNC machining and precision sheet metal now.

Now according to industry reports the overall digital manufacturing market is expected to grow in the high single digits to low double digits and we intend to outperform this growth as more companies look to smart technologies like additive managed manufacturing to help them drive product innovation now.

Now earlier on the call Ryan discussed our go to market strategy and our ongoing success, increasing share of wallet from our existing customer base and expanding through new corporate accounts.

As part of our land and expand model, we plan to realize incremental synergies from past M&A activities by capitalizing on more cross selling opportunities now that we are fully we have fully integrated our commercial operations for our most read at recent acquisitions in April 2021, while we continue to grow through our past acquisitions.

We will also take active measures to ensure we maintain an efficient cost structure.

Now. Additionally, we intend to further strengthen our blood our broad platform by introducing new technologies, including our evolve attitude additive solution.

As we have discussed in this in the past this step technology or selective thermoplastic electro photographic process is a disruptive advancement in additive manufacturing, enabling the production of parts within hours or days without compromising quality throughput scalability or cost providing a significant.

Difficult advantage over the typical multimode multi month lead time for a directional injection molded tools and parts. We expect to launch this technology throughout North America under our exclusive commercial agreement by the end of the second quarter now.

Now currently we anticipate full year 2022 revenue to range between 182, and 192 million. This would represent an increase of approximately 23% at the midpoint on a reported basis or approximately 15% organic supporting the industry outgrowth I mentioned earlier.

Now based on current order flow backlog and ramp up of our sales and marketing activities, we expect to build steady momentum throughout the course of the year with 30% to 40% growth in quarter, one on a base of $34 million now quarter. One does tend to be normally our lowest absolute dollar revenue quarter.

Reflecting customer and commercial behaviors now.

Now turning to adjusted EBITDA in 2022, we expect it to range between 40 and $45 million would've implied margin of 22 to 23, 4% consistent with our focus on driving profitable growth.

Our adjusted EBITDA performance is also expected to build during the year, but with flat adjusted EBITDA expected in the first quarter on a base of $7 8 million, we are anticipating a higher percentage of our public company costs to be incurred in the first quarter.

Now our Capex budget is expected to total approximately 6% of annual revenue majority of which is focused on growth initiatives as we continue to invest in the long term health of our business. We will continue to track track global events, including the ongoing global Covid pandemic geopolitical factors and industry.

Trends and provide updates to our annual forecast on a quarterly basis.

Now finally, it is important to note our guidance for the year does not consider the impact of any new potential acquisitions. In 2022, we continue to explore new acquisition opportunities aimed at accelerating our growth strategy in an accretive manner Fathom has built a proven track record in identifying acquiring integrate.

Adding and growing acquisitions, and we remain excited by our inorganic growth prospects, which will complement our ongoing organic growth initiatives now since going public we have passed on several acquisition opportunities that did not meet our strict criteria as we are committed to maintaining our disciplined approach to M&A.

And with that I will turn the call back to Ryan Ryan. Thank you Marc I will provide some closing comments on slide 14 now 'twenty.

2021 was a monumental year in fathoms long standing history.

We listed our shares on the New York Stock Exchange and delivered record financial results, while also setting the stage for enhanced future performance.

I'd like to thank the entire fathom team for all of their efforts upon embarking on this new and exciting chapter as a publicly traded company our highly talented workforce is truly the backbone of everything we do which enables some of the largest and most innovative companies in the world to create better products that impact all of our lives.

On a daily basis I'm proud of their many accomplishments to date and I am incredibly confident the best is yet to come for our company.

We are pleased by our strong organic revenue growth in the fourth quarter of 18, 4%, which demonstrates the continued demand for our quick turn manufacturing services and increasing share of demand gains. We successfully translated record order volumes of $49 1 million into significant top.

<unk> growth, while expanding our backlog of new business. We also drew upon our scalable technology agnostic platform to generate adjusted EBITDA totaling $10 5 million in the quarter for a solid margin of 23, 8% fathoms.

<unk> broad on demand capabilities from rapid prototyping to low to mid volume production provides timely value added solutions with quality assurances for global product driven companies. So they can iterate faster and ultimately reduce their time to market with the integration of our <unk>.

More than 25 different quick turn manufacturing processes across our 12 centers of excellence are significant technical expertise, our unified suite of software and our comprehensive support system Fathom provides a differentiated customer experience, while creating a more agile and risk.

Positive supply chain for our customers, we remain focused on further strengthening the breadth and scalability of our leading offerings and maintaining fathoms role as an active consolidator in this large highly fragmented industry by leveraging our proven business model and considerable financial strength.

<unk>, including ample liquidity of over $43 million, we expect to build upon our solid performance in 2021 and drive further growth in 2022 and beyond for the benefit of our shareholders. This concludes our prepared remarks, and we'll now open the call for questions.

Thank you.

If you would like to ask a question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by Chi.

We're preparing to ask your questions. Please ensure your line is on mute it lately.

Our first question comes from the line of Greg Palm from Craig Hallum Capital Group.

Please go ahead.

Yeah. Thanks, good morning, everyone and congrats on the good results here first quarter out of the goods.

Thanks, Greg it's Greg.

I'm curious you've got a couple of months as a public company now. So you know I guess, how are you viewing being public as a means to grow awareness for the brand for all your capabilities can you give us just some sense on maybe what you're seeing from a in terms of new customers.

Yes.

Definitely we have been able to continue to increase the awareness obviously, we've been out there in the market more I think we've created a real buzz around the fathom digital manufacturing brand and we continue to see they work from the commercial side of things as we're able to open up more doors as we've.

About it's an incredibly large fast growing markets. So there's a lot of opportunities we do a great job with the customers. We serve today, but there's an incredible white space for us to continue to grow continue to build more awareness around our brand and that's where we're really focusing our commercial efforts.

On that and so we continue to see momentum on that side of things Greg.

And just in terms of the growth outlook are you seeing more opportunities within that that new customer addition, or are you seeing more opportunities to maybe increase wallet spend with the existing accounts I know, it's a mix of both but trying to get a sense for maybe what should be the biggest driver in your eyes.

Yes, its really not it is it continues to be to be a mix of both.

So we've really focused on the land and expand model that we've had in the past and so we see tremendous amount of opportunities, especially when we're working with a lot of these large fortune 500 companies theyre spending hundreds of millions in some cases billions of dollars.

In R&D and new product development, so theres a lot of opportunities for us to go a lot deeper within our existing customer base, but we're continuing to add resources from the commercial perspective and in other areas that we've been underserved in the past and so we're adding a lot of new names and new corporate customers that we think have a lot of growth opportunity for us in the future and really looking.

Four look alike customers, where we've had success in the past and finding other players in that market, where we can that we can solve the same complex manufacturing challenges that they have as well Greg.

Yeah, Okay, Great and then I guess last one just trying to figure out what the.

It kind of priorities our biggest priorities for 2022, you certainly got a lot of growth organic growth potential, but you've also talked about M&A has been a lever as well. So you know what what's your sense in sort of a combination of both and as it relates to M&A can.

Can you give us some sense of what the pipeline looks like and maybe also more importantly, any change to you know valuation multiples you know just given what's happened here in the last couple of months in the public markets.

So we we.

We continue to see a lot of opportunities.

In the M&A side of things for us, it's about providing a differentiated customer experience and as we look at a potential acquisition opportunities that youre looking and saying do they add a new capability for us to expand an existing capability does it add in new geography does it add more customers that we can cross sell the broader fathom.

Factoring platform too.

And so we continue to be very focused on that we think theres a lot of opportunities. We obviously as we talked about have a proven track record of of identifying acquiring integrating and growing acquisitions. So we anticipate continuing to be very focused on that.

And we continue to be able to do it at prices that are accretive to.

To our valuation.

Okay I'll leave it there best of luck going forward. Thanks.

Thanks, Greg.

Our next question comes from the line of Jim <unk> from Me Tom Jim. Please go ahead.

Hi, Thank you good morning, I wanted to go back to one of the slides in your deck slide eight and.

Question really relates to what you're seeing in the in the business in terms of where you're seeing the most activity most growth by end market. So I wonder if you if you might be able to provide some flavor.

As to what you saw in Q4 medical semi you know some of the other industrial markets any any sense on on how that played out.

Yes, I think you know part of part of our value proposition is really the diversification of our customer base and being focused on some of the fastest fastest growing end markets.

We've done a lot of work as you mentioned in the semiconductor space, having met with a lot of companies in that space. You know one of the things that has always resonated with me in talking to them is what are their challenges when I met with some of their executives in the fourth quarter was they need to figure out how to grow 50% faster than they're going today, and then figure out how to go 100%.

Last or after they figure that out so they need partners like that that can help them accelerate their manufacturing that can be more responsive and so we're really tied to those industries. We continue to see the medical industry doing more re shoring, which we're positioned incredibly well for that and so our focus continues to be on on these high growth high.

Early innovative companies that have had.

That are looking for supply chain partners that can be more responsive that can be more on demand and that can be more local and those are the areas, whether it's the health care industry.

<unk> is an area that we continue to see investment going where our capabilities line up really well the semiconductor industry and so I would say the combination of those are all areas that we're continuing to see quite a bit of growth and we're really positioned really well with our customer base to continue to see continued growth in 2022 on that Jim.

So so.

Separating acquisition activity it fair to say the strongest.

Our strongest organic growth wins in these markets that you just highlighted.

Okay.

Yeah, Jim It is consistent.

With what Ryan talked about.

Now, we'll crisp these numbers when we file our 10-K, but you know we've shared before that medical technology industrial.

Are some of our highest contributions and end markets, but we're seeing consistent results.

As as we've been growing our commercial efforts.

Got it and selling.

And just.

Thanks by the way for the additional color that you provided on Q1.

Wondering if youre seeing any any change in business trends or activity.

As it relates to <unk>.

A little over two months or so into the quarter.

Versus Q4.

Yeah, I mean as Mark mentioned in our earlier remarks Q1 typically is our.

From a revenue perspective and from commercial perspective. It is normally are our slowest quarter.

However, we're seeing continued pickup we expect to see growth in Q1 and continuing to build on the momentum that we had in Q4 of last year.

So normally is that a lot of the companies we work with they're getting their new budgets and they're rolling out in the January time period, and so there's a little bit of seasonality typically to Q1, and then we build momentum throughout the year is normally how we see it.

And then last question for me is just.

You referenced cross selling and that's clearly a focus.

As you integrate these acquisitions and you provide more cross selling across the platform.

As you think about that opportunity.

Is.

How do you see that playing out over the course of 'twenty two.

Yeah. We think this is from an organic growth perspective, Jim. This is probably our biggest opportunity I mean, if you look at the you know the.

For example on page eight in the semiconductor space. This is a.

A relationship that we got through an acquisition that we did where we were doing a relatively good.

Good amount of CNC machining business forum, but they had deep needs in sheet metal fabrication three D printing as we were able to introduce them to the broader set of capabilities that exist within the fathom manufacturing platform. We saw almost immediate growth in the amount of orders and revenue that we were doing with them and so we've got multitude of example.

<unk> of that within our customers as we introduce them to the broader fathom manufacturing platform and our capabilities.

What we're hearing from these large enterprise customers as they have a lot of challenges in their supply chain. They are looking to unify their suppliers do less have less suppliers and be able to do more with them and be able to serve them across that and so that's an incredible growth opportunity for us and that's why we focus on the large enterprise customers because we know they have they have <unk>.

Flex manufacturing needs they have a large spend and our opportunity to capture a larger share of wallet is really a low hanging fruit for us and something that we're incredibly focused on Jim and just building on that Jim.

A key part of our success in both Ryan and I talked about it is the first step in any of our acquisition process. When we integrate is focusing on the commercial integration.

And that allows US now it takes a little while usually and we saw a little bit of that in 'twenty, one because we had a whole bunch of acquisitions, but once we have them fully integrated on our commercial team as Ryan talked about we start seeing all the opportunities and that usually drives outsized growth as we move forward and that's exactly what we started to see.

In fourth quarter.

Got it thanks, very much and congrats on the quarter.

Thanks, Jim Thanks, Jim.

As a reminder to ask any questions. Please press star followed by one on your telephone keypad.

Our next question comes from Noelle Dilts from Stifel. Please go ahead.

Hi, guys. Good morning, and thanks for taking my question. So I was hoping that you could talk a little bit more hey, good morning, I was hoping you could chat a little bit more about gross margin expectations.

I think there are some factors that are kind of holding back gross margins a bit in 2022, so could you speak to.

You know sort of how youre thinking about those margins progressing through the year.

In New York and.

Some of the changes we might see as we head into 2023. Thank you.

Yes, sure Noelle good question.

So 'twenty one was impacted by some factors that we think we are going to address we are actually already addressing in 2022, one item just hit off the start.

We did have some purchase accounting in plaque.

In 'twenty, one so right off the bat about a 1% impact will reverse and improve our gross margins from 21.

The other key element is our whole operational strategy of moving to multiple shifts at sites. Secondly, we have stood up now a global supply chain organization, where in 'twenty one supply chain was decentralized. So we did take.

Some material impacts, although we were able to pass along most of it we did take some impacts in 'twenty, one and our gross margins and then the third element. We actually had is your classical operational activities of Kaizen, we actually had our first kaizen event. This week at one of our sites so our expectations.

<unk> is to improve from what you saw in quarter, one which was 41% and then if you add the purchase accounting. It's around 42. So our view is we will push above that as we go through 2022, and then as we further grow the business into the later years, our expectation is to move the gross margin up.

Further.

Because of some of the absorption benefits, we'll see at all the sites.

Okay.

Very helpful.

Then second just given.

What youre seeing in terms of order trends in general traction Q.

If you could.

A little bit on how you're thinking about growth across each of the.

Manufacturing technologies for 'twenty two and.

If there's any change to your longer term expectations that you've previously communicated.

Yes, so no well you know we don't guide clearly by technologies, we're guiding overall.

The challenge is you can have a lumpiness on an individual technology basis.

So we don't plan to provide that level of detail. What we can say is we continue to have and I talked a little bit and so didn't Ryan strong faith and additive injection molding that we should see more outsize growth in those technologies as we move forward, but across all our platform.

We're expecting pretty strong growth I don't know if you want to add anything Ryan yeah, and the only other thing that I would add to it as Mark said, we really look at in aggregate and the reason we do that is because we believe one of our key differentiation is really our technology agnostic approach and so it's understanding with these large enterprise customers, what's the solution, what's the outcome that theyre looked.

To achieve and then providing the best solution for them, whether it's additive or CNC machining of sheet metal or a combination of all of those and ultimately we believe that's what leads to our industry, leading margins that we're able to generate because of our ability to to pull all of these different technologies together and ultimately drive a solution focus for the customer.

Okay.

Thank you.

Our final question comes from Troy Jensen from Lake Street Capital Troy. Please go ahead.

Hey, gentlemen, congrats on the good results maybe a quick.

Question for Ryan here, one can you just talk about capacity right now and tenants where you are you know any thoughts on you know needing additional investments with tenants kick start some of these initiatives.

Yes.

Good morning to you Troy and thank you for that.

As Mark talked about we're continuing to invest in next generation additive equipment as well as advanced manufacturing technologies.

Many of our sites, we're running either a single shift or a second shifts. So we have opportunities as we continue to drive the.

The operational performance of the business too.

Build more capacity in the existing operations that we have through multiple shifts as well as we have.

Robust domestic and international supply chain partnerships as well and so really we look at that is.

We have quite a bit of capacity to continue to grow we're going to continue to make investments in next generation technology and so we feel really good about our position to be able to continue to grow organically and execute on the numbers that we outlined for the guidance for the year.

Alright, perfect sounds good and how about just digital conversion thoughts previously you guys, giving us data, but how you interact with customers or how they're placing orders with you and your systems.

Yeah. So you know as we as we mentioned.

Earlier, we had really strong orders growth in Q4.

The digital piece of things is obviously a component of that so we continue to see growth on the digital side of things as we've talked about we really believe we have a differentiated solution on the injection molding with the world's only 32nd injection molding quoting tool as.

As well as the smart quote tool that we use on that side of things and so we really view the digital side is as an enablement platform to the overall piece.

With our enterprise customers, we see opportunities in some cases, they want to work through a digital platform. Other cases, they want to interact directly with our engineering, our customer facing engineering support that we provide and so it's really about providing that solution in the digital side of things is a key piece that also is continuing to drive the record orders growth that we saw.

In the fourth quarter and hopefully we could plan to continue to build momentum on that into 2022.

Okay, perfect nicely done and keep up the good work.

Thanks, Chuck Thanks Troy.

That is the end of the Q&A session today and this concludes today's call. Thank you for joining you may now disconnect your lines.

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