Q2 2022 Shapeways Holdings Inc Earnings Call
Good afternoon, and welcome to the shape wage fourth quarter 2022 earnings conference call.
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I would now like to turn the call Nikki sacks, with Investor Relations. Please go ahead.
Greetings and welcome to shape with fourth quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the prepared remarks.
This conference is being recorded before we get started I'd like to remind everyone that management will be making statements. During this call that include forward looking statements within the meaning of 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 fact should be deemed to be forward looking statements.
Forward looking statements, including without limitation statements regarding our business strategy future financial and operating performance projected financial results for the first quarter of 2023 expected growth impact of recent acquisitions, new offering marched opportunity and plans for compliance with the nicest continued listing standards are.
Upon current estimates and various assumptions.
These statements involve material risks and uncertainties that could result in actual results differ materially from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements.
Description of the risks and uncertainties associated with our business. Please see the company's SEC filings, including the company's annual report on Form 10-K for the year ended December 31st 2022.
The information provided in this conference call speaks only to the broadcast today March 30th 2023 takeaways.
Okay place disclaims any obligation except as required by law to update or revise forward looking statements.
Also during the course of today's call we refer to adjusted EBITDA, which is a non-GAAP financial measure a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after market close which can be found on our website www dot shape with dotcom.
On the call today are Greg <unk>, Chief Executive Officer, and Alberto Recchi, Chief Financial Officer, and now I'd like to turn the call over to Greg right.
Good afternoon, everyone. Thanks for joining us to discuss Safeways fourth quarter and full year 2022 financial results and progress on our key initiatives and strategic growth plan I'll begin by providing a business update and Alberto <unk>. Our CFO will then discuss our fourth quarter financial results and outlook for the first quarter.
We are pleased with our fourth quarter results, which came in as anticipated as we delivered 5% revenue growth in line with our guidance.
Notably in 2022, we've made a number of investments, which we believe position us well for growth.
These include new material technologies and certification enhancing our software platform as well as continuing to refine our focus to those areas that offer the greatest opportunity particular enterprise manufacturing solutions and commercializing our software.
In 2022, we completed three acquisitions, including the successful acquisition and integration of linear Ams.
Which accelerated the expansion of our manufacturing capabilities and extended the material technologies and certification that we offer our customers.
Today, we offer 12 hardware technologies in more than 120 materials and finishes, including industrial metal and advanced finishing and we give our customers everything they need from design and pre production to manufacturing and delivery across a range of industries.
Building on our years of experience and having made these investments we believe shape ways provides an extremely compelling solution for a range of enterprise customers from project focus engineers to large global enterprises seeking high quality flexible on demand manufacturing.
Cheap, which is ideally situated to disrupt the multi trillion dollar manufacturing industry as <unk>.
Manufacturers seek more flexible and reliable solution to their manufacturing needs.
Furthermore, we have a meaningful opportunity to capture business from small and medium sized manufacturers that are unlikely to invest the capital required to deploy and support their own digital capabilities.
Keep with core competency is in low volume high mix production at scale, a compelling solution in an environment increasingly focused on mass customization.
Feet of part delivery.
Importantly, we are not limited to prototyping and low volume production as our customers scale, we are able to support their growing needs with traditional methods.
Through our acquisition of linear Ams, we gained traditional injection molding capabilities.
Our broad solution allows us to efficiently capture a larger portion of our customer spend and grow with our customers needs.
I'd like to highlight just a few applications, which illustrates the demand for digital manufacturing, particularly in key markets in which we operate such as industrial medical automotive and aerospace.
Whirlpool reasonably leveraged shape ways design and manufacturing expertise to create production injection molds, using both traditional and metal additive processes to achieve cost effective low volume production.
Also Lockheed Martin and NASA also started using shape with and support our project dragonfly leveraging shape ways to manufacture flight qualified parts in support of their drone designs.
Our pipeline for enterprise opportunities continues to build with growing interest from from customers like I, just described including other large fortune 500 companies, which are seeking manufacturing solutions for very specific needs.
We are encouraged by the momentum as initial qualification orders are moving to scale production and as customers expand the size and scope of their orders.
The other element of our growth story, which makes US, particularly excited is commercializing our software.
As we've discussed one of the key Differentiators is shaped with proprietary software, which does it digitizes the end to end process from quote through delivery.
Our software enables us to offer high quality low volume complex part production.
But it is also a valuable tool for global manufacturers, specifically small and medium sized traditional manufacturers that are not able to invest in the capital and time necessary to digitize their businesses.
Our software customers can leverage our software tools and services for capabilities, such as file upload instant pricing checkout optimization and manufacturing fulfillment.
This helps them grow their business by enabling improved customer accessibility increased productivity and expanded manufacturing capabilities.
In short moving offline processes online enables a more streamlined process increases manufacturing throughput, which should enable software customers to expand their manufacturing capabilities and to capture more customer share of wallet, all without having to invest in hardware.
Since launching our commercialized software product offering auto we have validated the market need and enhance the product.
We further accelerated our planned phased rollout with the acquisition of M. F G and maker O S, which we completed last year.
We are pleased with the market reception and in 2022 we realized six times the amount of software revenue from the prior year, reaching $1.8 million.
We are optimistic about the continued growth prospects with a meaningful opportunity to capture revenue through SaaS subscription transaction and processing fees demand generation services and overflow manufacturing capabilities by shape ways and other supply chain partners.
With regard to our legacy self service and marketplace E. Commerce business, we continue to focus on stabilizing those channels as we continue to see increased competition we.
We expect to see continued demand and realize a solid contribution from this business, but our growth focus is on our enterprise manufacturing and software businesses.
As we move through 2023, we remained focus on improving our cash burn while prioritizing the initiatives I discussed that.
That we believe will present, the greatest opportunity for profitable growth.
We believe the investments we have already made in the market validation that we've already completed have put us on this track.
We are encouraged by the momentum we have built and we will believe that we are well positioned for continued growth.
I would like to thank the entire shape way's team our customers, our investors and all of our stakeholders for their ongoing support.
Alberto will now discuss our financial results in more detail.
Thanks, Greg.
Provide a recap of our fourth quarter 2022 performance give an update on our balance sheet position and provide guidance for the first quarter.
In the fourth quarter revenue increased 5% to $8 7 million compared to $8 3 million in the prior year in line with our expectations.
Increase in revenue was primarily attributable to positive contributions from our software offering scaling of our additive manufacturing capabilities and traditional manufacturing services.
Our gross margin in the fourth quarter were 41% compared to 47% in the fourth quarter of 2021.
We continue to deliver top tier gross margin in the year over year change was primarily due to inflationary pressures to continue ramping a recently deployed new technology and a more very product mix.
Fourth quarter. Adjusted EBITDA was also $5 8 million compared to will also $3 1 million in the fourth quarter of last year.
SG&A expenses for fourth quarter were $7 3 million compared to seven 1 million in the prior year, primarily reflecting increases in personal costs. The recent acquisition and increased professional fees.
During the fourth quarter, we largely completed the transition of our manufacturing facility in long Island City, New York to Livonia Detroit.
Turning to our balance sheet as of December 31, 2022, our cash cash equivalents in marketable securities totaled $44 million.
During the quarter, we deployed approximately $6 5 million cash we anticipated a higher burn in Q4 compared to our normalized burn as we largely completed our manufacturing facility consolidation to Laguardia.
<unk> the timing of expenses, such as D&O insurance annual creatures.
As we continue to invest in both new hardware and our go to market initiatives. We anticipate some continued near term pressure on gross margins compared to historical levels.
We remain focused on third or improving our cash burn and believe the continued strength of our balance sheet and our focus on achieving profitability and managing the cash burn will allow us to execute on our organic strategic plan without the near term need to raise additional capital.
With respect to our continued listing on the New York Stock exchange, we intend to cure a deficiency and come into compliance with the minimum bid price by affecting a reverse split of our common stock.
Those are the split are planned to be included in our annual proxy statement and we intend to determine the split ratio and to seek approval at the annual meeting of the stockholders in June .
Looking ahead for the first quarter of 'twenty 'twenty.
Revenues to be in the range of $7 8 million to $8 1 million.
Greg discussed we believe we are well positioned for continued growth we're focused on those areas that offer the greatest opportunity, including enterprise manufacturing solution and commercializing our software.
And I anticipate an accelerated ramp up in these areas as the year progresses.
With this we've completed our prepared remarks, and we'll now open the call for questions operator.
We will now begin the question and answer session.
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At this time, we will.
Pause momentarily to assemble roster.
Our first question will come from Greg Palm with Craig Hallum.
You May now go ahead.
Okay.
Yeah. Thanks for taking the questions here I guess, maybe to start in terms of the outlook what kind of visibility you have in that revenue ramp. This year I don't know if its pipeline related or you know new customer related but what gives you confidence that what we will see a revenue ramp throughout the year.
Hey, Greg Thanks for asking the question I. Appreciate you guys. Joining so I think there's three things that we're looking at inside the business versus our core legacy E Commerce channels, right and that's where we've seen some of the most competition and that's where we've seen some pressure year over year, but we continue to work on optimizing that from.
Offline perspective, the second is we have our enterprise business and this was new and I think the biggest thing for US here is it took us more time than I expected to really build that pipeline and find our go to market position, but we are seeing good traction good pipeline and.
Sizable order visibility looking forward now with that being said, we're still working to get confidence in being able to kind of stand up and provide.
A real good guidance on that and then lastly, we're working on commercializing our software and this is interesting because it does have more predictable revenue associated with it specifically with the SaaS model that we're rolling out in <unk>.
And as we focus on tightening up our acquisition funnel and focusing on retention and driving lifetime value and we're starting to get to a place where we feel like we can start to focus on that more and more.
To be able to provide more guidance.
But at this point, we aren't providing guidance at that level, yet and so we do feel like we are gaining momentum across the three initiatives inside the business and we're seeing good traction.
But again, we haven't provided that guidance for the whole year yet.
The second thing I'd say is we've also spent.
The amount of time on the.
Our gross margin roadmap.
And as we had a little bit of pressure in Q4 will also have that in Q1 as we've moved from.
Our long island city facility to our Lavonia facility.
Consolidated but once that's complete we'll see more of a stabilization getting back to the gross margins that we had planned for.
Or that we had expected historically, we planned for this drop in gross margin as of right now just because we have some redundancies in our cost structure and so once that is complete at the end of Q1 will be able to continue to start executing on that and then while we're doing all of that we're also managing our cost our cost base right. We want to show our path to profitability we wanted.
Be able to do that by driving our revenue optimizing our gross margin and controlling our costs and so youll see more and more of that throughout the rest of this year.
Makes sense.
On the software piece, specifically, maybe I missed it but did you give a number of SaaS generating revenue customers associated with that 1.8 million amount and I guess just sort of broadly speaking how are you viewing the growth of software specifically this year.
Yeah, we're really excited with the momentum that we have I think there's been three things that we focus on that kind of just touched on but it was how do we acquire customers in a very effective way.
Like how do you retain those customers over that time period with the retention model associated with that.
Or how do you drive the lifetime value of that customer by layering in more features and functionality to drive more revenue and there's some really exciting things that we're working on and starting to roll out, but the adoption has been very strong.
And the retention of those customers has been very good and I think we have a a feature rollout strategy that not only allows for.
Increased acquisition and better retention, but it will also provide additional revenue lines for the business and so that should drive lifetime value and so we expect to provide more insight into that model moving forward with the things as our metrics start to stabilize but as of right now right. We've completed two four weeks.
Completing this work completed Q1, we're starting to feel better and better about where those models are going and so you should expect to see more visibility to that and move forward.
Got it okay I'll leave it there thanks.
Thanks, Craig.
Our next question will come from Jim Ricchiuti with Needham and company you.
Yeah.
Thanks, Good afternoon, just wondering.
If you can give us the.
The software revenue.
Exiting the year Q4.
I appreciate the color you gave for the full year 'twenty, two just trying to get a sense, where it was for Q4.
For Q4.
We have not provided that information yet we would have to pull it we'd have to we'd.
You have to pull those numbers I don't have them as I said in my tone, but.
But we as you know we started with little and when it's been ramping. So obviously Q4 was significantly higher and I think that's probably why you're asking so you get a better sense of like what that looks like as we moved into.
The rest of year, but we can probably follow up with you on what those numbers look like Oh.
Okay.
Actually Greg actually had a similar question.
As it relates to the enterprise revenue in Q4 again, only because it's such a major focus for you and in 'twenty three.
Yes, it would be useful to know what the starting point, where you'd be ending point was for Q4 22.
Yeah.
You're starting to get to a point, where we're talking about segment reporting right and ultimately we are we havent provided that yet I think that it's something that we want to be able to do as we move throughout this year, but we haven't been able to to commit to that yet and so I think youre asking good questions. Jim because it was about like what that ramp ultimately looks like but.
For this earnings call, we're not providing that level of detail but.
I think in the future, but that's where we ultimately want to be able to provide you guys with more feedback about how each one of these individual growth initiatives are really ramping.
Well, so so but you say your pipeline in enterprise is.
Pretty healthy so presumably there's some meaningful revenues that you're anticipating in Q1 from that.
As a percent.
Yes, we haven't provided any of that detail, but we do have a good pipeline that as clothing and so what youll see is.
And historically, we've talked about our top 250 customers right like that continues to represent the more enterprise.
Book of business that we have what Youll see is in 2022 that kind of finished out of 60% of our revenue, which in 'twenty. One it was more like 50% of our revenues you should start to see that growing as a larger percentage and that's more sticky customers are bigger orders and higher gross margin with a lot more opportunity to go and grow those.
Customers and so that continues to be.
You know growing at.
Well, let's call it 18%, 20% CAGR over the last several years and so it's a good healthy piece of our business from a revenue perspective. It continues to grow and we will be providing some of that information in the future. So you can see more of what that pipeline looks like and how it's translating into sales.
Okay.
What would the unusual I, maybe it's Uh huh.
You could just give us a sense on the opex. It sounds like there was a little bit of unusual opex related to the move in manufacturing to Livonia what.
Can can you help us with that because its also where I'm going with it obviously as to how to how should we be thinking about opex on a go forward basis.
Maybe I can take that Greg.
Yeah.
Merchants can probably answer that thanks, Yeah, Hey, Jim.
I think you should look at it this way I think Q4 is probably a decent indicator of where SG&A will be in Q1, right and so some of the factors also side in my opening remarks, the contributor to the increase in SG&A expense expense will remain valid and will be felt in Q1, so specifically.
There'll be some spillover restructuring costs related to our move out over the long Island City facility no professional fees keeps being a you know a big bucket of those costs and other spending related to being a public company, which are I say remain in line as the previous quarters.
Even though some of these things we were able to reduce actually significantly D&O isn't a is a perfect example.
From a personal cost perspective, you should not expect any further increase.
And.
Any sense Alberto.
About cash burn.
Sure.
Should we be thinking along those lines.
Yeah, So perhaps let me make a couple of remarks here around cash burn cash position, how do we see the path to profitability I think this will help you.
Model all of the rest of the year. So we closed the year with a strong cash balance of more than 40 million cash, which I think provides the company with sufficient liquidity to do a couple of things first of all support the ongoing execution of our strategic plan, Greg just outlined.
Support our normalized cash burn, which I'll talk about in a second and also positions us well on our path to profitability now.
As Brad said, we will keep aligning our resources with the highest opportunity areas to drive revenue growth.
While tightly managing our cost structure and aiming to maintain our gross margin levels aligned to what they've been historically, okay. Now from a cash burn perspective, we're looking to solve for a normalized average cash burn in the range of four to 5 million per quarter. Okay. Now this will own.
They're all decrease a little bit for the year as revenue grow that said, we did point out in the previous call and last earnings that cash burn in Q4 of last year was going to be slightly higher right and that's exactly what happened again, mainly due to our relocation expenses related to the move to long Island City from long Island city to Livonia.
And some annual expenses.
That happened during the and first part of the year again, a good example is the D&O insurance decided a second ago, we were able to reduce debt by 40% compared to the peaks up two years ago.
Now looking prospectively and to give you some color around Q1, 'twenty 'twenty Freeborn again, we do expect to land.
Above the normalized burn.
Mainly due to some carryover costs related to our manufacturing facility consolidation here in the U S.
So hopefully this helps you give you some perspective.
Got it okay. Thanks very much.
Sure.
Our next question will come from Troy Jensen with Lake Street capital.
Go ahead.
Hey, gentlemen, thanks for taking my question here I guess wanted to having a little bit more at the Detroit move and just kind of advertising with gross margins.
Greg I think you said, it's roughly the same in Q1, we bounce back up in Q2, but maybe Alberto I mean are you.
Guys kind of endorsement like a 41% gross margin for March do we go back to 43 ish or does it go higher now because you know, Michigan facilities can be less expensive and better margin profile than in New York. So just a little color on how you think gross margins trend throughout the year.
Yeah. So look we do expect gross margin to hold strong in the Forty's I think looking at Q1. So answering your question I would probably use Q4 as a proxy right now.
Our plan has gross margins improved throughout the year right back into the mid to high Forty's, which represent our historical levels right and that will happen as we start reaping the effects of the optimization and consolidation of our manufacturing process.
And also as Greg pointed out our software, which is a 90% plus margin business becomes material from a revenue perspective.
But you will.
Perfect All right, maybe just Greg I'd love to hear I know you don't want to give a lot of guidance, but 1.8 million in software. What do you think we're going to do in 'twenty. Three can you give us a number at all I mean is it $5 million at eight.
I'm excited to have you on your software business.
No I'm really excited about the software business and we continue to see it scale, we havent provided guidance, yet and I know that's frustrating because it's something we want to be able to tell you guys. But there is that there's a few key things that are happening throughout Q1 and into.
April that I think will help us feel a little bit more comfortable with providing a little bit of a clearer guidance.
But again, we can't commit to anything at this point, but we continue to see really good momentum right we were.
We've found ways to acquire customers very efficiently retention models are exceeding our expectation and lifetime value remains very strong and so we expect to be able to provide a lot more color to what that model looks like as again. This is one of the newer growth initiatives for us and so but.
Things have definitely played out as we had hoped in the back half of the year and we're moving into this year with a lot of strong momentum behind the business.
Understood guys. Good luck.
Thanks, Craig.
Excellent.
Our next question will come from Noelle Dilts with Stifel you.
You May now go ahead.
Hi, guys. Thanks for taking my question.
So I'm looking in your 10-K.
Just going through direct sales market place and software direct sales were kind of flat year over year.
And again, I know youre, not giving guidance, but.
How should we think about kind of what's going to drive some of that growth and and kind of break out of this relatively steady pattern you've had over the last three quarters.
And then I think you mentioned that you expect this continued pressure and and marketplace sales.
But any thoughts just on does that again that business has been relatively stable for the past couple of quarters. Do you think we're at a point where things have stabilized from a revenue perspective, or where do you think we're going to see another.
Other significant leg down in 'twenty three.
Yeah. Thanks, Noelle I appreciate you guys joining.
So to answer your first question one the growth that we see in the plan is really coming from enterprise sales and Trump enterprise manufacturing services and from software I think right now both of those have strong pipelines from models and that will continue to push forward. What we are continuing to focus on it and we don't want to jump on it.
Legacy ecommerce business, but we've talked as we've talked in the past we know that.
That channel ultimately has a lot more competition thats more price sensitive customers and so as much as we want to maintain that business, which we continue to have some focus on it it's not going to be the growth driver for the business and so I think what we've learned is software.
Software is very predictable we know how to go drive it we are working on continuing to accelerate that and then on the enterprise sales. It is a longer buying cycle than we could've than we had originally thought it does take much more of a solutions based sale, but the orders are significantly larger the customer qualification processes is longer but once you.
Complete youre able to really go in and tackle those customers and the pipeline that we have in the sales on a month over month basis that we're seeing from our enterprise sales reps is really encouraging and so.
That's what will be driving the growth for us.
And the second question you had was related to I'm.
I'm, sorry, I forgot I may have I may I, just say thank you.
You kind of hit on it you had on that while we're talking it was just more on the enterprise.
I'm, sorry on the marketplace side.
Yeah, because sales there have been pretty stable here in the back half of the year. It looks like $1 4 million and <unk>, one 5 billion in <unk>.
Up from from <unk> level. So I wasn't sure. If you felt like maybe that was more of a kind.
Stable stable level.
We're always working on that yeah, we're always working on that channel, but ultimately it's a harder channel to go.
Significantly drive right and so we're just being very prudent right. We're very focused on our path to profitability and making sure that we drive profitable growth and that's some of the harder or pieces of the business to go drive where we're seeing success in other areas.
Okay.
And then I guess anything notable.
In terms of the day.
Demand for various technologies on the on the additive side.
What are you seeing more demand for metal how I guess I'm just curious if there's any any sort of notable trends that youre seeing.
On the additive side or even you know with injection molding, even though that's obviously kind of deal but could you.
Anything else that would be important first understand thanks.
Yeah, I think we've deployed in several different types of metals last year and those have all started to ramp I think whirlpool was a really good example, right, where we're using multiple processes, including metal printing to create injection molds production injection molds for them.
Which is a very interesting application with conformal cooling and giving them access to a lot of benefits on scale production that they wouldn't be able to do without additive manufacturing technology.
I also think that we've seen quite a bit of usage, even on our core business right. When you think about nylon 12 across both H P. A L S.
That continues to be great products for us and we're seeing good demand there as as usual right.
But I think one of the interesting things as we move into enterprise customers is giving them access to that full capabilities reshape ways and they can move across products and get access to new technologies and materials finishes that they may have started with us on one thing and move to another and so we continue to see.
Good man.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Greg <unk> for any closing remarks.
Yes, I just want to thank everyone on be happening myself and the entire Safeway team.
Thank you all for taking the time to join US today, we look forward to providing additional updates in the coming months.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.