Shapeways Holdings Inc. Q1 2023 Earnings Call
Speaker 1: So C that.
Speaker 2: Good day ladies and gentlemen and welcome to the Shae Plays first quarter 2023 earnings conference call.
Speaker 2: At this time all lines are in a listen-only mode.
Speaker 2: Following the presentation, we will conduct a question and answer session.
Speaker 2: If at any time during this call you require immediate assistance, please press star zero for the operator.
Speaker 2: This call has been recorded on Monday, May 15, 2023.
Speaker 2: I would now like to turn the conference over to Nikki Sachs, Investor Relations. Please go ahead.
Speaker 2: Greetings and welcome to Shapeway's first quarter 2023 earnings call. At this time, offer to Spencer and the listen only mode. A question and answer session will follow that prepared remarks. As a reminder, 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 includes forward-looking statements.
Speaker 2: within the Meaning of Federal Security Slogs, which are made pursuant to the safe harbor provisions of the private Security Slogation Reform Act of 1995.
Speaker 2: 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, future financial and operating performance, projected financial results for the second quarter of 2023.
Speaker 2: anticipated timeline for achieving profitability, expected growth, impact of recent acquisitions, new offerings, market opportunity, and plans for compliance with the Nazis continued listing standards are based upon current estimates and various assumptions.
Speaker 2: These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these four-looking statements. Accordingly, you should not place undue reliance on these statements. For description of the risks and uncertainties associated with our business.
Speaker 2: We see the company's SEC filing, including the company's quarterly report on form 10Q, for the quarter ended March 31, 2023. The information provided in this conference calls, speaks only to the broadcast today, March 15, 2023.
Speaker 2: Shakeways disclaims any obligation, except it's required by law to update a revised forwardlooking statement. Also, during the course of today's call, we refer to adjusted EBITDA, which is a non- GAAP financial measure. There's a Refinitiliation Schedules showing GAP versus non-GAP results currently available in that press release. A shoot after mark is closed.
Speaker 2: can be found on our website at www.chopois.com.
Speaker 2: On the call today are Greg Chris, Chief Executive Officer and Alberto Recky, Chief Financial Officer. And now I'd like to turn the call over to Greg. Greg?
Speaker 3: Good afternoon everyone. Thanks for joining us to discuss Shapeway's first quarter, 2023 financial results and progress on our key initiatives in strategic growth plans. I will begin by providing a business update. Alberto Recki, our CFO , will then discuss our first quarter financial result and outlook for the second quarter.
Speaker 3: In the first quarter, we delivered 8% revenue growth above the high end of our expectations.
Speaker 3: We are starting to see the results of our investments and focused strategic plan centered on our software, SaaS, sales, and enterprise manufacturing solutions.
Speaker 3: which we believe is positioning us to achieve our objective of reaching profitability in the second half of 2024.
Speaker 3: We are pleased with our early momentum as we build on shapeways legacy additive manufacturing business and proprietary software to accelerate growth with a path to profitability. We are pleased with our early momentum as we build on shapeways legacy additive manufacturing business and proprietary software to accelerate growth with a path to profitability.
Speaker 3: In particular, we are achieving traction with our software tools and services. And in the first quarter, saw momentum, continuing to accelerate customer acquisition.
Speaker 3: As a reminder, our purpose-built proprietary software is foundational to shapeways. It digitizes the end-to-end manufacturing process from a quote through delivery.
Speaker 3: We have commercialized this software under the brand auto for other manufacturers to digitize their business.
Speaker 3: We believe it is a valuable tool for global manufacturers, particularly small and medium sized traditional manufacturers that are not able to invest the capital and time necessary to digitize their processes.
Speaker 3: thereby allowing them to offer improved customer accessibility, increased productivity, and expanded manufacturing capabilities.
Speaker 3: We are very encouraged by the reception for auto, with the first quarter SAS sales bookings growing more than 50% over the fourth quarter, which will be recognized as revenue over the next 12 months. Based on our pipeline, we anticipate similar sequential growth in the second quarter.
Speaker 3: and further acceleration throughout the year, on a path to meaningfully increase the revenue contribution from high margin software sales.
Speaker 3: We have further enhanced our software offering with the integration of capabilities and features we acquired through the acquisition of MFG and Maker OS.
Speaker 3: With our acquisition of MFG last year, we accelerated our product roadmap. And in the first quarter, we launched our consolidated ordering platform across all platforms.
Speaker 3: MFG historically focused on connecting small and medium-sized manufacturers with custom part buyers through its global manufacturing database and request for quote process.
Speaker 3: The new features expand customer capabilities to not only facilitate relationships with prospective new opportunities, but also win more of these opportunities and manage them through the manufacturing process end to end.
Speaker 3: The rollout of new features and functionality led to a record-breaking Q1 for customer acquisition, and we saw our highest ever engagement for both manufacturers and buyers on the platform.
Speaker 3: We believe that this traction is an early indication of our ability to drive increased customer acquisition for tension and lifetime value for our software product offerings.
Speaker 3: Our other key growth area is enterprise manufacturing.
Speaker 3: which is also showing steady progress. We provide end-to-end manufacturing services to a broad range of customers from small manufacturers who cannot invest in expensive technologies to large enterprises seeking quality and efficient solutions to specific needs.
Speaker 3: Over the past year, we have optimized our go-to market approach and our sales force to focus on these high value opportunities.
Speaker 3: We are seeing success, particularly in our target industries, which include industrial, medical, automotive, and aerospace.
Speaker 3: As an example, in the first quarter, we signed a multi-year agreement with a customer in the medical space who is utilizing shapeways to produce highly customized parts.
Speaker 3: that are a critical part of the pre-surgical planning. And additional applications are already being rolled out for the second half of the year.
Speaker 3: We also send a multi-year multi-million-dollar contract with an automotive customer supporting their injection molding needs.
Speaker 3: with part delivery slated to start next year.
Speaker 3: These contracts illustrate shape-way broad value proposition to manufacturers.
Speaker 3: including those seeking highly customized low-volume part produced via additive manufacturing to those seeking more efficiency in their traditional manufacturing supply chain as they scale.
Speaker 3: Looking forward, we have a strong and growing pipeline of opportunities.
Speaker 3: With regard to our legacy e-commerce business, while it remains a competitive market, we are pleased to be seeing continued stabilization.
Speaker 3: I am confident we have a plan to achieve profitable growth as we believe we provide a compelling solution in an environment increasingly focused on mass customization and speed of part delivery.
Speaker 3: We are seeing strong traction in terms of demand and revenue growth. At this time, we have also rationalized our cost structure.
Speaker 3: plan to further reduce operating expense and optimize gross margin and expect to see the positive impact of these savings beginning in the second half of the year.
Speaker 3: As an example, we recently finalized our factory consolidation effort between Long Island City, New York and Livonia, Michigan. While our first half results are impacted by some duplicated cost structures, the Livonia facility is now fully launched and progressing towards stable operation.
Speaker 3: and should benefit our gross margins starting at the end of the second quarter.
Speaker 3: Furthermore, industry tailwinds support our growth as manufacturers are increasingly seeking flexible on-demand manufacturing services. We can together the traction in our software sales booking.
Speaker 3: The growing demand from enterprise customers.
Speaker 3: and the stabilization of our legacy commerce business.
Speaker 3: Combined with the cost measures we are taking.
Speaker 3: We have confidence in our positive trajectory and the path force profitability.
Speaker 3: I would like to thank the entire shape with team, our customers, our investors, and all of our stakeholders for their ongoing support. Alberto will now discuss our financial results in more detail.
Speaker 3: Thanks, Greg. I'll provide a recap of our first quarter 2023 performance, give an update on our balance sheet position, and provide guidance for the second quarter.
Speaker 3: In the first quarter, revenue increased 8% to 8.2 million compared to 7.6 million in the prior year, above our expectations and guidance.
Speaker 3: The increasing revenue was primarily attributable to positive contributions from our software offering, scaling over added and manufacturing capabilities and traditional manufacturing services.
Speaker 3: Our gross margins in the first quarter were 40% compared to 45% in the first quarter of 2022. We continue to deliver solid gross margins and the year-to-year change was primarily due to inflationary pressures to continue ramping of recently deploying new technologies and a more varied product mix. Additionally, in the first quarter we had some duplicated operations as we finalized our
Speaker 3: compared to a loss of 4.3 million in the first quarter of last year.
Speaker 3: As DNA expenses for the first quarter were 8.5 million compared to 6.1 million prior year.
Speaker 3: Similarly, reflecting increases to personal costs, the 2022 acquisitions, increased professional fees, as well as the final expenses relating to the manufacturing facility.
Speaker 3: Turn it to our balance sheet as March 31st, 2023, our cash equivalents and marketable securities total 32.5 million.
Speaker 3: During the quarter, we deployed approximately $8 million in cash, which is above our normalized level of cash burn due to expenses related to the move out of the Long Island City Facility, payments related to the 2022 acquisition, and severance costs.
Speaker 3: We believe the continuous strength of our balance sheet and our focus on achieving profitability and managing cash burn will allow us to execute on organic strategic plan without the near-term need to raise additional capital.
Speaker 3: Looking ahead for the second quarter of 2023, we anticipate revenues to the range of 8.3 million, to 8.8 million. We remain focused on those areas that we believe offer the greatest opportunity, including enterprise manufacturing solutions, commercializing our software.
Speaker 3: and anticipate an accelerated ramp popping in these areas as rear progresses.
Speaker 3: Finally, I would like to comment on our pending reverse stock split. There will be a vote of the upcoming annual meeting of the stock holders in June , after which, if approved, a final split ratio will be determined by the board of directors.
Speaker 3: With this, we've completed our prepared remarks and we'll now open the call for questions. Operator. Operator.
Speaker 4: Thank you.
Speaker 5: Ladies and gentlemen, we will now begin the question and answer session. If you do have a question, please press star followed by the one on your touch tone phone.
Speaker 5: You will hear a three tone prompt acknowledging your request. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker 5: One moment please for your first question. First question comes from Greg Palm of Craig Halem.
Speaker 6: Capital group please go ahead. Yeah, yeah, I have to run thanks for taking the questions. I wanted to just maybe start by, you know, maybe you can drive a little bit more color on, you know, the enterprise manufacturing customers that you alluded to. You know, I know it's been kind of a...
Speaker 6: Work in progress here over the last you know couple years But maybe just an update on kind of what you're seeing sounds like there's a little bit of traction But there's the ability sales cycles You know you know maybe if you can quantify sort of the size of some of these just and then timing kind of when we can
Speaker 6: I'll start to see that hit the PML. Yeah, thanks Greg and I appreciate the question. Thanks for joining us today. So on the enterprise manufacturing side, as you guys know, we've invested in additional sales resources and marketing resources and process and even tap X.
Speaker 7: to be able to support enterprise customers. And we've learned a lot over the last 12 months as we've made a lot of those investments. And one of the things that we've found is the sales cycle. And I think we've talked about this in the past. This should a lot longer. But as we've narrowed our focus on our ideal customer profile, we've been able to actually make a lot of traction.
Speaker 7: And some of those are specific to the industries that we're kind of targeting, specifically in the automotive space and in the medical space, industrial and then aerospace. We've really highlighted those areas as we pursued them. You know, so the customers that we've...
Speaker 7: referenced in today's call, has really been in two areas, kind of highlighting two very different use cases. One is in the medical space, where we're supporting a customer that is doing pre-searchable guides, and we've been able to help them quite a bit. They started to scale their production with us internally and they started to deploy and...
Speaker 7: sign contracts with us on additional programs beyond what the original scope was. This will end up driving a couple hundred thousand dollars of revenue per month for these type of customers once they're fully scaled. And as right now we've scaled one program, we're off to the races making a lot of really good progress.
Speaker 7: The second customer we highlighted was a customer that is graduated up into a more of a scaled solution. And we're supporting them and they're ultimately a tier one automotive supplier. And we're helping them with a more scaled solution. And this will result in a little over 1.25 million a year for the next seven years supporting them. And so a wide range of capabilities, but all kind of under this premise of how we're using technology to go and support the...
Speaker 6: I'm sure every situation is different, but I guess there is a commonality between all these customers. I'm curious, are these competitive wins or these customers that we're using traditional before and now moving to additive?
Speaker 7: Well, it depends on the use case. There probably isn't a common denominator there. I can probably reference examples in multiple different ways. But I will say maybe one of the common denominators is a very solution-based sale. This is not tax school. It requires a more technical sales approach.
Speaker 7: And, you know, ultimately, just started, and I think you'll see as an LN expand type of strategy where, you know, we'll start to take on more and more opportunities that these customers, as we've proven that we are able to support their, you know, on demand or low volume or even scale manufacturing needs. Got, understood.
Speaker 6: And then on Gross margins just help us understand what the trajectory kind of looks like. I think he mentioned, you know, more improvements sort of end up cute too. So I'm just kind of curious, if you can quantify what the drag has maybe been and then maybe what sorts of improvements you might see, you know, in the second half of this year.
Speaker 3: was 41% we closed this quarter, 40% realized that comparison fairly sort of the historical legacy level in the mid-40s, that's due to a handful of factors, right? So it's just to summarize though real quick. Greg spoke about duplicative resources.
Speaker 3: related to the manufacturing facility consolidation, from Long Island City to the Vonia. This had a negative impact over Q4 of last year, Q1 2023 and into the end of April . Okay, still through the end of April , we'll still paint somewhere in LAC. And so as we move forward throughout the remaining part of the year, we should start seeing the benefits of this consolidation.
Speaker 3: Number two, with the ploy new materials, a new hardware technologies, which aren't a scale yet. So gross margin of some of these hardware technologies have been negative, albeit improving.
Speaker 3: change in business mix, right? That's a big one with expanding to traditional manufacturing, which naturally has lower gross margins compared to that of it. And then lastly, we've seen some inflationary pressures. So to go directly to your question, prospectively, I would assume Q2 margins, approximately like with Q1 margins.
Speaker 3: Now our plan has gross margins in proving throughout the rest of the year, back into the mid-40s. Again, as we start ripping the benefits of the optimization and consolidation or manufacturing processes, and also most importantly, soft-dourages and high margin business becomes a material from the revenue perspective.
Speaker 3: Now our plan has gross margins in proving throughout the rest of the year back into the mid-40s. Again, as we start ripping the benefits of the optimization and consolidation or manufacturing processes and also most importantly, soft-dourages and high margin business becomes a material from the revenue perspective. because of Israel
Speaker 6: All right, well, I will let somebody else ask a question about software. So I'll leave it there. It's made so much. Thank you, Greg.
Speaker 6: I will let somebody else ask a question about software. So I'll leave it there. Thanks so much. Thank you, Greg. Thank you.
Speaker 5: Once again ladies and gentlemen if you do have a question please press star one at this time.
Speaker 5: The next question comes from Jim Rikudi of Needham & Company. Please go ahead.
Speaker 6: Hi, good afternoon. So I want to understand what is going on with SGNA because it sounds like you're clearly making investments and not quite sure whether the increase in SGNA which includes up your year and sequentially is coming from...
Speaker 6: higher customer acquisition costs, perhaps on the software side, or is it tied more to the enterprise business? Can you help us with that and maybe give us a sense to where you see that going?
Speaker 7: Yeah, it's a great question, Jim, and thanks for joining us today. Really two things. One, we completed the acquisition of linear AMS and MFG in the second quarter of last year. And so when we're looking at just Q1, the additional resources that were brought on from that, there was a little bit of a step change, specifically between Q1 and Q2 of last year.
Speaker 7: So that's one. And so those resources are really applied to two areas. One, resources associated with scaling our enterprise business. We've made a lot of investments in growing our sales channels and marketing channels and technical resources supporting those enterprise manufacturing sales. And then also we've made investments on the software side of this.
Speaker 7: And so that's one area that we can kind of lean to that have driven that increase year over year. The second one is on the marketing spend. We have made investments from a marketing perspective across all of our channels, but very specifically on the software side. And we've been able to...
Speaker 7: develop a acquisition model where we're able to drive marketing spend to create leads that ultimately turn into demos and 12 month contract. That is showing a really good three to one LTV to cap ratio. And so we're really excited about that and it seems very scalable and we're scaling that now and you saw
Speaker 6: And I can understand the year over year increase, Greg. What I'm trying to understand maybe is the sequential increase in SGA. And it may also be due to seasonality where there's some common sense that you incur in Q1, but on a go forward basis.
Speaker 6: Where do we see that going? Do we continue to see that scale up? As you continue to invest on growth on the enterprise and software side, or is there some leveling off? And if so, does that level off in the June September quarters or maybe the rate of increases not quite as high?
Speaker 7: No, totally understanding your question. It levels off. There is incremental marketing spend, but we are finding off-ex savings in other areas as we move throughout the rest of the year. So I think from a modeling perspective, you should expect us to continue to kind of hold at our current levels as we move forward.
Speaker 6: And then final question for me, the company is focused in two areas of driving growth, both the enterprise and the software side. Where do you see yourself making the most progress in the near term? And it sounds like you're encouraged by what you see on the software side.
Speaker 3: And again, I don't want to put words in your mouth but it sounds like the enterprise component is a longer sales cycle. Is that there? Yeah, that's a very fair observation. I think one, our top 250 enterprise level customers.
Speaker 7: continue to grow at that 18 to 22% year over year, pretty consistently as we look at the business. We're signing larger contracts, those longer contracts have longer delivery cycles, so we expect that to continue to happen. And so we're happy with that.
Speaker 7: Moving forward, now there's some shorter term opportunities with software where you'll see more growth in the short term where that's a much more scalable acquisition channel that can turn into revenue faster. And so there's a little bit of a combination of both of those, but we're excited about both progress.
Speaker 7: But one is a little bit longer investment versus software which has some more immediate impact to the business.
Speaker 7: One is a little bit longer investment versus software which has some more immediate impact to the business. Thank you very much.
Speaker 5: Thank you. There are no further questions at this time. I will turn the call over to Greg Crest for closing remarks.
Speaker 7: Well, first off, I just want to thank everyone for joining us today on behalf of myself and the entire Shapeways team. We appreciate your interest in Shapeways and learning more about our story. We look forward to providing you additional updates in the coming months.