Q2 2023 Markforged Holding Corporation Earnings Call

Greetings and welcome to the Mark for which second quarter 'twenty to 'twenty three earnings conference call.

At this time all participants are in a listen only mode.

A brief question and answer session will finally have the formal presentation.

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As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Austin Bank. Thank you Austin you may begin.

Okay.

Good afternoon, I'm Austin Bohlig director of Investor Relations of Mark porch, holding Corporation welcome to our second quarter of 2023 results Conference call. We will be discussing the results announced in our earnings press release issued after market close today with me on the call is our president and CEO shai to them and our acting CFO .

A soft safari.

Before we get started I'd like to remind everyone that management will be making statements. During this call that include estimates and other forward looking statements, which are pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements. These statements represent management's views as of today August 10, 2023 and are subject to material risks and uncertainties that could cause actual results to differ materially.

<unk> disclaims any intention or obligation, except as required by law to update or revise forward looking statements.

Also during the course of today's call we refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued after market close today.

Which can also be found at our website at investors <unk> Dot com.

I'll now turn the call over to Shai to round, President and CEO Mark Force.

Thank you Austin and thank you everyone for joining us on our Q2 'twenty 'twenty earnings call.

Part of our team performance in the second quarter as we continue to execute on our long term strategy to grow through innovation and bringing industrial production to the point of need.

And not less important we prudently managed our costs.

Well, keeping us on a firm path to profitability.

What do we have a long journey ahead, we believe Mark Ford.

Is a critical need in the market to strengthen manufacturing the resiliency and supply chains.

The demand for our solution continues to grow as our customers identify more and more opportunities to cut cost save time, and reduce physical inventories while building efficiencies to their own production lines.

With our upcoming new platforms and capabilities, we are confident in our ability to accelerate our growth in 2024.

Demand for the digital forge continued to grow globally in Q2.

Even in the face of high cost of coffee down environment, which is restricting capital expense investments as such what conversions to close deals are still challenging in the short term we are confident in our longer term growth projection is.

Especially with our upcoming product releases.

Our latest composite printer innovation the ethics 'twenty continues to excite our customers globally.

Specifically within industrial and high regulated markets like aerospace and automotive.

Coupled with the growing order pipeline of our newest metal binder jetting solution.

T X 100 remain excited about our future growth prospects.

But we are not done yet.

But the last two years, we've been hard at work on multiple new product innovations that accelerate production at the point of need and increase our addressable market.

We believe we have to go to market engine in place to truly scale. These new innovations I look forward to sharing these new products with you over the coming quarters.

We are seeing manufacturers around the world reshaping their supply chains as they seek more resiliency and flexibility by investing heavily in did you start the transformation and industrial automation.

Our customers tell us they did start forge is the perfect tool for their manufacturing floor and accelerates their ability to produce industrial parts on demand right, where they need them.

Just one example of these trends in action is our recent win with a tier one automotive OEM.

In Q2, we completed a very important and strategic transaction with a global automotive leader to drive flexibility and cost savings by reducing the reliance on physical inventory.

This sale includes over two dozen of both advanced composite printers and metal systems as part of our multiyear strategic initiative.

This win is a great proof point of how our platforms of hardware materials and software and growing distributed network of printers are uniquely position to proactively capitalize on the growing market opportunity or point of need industrial production.

We beat out the competition by delivering the reliability required to print mission critical parts at scale with advent software needed to securely manage a fleet of this size in real time across multiple teams of engineers and I T systems.

Mark Forge is extremely excited about this deal.

We believe we can continue to leverage these same strengths to win similar opportunities in the future.

Another example of how our innovations are providing value to our customers is S. U P engineering and industrial manufacturing solution provider in Perth, Australia.

Skippy faced challenges producing a complex cover for mining equipment systems.

Traditional machining methods, we're not cost effective and their existing polymer afridi printer was too slow and produce parts, which you did not before.

To address these issues eschew P turned to our ethics, 'twenty, which has significantly reduced the springtime compared to their existing polymer freely printer.

While vastly improving performance and surface finish there.

They also integrated the Mark forge metal X system to expand their additive capabilities with these solutions excuse me can now manufacture a wide range of production grade parts that cannot be machined offering better pricing and turnaround times.

The company plans to use the ethics, 'twenty and methanex systems to expand into the medical obligation and agriculture sectors.

While we continue to grow as we target the 43 billion market opportunity to make supply chains more resilient and flexible we remain mindful of our operational efficiencies and driving margin expansion in pursuit of profitable sustainable growth.

non-GAAP gross margins are tracking towards the upper end of our 20 plenty of free guidance, what we remain on track to achieve full production scale, but the ethics 'twenty.

We continue to remain focused on our operating expenses, which were down 11% year over year on a non-GAAP basis.

And on finding additional working capital efficiencies.

Capital management is key.

And we remain committed to achieving profitability with a healthy balance sheet and without dependency on external funding.

The second half of 2023 is shaping up to be super exciting for us as well.

We play in multiple new product introductions, which further enhance our current platform and should contribute to our accelerated growth in 2020 four.

I can't wait to welcome you to our fall Investor Day, you know new headquarters, where we will get a chance to showcase some of our products and meet the people or working tirelessly everyday to accelerate the adoption of the industrial production right at the point of need.

With that I'll now turn the call over to SST Bahri, our acting CFO will offer more details on our financial performance and guidance for the remainder of the year.

Thank you Shai and good evening everyone.

I will be covering our financial results for the second quarter of 2023.

Please note that my comments reflect on non-GAAP results and outlook.

A reference.

<unk> press release issued earlier this afternoon and posted to our Investor Relations website include our GAAP and non-GAAP reconciliation to assist with my commentary.

So let's begin.

We had another quarter of growth with revenue, reaching $25 4 million, representing a 5% increase compared to $24 2 million in the second quarter of 2022.

We also generated a gross profit margin of 48, 3% compared to 53, 8% in the second quarter of 2022.

These results are consistent with our operational plan and remain among the highest for publicly traded companies in our space.

As we have discussed in the past gross margins were impacted as we continued to ramp up the production of FX 'twenty. However.

However, we are confident that gross margins will start to gradually expand to historical levels that are above 50% in 'twenty four and beyond.

Our operating expenses were $26 6 million for the second quarter of 2023.

Down from 30 million in the second quarter of 2022.

This improvement in operating expenses is based on actions, we took which reflect our commitment to incremental efficiencies and focus on execution.

Net loss for the second quarter of 'twenty, three was $12 5 million or a loss of six cents per share based on a weighted average shares outstanding for the quarter of $196 4 million.

Our net cash used in operating activities in the first half of 'twenty three decreased by $10 9 million or approximately 26% from the first half of 'twenty two.

We expect our cash utilization to continue to decrease over the coming quarters.

As a result of higher revenue prudent opex spend and working capital efficiency.

Now moving onto our guidance.

Our results for the first half of the year are in line with our expectations the uncertain macro environment and relatively high cost of capital continue to weigh on our customers' purchasing behavior. Therefore, we are maintaining our revenue guidance to be within the range of 101 to 110 million.

Yeah.

In accordance with similar seasonality of our industry, we anticipate Q3 revenue to be.

Mostly in line with Q2.

We expect revenue to see the typical end of year ramp in Q4.

Considering our strong execution in the first half of the year. We now believe that there is more opportunity for gross margins to be within the mid to upper range of our guidance.

47% to 49% for the year.

We plan to continue the disciplined approach to operating expenses as we progress through 2023.

We expect operating expenses to decline as a percentage of revenue as well as in absolute terms year over year.

<unk> in a lower expected operating loss in the range of $54 million to $57 million.

Accordingly, our EPS loss per share is expected to be between 25 and 27 cents per share.

We are confident that our accomplishments to date ongoing focus on execution and commitment to consistently release new innovative technologies.

On the right path to profitability.

That concludes our prepared remarks today operator, please open up the call for questions.

Thank you we will now be conducting a question and answer session.

The clients ask a question. Please press Star then one on your telephone keypad.

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I mean piece, while we poll for questions.

Our first question is from Greg Palm of Craig Hallum. Please go ahead.

Yeah. Thanks. This is Danny Agri John for for Greg today, Thanks for taking the questions.

I wanted to touch.

Good I wanted to touch first on maybe just more of what you're seeing out in the market you know you've got peers talking about lower visibility you know.

Sales cycles, lengthening and maybe some customer push outs maybe.

Maybe it will tie more into to the revenue guidance as well so of a flatter Q3 sequentially that was just kind of a broad range for Q4. So I guess what are you seeing out there right now what needs to go right or wrong for Q4 to get to the top or under that that fiscal year guidance rage.

Yeah.

Okay.

Yeah.

Thank you I think in general we continue to see that.

The cost of capital is higher than previous years.

Has your thinking on investment income for that equipment.

And with that we do see that.

Is increasing materially year over year.

I agree with you also see since I guess.

But we don't see it.

Disappear.

So we feel actually very good about what's coming.

And especially if the environment continued to improve.

Just on some of the deals we saw especially on the strategic side.

Definitely improving.

We are very optimistic about that site.

And then I think currently we are predicting the traditional seasonality for us between the second half than the first half.

So we.

We expect to grow more in the second half of the universe of the first half.

Yes.

Got it.

Maybe one on on gross margin I'm I know I know last quarter, a big talking point was kind of a.

FX 'twenty production costs, improving did you see that trend continue into the quarter or is there more to go on that how should we look at that.

I think it's fairly stable.

With that.

We said in the Gulf, we are taking the right actions to go back to the 50 plus percent gross margins in 'twenty four.

So it's it's on track based on what we see.

Spring the right direction.

Okay got it.

Just one last one on P. X 100 were supposed to start shipping in Q3 Q4 of those started shipping yet kind of early feedback have you got on that system, if they have or early betas or what.

We have not started shipping them, yet and we still expect to ship the second half of the year.

And there's a lot of excitement and were able to successfully build a good day.

Google Hoarders.

System.

As we said before I don't think it's going to be material from revenue perspective.

2023 but definitely in 2024.

Okay I appreciate it I'll leave it there thanks.

Thank you.

The next question is from Shannon Cross of Credit Suisse. Please go ahead.

Thank you very much I had a follow up on the tax question you know in terms of the order pipeline I'm curious if if I order. It today when are you telling people that they could ricky delivering just trying to think about how it ramps very 24.

If you order today, probably is going to be Q1 or Q2.

Okay.

Okay. So from a so I guess, when we get to first or second quarter on a year over year basis, there should be some decent uplift is that fair from 'twenty three.

Yeah.

Yes.

Yeah, I mean, we expect I believe on 24 over 23 with a fixed but I think that's correct.

Okay.

And I guess have you have you seen any customers come to you as you know your your systems are ideal for replacing metal parts given the tighter capex budgets. You know have you seen share gain and maybe customers way you know metal manufacturing versus your option.

So I think what do we see that.

Most of our customers come to US we brought from.

From the manufacturing floor, and especially trying to reduce costs.

It was very fortunate to meet a lot of what they want give customers automated packaging customers and others and they are able to reduce the cost per part with our solution, sometimes by Phoenix, which is very significant and as such they are right for them and somewhere between three to nine months on the behind the counter equipment and this is where we see the biggest success.

On the manufacturing floor.

Yeah, No I understand that I guess, what I was trying to figure out is given the capex challenges in the you know tighter budgets and people are seeing.

Do you think you're gaining share vis vis the metal options or is it sort of steady state in terms of demand rates.

You mean versus traditional manufacturing.

Yeah, either traditional or even even maybe some of the medical metal options that are out there on the am side I'm just wondering from a share gain perspective, if you're if you've seen any shift given again that the price differentials in terms of your your products versus you know your printers versus others.

And maybe it's not the right.

Yes.

No that's fine.

Lucas did wrong frankly, we've been communicating and we believe that the answer is yes based on the growth.

Thank.

Yes.

The industry.

Yes.

But generally I think the bottom line.

All of these parts that we're replacing or you used to be traditionally manufactured mainly right sandy.

So sometimes we replace them with composite parts, sometimes we've been we've met our parts with our metal solution. They actually had a very good quarter.

Quarter.

And I think each time that we do this and we continue to grow we think more and more market share from X.

Thanks Ray.

Okay, and then I mean, you you have sufficient cash you're still burning cash that you're you obviously have the cash balance I know Valerie just announced a large offering I guess I'm trying to think about how you are you feeling about your balance sheet your capital's capital sectors.

Sorry, your question, but just in general your balance sheet at this point and.

What what level of cash you need to run the business just a comfort level given obviously the industry in general is it's going to have a bit of a rough rough patch.

Yeah, that's a great question.

Do you have a lot of countries <unk> ability to maintain our plan.

And you know our cash utilization is expected to improvement.

See more volume top line.

As we continue to focus on operational efficiencies.

So we feel very comfortable with.

With our balance sheet and our ability to meet our targets.

Maybe I would just add we don't see the need to.

Ooh raise any external funds before we get to profitability and we when we get there we're still going to have a very healthy balance sheet that allow us to easily over into business.

Okay, great. Thank you so much.

Thank you.

Okay.

The next question is from Brian Drab of William Blair. Please go ahead.

Alright. Thanks.

Afternoon, and good evening Hum.

It looks like the high the consumable sales are about flat quarter over quarter. I'm. Just wondering you know I know you know the machines being connected in.

You know that gives you a good view into utilization of the equipment, which is obviously generally a good leading indicator of when someone's going to buy the next one just like what can you comment at all about.

What your sense is for utilization of of your equipment in the field.

And the trend was more importantly, the trend of utilization, if it's an increasing flat et cetera.

Yes.

Due to the division continued to increase quarter over quarter and so we see of course on vacuum system. As you know one of our solutions are connected on say over 90% of them and we feel good.

Station there. So we've continued to increase quarter over quarter I think there was a little bit of softness coming mainly from Europe .

Europe is having a little bit of tough times to do this.

But other than that the trend continues to improve and we fix it.

Over a year and we still see utilization continued to increase.

We're going to see it even in higher level and it's been going.

To get to the first or second year <unk>.

'twenty three which is.

People are consuming much more juice.

Got it Okay and then can can you just.

Provide an updated comment kind of related to the.

Previous question around when you expect the company to reach cash flow breakeven.

Yeah absolutely.

We feel very comfortable with the with the plans that we have communicated with great cost control and we have to see.

Yeah.

Very excited with the opportunity that is ahead of us heading into 2024.

Oh yeah.

We have confirmed the plan.

Communications that we've had in terms of.

Breakeven and our ability to manage our cash.

And that's I guess to be specific.

But more specific than that Brian .

24 or are we saying yeah.

Correct.

<unk> reaffirmed the need and then the last quarter of 24.

So on breakeven.

And cash flow positive in 2005.

Right, there's no change there.

Yeah, I just needed a reminder, oh, okay. That's perfect. Thanks a lot.

Thank you.

Yeah.

There are no further questions at this time I would like to turn the floor back over to shot drain for closing comments.

Thank you very much everyone for joining us.

Uh huh.

Recall that for the few next quarter.

Yeah.

This concludes today's keybanc. Thank you for joining US you may now disconnect your lines.

Goodbye.

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Okay.

Hum.

Okay.

Okay.

Hum.

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Yeah.

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