Q2 2023 Shapeways Holdings Inc Earnings Call
Speaker 1: Greetings and welcome to Shapeway second quarter 2023 earnings call. At this time all participants are in a listen-only mode. The question and answer session will follow the prepared remarks. As a reminder this conference is being recorded.
Speaker 1: 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.
Speaker 1: 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 third quarter of 2023, expected growth, impact of recent acquisitions, new offerings and market opportunity, and the growth of the economy.
Speaker 1: are based upon current estimates and various assumptions. These statements involve material risks and uncertainties.
Speaker 1: that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.
Speaker 1: For description of the risks and uncertainties associated with our business, please see the company's SEC filings, including the company's quarterly report on Form 10Q for the quarter ended June 30, 2023. The information provided in this conference call speaks only to the broadcast today, August 13, 2023.
Speaker 1: Check place disclaims any obligation except as required by law to update or revise forward-looking statements.
Speaker 1: Also, during the course of today's call, we refer to adjusted EBITDA, which is a non-GAAP financial measure. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued before market open, which can be found on our website, shapeways.com. On the call today are Greg Kress, Chief Executive Officer, and Alberto Recchi, Chief Executive
Speaker 2: to discuss Shapeway's second quarter 2023 financial results and progress on our key initiatives and strategic growth plan.
Speaker 2: I will begin by providing a business update and Alberto Recchi, our CFO , will then discuss our second quarter financial results and outlook for the third quarter.
Speaker 2: In the second quarter, we delivered revenue in line with our expectations and made meaningful progress on our key growth initiatives, particularly with regard to our software tools and services, as well as our enterprise manufacturing customers.
Speaker 2: We continue to work towards our goal of achieving profitable growth over the long term as we realize increased contribution from high margin software sales and continue to recognize revenue from our multi-year manufacturing contracts.
Speaker 2: with enterprise customers as well as continue to closely manage expenses. We believe the market is approaching an inflection point in the overall adoption of digital manufacturing solutions.
Speaker 2: Furthermore, we believe that Shapeways is well positioned to take advantage of this market opportunity across an array of industries with a platform that combines high quality, flexible, on-demand manufacturing with purpose-built proprietary software.
Speaker 2: We are pleased with our ongoing traction and will remain disciplined and prudent as we execute our operating plan.
Speaker 2: In terms of our software tools and services business, we have continued to scale and are pleased to deliver a revenue increase of 40% in the quarter compared to the same period in the prior year.
Speaker 2: We have recognized $1.4 million of software revenues year-to-date, and believe we are on track to double software revenues for the full year 2023 from 2022.
Speaker 2: This success is a direct result of the steps we have taken since our GO public transaction.
Speaker 2: including investment in continuous product innovation and scaling customer acquisition.
Speaker 2: A key contributor of this growth is the realization of our expectations from the acquisition of MFG, which we completed last year.
Speaker 2: As a reminder, MFG is a platform that makes it easy for buyers of custom parts and custom part manufacturers to find and work with each other.
Speaker 2: MFG had historically focused on connecting small and medium sized manufacturers with custom part buyers through a global manufacturer database.
Speaker 2: This platform established a strong foundation for Shapeways to leverage and deploy our auto software features and capabilities to those manufacturers.
Speaker 2: In the second quarter, we refreshed the MFG brand, and year-to-date we have released several transformative software enhancements aimed at driving success for manufacturers and their customers.
Speaker 2: Four of our recent enhancements include transactions, orders, 3D viewer, and materials, each of which provide for increased customer acquisition, retention, and lifetime value, as well as additional sources of revenue.
Speaker 2: MFG Transactions streamlines the process of invoicing for both buyers and manufacturers by allowing manufacturers to send invoices to buyers and for buyers to pay for their services all within the MFG platform.
Speaker 2: MFG Orders further deepens the platform's ability to help manage the ordering and manufacturing process, including tools such as request for quotes, customer communication, and other services.
Speaker 2: purchase order creation, and manufacturing process tracking.
Speaker 2: The 3D Viewer, which is a feature that has been widely requested by our users.
Speaker 2: allows for viewing of 3D models of custom parts.
Speaker 2: streamlining the quoting process, improving communication, and allowing for greater accuracy and speed in the process.
Speaker 2: And MFG Materials is a new service which provides a range of raw materials for manufacturers at discounted rates, reinforcing MFG's role as a comprehensive partner in the manufacturing sector.
Speaker 2: These feature releases are just the start of how we believe MFG will grow to be a comprehensive and valuable software platform for manufacturers.
Speaker 2: We believe Shapeways and MFG will be the platform of choice for manufacturers across the globe as we help them unlock new revenue opportunities that grow their business.
Speaker 2: find operational efficiencies, and expand their manufacturing capabilities.
Speaker 2: In terms of our enterprise manufacturing sales,
Speaker 2: We are seeing continued traction through our focused efforts and restructured go-to-market approach, including a sales force that focuses on high-value opportunities.
Speaker 2: In the second quarter, more than half of our revenues were with enterprise customers.
Speaker 2: as we realize double-digit growth in enterprise sales in the quarter.
Speaker 2: We also secured several notable contracts in our target industries for multi-year, multi-million dollar orders that we will recognize in the coming quarters and years.
Speaker 2: and which affirms our proficiency in serving these customers. To highlight a couple, we secured two new Q1 supplier contracts with leading automotive and transportation manufacturers for multi-year production programs, which we expect to result in more than $2.8 million annually in revenue.
Speaker 2: for the next seven years. We also expanded our medical customer base by securing two significant contracts, which we expect to generate revenues of approximately $2.5 million annually during the next three years.
Speaker 2: Shapeways is an FDA compliant contract manufacturer and we enable innovation in the medical sector through our additive manufacturing services.
Speaker 2: I am also proud that our proficiency in innovation is being recognized industry-wide.
Speaker 2: In conjunction with Microsoft, we were jointly awarded the 2023 TCT Award.
Speaker 2: which recognized outstanding innovation in applications of 3D printing and additive manufacturing technologies across the globe.
Speaker 2: We won in the category of consumer product applications for the Shapewidth Configurator for Microsoft Adaptive Accessories.
Speaker 2: The Shapeways Configurator enables users to customize their Microsoft adaptive accessories with 3D printed add-ons to fit their unique needs.
Speaker 2: providing greater functionality, ease of use, and comfort.
Speaker 2: Looking ahead, we remain laser focused on executing on our strategic plan, which as I discussed is continuing to gain traction.
We believe we will realize margin improvement in the coming quarters as we see the benefit from managing our operational costs, including the recently completed consolidation of our US manufacturing facilities.
as well as the ramping contribution from higher margin software sales.
We will remain disciplined and prudent as we continue our journey towards profitable growth.
I would like to thank the entire Shapeways 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. I'll provide a recap of our second quarter 2023 performance, give an update on the balance sheet position, and provide guidance for the third quarter.
In the second quarter, revenue was $8.4 million, flat from the prior year and aligned with our guidance.
Installs strong growth in software and enterprise sales, partially offset by lower sales from marketplace and sales service.
We were unable to finalize the shipment of a key order in Q2, which has been pushed into Q3.
This resulted in delayed revenue recognition, but did not allow us to show the quarter-over-quarter revenue growth we were envisioning.
I wonder if that order is currently planned to ship in Q3.
Our gross margins in the second quarter were 40% compared to 43% in the second quarter of 2022, and flat sequentially.
We continue to deliver solid growth margins and the year-over-year change was primarily due to inflationary pressures, the continued ramping of recently deploying new technologies and a more varied product mix.
We anticipate realizing margin expansion over time as we see more contribution from prior margin software sales. The benefits from the consolidation of our US manufacturing operations.
as well as our cost optimization plan.
Second quarter adjusted EVDA was a loss of $6 million compared to a loss of $4.3 million in the second quarter of last year.
SG&A expenses for the second quarter were $8.1 million compared to $6.8 million in the prior year, primarily reflecting increased professional fees and payouts related to the 2022 acquisitions.
Turning to our balance sheet as of June 30, 2023, our cash, cash equivalents and marketable securities, total $24.7 million.
During the quarter, we deployed approximately $7.4 million cash from operating activities.
We remain prudent and focused on further improving our cash burn while proactively monitoring our liquidity.
On June 22, the 148 reverse stock split of the company's common stock and corresponding common stock adjustment became affected.
The primary goal of the reverse stock slate was to increase the per share market price of the company's common stock to meet the minimum $1 average closing price requirement for continued listing on the New York Stock Exchange.
On August 1st, we completed a voluntary transfer of the listing of our common stock and warrants to the NASDAQ global market from the New York Stock Exchange.
We believe our company aligns well with the innovative growth platform represented by NASDAQ and the transfer also allows us to benefit from the NASDAQ cost-effective offering.
Looking ahead, for the third quarter of 2023, we anticipate revenues to be in the range of $8.5 million to $9 million. We remain focused on those areas that we believe offer the greatest opportunity, including enterprise manufacturing solution and commercializing our software.
and anticipate an accelerated ramp up in these areas as the year progresses.
With this, we've completed our prepared remarks, and we will now open a call for questions. Operator?
Thank you. We will now be conducting a question and answer session.
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One moment please when we poll for questions.
The first question comes from the line of Greg Palm with Greg Helen Capital Group. Please go ahead.
gross margin, that's becoming a bigger part of the mix. So I would have thought the gross margin would have been starting to tick up, but it's kind of remained flattish over the last two, three quarters. So it's kind of visibility in terms of when that positive favorable mix starts to hit the gross margin line. Michael Hey Greg, thanks for taking the time. I appreciate the question. So going back to software, we still expect software to double this year. We're seeing incredible progress and it's mostly fueled by the rise in the growth in bookings that we saw at the beginning of Q1 and into Q2 as we started to...
over the next 12 months. We're signing 12 month contracts that range on average, I would say roughly around $5,000 per contract. And the lifetime value is a little over $4,200.
And so what we're seeing is as those bookings come in, you'll see them translated into revenue in the back half of the year. Now because those bookings, growth really started taking place in Q1, you're going to see that ramp happen in the back of the year. So revenue continues to grow quarter or month over month, quarter over quarter, but you're going to see a more compounding effect as you get to the back half.
the year. And so that proportion of revenue will start to really have an impact on our gross margins. I would also say the other thing that we are still finishing up in Q2, as you probably remember from our last call, is we consolidated our two US manufacturing facilities. So the Long Island City Facility.
with our Livonia facility. And in doing so, we still had duplicative costs like the first month of the Q2. And so there were still some additional costs in there. And so there's still some lingering effects from that transition, but that transition is fully behind us now. And so as we move into Q3.
We expect gross margin to continue to improve and we've seen that month over month throughout the quarter Q2 and so we expect that to continue into Q3 and Q4.
Okay, perfect. That's helpful, caller. Then just in terms of cash burn, can you just give us an update on where we sit today? What's that look like over the next, I don't know, maybe 12 to 18 months? As the Dutch government continues to say so, now we've working triple-A over the last
Sure, I'll take that Greg. So look we closed the second quarter with a strong cash balance, close to $25 million cash which provides a company with sufficient liquidity to keep supporting the ongoing execution of our strategic plan and also supports our normalized levels of cash burn.
we will keep aligning our resources with the highest opportunity areas of revenue growth, specifically in software and enterprise.
while at the same time tightly managing our cost structure. We have a plan to take margins back to the levels where they have been historically. So if we're able to deliver on this, you will see a significant cash burning program towards the end of the year. Now for Q2, we have a plan to take margins back to the levels where they have been historically.
So specifically, the burning Q2 included a one-time payment related to earn-out structures for the MSG and linear AMS acquisitions, and also some spillover expenses related to the move for Long Island City facilities in Tula-Lonia.
Q3 will also include one last payment related to linear MS acquisition, but we are forecasting an improvement on burnt coral record.
And are there any other additional sort of restructuring expenses that are going to linger here or should we just think about the Q3 linear or not? Or now it's just sort of the last one of these kind of unusuals.
Yeah, that should be the last and new role item for this quarter. Yeah, on the cost side, look, we're looking at cost savings everywhere we can. For example, this recent move to NAS, that's part of the strategy....our forecast has us reducing security exchange related to 70%.
From a personal perspective, the SDNAs should be in line of the previous quarter.
and professional fees and other spending related to being a public company and what you will remain in line as did as the previous quarters.
Okay, understood. Alright, thanks so much.
Yes, thank you very much.
Thank you. Next question comes from the line of Jim Riccutti with Neeram & Co.
All right, thank you.
Just elaborate on that order that was pushed, maybe just quantify it in terms of size from Q2 that you're anticipating in Q3.
Hey, Jeff, thanks for calling Alberta.
I was just gonna it's about $600,000. I mean we would have a closed quarter with you know
a nine handle in front of the number showing high single digit growth.
Okay, that's it.
Go ahead.
No, thank you. Thanks for providing that. And so SOAR for revenue was what about $740,000 in the show and Q2.
Say again, Jim. Sorry, I lost the... I was going to ask about the software revenue in Q2. It sounds like it was what, around 740,000?
Yeah, I love that.
And you just, if you could ever remind us, what did you guys do last year in software? You're anticipating, you're still saying you're anticipating a doubling this year?
Last year we closed at 1.8.
Got it. Okay, and then the other question I had is on the...
information you provided on enterprise customers. I think you said about half the revenues in the quarter from enterprise. Wondering if, is that mainly existing customers? Are you seeing any contribution of size from newer enterprise customers when you provide that metric?
Yeah, when we're looking at that MedDirect, that also includes new customer acquisitions that are coming in. So, we've actually seen some sizeable orders from really, really large enterprise customers. We've been doing a lot of work building that business development pipeline. They're starting to transition into orders. So, we're seeing really, really good progress there.
And then last question just on some of those awards where you put some, Greg, some annual revenues associated with it over the next multiple years, you know, do they scale to those kind of levels on an annual basis in 24 or is that something that ways of building that budget Brittany F.: Right.
is going to gradually move up and at some point in 25 you start seeing that kind of a contribution on an annual basis? No, that's a great question. We actually start a lot of the work in Q4, but we'll realize the benefit of that starting in Q1 of next year. So yeah, I think from the modeling perspective you could…
you could probably realize the full benefit in 24.
realize the full benefit in 24. Okay, thanks a lot.
Thank you. A reminder to all the participants that you may press star and 1 to ask a question.
There are no further questions at this time. I would like to turn the floor back over to Greg or Chris for closing comments.
We look forward to providing you with future updates as we close up next quarter. Thank you. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. This concludes today's teleconference.