Q4 2023 Markforged Holding Corp Earnings Call
Greetings and welcome to the Mark for its fourth quarter 2023 earnings Conference call. At this time, all participants are in listen only mode a brief.
A question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please.
Press Star Zero on your telephone keypad as a reminder, this conference is being recorded.
Now my pleasure to introduce your host Austin Bohlig director of Investor Relations. Thank you often you may begin.
Good afternoon.
Noon I'm Austin Bohlig director of Investor Relations, Mark Forge holding corporation and welcome to our fourth quarter 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 ramp and our CFO that's off the board.
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 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 facts shall be deemed to be forward looking statements. These.
These statements represent management's views as of today March seven 2024 and are subject to material risks and uncertainties that could cause actual results to differ materially.
Mark forged 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 a reconciliation scheduled showing the GAAP versus non-GAAP results currently available in our press release issued after market close today.
Which can also be found on our website at investors don't Mark forged dotcom.
Now I'll turn the call over to Shai to Ram President and CEO Mark forged.
You Austin and thank you everyone for joining us on our Q4 2023 earnings call. We ended the year with a positive momentum as we continue to execute our strategy.
While the challenging capex environment of 'twenty 'twenty free.
Late system sales, we're encouraged by 20% sequential revenue growth in the fourth quarter.
Which helped.
Sales to the high end of our 2023 targets range.
Thanks to effective cost controls, we also exceeded our 2023 gross margin and operating cost targets.
We are well positioned for growth as we drive the adoption of additive manufacturing on the factory floor to increase efficiency reduce costs and improve supply chain resiliency.
Food revenue growth aided by the U F extend E.
The X 100, and digital source combined with the continued focus on expense control. We believe we remain on a clear path to profitability.
During Q4, we saw positive momentum with many customers across the globe.
One example is our expanded relationship with automation Alley and project Diamond with the sale of an additional 125 Onyx Pearl printers.
Okay maintain their existing fleet of 300 printers automation Alley, originally acquired in 2021.
This win is part of a strategic partnership between project Diamond and digital source.
Our on demand platform for three D printing OEM certified parts.
We believe this expansion validates our secure.
Our base software capabilities that include fleet management quality control and part validation.
We're excited about the partnership with automation Alley, and advancing our vision for digital source.
As we entered 'twenty 'twenty four manufacturers need to reduce costs and build more resilient supply chains remain a tailwind driving demand or the digital forge.
The opportunity to move maintenance repair and operations or M. R O from physical to digital inventory and break industrial production to their point of need provides a massive market opportunity.
Global customers increasingly recognize the digital forge is a powerful platform or achieving these goals done on a global nutrition.
Essential dairy and plant based product leader.
Provides another Great example factory Byron is done on the leading production center in Europe.
Assessing milk sourced from Polish farms.
The product manufactured at this facility are distributed to both the domestic market and more than 20 other countries.
Hey, Byron factory in Poland face supply chain disruptions spare parts availability challenges and equipment maintenance issues in.
In response done on dairy plant.
Two the digital forge and X seven printers due to their reliability ease of use and industrial strength parts.
In the first year by their own estimates, our non dairy plant reduced cost by 80% across 374 printed parts.
As we look ahead into 'twenty 'twenty four we expect the capital spending environment will continue to be challenging as a result of the current macroeconomic environment.
Including elevated interest rates.
While our guidance factor in these challenges persisting through the year, we believe we're positioned for growth in the second half of 'twenty 'twenty four.
Driven by our new product introductions robust fleet utilization and improving efficiencies in our go to market operations.
Innovation for the factory floor.
Mark Forge forward.
It's form next in November last year, we launched free important new products F extend.
Vega and digital source.
We're excited about the strong initial demand for the F X 10, and we remain on schedule to begin shipping in the first half of this year.
With these new products alongside their fixed 20 X 100, and the rest of our industrial printer lineup we.
We enter 2024 with the strongest product portfolio in the company's history.
These new products help position us for growth in 'twenty, 'twenty four and beyond.
The health of our global printer network remained robust as customers sold even more factory floor applications, using our metal and advanced composite solutions.
Furthermore, we are pleased with the strong growth in subscription sales, which helped drive services revenues up 25% year over year in 'twenty 'twenty free.
We believe the strong utilization rates and the resulting recurring revenue streams will grow in 'twenty 'twenty four.
We're particularly encouraged by sequential improvement in non-GAAP gross margins, which exceeded 49% in the fourth quarter.
Coupled with improving operational and working capital efficiencies right 'twenty 'twenty four we are confident we can navigate the challenging macroeconomic environment with continued prudent cash management and our strong balance sheet.
We strongly believe that the ethics 10 F. 'twenty T X 100, and digital source along with the rest of our factory proven industrial printers.
Critical industry needs to strengthen manufacturing resiliency and supply chains.
It's global capital expenditure constraints loosen.
We are well positioned to realize the substantial growth opportunities that our platform provides.
Before turning the call over I'm very pleased to announce that necessity pori.
The company acting Chief Financial Officer since May 2023 has been named Chief Financial Officer.
SaaS has been a key member of our executive team over four years and has repeatedly demonstrated their business acumen and leadership to head our financial organization.
I'm confident in his continued leadership to help us on our journey to profitable growth.
With that I now turn the call over to a theft of Pori, our CFO, who will offer more details on our financial performance and guidance for the year.
Thank you Shai and good evening everyone.
Since joining mark forged I've been inspired by our fantastic team the power of our technology and our mission to bring industrial production to the point of need.
I am grateful for this opportunity and I am confident in our team's ability to drive success.
With that said I will now be covering our financial results for the fourth quarter and full year of 2023.
Please note that my comments reflect our non-GAAP results and outlook.
Oh, you reference our earnings press release issued earlier this afternoon.
And posted to our Investor Relations website includes our GAAP non-GAAP reconciliation to assist with my commentary.
So let's begin.
Revenue for Q4 was $24 2 million.
Up 20%.
Q3, 2023, and down 19% from the fourth quarter of 2022.
Our revenue performance was still impacted by a challenging macroeconomic environment with high interest rates.
The year over year decline in system sales also impacted consumable revenues that are tied to new hardware purchases.
That said, we are pleased with the adoption rate of our subscription based.
Software and services.
Which predominantly drove a 33% growth.
Year over year in the fourth quarter.
Total revenue was 93.8 million, which is above the midpoint of our guidance, but down from 101 million.
In 2022.
Gross margin for the quarter was 49, 5%, representing a 2% margin expansion.
Up from 47.5% in the fourth quarter 2022.
This margin expansion was positively impacted by product mix and operational efficiencies.
Gross margins for 2023.
It was 48.6% which is above the high end of our guidance range compared to a gross margin of 58% in 2022.
A key goal for us in 'twenty 'twenty four is to sustain this positive momentum scaling up our business and enhancing operational efficiencies even further.
Operating expenses were $24 9 million in the fourth quarter of 2023 down from $29 4 million in the fourth quarter of 2022.
Operating expenses for the full year, 2023, where 103.1 million down.
Down from $114 3 million in 2022 reps.
Representing in Opec's reduction of 11.2 million.
This improvement is a result of our ongoing efforts to reduce operating expenses and optimize our cash utilization.
Operating loss was 13 million for the fourth quarter of 2023, an improvement from $15 3 million in the fourth quarter of 2022.
Our operating loss for the full year 2023 was 57.6 million <unk>.
Showing an improvement from a loss of 63 million in 2022.
In 2023, we took multiple steps.
To build operating leverage and rightsize our cost structure.
This effort is expected to decrease our operating expenses further to an annual run rate of between 92.5 and $95 million in 2024.
Net loss in the fourth quarter of twenty-three was 11.6 million.
An improvement from a loss of $13 3 million in Q4 2024.
Our net loss for the full year 2023 was $51 2 million.
An improvement from 60.1 million in 2022.
Fourth quarter loss per share was six cents based on a weighted average shares outstanding for the quarter of $198 4 million.
Our loss per share for the full year twenty-three was 26 cents compared to a loss per share of 32 cents for the full year 2022.
Driven by improving operational and working capital efficiencies.
Our net cash used in operating activities E twenty-three decreased by $24 6 million or approximately 33% from 2022, our cash cash equivalents and short term investments were $116 9 million.
At the end of the year.
<unk> by 9.1 million from the last day of the third quarter 2023, we expect our cash utilization to continue to improve in 2024 as a result of higher revenue.
Modest gross margin expansion.
Strong opex cost control and working capital efficiencies.
Before moving on to our guidance I want to underscore our dedication to striking a balance between our capacity for successful innovation.
Market success, and our commitment to maintaining a strong balance sheet.
Now moving onto our guidance we.
We anticipate fiscal year 'twenty 'twenty four revenues you'll be within.
The range of 95 to 105 million.
While our guidance acknowledges the persistence of macroeconomic headwinds throughout the year.
We see an opportunity for accelerated growth in the second half of the year.
Our outlook is underpinned by the introduction of new products, and particularly E. F X 10.
In line with seasonal industry trends, we expect to see the normal.
Mid teens sequential revenue percentage decline.
In the first quarter.
And expect revenue to grow modestly sequentially in Q2.
And as I indicated previously we are encouraged by our growth prospects in the second half of the year driven by new products.
We expect gross margins to be within the range of 48% to 50%.
As we continue to ramp up our new product lines.
We also anticipate that the expense disciplines and cost structure realignment, we undertook in 2023, we'll continue to make a positive impact in 2024.
We expect non-GAAP operating loss in the range of 42.5 to 47 million for the year.
Finally.
We expect non-GAAP EPS results for the full year.
To be a loss in the range of 19 to 22 cents per share.
That concludes our prepared remarks today.
Does that open up the call for questions.
Thank you well now be conducting a question and answer session.
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Thank you. Our first question is from Troy Jensen with Lake Street Capital markets. Please proceed with your question.
Hey, Thank you, it's a cantor Fitzgerald now.
Yes.
Hey, first of all congrats guys on great results here in Q4 S.
I'm, the CFO position et cetera.
Yeah.
Thank you Troy.
Hey, Eric Yeah, sorry for you I guess.
Two things I want to hit the ethics and can you just remind us pricing difference between the seven and the FX 10, and and timing of revenues again. Please.
Yes, so the FX then it's slightly more expensive than the X seven eight.
We had someone would range between <unk> seven and the ethics 'twenty.
And we are still on track to ship it in the first half of this year and as such to start to see the revenue ramping up starting in the first half I think it is going to become more meaningful in the second half.
Okay perfect I remember the launch it from that so it was pretty impressive so good luck with it but.
And then also a digital source I'd love to get an update you mentioned automation alley.
But any update also kind of the time it kind of revenue contribution that would be awesome.
Sure we're actually very excited with the teacher source is engagement and excitement around this romance potential customers is much bigger than we expected.
And we are excited to work with them on how to collaborate and this.
<unk> platform into their solution into their problems, but for this year, we would focus on adoption, we're going to be focusing on scale. So I think this year, we would not see material revenue contribution from the Beecher source, but the traction is much stronger than we expected before.
And remind me just the revenue its theres going be upfront system sales rate for people that are putting them out to partners and then there's going to be an ongoing kind of annuity stream.
Are you still working on it.
So there's a few few revenue streams from the Deuchar sorts I think the first one is different you definitely through expansion.
Because our customers will sell the solution into their customers and so we see.
Expansion of the adoption of our core solution, but in addition to it we expect to see revenue from due to the station of the platform itself.
And that would come in later years.
Okay Awesome, I think I've got I'll see the floor now and good luck to them.
Thank you Troy.
Thank you. Our next question is from Greg Palm with Craig Hallum. Please proceed with your question.
Yeah. Thanks, This is danny acreage on for Greg today.
Wanted to hit on automation Alley, I think I looked back in that original sale was around $8 million for that for those 300 printers. So I guess is it fair to say that that the sale. It was like around three or $4 million contribution and and was this one of them that you.
You mentioned last quarter that you kind of expected to hit that got pushed out.
And so actually not as we stated this is 125 units of Onyx pro so we'd see.
Smaller than what you suggested.
And the other big deals we are working on that are still in play so I think we.
We are happy they are still in play, but automation Alley is a great strategic partnership for us and we are looking into serious adoption in ne.
The supply chain to support in automotive.
We see serious partnership here into the adoption of the <unk> source and.
So it's a very important partnership for us and it's going into a direction with continuous kind.
Kind of adoption across hundreds of users right now.
Hey, Denny to Sapphire like the timing for a minute and if you're asking if we have a dependency in terms of the sequential growth that you're seeing on these deals and the answer is now.
We're very pleased with the growth rate sequentially that we've seen from Q3 to Q4 irrespective of these deal.
Okay. That's that's perfect I guess, maybe just hitting on on the broader demand environment, obviously still challenging and maybe expecting some recovery in second half, especially driven by kind of new products, but just wondering over the last couple of months kind of what you've seen with with sales cycles.
Whether you've seen them.
Contract at all or are there kind of staying steady just overall kind of what you're seeing.
Yeah, I think as you can see between Q4 and Q3, there is definitely an improvement.
And I'm gonna be cautiously optimistic that this will continue.
But it's still a challenging environment as you stated and as other industrial companies are being challenged with but we we are razor sharp focus on the factory floor and theirs.
You know millions of factory floors out there and that we can go and have a great solution for them that can help them reduce cost and bid resiliency and I think in times like these when everyone is challenged and.
We have a path India. So it's still tough, but I think it's getting slightly better.
Alright, I'll leave it there thanks.
Thank you.
Thank you. Our next question is from Brian Drab with William Blair. Please proceed with your question.
Okay.
This is Pat on for Brian. Thanks for taking my questions I'll keep it quick since we have some follow ups. After this I'm just wondering if the burning through of the high cost inventory that's associated with FX 'twenty is that going to help with margin expansion for the full year and where do you see the timing with that thank you.
It is going to help but you know we're very pleased with the gross margin expansion that we are that you've seen in Q4.
And during 2020 for we should be within the range of 48 to 50, as we ramp up the ethics to 'twenty steel and.
And we also introduced the FX, then that will need to ramp up.
So <unk>.
Longer term, we are targeting gross margins to be within the mid fifties.
It will take us time to get their 'twenty 'twenty four we're still under the ramp up of the EF extend and ethics 'twenty.
It's why we've given this guidance of 48 to 50 cent.
Alright, it sounds good I'll leave it there and congrats on the quarter and talk to you soon.
Thank you. Thank you.
Our next question is from Jacob Steven with Lake Street Capital Markets. Please proceed with your question.
Hey, guys. Thanks for taking the questions and congrats.
On the official announcement.
Maybe just to start out you know can you talk a little bit about the FX and just where are you seeing the strength vertical wise.
Maybe I'll just start there.
Yeah, I would try this one.
So look the you probably know but are a core solution around mark to an X seventies solid solution.
At around advanced composites used in the factory floor to be jigs fixtures tools into MRO through reduce costs moving to digital inventory.
Game and being used more and more into end use parts with machine builders.
Now a lot of our customers need higher productivity and they need the bigger parts on this advanced composite and this word F. It then goes into the picture. It's a like an X seven on steroids with a lot of automation and a lot of functionality and with time and even more versatile on the material side.
So this is the big advantage of that solution.
We see great demand regimen since the launching form next in November.
And we're going to walk a diligently to fulfill this demand.
And also the price point of this solution is very very attractive and the value that it gets to the customer is very high so I think even in a tough capex environment. It will be an attractive solution that we believe will be able to increase materially in the growth of our total revenue with that solution.
Okay got it and maybe just touch on you know obviously subscription services.
Were also strong year over year, but.
Maybe kind of what's driving the strength of that.
Further adoption by you know a customer like automation alley, or maybe could you just kind of talk about.
What the where the strength wise and growing subscriptions.
Sure. So I think there are two drivers the first one if you remember I think a couple of years ago, we transitioned our solution to subscription based.
Solution that is given higher volume to our end customers and for multiple years and and we start to see the effect of this because more and more of our customers are choosing to go into real partnership with us into multiple multiple years and with that they are choosing to subscribe to the full solution the second as well.
Going deeper and deeper into the manufacturing floor, our customers require this level of service. This lever level of SLA and then they really need they need the software differentiation that we have if it's around the enterprise solution. If it's there on the simulation et cetera, and this is where we see significant increase in their adoption.
And these are sometimes multiyear contracts, which increases our recurring revenue, which is also very important to dance our path to achieve profitability.
Understood I'll leave it there good luck guys.
Thank you so much thank you Sir.
No further questions at this time I would like to hand, the floor back over to Shai <unk> for closing comments.
Okay.
Thank you very much everyone for joining us do with the fourth quarter call and we'll see you in the next one.
<unk>.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.