Q4 2023 Shapeways Holdings Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the shale place fourth quarter G E.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Shapeways 4th Quarter 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode.

Earnings Conference call at this time all lines are in a listen only mode.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, March 28, 2024. I would now like to turn the conference over to Nikki Sacks with Investor Relations. Please go ahead.

Following the presentation, we will conduct a question and answer session. If at any time during this call you'll be quiet and needed assistance. Please press star zero for the operator. This call is being recorded on Thursday March 28, 2024, I would now like to turn the conference over to Nikki sacks, with Investor Relations.

Nikki Sacks: Please go ahead.

Nikki Sacks: Greetings and welcome to Shapeways' fourth quarter and year-end 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. Before we get started, I'd like to remind everyone that management will be making statements during this call that are 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. Therefore, 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 first quarter of 2024, timing, or results of any strategic transactions or future cost-cutting measures, new offerings, and market opportunity are based on current estimates and various assumptions. These statements involve material risks and uncertainties 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.

Nikki Sacks: And welcome to shape Reis fourth quarter and year end 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the prepared remarks as a reminder, this conference is being recorded.

Nikki Sacks: 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.

Nikki Sacks: Crystal into the Safe Harbor provisions of the private Securities Litigation Reform Act I think 95.

Nikki Sacks: These statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements.

Nikki Sacks: All forward looking statements, including without limitation statements regarding our business strategy future financial and operating performance projected financial results for the first quarter of 2024 timing our results should any strategic transaction of shaped your cost cutting measures new offerings and market opportunity are based on current estimates.

For centuries.

These statements involve material risks and uncertainties 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 for.

Nikki Sacks: For a 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 31, 2023. Information provided in this conference call speaks only to the broadcast today, March 28, 2024. Shapeways disclaims any obligation, except as required by law, to update or revise forward-looking statements.

Nikki Sacks: For a 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 31 2023.

Nikki Sacks: The information provided in this conference call speaks only to the broadcast today March 28 2020 for sure.

Nikki Sacks: <unk> disclaims any obligation except as required by law to update or.

Nikki Sacks: Forward looking statements.

Nikki Sacks: 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 after market close, which can be found on our website, shapeways.com. On the call today are Greg Kress, Chief Executive Officer, and Alberto Recchi, Chief Financial Officer, and now I'd like to turn the call over to Greg. Okay, Greg?

Nikki Sacks: Also during the course of today's call, we refer to adjusted EBITDA, which are non-GAAP financial measure.

Nikki Sacks: 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 <unk> com.

Nikki Sacks: On the call today are Greg crash, Chief Executive Officer, and Alberto Becky Chief Financial Officer.

And now I'd like to turn the call over to Greg Greg.

Gregory Kress: Good afternoon, everyone. Thanks for joining us to discuss Shapeway's fourth quarter and year-end 2023 financial results, progress on our key initiatives, and an update on our strategic alternatives. I will begin by providing a business update, and Alberto Recchi, our CFO, will then discuss our financial results. In the fourth quarter and year-to-date 2024, we've continued to execute our strategy to grow enterprise manufacturing and software revenue, as well as make progress on exploring strategic alternatives to maximize shareholder return. Our fourth-quarter results were in line with our expectations as we grew revenues by 9% from the prior year quarter to $9.5 million and realized 500 basis points of gross margin expansion to 46% compared to the same period in 2022. These results reflect the progress of our enterprise manufacturing sales effort and higher contribution from our software offering.

Gregory Kress: Good afternoon, everyone. Thanks for joining us to discuss shape ways fourth quarter and year end 2023 financial results.

Gregory Kress: Progress on our key initiatives and an update on our strategic alternatives.

Gregory Kress: I will begin by providing a business update and Alberto <unk>. Our CFO will then discuss our financial results.

Gregory Kress: In the fourth quarter and year to date 2024, we've continued to execute our strategy to grow enterprise manufacturing and software revenues.

As well as make progress on exploring strategic alternatives to maximize shareholder returns.

Gregory Kress: Our fourth quarter results were in line with our expectations as we grew revenues by 9% from the prior year quarter to $9 5 million and realized 500 basis points of gross margin expansion to 46% compared to the same period in 2022.

Gregory Kress: These results reflect the progress of our enterprise manufacturing sales effort and.

Gregory Kress: And higher contribution from our software offering.

Gregory Kress: In terms of enterprise sales, we've continued to provide our high quality enterprise-level manufacturing solutions to customers focusing on our target industries of automotive, as well as medical robotics and other industries. For example, we've made traction in the automotive industry as our solutions for dynamic production demands with both additive and traditional manufacturing capability. We've seen success with tier one supplier and OEM direct multi-year production contracts, and post year end, we signed a $1.5 million multi-year contract with an industry leading American automotive manufacturer.

Gregory Kress: In terms of enterprise sales, we've continued to provide our high quality enterprise level manufacturing solutions to customers focusing on our target industries of automotive as well as medical robotics and other industries.

Gregory Kress: For example, <unk>.

Gregory Kress: Traction in the automotive industry as our solution supports dynamic production demands.

Gregory Kress: Both additive and traditional manufacturing capabilities.

Gregory Kress: We've seen success with tier one supplier and OEM direct multiyear production contracts and post year end signed a $1 $5 million multiyear contract with an industry, leading American automotive manufacturer.

Gregory Kress: This was an expansion of our prior calls contract with this customer who leverages shape ways expansive additive and traditional manufacturing capabilities.

Gregory Kress: This was an expansion of a prior contract with this customer, who leverages Shapeways' expansive additive and traditional manufacturing capability. This is just one example of how we have continued to increase our share of wallet with existing customers on multi-year revenue projects. For the full year 2023, revenue from our top 250 customers grew 29% compared to the prior year. Shapeway Solutions supports companies across the globe with their supply chain challenges by providing enhanced flexibility in production.

Gregory Kress: This is just one example of how we have continued to increase our share of wallet with existing customers on multiyear revenue projects.

Gregory Kress: For the full year 2023 revenue from our top 250 customers grew 29% compared to the prior year.

Gregory Kress: <unk> solution support companies across the globe with their supply chain challenges by providing enhanced flexibility in production.

Gregory Kress: This includes offering additive manufacturing, which we have discussed previously but also traditional manufacturing methods.

Gregory Kress: This includes offering additive manufacturing, which we have discussed previously, but also traditional manufacturing methods, such as computer numerical control, or CNC, which has an estimated $68 billion global market in 2023. To further expand this market, subsequent to the year end, we launched a new CNC instant quote feature, which enables our customers to seamlessly access BNC manufacturing capabilities and enhance our robust suite of enterprise manufacturing solutions. In terms of the software business, during the year, we launched several key features to create a more comprehensive software offering, including an enhancement to our ordering service and the ability for customers to source discounted material using MFG Materials. Finally, I will provide an update on our cost-saving initiatives and strategic alternatives process. We are seeing ongoing near-term challenges, including an elongated sales cycle for enterprise sales and longer-than-anticipated adoption of software features. In light of this backdrop, as we previously disclosed, we implemented cost savings measures to better align our cost structure with our growth expectations over the near term to reduce cash burns. These measures include reductions in force completed in the fourth quarter of 2023, a reduction in new hires, and a reduction in non-critical capital and discretionary operating expenditures.

Gregory Kress: As computer numerical control or CNC, which.

Gregory Kress: As an estimated $68 billion global market in 2023.

To further expand this market subsequent to year end, we launched our new CNC instant quote feature.

Gregory Kress: Which enables our customers to seamlessly access GMP manufacturing capabilities and enhance our robust suite of enterprise manufacturing solution.

Gregory Kress: In terms of software business during the year, we launched several key features to create a more comprehensive software offerings, including enhancements to our ordering service and the ability for customers to source discounted material using NFC materials platform.

Gregory Kress: Finally, I will provide an update on our cost saving initiatives.

Gregory Kress: Strategic alternatives process we.

Gregory Kress: We are seeing ongoing near term challenges, including an elongated sales cycle for enterprise sales and longer than anticipated adoption of software features.

Gregory Kress: In light of this backdrop as we previously disclosed we implemented cost savings measures to better align our cost structure with our growth expectations over the near term to reduce cash burn.

Gregory Kress: These measures include reductions in force completed in the fourth quarter of 2023.

Gregory Kress: A reduction in new hires.

Gregory Kress: And a reduction in noncritical capital and discretionary operating expenditures.

Gregory Kress: Additionally, as we discussed last quarter, we have been working with advisors and considering strategic alternatives, including without limitation, our sale of a material portion of the company's asset our merger business combination liquidation of certain assets or other strategic transactions to maximize shareholder value.

Gregory Kress: Additionally, as we discussed last quarter, we have been working with advisors and considering strategic alternatives, including, without limitation, a sale of a material portion of the company's assets, a merger, business combination, liquidation of certain assets, or other strategic transactions to maximize shareholder value. Based on market checks conducted by our advisors, as well as preliminary discussions with and feedback from potential purchasers, and in light of the continued macroeconomic and industry pressures, the company is actively taking steps to sell a material portion of the company's assets. In the course of these preliminary discussions, potential purchasers have indicated an interest in acquiring either the company's manufacturing business or the software business, but not both. We continue to evaluate strategic alternatives with regard to both the manufacturing and software business, including ongoing discussions with potential acquirers. The company has not yet signed a definitive agreement with respect to either the manufacturing or software assets. And we can provide no assurances that any of these processes will result in any transaction.

Gregory Kress: Based on market checks conducted by our advisors as well as preliminary discussion with and feedback from potential purchasers and in light of the continued macroeconomic and industry pressures. The company is actively taking steps to sell a material portion of the company's assets.

In the course of these preliminary discussions potential purchasers have indicated an interest in <unk>.

Gregory Kress: Either the company's manufacturing business or the software business, but not both.

Gregory Kress: We continue to evaluate strategic alternatives.

With regard to both the manufacturing and software businesses, including ongoing discussions with potential acquirers.

Gregory Kress: The company has not yet signed a definitive agreement with respect to either the manufacturing or software asset.

Gregory Kress: And we can provide no assurances that any of these processes will result in any transaction.

Gregory Kress: However, we will provide updates as appropriate. Meanwhile, while we are exploring what is best to maximize shareholder value, we will remain disciplined and prudent as we execute our operating plan. 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 the fourth quarter and full year 2023 performance, give an update on our balance sheet position, and provide guidance for the first quarter. The fourth quarter revenue increased to $9.5 million, up 9% from the prior year period.

Gregory Kress: However, we will provide updates as appropriate.

Gregory Kress: While we were exploring what is best to maximize shareholder value, we will remain disciplined and prudent as we execute our operating plan.

Gregory Kress: I would like to thank the entire shape way's team our customers, our investors and all of our stakeholders for their ongoing support.

Gregory Kress: Alberto will now discuss our financial results in more detail.

Alberto Recchi: Thanks, Greg I'll provide a recap of the fourth quarter and full year 2023 performance give an update on our balance sheet position.

Alberto: Guidance for the first quarter.

Alberto: The fourth quarter revenue increased to $9 5 million up 9% from the prior year period.

Alberto Recchi: For the full year, revenue was up 4% to $34.5 million, with growth in software and enterprise sales partially offset by lower sales from marketplace and self-service. Gross margin in the fourth quarter was 46% compared to 41% in the fourth quarter of 2022 and was 42% for the full year, as we saw more contribution from higher-margin software sales, the benefits from the consolidation of our U.S. manufacturing operation, and increased volumes from our enterprise sales. Fourth quarter adjusted EBITDA was a loss of $5.1 million, an improvement from a loss of $5.6 million in the fourth quarter of last year. And full year adjusted EBITDA was a loss of $22.5 million compared to a loss of $19.8 million in the prior year period.

Alberto: For the full year revenue was up 4% with $34 5 billion with growth in software enterprise sales, partially offset by lower sales from marketplace that self service.

Our gross margin in the fourth quarter were 46% compared to 41% in the fourth quarter of 2022.

Alberto: And we're 42% for the full year as we saw more contribution from higher margin software sales.

Alberto: The benefits from the consolidation of our U S manufacturing operation and increased volumes from our enterprise sales.

Alberto: Fourth quarter adjusted EBITDA was a loss of $5 1 million an improvement from a loss of $5 6 million in the fourth quarter last year.

Alberto: And full year adjusted EBITDA was a loss of $22 5 million compared to a loss of $19 8 million in the prior year period.

Alberto Recchi: SG&A expenses for the fourth quarter were $9.2 million compared to $7.3 million in the prior year period. As Greg mentioned, in the fourth quarter, we implemented cost alignment initiatives, including a reduction in force of 15% of our total global employees included in OPEC. We anticipate realizing approximately $6.2 million in annualized cost savings as a result of the reduction in force combined with the elimination of certain open positions. In the fourth quarter, we will recognize non-cash impairment charges. These included 3 million related to equipment that was being held for sale. In addition, we recognize a 1.1 million goodwill impairment charge related to goodwill recorded at the time of the purchase of MFG, which we believe has a declining value in the current market condition and based on the feedback from our strategic alternatives process.

Alberto: SG&A expenses for the fourth quarter were $9 2 million compared to $73 million.

Alberto: Yes.

Alberto: As Greg mentioned in the fourth quarter, we implemented cost alignment initiatives, including a reduction in force of 15% of our total global employees included in Opex.

Alberto: We anticipate realizing approximately $6 2 million in annualized cost savings as a result of the reduction in force combined with the elimination of certain open positions.

Alberto: In the fourth quarter, we recognized non cash impairment charges.

Alberto: These included $3 million related to equipment that would be held for sale.

Alberto: In addition, we recognized a $1 1 million goodwill impairment charge related to goodwill recorded at the time of the purchase of MSG, which we believe is declining value in the current market conditions based on the feedback from our strategic alternatives process.

Alberto Recchi: Turning to our balance sheet as of December 31st, 2023, our cash and cash equivalents marketable securities total $12.2 million. During the quarter, we deployed approximately $5.4 million in cash, which was an improvement on the cash deployed in the previous quarter and demonstrates our focus on further improving our cash growth. Looking ahead, for the first quarter of 2024, we anticipate revenues to be in the range of $8.3 million to $8.6 million. With this, we have completed our prepared remarks, and we'll now open the call for questions. Operator.

Alberto: Turning to our balance sheet as of December 31.

Alberto: 2020, free our cash and cash equivalent marketable securities totaled $12 2 million.

Alberto: During the quarter, we deployed approximately $5 $4 million in cash, which was an improvement on the cash deployed the previous quarter and demonstrates our focused third area, including our cash burn.

Alberto: Looking ahead for the first quarter of 2024, we anticipate revenues to be in the range of $8 3 million $8 million.

With this we completed our prepared remarks, and we'll now open the call for questions.

Alberto: Operator.

Operator: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your telephone keypad.

None: <unk> dot com acknowledging request questions will be taken in the order received should you wish to cancel your request. Please press star followed by the two if youre using a speakerphone. Please keep the handset people are expressing any keys. Once again that is star and wanted to ask the question.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a three-tone prompt acknowledging a request. Questions will be taken in the order received. Should you wish to cancel a request, please press star followed by the two. If you are using a speakerphone, please leave the handset before pressing any.

Your first question comes from the line of Greg Palm from Craig Hallum Capital Group. Please go ahead.

Gregory William Palm: Yes. Thanks, good afternoon, everybody I, Greg you talked about a strategic or I guess, a revenue growth number for from your top accounts I know strategic or enterprise has been a key focus. So wondering if you can kind of give us an overall update there.

Gregory William Palm: Once again, that is the star and one to ask a question. Your first question comes from the line of Greg Palm from Craig Hallam Capital Group. Please go ahead. Yeah, thanks. Good afternoon, everybody.

Gregory Kress: Greg, you talked about a strategic, or I guess a revenue growth number from your top accounts. I know strategic or enterprise has been a key focus. So, you know, wondering if you could kind of give us an overall update there. And I missed exactly what that number is. So if you could clarify,

Gregory William Palm: And I missed exactly what that number is so if you could clarify.

None: Hey, Thanks for joining Greg, Yes, so we've seen a considerable momentum on the enterprise side of our business as you know throughout the year, we have spent time and energy focusing on that.

Gregory Kress: If we carve out and just kind of isolate our top 250 customers. They grew to over 29% year over year versus the prior year. So we see that continued investment in those.

Gregory Kress: Hey, thanks for joining us, Greg. Yeah, so we've seen considerable momentum on the enterprise side of our business. As you know, throughout the year, we've spent time and energy focusing on that. If we carve out and just kind of isolate our top 250 customers, they grew over 29% year over year versus the prior year.

Gregory Kress: <unk> resources that are focused on very specific industries, and bringing real solutions to our customers.

Gregory Kress: Not only are we bringing on new customer acquisition, but we are seeing those customers continue to expand their wallet. So we're happy with the progress there.

Gregory Kress: So we see that continued investment in those sales resources that are focused on very specific industries and bringing real solutions to our customers. Not only are we bringing in new customer acquisition, but we are seeing those customers continue to expand their wallets. So we're happy with the progress there, and we're seeing good results.

Gregory Kress: And we're seeing good results so far.

Gregory Kress: Got you and then just.

Gregory Kress: Follow up on the on the process I'm curious, how you view kind of the timeline from here and how you're measuring success from.

Gregory Kress: Thus the potential sale of either asset or more assets and again just.

Gregory Kress: And then just, you know, a follow-up on the process, curious, you know, how you view kind of the timeline from here, and you know, how you're measuring success from, you know, the potential sale of either asset or more assets. And, you know, again, just, you know, how you're thinking about creating shareholder value from that going forward. Yeah, I mean, ultimately, we're taking a big step back and thinking about what we should be doing with the company. The company continues to show a really, really strong foundation and continues to show momentum in certain areas, but remains small and somewhat subscale for the expenses of being a public company, right? And so we evaluate how we approach that, right?

Gregory Kress: How youre thinking about creating shareholder value from that going forward.

None: Yes, I mean, ultimately, we're taking a big step back and thinking about what we should be doing with the company. The company continues to show have a really really strong foundation continues to show better in certain areas, but remain small and somewhat sub scaled for.

None: The expenses of being a public company right and so reevaluate how do we.

None: Approach that right and so right now we can't share too much but we are having conversations and we wanted to make sure people are aware, but.

I think over the next quarter, we'll be able to provide another update as we make more progress.

None: Having conversations with strategic alternatives.

None: Okay, and then just one quick one cash burn expectations for the year, what should we think.

Alberto Recchi: And so right now, we can't share too much, but we are having, and we wanted to make sure people were aware of it. I think over the next quarter, we'll be able to provide another update as we make more progress in having conversations with strategic alternatives. Okay, and then just one quick one: cash burn expectations for the year. What should we think? I mean, right now, we're still seeing about 1.6 million cash burn per month.

None: I mean right now we're still seeing about $1 6 million of cash burn per month.

None: That does improve as we continue to grow topline.

None: Topline revenue.

None: <unk> cash from reducing operating expenses, but right now from a modeling perspective I would say, we're currently running at that $1 6 million.

None: Okay, perfect I will.

None: Leave it there thanks.

None: Thanks, Greg.

None: Okay.

Alberto Recchi: That does improve as we continue to grow top-line revenue and serve cash from reducing operating expenses. But right now, from a modeling perspective, I would say we're currently running at that $1.6 million. Okay, perfect. I will leave it there. Thanks. Thanks, Greg. Thank you. There are no further questions at this time. Mr. Kress, please proceed. I just wanted to take the time and thank everyone for joining us today on behalf of myself and the Shapeways team. Thanks for joining the call. We look forward to providing additional updates in the coming months.

None: Okay.

None: Thank you there are no further questions at this time Mr. <unk>. Please proceed.

I just wanted to take the time and thank everyone for joining us today on behalf of myself and the shape with team. Thanks for joining the call. We look forward to providing additional updates in the coming months. Thanks, everyone.

None: Thank you that concludes our conference today. Thank you for participating you may all disconnect.

None: Thanks.

None: Okay.

Gregory Kress: Thanks, everyone. Thank you. That concludes our conference today. Thank you for participating. You may all disconnect. Gregory Kress, Danny Eggerichs, Troy Jensen, Unknown Executive, Alberto Recchiuti, Gregory

None: [music].

None: Okay.

None: Okay.