Markforged Holding Corporation (NYSE: MKFG), a leading additive manufacturing company, reported its first-quarter 2024 earnings with a mix of advancements and challenges. The company launched its new FX10 3D printer, which has been well-received in the market, but also faced a legal setback with a $17.3 million patent infringement verdict. Despite a year-over-year revenue decline, Markforged remains optimistic about future growth and maintains its full-year 2024 guidance.
Key Takeaways
- Markforged launched the FX10, a next-generation 3D printer, receiving positive feedback and shipping initial units.
- The company reported a 15% decrease in Q1 revenue year-over-year, amounting to $20.5 million.
- Gross margin stood at 51.3%, with a net loss of $12.2 million.
- A patent lawsuit resulted in a $17.3 million damages award against Markforged, which the company plans to challenge.
- Despite CapEx challenges, Markforged is optimistic about H2 growth, driven by new products and operational efficiencies.
- Full-year 2024 guidance reaffirmed, with expected revenues between $95 million and $105 million.
Company Outlook
- Markforged anticipates its new products, including the FX10, to drive growth in the latter half of 2024.
- The company expects supply to meet demand for the FX10 within a quarter or two.
- Recovery in Europe and Asia markets is expected soon, contributing to international performance.
- Engagement with Digital Source offering is strong, especially among enterprise accounts.
Bearish Highlights
- The company faced a patent infringement verdict that could impact its continuous carbon fiber technology product lines in the US.
- Q1 revenue declined by 15% compared to the previous year.
Bullish Highlights
- The FX10 printer has been positively received by customers, including Toyota (NYSE:TM), for its high-quality prints.
- Gross margins exceeded expectations in Q1, and the company aims for mid-50s margins in the long term.
Misses
- The company did not provide specific details on historical legal expenses.
- New product launches and technology advancements could pressure gross margins in the near term.
Q&A Highlights
- CEO Shai Terem expressed confidence in overcoming the recent patent lawsuit verdict.
- The company is seeing significant engagement with Digital Source and expects new customer acquisitions in Q2.
- Operational activities are anticipated to drive lower operating expenses in the future, not just the resolution of litigation.
In conclusion, Markforged is navigating through a period marked by both promising product launches and legal challenges. The company's leadership is focused on leveraging its new offerings and operational efficiencies to achieve its financial targets for 2024. Investors and stakeholders continue to monitor the company's performance and the impact of the ongoing patent litigation on its future operations.
InvestingPro Insights
Markforged Holding Corporation (NYSE: MKFG) has demonstrated resilience in the face of adversity, with its leadership maintaining a positive outlook for the future. InvestingPro offers some key insights that could be instrumental for investors evaluating the company's potential.
InvestingPro Data metrics indicate a market capitalization of $122.16 million, underscoring the company's size in the competitive additive manufacturing sector. Despite a challenging financial performance, with a reported revenue decline of -12.55% over the last twelve months as of Q1 2024, the company's gross profit margin remains high at 47.61%. This suggests that while facing revenue headwinds, Markforged has managed to maintain a relatively strong control over its cost of goods sold.
Moreover, the company's stock has experienced a significant price drop over the last month, with a -17.69% total return, which could signal a potential buying opportunity for investors who believe in the company's long-term strategy. Additionally, the company's current Price / Book ratio stands at 0.96, which might appeal to value-oriented investors seeking assets that are potentially undervalued.
InvestingPro Tips reveal a couple of noteworthy points for investors to consider. Firstly, Markforged holds more cash than debt on its balance sheet, which could provide a cushion against financial uncertainties and support future investments. Secondly, two analysts have revised their earnings upwards for the upcoming period, suggesting a potential improvement in the company's financial outlook.
For those interested in a deeper dive into the company's financials and future projections, InvestingPro offers additional insights. With 11 more InvestingPro Tips available for Markforged, investors can gain a comprehensive understanding of the company's financial health and future prospects. To access these insights, visit https://www.investing.com/pro/MKFG and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - One (MKFG) Q1 2024:
Operator: Hello, and welcome to the Markforged First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Austin Bohlig, Director of Investor Relations. Please go ahead.
Austin Bohlig: Good afternoon. I’m Austin Bohlig, Director of Investor Relations of Markforged Holding Corporation. Welcome to our first quarter of 2024 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 Terem; and CFO, Assaf Zipori. 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 should be deemed to be forward-looking statements. These statements represent management’s views as of today, May 8, 2024, and are subject to material risks and uncertainties that could cause actual results to differ materially. Markforged 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’s 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 on our website at investors.markforged.com. I’ll now turn the call over to Shai Terem, President and CEO of Markforged.
Shai Terem: Thank you Austin, and thank you, everyone, for joining us on our Q1 2024 earnings call. We started 2024 with strong execution, setting a solid foundation for the year ahead. While the CapEx environment remained challenging in Q1, the market response to our new product has been very encouraging, and we are optimistic about the opportunities these products will bring in the second half. With the FX10, FX20, PX100 and Digital Source, we believe we are 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. We want to begin by providing an update on the patent lawsuit with Continuous Composites. In April 2023, the court eliminated 20 of the 22 patent infringement claims made against Markforged. Last month, a jury found that Markforged had infringed on 1 of the 2 remaining claims and awarded monetary damages in the amount of $17.3 million. We strongly disagree with this verdict and intend to seek to overturn the verdict in forthright motions with the district court. We’re exploring all available options, including seeking to overturn the result in judgment through the appeals process. We continue to believe that there is a massive opportunity to help manufacturers bring industrial production to the point of need, with effective cost controls, prudent cash management and new innovative product line, we remain focused and excited about the future of the company and our ability to continue to drive the adoption of additive manufacturing on the factory floor. We reached a pivotal milestone in Q1 by shipping the first FX10 units, which is Markforged next-generation 3D printer for the factory floor. FX10 delivers high print quality at print speeds that are nearly twice as fast and print sizes that are up to twice as large compared to its predecessor, the X7. The initial market feedback has been encouraging. Customers are already printing mission-critical parts with the factory floor. In fact, Toyota is one of our first customers, accelerated part production or tooling [ph] application on their assembly line with FX10. As we enter Q2, our FX10 pipeline continues to grow, and we remain on plan to accelerate deliveries in the coming quarters as we continue to scale up production. We believe the FX10 meaningfully enhances the Digital Forge and our massive opportunity on the factory floor. Manufacturers need to reduce cost and build more resilient supply chains, remain a secular tailwind, driving demand for the Digital Forge. Our customers across the world increasingly recognize the Digital Forge as a powerful platform to achieve these goals and more. Harvestance, a design and engineering customer specializing in additive manufacturing provides another example of Markforged on the factory floor. Harvestance needed a solution to produce customized lightweight and strong vacuum grippers for collaborative robots and at automation production lines. Only with the Digital Forge could Harvestance meet the structural and impact strength these parts required for certification. With the combination of Onyx and Carbon Fiber Reinforcement, Harvestance reduced the grippers’ weight 80% when improving strength and reducing delivery time from 2 weeks to 2 days compared to conventional machine repairs. Harvestance turned to the FX20 when they needed to print larger tools, such as customized grippers for palletizing and heavy pick and carry tools for large industrial robots. We believe growing demand for industrial automation technologies is a robust tailwind with the Digital Forge as similar robotic applications continue to spread across the factory floor. Looking ahead, currently, we remain on plan to achieve the 2024 targets we laid out at the beginning of the year. We believe we are positioned for growth in the second half of 2024, driven by our new products, robust fleet utilization and improving efficiencies in our go-to-market operations. With that, I now turn the call over to Assaf Zipori, our CFO, who will offer more details on our financial performance and guidance for the remainder of the year.
Assaf Zipori: Thank you, Shai, and good evening, everyone. I will be covering our financial results for the first quarter of 2024 and the outlook for the full year. Please note that my comments reflect our non-GAAP results and outlook. For your reference, our earnings press release issued earlier this afternoon and posted to our Investor Relations website includes our GAAP to non-GAAP reconciliation to assist with my commentary. So let’s begin. Revenue for Q1 was $20.5 million, which is 15% down from the first quarter of 2023. Our revenue performance was largely driven by lower system revenue, which continues to be impacted by a challenging macroeconomic environment with high interest rates. That said, utilization rates remained healthy in the quarter. Consumable revenues were, essentially, flat year-over-year. Furthermore, we are pleased with the adoption rate of our subscription-based software and services with revenue growing 18% year-over-year in the first quarter. Gross margin for the quarter was 51.3%, representing 1.8 percentage points increase from Q4 and up 2 points from the first quarter of 2023. This margin expansion was positively impacted by operational efficiencies and product mix. A key goal for us in 2024 is to sustain this positive momentum, scaling up our business and enhancing operational efficiencies even further. Operating expenses were $24.1 million in the first quarter of 2024, down from $26.7 million in the first quarter of 2023. This improvement is a result of our ongoing efforts to reduce operating expenses and optimize our cash utilization. We expect our operational efficiencies to further lower our quarterly OpEx run rate in 2024. Furthermore, we continue to take actions to lower our OpEx in 2025. Operating loss was $13.5 million for the first quarter of 2024, an improvement from $14.8 million in the first quarter of 2023. Net loss in the first quarter of 2024 was $12.2 million, an improvement from a loss of $13.3 million in Q1 2023. First quarter loss per share was $0.06 based on our weighted average shares outstanding for the quarter of 199.3 million. Driven by improving operational and working capital efficiencies, our net cash used in operating activities in Q1 was $7.4 million. This is an improvement of approximately 52% from the first quarter of 2023. While we expect our cash utilization to increase in Q2 as a result of annual compensation payout, we expect our cash utilization to improve in 2024 as a result of higher revenue, gross margin expansion, strong OpEx controls and working capital efficiencies. Our cash and cash equivalents were $107.9 million at the end of Q1, down from $8.9 million from the end of Q4 2023. We also want to provide the financial impact related to the Continuous Composites lawsuit verdict in Q1 2024. First, we strongly disagree with this verdict, and we are actively exploring all possible options to overturn the verdict. In Q1 2024, we accrued a GAAP expense of $17.3 million to reflect the judgment awarded by the jury. This is excluded from our non-GAAP results. No cash payment has been made at this point. Given the nature of this ongoing dispute, we are limited in commenting on this matter beyond what we have publicly stated. Furthermore, our guidance does not reflect additional action that Continuous Composites may take, which may include seeking additional relief through post-trial motions or royalty payments on future revenue as described in our April 12 press release. Now moving on to our guidance. We are reiterating our 2024 guidance provided at the beginning of the year. We continue to anticipate fiscal year 2024 revenues to be within the range of $95 million to $105 million, which acknowledges the persistence of macroeconomic headwinds throughout the year. We expect revenue to grow mid-single digits quarter-over-quarter in Q2, and we continue to see an opportunity for accelerated growth in the second half, underpinned by new products and particularly the FX10. We expect gross margins to be within the range of 48% to 50% as we continue to ramp up our new product lines. We are encouraged by our strong Q1 gross margin performance and see a path to the upper end of our guidance and in our revenue performance in the second half of the year. We expect non-GAAP operating loss in the range of $42.5 million to $47 million for the year, which is an improvement from a loss of $57.6 million in 2023. In turn, we expect non-GAAP EPS results for the full year to be a loss in the range of $0.19 to $0.22 per share. That concludes our prepared remarks today. Please open up the call for questions.
Operator: [Operator Instructions] Our first question today is coming from Greg Palm from Craig-Hallum. Your line is now live.
Greg Palm: Yes, thanks good afternoon everybody. Congrats on the initial shipments of FX10. Can you just give us some sense in sort of where the pipeline stands today? Kind of what capacity is like? And maybe a little bit more color on how you sort of see that playing out throughout the end of the year.
Shai Terem: Sure. Hi, Greg, thank you. I would say the first quarter was great. We’re able to ship some of this FX10. The initial feedback from the customers is really good and strong. We have great customers that were able to print right out of the box, very, very long prints and amazing parts, including Toyota, as we suggested. The pipeline is building up as expected and maybe even more, as we discussed before. We expect this to be our next flagship product. And so far, it’s building up correctly. I would say, from a production perspective, it’s going to probably take a quarter or 2 until the supply will meet the demand. And after that, we’re going to be in the regular course of business.
Greg Palm: So theoretically, you could be kind of at a full run rate where supply matches demand by maybe Q4 this year?
Shai Terem: Potentially, even earlier. Yes.
Greg Palm: Yes. Okay. And cognizant of what you can or can’t say regarded to the patent verdict, but can you just give us some sense in what product lines are the ones affected and maybe which geographies those are comprised of, just trying to get a sense of like what the worst-case scenario is here.
Assaf Zipori: Thank you, Greg. This is Assaf. So this is related to our hardware. And more specifically, this is related to the continuous carbon fiber technology within our hardware. This is an IP based in the -- or the claim is related to the U.S. And at this point, it’s just too early to give additional indications. And I can tell you that we obviously disagree with the verdict and we are acting, we’re doing whatever we can to overturn the verdict, and we are evaluating all of our options.
Greg Palm: Yes, understood. Okay, I will leave it there. Thanks.
Operator: Your next question is coming from Brian Drab from William Blair. Your line is now live.
Tyler Hutin: Hey thanks for taking my question. This is Tyler on for Brian. Just looking at your international performance, it looks like they had a pretty large year-over-year impact. Can you just explain kind of what’s going on in Europe and Asia?
Shai Terem: Sure. I think it’s very common, at least from I mean, the industry, but you see, these cycles of changes go around the world. And I think what we saw in the U.S. and the Americas a couple of quarters ago, now we see in the EMEA and APAC. And I do believe that we’re going to see the recovery soon with these regions as well based on the pipeline that we see.
Tyler Hutin: Okay. That’s great. And the FX10 shipments, did those mostly go to existing customers? And if so, when will they start to kind of be shipped out to new customers that put in orders? Thank you.
Shai Terem: Sure. So I would say as usual when we release a new product, we ship first some of the printers to our channel partners and distribution network to make sure that we continue to create the demand, bring the printer closer to the customers, to the field. So that would continue in Q2 as well. And the initial orders, usually, are coming from existing customers that are expanding like Toyota. But there are also a lot of new customers due to the capabilities of the solution. We’re expecting Q2 to see both.
Tyler Hutin: Okay, thank you. I’ll pass it on.
Shai Terem: Thank you.
Operator: [Operator Instructions] Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
Troy Jensen: Hey gentlemen, congrats on the decent results here in a tough environment. Maybe I’d -- for you, Shai, I’d love to just hear you just start on Digital Source and traction you’re getting with that and just maybe more customer success stories or...
Shai Terem: Sure. So we actually see great engagement around the Digital Source. And I would say, especially around enterprise accounts, which are really looking how to change the business model and their supply chain and the new way that they’re going to do MRO for their manufacturing floors. As we expected, there’s not going to be material revenue at the current stage, but adoption of the solution and changing of their base model into the solution. But so far, the engagement is very high, and we are very encouraged around it.
Troy Jensen: Okay. Perfect. I would just press you guys a little bit on gross margins. I mean, you guys were well above the range for the year here in Q1. And I get the FX10 launch is going to dilute it. But I mean I would assume once FX10’s shipping at more full volumes, it’s probably accretive to gross margins, not dilutive to where we are now. So can you just -- maybe a sense on where do you think gross margins are going to be in Q2 with the FX launch or just kind of help kind of square the circle for me.
Assaf Zipori: Yes. Troy, that’s a great question. We are very encouraged with the expansion that we’ve seen in Q1. And that’s a great indication to our ability to reach our long-term targets of mid-50s in terms of gross margins. Now the way that we look at it, at the moment, is that we’re still facing a tough market. And we are about to release more technologies, and we are ramping up the FX10. We’re going to release the PX100, and all of that could put pressure on our gross margins. So currently, we feel comfortable with the range that we have provided, but there’s an opportunity to be closer to the upper range as we see revenue picking up in the second half of the year.
Troy Jensen: Great. And how about, I know you can’t talk much about the litigation. Can you just tell us how much historical legal expense has been in the OpEx numbers?
Assaf Zipori: Historic, we’re not breaking it out. I would say it’s not something…
Troy Jensen: Yes, I guess I’m just wondering if this is going to be what drives the 2025 OpEx lower, or you’re just going to have dramatically lower G&A expense because of the lack of litigation, hopefully. I mean, you can’t give color. I get it, but that’s just...
Assaf Zipori: Yes.
Shai Terem: I think, Troy, there’s a few more -- sorry.
Troy Jensen: Go ahead, Shai.
Shai Terem: There are a few more operational activities that we are doing that is, what we believe, going to drive the lower OpEx over time. It has nothing to do with the litigation directly.
Troy Jensen: Okay, congrats guys. Good luck going forward here.
Shai Terem: Thank you.
Operator: Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over for any further or closing comments.
Shai Terem: Thank you very much, everyone, for joining us for the Q1 earnings call. Looking forward to see you in the next quarter. Thank you.
Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
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