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AMS Spring 2023

3D Printer OEM Markforged Delivers Mixed Results in Q2 2022, Stock Falls

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Following the surprising buyout offer of $32 million to buy binder jetting technology manufacturer Digital Metal, Markforged (NYSE: MKFG) delivered mixed earnings for its second quarter of 2022. The company revealed an increase in sales, a growing demand for its Digital Forge platform, and a 46% increase in R&D spending for the quarter that ended June 30. However, the company missed on earnings, losing $16.8 million or nine cents per share, which led to its stock dropping almost 12% on August 12, 2022, the morning after earnings were released.

Still, company CEO Shai Terem was optimistic during the earnings call with investors, stating: “Our customers begin to realize the supply chain advantages of industrial-strength printing parts at the point of need as soon as they install our solution. From there, the number of mission-critical applications our customers can solve with the technology starts to expand. And that, in turn, increases the number of digital inventory parts our customers manage for our cloud-based software. We see this pattern of growth and usage across America’s EMEA [Europe, the Middle East, and Asia] and APAC [Asia Pacific] regions.”

Spearheaded by a 19% increase in revenue year-over-year, from $20.4 million during the second quarter of 2021 to $24.2 million this year, the company managed to generate a gross profit of $13 million, compared to $12 million in the same period last year. As a result, it generated a gross profit margin of 53% in the second quarter, considered “healthy” by analyst standards but lower than the 58% gross margin generated in the same period of 2021.

Management explained that gross margin in the second quarter and the first half of the year was impacted by broad-ranging increases in direct material costs, indirect costs, including freight and logistics, as well as the launch of the FX20 in the first quarter of 2022, which continues to experience higher component material and labor costs as the company ramps it to commercial production.

As Markforged’s newest large format printer, the FX20 saw global orders exceed company expectations. Terem says that manufacturers and government agencies that want to solve mission-critical applications through the Digital Forge, like the U.S. Air Force, are increasingly looking at the brand’s latest release, which can print high-temperature resistant parts stronger than metals.

“We already have examples of customers that have ordered multiple units. We have been fulfilling orders globally for the past few months and continue to ramp towards volume production by the end of the year, as we committed. Our strategy focuses on empowering our customers to solve industrial manufacturing challenges at the point of need,” commented Terem.

Rendering of how Markforged helps companies overcome supply chain challenges. Markforged helps companies through its Digital Forge. Image courtesy of Markforged.

In addition, Markforged has the pending Digital Metal acquisition, which Terem says is consistent with the long-term strategy to extend Markforged capabilities into complementary technologies for high throughput and production of metal additive parts. The executive explained to investors that Digital Metal’s binder jetting technology complements its existing Metal X 3D printer while expanding the addressable market within manufacturing industries, like automotive, medical, and luxury goods. Expected to close in the third quarter of 2022, the acquisition will open doors for the company.

Although Terem highlighted that the “pipeline of opportunities is stronger than ever,” he remains cautious about the volatility of the current global economy, which he says is having a short-term impact on customer purchasing decisions and the timing of pipeline conversion. This uncertainty has led management to scrutinize its internal cost controls more diligently and reprioritize investments.

Markforged goes public on the New York Stock Exchange. Image courtesy of Markforged/Caspian Press.

For example, Chief Financial Officer (CFO) Mark Schwartz has updated the 2022 financial guidance to reflect the new forecast, which considers the current macroeconomic volatility. Anticipating a yearly revenue within the range of $100 million to $115 million means a year-over-year growth of roughly 18% compared to 2021 at the midpoint of that range.

Also, the gross margin for the year is expected to fall within the range of 52% to 54%. Given this new reduced revenue forecast, Markforged has also revised operating profit and earnings per share (EPS), anticipating an operating loss in the range of $54 million to $59 million for the year and EPS results for the entire year to be a loss in the range of $0.29 to $0.32 per share. However, the company remains optimistic about its long-term goals and believes it will achieve breakeven in 2024, especially as a future with resilient and sustainable supply chains takes force.

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