AMS Spring 2023

3D Printing Financials: Markforged’s Supply Chain Issues Hinder FX20 Production

Inkbit

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Supply chain disruptions continue to torment the manufacturing industry. In additive manufacturing, the challenging operating environment is harming production continuity. For Markforged (NYSE: MKFG), in particular, these production hurdles slowed its ramp to volume production, and as a result, the company was unable to meet its revenue target for the quarter.

Despite a challenging macro environment, Markforged CEO Shai Terem said the company delivered another solid quarter as demand for The Digital Forge continues to grow globally. As a result, revenue increased by 5%, to $25.2 million, in the third quarter of 2022 from $24 million year-over-year. Specifically, revenue in the Asia-Pacific (APAC) region grew 82% during the three months that ended September 30, 2022, compared to the same period in 2021, led by solid demand for mature products and accelerated demand for the brand’s continuous composite 3D printer line, the FX20.

The FX20 3D printer by Markforged

During a conference call with investors, Terem and Chief Financial Officer (CFO) Mark Schwartz said that solving supply chain problems today would ensure production continuity of its machines, like the FX20. However, Schwartz pointed out that despite best efforts, Markforged could not secure electrical and mechanical components to complete the production of FX20 units and meet the growing demand.

The FX20 is the largest and most precise continuous fiber machine Markforged has ever produced, opening up high-temp materials. As the company’s newest production-grade printer, the FX20’s demand continues to exceed internal expectations as manufacturers seek solutions to make their own supply chains more resilient and flexible. Management said that despite being unable to meet the platform’s demand and the cost of the FX20 production exceeding estimates, Markforged exited the quarter with one of the largest pipelines in the company’s history.

Reflecting on the latest financial results, Terem said, “excitement for our newest production-grade printer, the FX20, has been tremendous, and we are pleased to have expanded our addressable market by adding high-volume metal application capabilities to our technology offerings with the closing of the Digital Metal acquisition. While challenges including inflation, geopolitical tensions and supply chain disruption are putting near-term pressure on our margins, we are confident in our long term strong fundamentals, which are supported by our growing pipeline and market opportunity.”

Is profitability on track?

The company took certain measures to address its long-term profitability growth. For example, strong cost controls allowed Markforged to see sequential operating leverage and deliver on its earnings per share (EPS) target in the third quarter. Even more so, the company reorganized its go-to-market team and reprioritized initiatives with the potential for the greatest impact on profitable growth. These cost controls resulted in a strong balance sheet that Markforged anticipates will keep it on the path to profitability in 2024.

However, profitability for the period missed its mark, as the firm posted a net loss of $23 million, or 12 cents per share, for the quarter, a decline from last year’s quarterly net profit of $21.7 million, or 13 cents per share. As a percentage of revenue, Schwartz indicated that net loss improved compared to the second quarter of 2022. However, he also pointed out that the current cost of producing an FX 20 versus the target at steady state production negatively impacted Markforged’s gross profit by $1.1 million in the third quarter, or over four gross margin percentage points.

“We expect FX20 production costs to continue at the current levels through the first half of 2023 and then improve steadily through the balance of 2023 and into 2024,” explained Schwartz.

Growing market opportunity

As for the third quarter operating expenditure, Markforged reported $35 million, and it had roughly $182 million in cash/cash equivalents and no debt as of September 2022, which executives said is “on plan and well positioned to execute on our long term goals.”

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

Looking ahead, Markforged expects revenue for the fourth quarter to be between $28 million and $32 million, which, at the midpoint, would result in 2022 full-year revenue near the lower end of the range the company provided previously. For the full year, executives anticipated in the third quarter earnings conference call on November 9, 2022, that revenue would be between $99 million and $103 million.

Overall, despite near-term macro headwinds, Terem assured analysts and investors that the long-term fundamentals remain unchanged. He highlighted that strong cost controls drove sequential operating leverage in Q3 and anticipated staying on track to profitability during the second half of 2024.

Even more so, he suggested that the acquisition of metal binder jetting technology maker Digital Metal, which closed in the third quarter, would help expand Markforged’s addressable market into the mass production of end-use metal parts. This addressable market expansion couldn’t come at a better time, especially with demand building in automotive, luxury goods, medical, and metal injection molding (MIM) applications.

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