3D Printing Financials: Markforged Beats, Velo3D Misses

Formnext Germany

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Two 3D printing original equipment manufacturers (OEMs), Markforged (NYSE: MKFG) and Velo3D (NYSE: VLD), both reported their Q2 earnings after market close on August 10. Markforged reported in-line earnings per share (EPS) and slightly beat revenue expectations, while Velo3D missed on both EPS and revenue, with EPS surprising to the downside by about 25 percent.

Interestingly, however, despite their disparity in terms of meeting expectations, the two companies performed strikingly similarly in Q2: Markforged reported revenue of $25.4 million compared to Velo3D’s $25.13 million, and Markforged reported a loss of 7 cents per share against Velo3D’s loss of 10 cents per share. Both companies improved on revenue year-over-year (YOY), with Markforged’s revenue up by 5 percent from Q2 ‘22 and Velo3D’s up 28 percent.

The biggest difference between the two companies’ reports may be in the area of guidance for the rest of 2023. Markforged maintained expectations for 2023 revenues to be between $101 and $110 million, whereas Velo3D lowered the range of its revenue projections by a little over ten percent, from the $120 to $130 million that was expected in the Q1 report to $105 to $115 million. Again, even in this case, it is notable that their respective year-end expectations are now so similar for both companies.

In Markforged’s earnings call for Q2 2023, the company’s CEO, Shai Terem, stated, “We continue to remain focused on our operating expenses, which were down 11 percent YOY on a non-GAAP basis, and on finding additional working capital efficiencies. Capital management is key and we remain committed to profitability with the healthy balance sheet on without dependency on external funding.”

In a Velo3D press release about the company’s Q2 earnings report, Benny Buller, CEO of Velo3D, commented, “Operationally, manufacturing cycle times continue to improve for our Sapphire XC and Sapphire XC 1MZ systems. As these systems have become the majority of our quarterly shipments, we are now seeing the benefits of scale in our production processes. This scale, combined with the continued improvement in materials cost and manufacturing efficiency, has enabled us to improve our gross margin in the second quarter. We also remain committed to managing our expense structure and expect to materially reduce operating costs in the second half of the year.”

The share prices of both have rebounded significantly from their 52 week lows, although Markforged saw a much lower bottom than Velo3D and its rebound has in turn been much more dramatic. Both stocks have plummeted from their 2021 SPAC deal prices, and are both currently trading in the $1.40 to $2.00 range. I doubt the companies’ respective moving averages will change too much for the rest of the year, but both stocks will likely fluctuate wildly within a fairly wide range, so anyone considering them should probably judge them according to their fitness as long-term buy-and-holds.

In the case of these two OEMs, then, I think it makes sense to look past beats/misses and focus on the potential for organic growth in the additive manufacturing (AM) sector. Of all the hardware OEMs in the US AM sector right now, I think both Markforged and Velo3D are focused on the right verticals. Thus, whether or not the companies are considered compelling at these valuations should, in my opinion, come down to how the individual investor feels about the possibility for AM’s growth over the next couple of years.

Markforged is poised to do well in the rebounding aerospace sector if the metal binder jetting (MBJ) market continues to gain traction. And, in the earnings call, the company’s CEO also mentioned the success of Markforged’s distributed manufacturing offering, the Digital Forge, in the context of “a very important and strategic transaction with a global automotive leader to drive flexibility and cost savings by reducing the reliance on physical inventory.” Markforged, part of the portfolio of the US intelligence community venture capital arm, In-Q-Tel, and a favorite of the US military, could also be a beneficiary of continued acceleration of the defense sector’s interest in AM.

Velo3D also has substantial opportunity for growth driven by the aerospace, automotive, and defense sectors. Beyond those areas, one particular strength for the company is oilfield services. A few days prior to the release of the earnings report, Velo3D issued a press release highlighting a sale of a Sapphire XC platform to Schoeller-Bleckmann Oilfield Technology, a leading Austrian manufacturer of equipment for oilfield exploration. Although the oil & gas market will of course to continue to be volatile, the remarkable stabilization of fossil fuel prices since the first few months after Russia’s invasion of Ukraine suggests that exploration & production companies could be willing to start spending more on reinvestment in the near future.

One thing to note regarding Velo3D is that the company also just announced a sale of $70 million in senior convertible notes to existing institutional investors, expected to take place on August 14, with the option to purchase up to $35 million more within a year of the initial closing. If the notes are ultimately converted to common stock, this will affect the share price, and if they’re not, the issuance will still affect Velo3D’s bottom line.

As of the writing of this article (the morning of August 11), Velo3D and Markforged share prices were both down substantially, with Markforged down around 5 percent and Velo3D down over 15 percent. The intriguing angle here is that both companies’ share prices are now within fairly close distance of each other, and, since both companies each have just under 200 million shares, that means their market caps should stay neck-and-neck for some time.

If I may throw my hat into the “floating ideas for AM mergers” ring, Markforged and Velo3D could be one that would make sense. Markforged would give Velo3D access to the carbon fiber and MBJ markets, and Velo3D would give Markforged a leg-up in targeting small and medium enterprises (SMEs). Combining the two companies would probably make things more convenient for Cathie Wood, and a combination of the two would instantly be at the forefront of AM-driven distributed manufacturing. There seems to be way more potential here for synergy than redundancy, and, based off of the guidance issued by both companies, a combined company would represent $200 million in revenue for 2023.

Disclaimer on No Investment Advice:

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing stated in this article constitutes a solicitation, recommendation, endorsement, or offer by the writer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The information in this article is of a general nature that does not address the circumstances and risk profile of any individual or entity and should not constitute professional and/or financial advice.

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