3D Printing Financials: Shapeways Reports Q3 Net Losses, Unveils Restructuring Strategies in Pursuit of Profitability

Shapeways (Nasdaq: SHPW) has shared its financial outcomes for the third quarter of 2023. This period was marked by a mix of steady progress and some challenges. While the company managed to maintain steady revenue, it also reported a decrease in gross profit and margin. Additionally, an increase in net losses highlighted the tough road to profitability in the sector.

In terms of financial performance, Shapeways reported a revenue of $8.37 million, similar to the $8.45 million in revenue from the same period last year. However, the company faced a drop in its gross profit, which decreased from $3.7 million in the third quarter of 2022 to $3.4 million this year. This decline was also evident in the gross margin, which fell slightly from 44% to 41%.

Challenges

According to Shapeways CFO Alberto Recchi, the decline in gross margin can be attributed to several factors. The company is actively ramping up its recently deployed new technologies, typically incurring initial higher costs before achieving efficiencies. There has also been a shift in the product mix towards non-3D printing options and increased shipping costs, which can contribute to higher operational expenses.

On a positive note, the software segment of the business, which generally yields higher margins, showed growth, and the company implemented price increases to offset some of these rising costs, explained the executive during an earnings call with investors. Looking ahead, Shapeways anticipates an expansion in its gross margin. This optimism is based on expected increased contributions from its more profitable software sales and the benefits from consolidating its U.S. manufacturing operations.

Perhaps a more alarming aspect of the earnings report was the increase in net loss, rising to $19.2 million from $4.6 million in the previous year. This loss increase was also reflected in the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), which declined from a loss of $4.6 million to $5 million. The quarter’s selling, general, and administrative (SG&A) expenses also rose to $11 million from $7.6 million in the prior year, reflecting increased professional fees and some write-offs related to equipment and prepaid services.

Struggles

Given these financial results, Shapeways has been actively enhancing its strategies and operations. The company reports that software segment revenues rose 39.6% compared to the same quarter last year. The company’s introduction of innovative features, such as the MFG Materials platform, aims to reduce raw material costs for customers, partially explaining this situation.

Users can get 3D printed parts delivered. Image courtesy of Shapeways/Otto.

Shapeways has also made significant progress in its business with larger corporate clients. It successfully secured two major long-term agreements with leading players in the automotive and transportation industries. These contracts are expected to contribute roughly $4 million in annual revenues by the end of next year. Meanwhile, its eCommerce operations have remained stable.

With sales taking longer to complete and amid economic uncertainties, Shapeways has begun several cost reduction measures. These include reductions in workforce and non-essential spending. According to Recchi, there will be a 15% staff cut, which could roughly mean at least 25 employees will lose their jobs, considering the company has close to 200 workers.

Moreover, Shapeways CEO Greg Kress told investors they are exploring various strategic alternatives, including potential mergers, business combinations, capital raise, or asset sales, to strengthen the financial outlook. However, no decisions regarding any possible transaction have yet been made.

Shifts

As of September 30, 2023, Shapeways reported having $17.7 million in cash reserves. Nevertheless, the company’s expenditure of about $7 million in the third quarter emphasizes the need for prudent financial oversight. Looking ahead to the fourth quarter of 2023, Shapeways anticipates its revenues to range between $9.3 million and $10 million. This forecast shows potential growth compared to the $8.7 million revenue reported in the last quarter of 2022, an increase from the $8.3 million reported in the same period in 2021.

With the stock hitting $2.20 on November 17, 2023, it is at one of the lowest points in company history. However, this also follows a general market trend, with concerns about a looming recession hitting companies hard. With Shapeways at the intersection of both tech and manufacturing stocks, it’s also being affected by some of the challenges of the manufacturing industry, mainly a contraction in activity for several months, reflecting a slowdown in the economy and suggesting that industrial demand might stay low.

Management pointed out that throughout the remainder of 2023 and into 2024, the company will maintain a strong emphasis on achieving profitability and managing cash burn as it expands its digital manufacturing platform by leveraging the investments made in 2022. While Shapeways is experiencing growth in its software and enterprise manufacturing segments, indicating promising avenues for future expansion, the increase in net losses and economic challenges furthers the business from its immediate breakeven expectations.