3D Printing Financials: Fathom Struggles in Financial Quicksand During Critical Transition

Facing a year of key transitions and financial pressures, Fathom (Nasdaq: FTHM) has filed its annual report for 2023 with the U.S. Securities and Exchange Commission (SEC). The document outlines a challenging year for the 3D printing service bureau, which has been navigating a complex restructuring since its public debut in 2021. With 2023 over, Fathom sums up a period marked by financial struggles intensified by a slowing economy and leading to significant strategic shifts, including a leadership overhaul with the replacement of its CEO in the fourth quarter. Following these changes, Fathom is solidifying a strategic merger with CORE Industrial Partners, which already holds a substantial stake in the company (~62%). Overall, the report details Fathom’s earnings, risk factors, reorganization efforts, and leadership changes, all aimed at strengthening the company’s financial health. Moreover, Fathom’s stock has been in a downward spiral since late 2022, declining from an all-time peak of $204.80 to levels currently oscillating between $5 and $4. It now sits at $4.52.

2023 Earnings

In 2023, Fathom reported revenue of $131.3 million, down from $161.1 million in 2022, a decline of 18.5%. The company attributed this decline to a weakened macroeconomic environment and increased competition, particularly impacting key product lines like precision sheet metal, injection molding, and CNC machining. Revenue breakdown included $11.7 million from additive manufacturing (AM), which constituted roughly 8.9% of total revenue but was down 21.5% from 2022. ​​

Despite the overall downturn, Fathom says it is especially optimistic about the future of its AM sector. According to statements in the annual report, Fathom believes “the market for our on-demand digital manufacturing services, particularly in additive manufacturing, is largely unsaturated. With the industry’s increasing trend toward outsourcing prototyping and low-to-mid volume production, we anticipate significant growth in demand.”

The company aims to capitalize on these trends by increasing its service offerings and reinforcing its market-leading position in the digital manufacturing landscape.

Meanwhile, Fathom’s financial struggles extended to its gross profit, which fell to $37.6 million or 28.7% of revenue in 2023, down from $49.2 million or 30.5% of revenue in 2022—a decrease attributed to reduced sales volume and higher overhead costs. Operating expenses saw a reduction, with selling, general, and administrative (SG&A) expenses dropping to $37.5 million from $49.9 million the previous year, mainly due to decreased professional fees, compensation expenses, and insurance costs.

However, Fathom still recorded an operating loss of $23.2 million, a notable improvement from the massive $1.21 billion loss in 2022, which included a hefty goodwill impairment charge of $1.19 billion following the business merger with Altimar Acquisition Corp. II. This decrease in operating loss was supported by a reduction in restructuring costs, which rose to $4.9 million in 2023 due to ongoing reorganization activities, primarily involving consolidating facilities and roles. Additionally, interest expenses increased to $15.6 million due to higher interest rates and additional borrowing, while other income decreased to $37.3 million, reflecting changes in fair value adjustments and warrant liabilities.

Fathom rang the opening bell of the NYSE on April 19, 2022. Image courtesy of Fathom via LinkedIn.

Risk Factors

As detailed in its SEC filing, Fathom outlines 63 specific risk factors that could impact its future operations and financial stability. Among these, the pending merger with CORE poses substantial risks, including potential disruptions to operations, implications on stakeholder relationships, and possible litigation risks. Financially, there’s the looming obligation of a $50 million term loan repayment; failing to meet this could lead to default, posing a serious risk. Moreover, the company says the competitive landscape in digital manufacturing also demands that it continuously innovate and meet high customer expectations to maintain its market position. Operational risks are also a concern, particularly with recent management changes and the ongoing challenge of attracting and retaining skilled personnel.

Overhaul and Layoffs

In response to ongoing financial pressures, Fathom started a reorganization plan in 2022, which included consolidating facilities and reducing the workforce by approximately 20% over the past year. During the third quarter of 2023, the company expanded this reorganization to include workforce reductions at its Hartland and Miami facilities. Then, in January 2024, Fathom directly closed its Miami manufacturing site due to ongoing profitability issues, a move expected to be completed by the end of the second quarter of 2024. This closure resulted in the total layoff of 52 employees. While these changes aim to streamline operations and reduce costs, Fathom has acknowledged that they have also led to decreased employee morale and potential disruptions in service delivery.

Fathom facility. Image courtesy of Fathom.

Leadership

Finally, leadership changes have been a central part of Fathom’s year. The company saw the departure of its CEO, Ryan Martin, and several key executives, which introduced additional challenges during a critical period. New leadership under CEO Carey Chen is focused on steering the company through its merger and reorganization processes.

As Fathom transitions to full ownership by CORE, managing these transitions effectively will be crucial for the leadership team. The company’s future success depends on innovative strategies and maintaining stable leadership. As it prepares for a merger and a return to private ownership, Fathom is navigating financial challenges. However, it seeks to stabilize its operations and position itself for growth in the fast-changing digital manufacturing industry.