3D Printing Financials: Markforged Bets on Innovation and Cost Cuts to Sustain Itself

Amid a challenging economic climate, Markforged (NYSE: MKFG) is making bold moves to secure its future. The company’s second-quarter 2024 earnings report reveals a mix of cost-cutting measures and product rollouts to weather the storm.

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In a bid to counter the ongoing macroeconomic challenges, Markforged has launched a $25 million cost-cutting plan. This move is expected to lower the company’s annual operating expenses to roughly $70 million.

During an earnings call with investors, CEO Shai Terem said this initiative was very important, noting that “These cost reduction actions have been initiated, and we expect to be completed by the end of the year. We have a strong product line, and these cost reductions are not expected to compromise our ability to grow and keep us on a sustainable growth trajectory.”

He also explained that this cost-reduction initiative is key to achieving sustainable growth, particularly in a tough economic environment. The plan involves streamlining operations and making targeted cuts to ensure that Markforged remains competitive while continuing to innovate and meet customer needs.

Additionally, this effort is part of a larger effort to match spending with the company’s current income while still investing in key areas that will help the company grow. This includes accelerating the production and shipment of new products like the PX100, a metal binder jetting system, and the FX10, a high-performance printer for large, strong parts—central to Markforged’s growth plans for the second half of 2024.

“We entered Q3 with a robust pipeline and intend to release additional capabilities, which increases our confidence that this momentum will continue to drive growth in the second half of the year,” Terem noted. “We also launched two new materials, Onyx FR, flame-retardant and Vega with high-temperature continuous fiber. These new materials further expand the capabilities of the Digital Forge and especially the FX20, which will help our manufacturing customers to solve even more applications on the factory floor. We believe these innovations amplify the capabilities of our newest platforms and will support the increased adoption and growth.”

Terem explains that the FX10 represents a significant leap forward, delivering nearly twice the print speed and size compared to its predecessor, the X7. The executive pointed out that initial market feedback has been positive, with major customers like Toyota already using the FX10 to accelerate part production on their assembly lines. The company says it has ramped up deliveries of the FX10 and shipped the first PX100 system during the quarter.

“Our customers believe in the PX100’s potential to set new standards in highly regulated markets, such as automotive, medical, aerospace and luxury goods,” remarked Terem. He indicated that the company remains on plan to ship additional units in the second half of this year.

Markforged FX10. Image courtesy of Markforged.

Markforged’s latest report also highlights important financial metrics. The company reported $21.7 million in revenue, down from $25.4 million last year. This was largely driven by lower system revenue, which CFO Assaf Zipori says continues to be impacted by tough market conditions with high interest rates.

Despite the lower revenue, the company improved its gross margin to 50.2%, up from 47% in the second quarter of 2023. Adjusted gross margin was even stronger at 51.9%, compared to 48.3% last year. This improvement is a bright spot in an otherwise tough quarter that continued to see a net loss of $14.4 million, though this was an improvement from the $19 million loss reported last year.

Zipori also told investors that in Q3, Markforged ended its lease for the old headquarters in Watertown, Massachusetts, by paying $2.75 million. This helped the company avoid paying about $600,000 in rent for the rest of 2024 and is expected to save another $6.2 million. Markforged moved to a new, modern headquarters in Waltham last year, bringing together over 500 employees in the same space.

Markforged’s new headquarters in Waltham, MA. Image courtesy of Markforged.

Analysts had predicted a tough quarter for hardware suppliers like Markforged, but the company’s gross margin surprised many. As Troy Jensen from Cantor Fitzgerald noted, “Markforged reported respectable Q2 results despite the tough environment for hardware suppliers.”

Markforged’s outlook for the remainder of 2024 is cautiously optimistic. The company has revised its revenue guidance for the year to a range of $90 to $95 million, down from its previous estimate of $95 to $105 million. This adjustment reflects the ongoing economic challenges but also indicates confidence in the potential of its new products, particularly the FX10, to drive growth in the latter half of the year. The company expects to see year-over-year revenue growth return in the second half of 2024.

Terem was confident while discussing the company’s trajectory, stating, “We demonstrated strong execution in Q2 while effectively navigating the persistent macroeconomic headwinds. The continued rollout of new products, combined with our cost realignment initiatives, keeps us on a path to achieve sustainable growth.”

Markforged helps companies through its Digital Forge. Image courtesy of Markforged.

While the company is making strides toward growth, it is also navigating challenges beyond the financial landscape. Markforged was hit with a $17.3 million verdict in a patent dispute with Continuous Composites. Initially, the court eliminated 20 of the 22 patent infringement claims against Markforged, but then a jury found that the company had infringed on one of the remaining claims. This verdict, along with $1.8 million in interest, has led to allocating $19.1 million in restricted cash to cover these liabilities.

Meanwhile, Continuous Composites has filed post-trial motions seeking royalty payments for certain products sold in the U.S. after December 31, 2023. The potential royalty payments could reduce Markforged’s gross margins by 5 to 7 percentage points if awarded.

Terem addressed this issue during the earnings call, telling investors that the company strongly disagrees with both the initial verdict and the post-trial claims, noting that the funds will remain in restricted cash as they continue to challenge the decision and indicating they are actively exploring all options to overturn the decision, including appeals.

Markforged’s second quarter of 2024 focused on cutting costs, launching new products, and dealing with legal issues. Despite challenges, Markforged remains focused on growth while addressing ongoing disputes with Continuous Composites.