Markforged Holding Corporation (NYSE:MKFG) Q1 2024 Earnings Call Transcript May 8, 2024
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Operator: Hello, and welcome to the Markforged First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Austin Bohlig, Director of Investor Relations. Please go ahead.
Austin Bohlig: Good afternoon. I’m Austin Bohlig, Director of Investor Relations of Markforged Holding Corporation. Welcome to our first quarter of 2024 results conference call. We will be discussing the results announced in our earnings press release issued after market close today. With me on the call is our President and CEO, Shai Terem; and CFO, Assaf Zipori. Before we get started, I’d like to remind everyone that management will be making statements during this call that include estimates and other forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements.
These statements represent management’s views as of today, May 8, 2024, and are subject to material risks and uncertainties that could cause actual results to differ materially. Markforged disclaims any intention or obligation, except as required by law, to update or revise forward-looking statements. Also during the course of today’s call, we refer to certain non-GAAP financial measures. There’s a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued after market close today, which can also be found on our website at investors.markforged.com. I’ll now turn the call over to Shai Terem, President and CEO of Markforged.
Shai Terem: Thank you Austin, and thank you, everyone, for joining us on our Q1 2024 earnings call. We started 2024 with strong execution, setting a solid foundation for the year ahead. While the CapEx environment remained challenging in Q1, the market response to our new product has been very encouraging, and we are optimistic about the opportunities these products will bring in the second half. With the FX10, FX20, PX100 and Digital Source, we believe we are positioned for growth as we drive the adoption of additive manufacturing on the factory floor to increase efficiency, reduce costs and improve supply chain resiliency. We want to begin by providing an update on the patent lawsuit with Continuous Composites. In April 2023, the court eliminated 20 of the 22 patent infringement claims made against Markforged.
Last month, a jury found that Markforged had infringed on 1 of the 2 remaining claims and awarded monetary damages in the amount of $17.3 million. We strongly disagree with this verdict and intend to seek to overturn the verdict in forthright motions with the district court. We’re exploring all available options, including seeking to overturn the result in judgment through the appeals process. We continue to believe that there is a massive opportunity to help manufacturers bring industrial production to the point of need, with effective cost controls, prudent cash management and new innovative product line, we remain focused and excited about the future of the company and our ability to continue to drive the adoption of additive manufacturing on the factory floor.
We reached a pivotal milestone in Q1 by shipping the first FX10 units, which is Markforged next-generation 3D printer for the factory floor. FX10 delivers high print quality at print speeds that are nearly twice as fast and print sizes that are up to twice as large compared to its predecessor, the X7. The initial market feedback has been encouraging. Customers are already printing mission-critical parts with the factory floor. In fact, Toyota is one of our first customers, accelerated part production or tooling [ph] application on their assembly line with FX10. As we enter Q2, our FX10 pipeline continues to grow, and we remain on plan to accelerate deliveries in the coming quarters as we continue to scale up production. We believe the FX10 meaningfully enhances the Digital Forge and our massive opportunity on the factory floor.
Manufacturers need to reduce cost and build more resilient supply chains, remain a secular tailwind, driving demand for the Digital Forge. Our customers across the world increasingly recognize the Digital Forge as a powerful platform to achieve these goals and more. Harvestance, a design and engineering customer specializing in additive manufacturing provides another example of Markforged on the factory floor. Harvestance needed a solution to produce customized lightweight and strong vacuum grippers for collaborative robots and at automation production lines. Only with the Digital Forge could Harvestance meet the structural and impact strength these parts required for certification. With the combination of Onyx and Carbon Fiber Reinforcement, Harvestance reduced the grippers’ weight 80% when improving strength and reducing delivery time from 2 weeks to 2 days compared to conventional machine repairs.
Harvestance turned to the FX20 when they needed to print larger tools, such as customized grippers for palletizing and heavy pick and carry tools for large industrial robots. We believe growing demand for industrial automation technologies is a robust tailwind with the Digital Forge as similar robotic applications continue to spread across the factory floor. Looking ahead, currently, we remain on plan to achieve the 2024 targets we laid out at the beginning of the year. We believe we are positioned for growth in the second half of 2024, driven by our new products, robust fleet utilization and improving efficiencies in our go-to-market operations. With that, I now turn the call over to Assaf Zipori, our CFO, who will offer more details on our financial performance and guidance for the remainder of the year.
Assaf Zipori: Thank you, Shai, and good evening, everyone. I will be covering our financial results for the first quarter of 2024 and the outlook for the full year. Please note that my comments reflect our non-GAAP results and outlook. For your reference, our earnings press release issued earlier this afternoon and posted to our Investor Relations website includes our GAAP to non-GAAP reconciliation to assist with my commentary. So let’s begin. Revenue for Q1 was $20.5 million, which is 15% down from the first quarter of 2023. Our revenue performance was largely driven by lower system revenue, which continues to be impacted by a challenging macroeconomic environment with high interest rates. That said, utilization rates remained healthy in the quarter.
Consumable revenues were, essentially, flat year-over-year. Furthermore, we are pleased with the adoption rate of our subscription-based software and services with revenue growing 18% year-over-year in the first quarter. Gross margin for the quarter was 51.3%, representing 1.8 percentage points increase from Q4 and up 2 points from the first quarter of 2023. This margin expansion was positively impacted by operational efficiencies and product mix. A key goal for us in 2024 is to sustain this positive momentum, scaling up our business and enhancing operational efficiencies even further. Operating expenses were $24.1 million in the first quarter of 2024, down from $26.7 million in the first quarter of 2023. This improvement is a result of our ongoing efforts to reduce operating expenses and optimize our cash utilization.
We expect our operational efficiencies to further lower our quarterly OpEx run rate in 2024. Furthermore, we continue to take actions to lower our OpEx in 2025. Operating loss was $13.5 million for the first quarter of 2024, an improvement from $14.8 million in the first quarter of 2023. Net loss in the first quarter of 2024 was $12.2 million, an improvement from a loss of $13.3 million in Q1 2023. First quarter loss per share was $0.06 based on our weighted average shares outstanding for the quarter of 199.3 million. Driven by improving operational and working capital efficiencies, our net cash used in operating activities in Q1 was $7.4 million. This is an improvement of approximately 52% from the first quarter of 2023. While we expect our cash utilization to increase in Q2 as a result of annual compensation payout, we expect our cash utilization to improve in 2024 as a result of higher revenue, gross margin expansion, strong OpEx controls and working capital efficiencies.
Our cash and cash equivalents were $107.9 million at the end of Q1, down from $8.9 million from the end of Q4 2023. We also want to provide the financial impact related to the Continuous Composites lawsuit verdict in Q1 2024. First, we strongly disagree with this verdict, and we are actively exploring all possible options to overturn the verdict. In Q1 2024, we accrued a GAAP expense of $17.3 million to reflect the judgment awarded by the jury. This is excluded from our non-GAAP results. No cash payment has been made at this point. Given the nature of this ongoing dispute, we are limited in commenting on this matter beyond what we have publicly stated. Furthermore, our guidance does not reflect additional action that Continuous Composites may take, which may include seeking additional relief through post-trial motions or royalty payments on future revenue as described in our April 12 press release.
Now moving on to our guidance. We are reiterating our 2024 guidance provided at the beginning of the year. We continue to anticipate fiscal year 2024 revenues to be within the range of $95 million to $105 million, which acknowledges the persistence of macroeconomic headwinds throughout the year. We expect revenue to grow mid-single digits quarter-over-quarter in Q2, and we continue to see an opportunity for accelerated growth in the second half, underpinned by new products and particularly the FX10. We expect gross margins to be within the range of 48% to 50% as we continue to ramp up our new product lines. We are encouraged by our strong Q1 gross margin performance and see a path to the upper end of our guidance and in our revenue performance in the second half of the year.
We expect non-GAAP operating loss in the range of $42.5 million to $47 million for the year, which is an improvement from a loss of $57.6 million in 2023. In turn, we expect non-GAAP EPS results for the full year to be a loss in the range of $0.19 to $0.22 per share. That concludes our prepared remarks today. Please open up the call for questions.
Operator: [Operator Instructions] Our first question today is coming from Greg Palm from Craig-Hallum. Your line is now live.
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