Fathom Digital Manufacturing Corporation (NYSE:FATH) Q4 2022 Earnings Call Transcript

Operator: The next question today comes from the line of Troy Jensen from Lake Street Capital. Please go ahead, your line is now open.

Troy Jensen : Hey, good morning, gentlemen. And thanks for taking my questions here. Maybe for Mark, can you just touch a little bit on gross margins here? I mean, 26% was done fairly meaningfully and it didn’t seem like revenues dropped as much, is there a redundant cost with the moves? And you could also kind of project that forward a little bit. What do you think gross margins can look like for the first half versus your second half?

Mark Frost : Sure. Yes, an expected question. So yes, we had a tough fourth quarter, a fair amount it was due, we went backwards pretty significantly in the fourth quarter by 13%. The issue that really hurt us, Troy, in the fourth quarter and drove the gross margins down, is we had expected an improvement in revenue that did not happen. Now we saw that pivot on the production side in the second half of the quarter. So that put us in a situation in the fourth quarter that we had excess labor and that’s what drove it. Now, that’s what also triggered, we knew we had to resize our business for the revenue run rate we were running at, and that’s why we were so aggressive on the cost take-outs. So, our expectation with these cost take-outs, Troy, is we will get back towards €˜21 levels of gross margin, which was in the high 30s. So that’s what we’ve designed and built the cost plan to get us back to.

Troy Jensen : And with the cost take out to some of it coming out of SG&A too. I mean, if you did $10.8 million in Q4, update it is down on an absolute basis?

Mark Frost : I’m sorry, Troy, say that again?

Troy Jensen : No, keep going. I’m just wondering if we model it down on a basis with some of these cost cuts.

Mark Frost : Yes. SG&A will be down probably 10% to 15% on a sequential basis in ’23.

Troy Jensen : Got you. Okay. Well, thank you. So I wanted to just shout out to Rich for all the help over the years and good luck going forward.

Mark Frost: No, thanks, Troy. I will certainly pass that on to him and appreciate the continued success. Great questions.

Troy Jensen : Good luck guys.

Operator: Thank you. This concludes the question-and-answer session for today’s call and also today’s conference call. Thank you for your participation, you may now disconnect your lines.