Shapeways Holdings, Inc. (NYSE:SHPW) Q4 2022 Earnings Call Transcript March 30, 2023
Operator: Good afternoon and welcome to the Shapeways Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call to Nikki Sacks of Investor Relations. Please go ahead.
Nikki Sacks: Greetings and welcome to Shapeways fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. Before we get started, I’d like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of Federal Securities Laws, 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 fact, should be deemed to be forward-looking statements. Our forward-looking statements, including without limitation statements regarding our business strategy, future financial and operating performance, projected financial results for the first quarter of 2023, expected growth, impact of recent acquisitions, new offerings, market opportunity and plans for compliance with the NYSE’s continued listing standards are based upon current estimates and various assumptions.
These statements involve material risks and uncertainties that could result in actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For description of the risks and uncertainties associated with our business, please see the company’s SEC filings, including the company’s annual report on Form 10-K for the year ended December 31, 2022. Information provided in this conference call speaks only to the broadcast today, March 30, 2023. Shapeways disclaims any obligation except as required by law to update or revise forward-looking statements. Also, during the course of today’s call, we’ll refer to adjusted EBITDA, which is a non-GAAP financial measure.
There’s a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after market close, which can be found on our website, www.shapeways.com. On the call today, are Greg Kress, Chief Executive Officer; and Alberto Recchi, Chief Financial Officer. And now, I’d like to turn the call over to Greg. Greg?
Greg Kress: Good afternoon, everyone. Thanks for joining us to discuss Shapeways fourth quarter and full year 2022 financial results and progress on our key initiatives and strategic growth plan. I’ll begin by providing a business update and Alberto Recchi, our CFO, will then discuss our fourth quarter financial results and outlook for the first quarter. We are pleased with our fourth quarter results, which came in as anticipated as we delivered 5% revenue growth in line with our guidance. Notably in 2022, we made a number of investments, which we believe positioned us well for growth. These include new materials, technologies and certifications, enhancing our software platform as well as continuing to refine our focus to those areas that offer the greatest opportunity, particularly enterprise manufacturing solutions and commercializing our software.
In 2022, we completed three acquisitions including the successful acquisition and integration of Linear AMS, which accelerated the expansion of our manufacturing capabilities and extended the materials, technologies and certifications that we offer our customers. Today we offer 12 hardware technologies and more than 120 materials and finishes, including industrial metals and advance finishing. And we give our customers everything they need from design and pre-production to manufacturing and delivery across a range of industries. Building on our years of experience and having made these investments, we believe Shapeways provides an extremely compelling solution for a range of customers, from project-focused engineers to large global enterprises seeking high quality, flexible on-demand manufacturing.
Shapeways is ideally situated to disrupt the multi-trillion dollar manufacturing industry as manufacturers seek more flexible and reliable solutions to their manufacturing needs. Furthermore, we have a meaningful opportunity to capture business from small and medium size manufacturers that are unlikely to invest the capital required to deploy and support their own digital capabilities. Shapeways core competency is in low-volume, high-mix production at scale, a compelling solution in an environment increasingly focused on mass customization and speed of part delivery. Importantly, we are not limited to prototyping in low-volume production. As our customers scale, we are able to support their growing needs with traditional methods. Through our acquisition of linear AMS, we gained traditional injection molding capabilities.
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Our broad solution allows us to efficiently capture a larger portion of our customers’ spend and to grow with our customers’ needs. I’d like to highlight just a few applications which illustrate the demand for digital manufacturing, particularly in key markets in which we operate such as industrial, medical, automotive, and aerospace. Whirlpool recently leveraged Shapeways design and manufacturing expertise to create production injection molds using both traditional and metal additive processes to achieve cost-effective low volume production. Also, Lockheed Martin and NASA also started using Shapeways in support of Project Dragonfly, leveraging Shapeways to manufacture flight-qualified parts in support of their drone designs. Our pipeline for enterprise opportunities continues to build with growing interest from customers like I just described, including other large Fortune 500 companies, which are seeking manufacturing solutions for various specific needs.
We are encouraged by the momentum, as initial qualification orders are moving to scaled production and as customers expand the size and scope of their orders. The other element of our growth story, which makes us particularly excited is commercializing our software. As we’ve discussed, one of the key differentiators is Shapeways proprietary software, which digitizes the end-to-end process from through delivery. Our software enables us to offer high quality, low-volume, complex part production, but it is also a valuable tool for global manufacturers, specifically small and medium sized traditional manufacturers that are not able to invest in the capital and time necessary to digitize their businesses. Our software customers can leverage our software tools and services for capabilities such as file upload, instant pricing, checkout optimization, and manufacturing fulfilment.
This helps them grow their business by enabling improved customer accessibility, increased productivity, and expanded manufacturing capabilities. In short, moving offline processes online enables a more streamlined process and increases manufacturing throughput, which should enable software customers to expand their manufacturing capabilities and to capture more customer share of wallet, all without having to invest in hardware. Since launching our commercialized software product offering, auto, we have validated the market need and enhanced the product. We further accelerated our plan phased rollout with the acquisition of MFG and MakerOS, which we completed last year. We are pleased with the market reception and in 2022 we realized six times the amount of software revenue from the prior year reaching $1.8 million.
We are optimistic about the continued growth prospects with a meaningful opportunity to capture revenue through SaaS subscriptions, transaction and processing fees, demand generation services and overflow manufacturing capabilities by Shapeways and other supply chain partners. With regard to our legacy self-service and marketplace e-commerce business, we continue to focus on stabilizing those channels as we continue to see increased competition. We expect to see continued demand and to realize a solid contribution from this business. But our growth focus is on our enterprise manufacturing and software businesses. As we move through 2023, we remain focused on improving our cash burn while prior prioritizing the initiatives I discussed that we believe will present the greatest opportunity for profitable growth.
We believe the investments we have already made and the market validation that we have already completed have put us on this track. We are encouraged by the momentum we have built and we believe that we are well positioned for continued growth. I would like to thank the entire Shapeways team, our customers, our investors, and all of our stakeholders for the ongoing support. Alberto will now discuss our financial results in more detail.
Alberto Recchi: Thanks Greg. I’ll provide a recap of our fourth quarter 2022 performance, give an update on our balance sheet position and provide guidance for the first quarter. In the fourth quarter, revenue increased 5% to $8.7 million compared to $8.3 million in the prior year, in line with our expectations. The increase in revenues was primarily attributable to positive contributions from our software offering, scaling of our additive manufacturing capabilities and traditional manufacturing services. Our gross margins in the fourth quarter were 41% compared to 47% in the fourth quarter of 2021. We continue to deliver top tier gross margin in the year-over-year change was primarily due to inflationary pressures to continue ramping or recently deploy new technologies and a more varied product mix.
Fourth quarter adjusted EBITDA was a loss of $5.8 million compared to a loss of $3.1 million in the fourth quarter of last year. SG&A expenses for the fourth quarter were $7.3 million compared to $7.1 million in the prior year, primarily reflecting increases to personal costs, the recent acquisition and increased professional fees. During the fourth quarter, we largely completed the transition of our manufacturing facility in Long Island City, New York to Livonia, Detroit. Turning to our balance sheet as of December 31, 2022, our cash, cash equivalents and marketable securities totaled $40.4 million. During the quarter, we deployed approximately $6.5 million in cash. We anticipated a higher burn in Q4 compared to our normalized burn as we largely completed our manufacturing facility consolidation to Livonia to manage the timing of expenses such as D&O insurance annual premiums.
As we continue to invest in both new hardware and our go-to market initiatives, we anticipate some continued near-term pressure on gross margins compared to historical levels. We remain focused on further improving our cash burn and believe the continued strength our balance sheet and our focus on achieving profitability and managing cash burn will allow us to execute on our organic strategic plan without the near-term need to raise additional capital. With respect to our continued listing on the New York Stock Exchange, we intend to cure our deficiency and come into compliance with a minimum big price by affecting a reverse split of our common stock. Details of the split our plan to be included in our annual proxy payment and we intend to determine the split ratio and to seek approval at the annual meeting of the stockholders in June.
Looking ahead for the first quarter of 2023, we anticipate revenues to be in the range of $7.8 million to $8.1 million. As Greg discussed, we believe we’re well-positioned for continued growth. We’re focused on those areas that offer the greatest opportunity, including enterprise manufacturing solutions and commercializing our software and anticipate and accelerator ramp up in these areas as the year progresses. With this, we’ve completed our prepared remarks and we’ll now open the call for questions. Operator?
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Q&A Session
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Operator: We will now begin the question-and-answer session. Our first question will come from Greg Palm with Craig-Hallum. You may now go ahead.
Greg Palm: Yes. Thanks for taking the questions here. I guess maybe to start in terms of the outlook, what kind of visibility you have in that revenue ramp this year. I don’t know if its pipeline related or new customer related, but what gives you confidence that we’ll see a revenue ramp throughout the year.
Greg Kress: Hey Greg, thanks for asking the question. I appreciate you guys joining. So I think there’s three things that we’re looking at inside the business. First is our core legacy e-commerce channels, right? And that’s where we’ve seen some of the most competition and that’s where we’ve seen some pressure year-over-year. But we continue to work on optimizing that from a top line perspective. The second is we have our enterprise business, and this was new and I think the biggest thing for us here is it took us more time than I expected to really build that pipeline and find our go-to-market position. But we are seeing good traction, good pipeline, and sizable order visibility looking forward. Now with that being said, we’re still working to get confidence in being able to kind of stand up and provide a real good guidance on that.
And then last, we’re working on commercializing our software. And this is interesting because it does have more predictable revenue associated with it, specifically with the SaaS models that we’re rolling out. And as we focus on tightening up our acquisition funnel and focusing on retention and driving lifetime value, we’re starting to get to a place where we feel like we can start to focus on that more and more to be able to provide more guidance. But at this point, we aren’t providing guidance at that level yet. And so we do feel like we are gaining momentum across those three initiatives inside the business and we’re seeing good traction. But again, we haven’t provided that guidance for the full year yet. The second thing I would say is we’ve also spent a considerable amount of time on the on just our gross margin roadmap.
And as we had a little bit of pressure in Q4, we’ll also have that in Q1 as we’ve moved from our Long Island City facility to our Livonia facility and consolidated. But once that’s complete, we’ll see more of stabilization getting back to the gross margins that we had planned for or that we had expected historically, we planned for this drop in gross margin as of right now just because we have some redundancies in our cost structure. And so once that’s complete at the end of Q1, we’ll be able to continue to start executing on that. And then while we’re doing all that, we’re also managing our cost base, right? We want to show a path to profitability and we want to be able to do that by driving our revenue, optimizing our gross margin and controlling our costs.
And so you’ll see more and more of that throughout the rest of this year.
Greg Palm: Makes sense. On the software piece, specifically, maybe I missed it, but did you give a number of SaaS generating revenue customers associated with that $1.8 million amount? And I guess just sort of broadly speaking, how are you viewing growth of software specifically this year?
Greg Kress: Yes. We’re really excited with the momentum that we have. I think there’s been three things that we focused on that I kind of just touched on, but it was how do we acquire customers in a very effective way? The second was how do you retain those customers over that time period with the retention model associated with them. And then how do you drive the lifetime value of that customer by layering in more features and functionality to drive more revenue? And there’s some really exciting things that we’re working on and starting to roll out, but the adoption has been very strong and the retention of those customers has been very good. And I think we have a feature rollout strategy that not only allows for increased acquisition and better retention, but it’ll also provide additional revenue lines for the business.
