Earnings call transcript Q1 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Hello, ladies and gentlemen. My name is Glenn, and I will be the operator this morning. I'd like to welcome everyone to the Fathom Digital Manufacturing Earnings Conference Call. This call is being recorded and a replay will be available later today. After the company's presentation, there will be a Q&A session with instructions to follow at that time.

to of call Investor like Cimini, to now Director Fathom's Relations. would turn over the Michael I

Michael Cimini

Thank you, Glenn, Fathom's First and good morning, XXXX Conference everyone. Earnings Call. Quarter Welcome to

presentation on Fathom's information with site I'd mention like find Before will where other about Web press SEC links we available that important to at begin, our today's are release and you to company. also fathommfg.com, our earnings along filings,

the filings within Securities note we that presentation the two, in you meaning that and statements read of contained of SEC, our Act. slide risk to Turning understand uncertainties aware forward-looking to Exchange contains this risk encourage with We factors forward-looking are and statements become estimates. business, the the in the our only

today's the encouraged includes those to measures and presentation we manage to measures financial measure. way are to GAAP our comparable which And note, business. reconcile describe operate non-GAAP you the examine We We these in also reconciliations. most

Ryan and With Martin, us Fathom's the today Mark CFO. CEO; are Frost,

I will over it now Ryan. to hand

Ryan Martin

and everyone, call. first Fathom's welcome, to quarter conference XXXX Michael, Thanks,

management's performance track as quarter the was expectations for of above generation. profitability we record extended and Our cash Fathom's

we our plan, taking go-to-market expanded measures well the while our executed strategies. to optimization strengthen During active quarter, against

our bringing savings, we annualized the in the Of As QX projected the million. right-size approximately macro the the plan quarter, to optimization in took discussed environment realized to current million cost expand previous business. cumulative on temporary $X.X $X.X our call, first further and in of $XX.X advantage softness in we our amount million original

we follows facility, consolidation QX our integration national our going of our public. continued two This In footprint the to optimize to QX, Texas-based XXXX. that facilities prior the of acquired in Oakland with we

in workforce our near-term with the operations generation. line also while We and by an our revenue XX% investments prioritizing additional reduced

of XXXX. current savings quarter, the We to remainder complete million throughout remaining the in $XX.X the and cost in of initiatives realize the our second expect reduction benefits

will of appropriate, margin Mark basis. commitments. the contributed and our as production efficient additional discuss that ongoing execution points QX While more so of to remain We gross on levels an sequential in ensuring improvement basis efforts detail, take restructuring we'll a our structure, cost steps, our XXX our match committed financials to a customer

a quarter, latest opened During the also manufacturing, to the new provides Bay a Center, the while to first in hub Area. This Valley Freemont, advancements to we state and Silicon additive California. introduce Technology presence our in traditional customers maintain of enabling strategic corporate art the opportunity some unique enterprise in of Fathom

among the Our new center. additive evolved tech the at solution featured is innovative currently technologies new

transition We additive continuing the parts throughput, are across to various new prototyping quality, producing leave to pipeline. Evolve date or The from the cost. is reducing we've without times how production poised while applications scalability parts technology, to customer by dramatically STEP feedback received the reaffirms of compromising build customers to lead now from for

positive Marketing. add considerable on joined QX maintaining Fathom, our our of critical We leadership Kurt with have objectives. President since newly momentum accounts. of renew sales and believe bolstered management expand share in appointment strategic period these we accelerating customer new created brief of as commercial add Kurt customers and Fathom's to as advancing we considerable the value focus efforts engagement, enterprise strategic our this with in Sales our wallet In and we In position built in corporate his will experience Bork Vice growth the

$XX we $XX new aggregate potential for Fathom. semiconductor as production a million for approval for incremental to in the believe EV million capital the to and Recently, solutions equipment supplier we deliver formal a of manufacturer provider, that business a received leading thermal industry annually has

and stable expect we customers, with capabilities. to more while further revenue leverage predictable our With these strategic production low-to-mid our large extensive two strengthen volume streams to ability enhancing pipeline our

Notably, to and a production the underscores year our critical of took Fathom to supplier the approved market. importance a to current semiconductor competitors over for secure, to company as the become significant an barrier a for the customers entry supplier approval and in creates

Additionally, we product advantage taking manufacturing or and continue initiatives with innovation, also more provide orders production customer NPI our platform to a our optimize and structure teams, new aimed our commercial expansive boost at our other while streamlined to teams, experience. greater new implementing of

we slide, increase to this financial on quarter finally the our flexibility. during took And steps

Specifically, ongoing ability favorable XXXX. our These existing we in providing QX our long-term health, growth withstand financial covenant through global business. credit as while facility we investing under our Fathom's the of focus in amended maintain the uncertainty to relief strengthened on modifications the terms, our for economy extended preserving

Additionally, EBITDA million adjusted and the our optimization plan to in sequential improvements by on execution contributed margin operations, our notable $XX.X provided cash basis. net adjusted EBITDA, of a

near-term and with from improve manufacturing increased headwinds, further customer ability scalability base challenges, margin only By and cash comprehensive as by to persisting of continue our believe our services diverse year, and but our conditions not we company positions and leading benefit generate adapt improve. navigate capital, pleased structure remainder preserving to to the expertise deep over in to our actively combined and resilient well, positive macro managing free enterprise-level our our macroeconomic the cost company's profile our flow expect the market I'm profitability technical to XXXX. and workforce,

over to I will call Mark. the turn now

Mark Frost

results begin remarks revenue four. you, everyone. good morning QX and Thank our our I'll for on slide Ryan,

ongoing for totaled QX, production pending building certain have most amid In uncertainty. purchase down bulk second-half $XX the quarter industries, XXXX. delayed million headwinds $XX.X high revenue new the orders fourth year. million, in of particularly QX in macroeconomic forecast persisted goods of but market as the the remain likely which in $XX our customers, exceeded from the the orders We close the optimistic eventually capital and will Our of the these end million, of

strengthening under new Ryan we to continue as our commercial leadership soft, make remained our steady activities up strategies demand ramping mentioned earlier. near-term although go-to-market progress senior Now, and new

Our revenue among continues as as total follows. CNC or revenue our perform business strategic XX.X% well line by product of accounts. X% increased approximately this to million was machining $XX.X to

was XX.X% XX.X% ongoing Precision total was $XX.X in macro sheet or softness Injection million reflecting $X.X the million or revenue, molding the of revenue. environment. of metal total

finally, Although of production prospects smallest our totaled to believe product of center tooling. business or to manufacturing continue has with revenue. we outsource segment representing our $X.X orders new benefit new shown efforts. improvement, parts to focus X.X% technologies, line, as combined rollout this of new revenue. signs to we our consolidation on ancillary new for technology million, of along million our We additive Additive increased with more including $X.X XX.X% the our total tooling reorders strength And continue Evolve, in generate will technologies, total from of

supplier Now, development despite condensing of market cycles, the chain. consolidation agile including shoring manufacturing of local uncertainties, and current more of believe remain business and the we product a to U.S. sound, near drivers secular in partnerships supply our ensure

to pipeline. We landscape with timely global market to the manufacturing monitor our and that on-demand providing committed remain value-added digital product robust leverage will continue solutions driven companies

was $X.X the EBITDA In we EBITDA million, quarter sales. end Now, slide quarter. This above performance for of despite our we totaled our a high one of of reported first the XX.X%. In of adjusted EBITDA adjusted representing margin adjusted one, $X.X million provide $X.X turning a XX.X%. a margin five, for XXXX, of with of sequential improvement quarter margin XXX forecast million lower basis points to

the by four, in absorption the Now, quarter impact execution contributed plan We continued absorption XX% XXXX. overhead driven for offset cost quarter our the $XX.X on and which performance was partially up lower our gross volumes in margin XX.X%, sales our progress million to by achieving a impacts. primarily lowering associated of based of the structure from optimization notable

prior benefited margin also should which when the XX.X% year remainder accounting into impact from increases XXXX. million the adjustments. purchase and onetime quarter positive In in the We period, of gross our in excluding non-cash a year have was for $X.X price the strategic the

further of full-year of continue expenses. And XXXX savings expected we high in Now, effect. year, restructuring to gross is the to which as for our with efforts in our improvement margin realize our we our gross anticipate resulting following margin plan the on $XX.X to of in last two-thirds benefiting looking one-third approximately throughout XXXX lower take the SG&A XX% be total in launch the XXs cost remaining anticipated remain the where the track million ahead,

public for $XX.X reduction one, SG&A quarter million. the XX% combined expenses, Now, compensation, fees. sales to due professional stock totaled our A lower decline impact and in people-related of year-over-year with of

higher of related Compared of the to as fourth SEC in notwithstanding to one, report revenue, quarter, declined X.X% our quarter decreased publication SG&A XXXX. cost quarter annual XX.X% from and other percentage filings. in a XX.X% SG&A to previous one the the Now,

million compared public expenses past one declined cost company in public achieved recurring public In in over quarter basis our quarter four. in significant company infrastructure. $X.X company one $X.X on compensation, year the $X.X million recurring quarter our to rationalizing have the stock Excluding gains reflecting we again million sequential our to totaled XXXX,

$X with under includes liquidity million. of cash We show and This of Now, our million our commitments liquidity six, and and we facility. flow. undrawn equivalents, first the slide cash million credit available on ended revolving $XX cash quarter in $XX.X $XX.X million

the debt XXXX. usage was $XXX.X our net XX, gross The no was debt cash million March totaled total And our with of of our million. by of December revolver. increase debt before offset excluding As term in debt $XXX.X maturities amortization

Now, a was expectations in or to quarter totaled $X.X XXXX. some cash of made four, quarter in cash commitments provided one, balance. just includes by working was quarter million This In one previous improvement payments our capital from $X.X million, our revenue which operation reduced under CapEx our of compares an million with reflects in consistent operations million. of to $X swing which sequential in used in $X.X and X.X%

only Our generate with expenditures CapEx savings non-essential focus investments remains to limiting growth. additional focused near-term on capital cash to critical

specifically, the amend we optimize reduce liquidity a an group as finally our in interest at with adjusted Xx with EBITDA covered for Both quarter XXXX earlier, in in for extended net net further lending ratio through as our lenders leverage We senior agreement Xx reached be our and enhancing we appreciate ratio and replaced and minimum to requirement. one, covenants position. our relief, one credit and available cost and our of minimum support flexibility beginning mentioned will reinstated have to XXXX providing existing continue covenant cash interest agreement suspended financial for coverage. Ryan quarter leverage the been Now,

provide of Now, our we slide the and turn quarter second to forecast seven, for XXXX.

For quarter, $XX.X of X. optimization approximately the further anticipate $X.X we realized in our up million savings, from million, the plan, million quarter execution $X.X benefits second from with

our to sales with we continues outlook. the in challenging on As weigh line backlog, macro our of seek profitability environment maintain attractive levels to

inventories customer extended for new lower As has sales discussed and economic the previously, to near-term uncertainty led orders. cycles

$XX We to we take year and quarter begin are cautiously the will continue improve to XX.X%, these up million $X and implied million, adjusted and of range hold. XX.X% adjusted $XX to in 'XX. of our trends range EBITDA expect to activity two commercial from basis Currently, EBITDA revenue recovers between This second-half margin quarter an optimistic represents manufacturing $X X and million million. to the XX between points XXX as actions

to positive track and for operating on to EBITDA, significant market while ability the in cash generate remain achieve recovers. expect we increase overall once full-year the year-over-year XXXX, enhancing leverage achieve flow our adjusted free to a Additionally,

call now to over the Ryan. Ryan? I'll turn back

Ryan Martin

will slide Thank closing comments you, provide eight. some Mark. on I

traction. XXX-tier generation, and driving to take we to go-to-market well efforts, Our future By commercial ensure while commitment market plan our of for ongoing more cash profitability additive macro as results our gain quarter execution million relations levels manufacturing focus for traditional attractive companies, first aggressive our at strengthening optimization performance $XX.X our actions in on return intend management's of continue we the a the more Fortune strategic help will The maintain technologies. enhancements and as to challenging aimed outgrowth environment. within to our demonstrate

meet low-to-mid believe positive quality, manner solving our and volume the supports well companies industry to high technical remain of customization. to Fathom needs speed, hybridized problem a We the long-term in flexible ingenuity, approach that mix, integrating our positions fundamentals intact, and that in production continue

across Our focus leading model, diverse and base profitable a scalable breadth customer business of an growth. remains blue extensive driving our end long-term and including offerings, on markets leveraging entrenched chip

open And This call for concludes our now remarks. we'll prepared questions. the

Operator

Jim you. & Jim, is open. Thank from Company. your comes Ricchiuti question Instructions] now from Our [Operator line Needham first

Jim Ricchiuti

off, this. just sure first on Hi, thank you. morning. Good Mark, to I make wanted clear am

correctly? could did as EBITDA for year think you that think So, about you in adjusted 'XX, still as be you hear up I a the whole,

Mark Frost

assumption that number Based the second-half, optimism correct. our is on that for EBITDA we mind overachieve that optimization year's coupled with adjusted can of $XX.X in lead, last the That with million. cautious would plan,

Jim Ricchiuti

sounds moving range now that kind realize mix of this, to a and optimization thinking a little would a in there? that gets required of of like be it plan I the know revenue adjusted big What underway, we role With EBITDA? but be there's faster. you should plays that things range if level

Mark Frost

Yes, to will I upon at Jim, improve quarter and what we our guidance indicated yes, we the don't we need last that. at X, that I for level Jim, I'll see say, I higher leave second-half I be will towards think improvement, it but improvement massive revenues, second-half. a a improvement would it's hopefully our need is in X quarter call, think and -- current

Jim Ricchiuti

question. Okay. I one have other

QX. guide revenue your above modestly in came for You

maybe curious repeat unusual weakest relates what but from that, your QX guidance normally macro, just I'm If QX? there that? a take in we I'm for QX that your were the June, And into what low it if seasonally drove and so I'm that, possibly standpoint, is contributions end wondering as and Obviously in factors of may business quarter. that, not also line curious any

Ryan Martin

right Ryan would build I QX, to that. to morning as you're say relates continues it you. Martin, to that, Jim, Yes, through it typically, good on

macro some we've QX, in continued We environment optimistic I the continued April. challenges saw in we into cautiously think look macro and be to as beyond.

the seen will strong we've I really month. say, However, start May, in a to

were efforts orders, a that of production as of and well that taking, some customers seen the we've we our seeing on stuff lot with bringing the QX, some as about. Kurt we're we've some talked I from that key the think commercial delaying about, that actions we're talked that there, seen some of Mark customers in

start to end out to beginning towards May. April, and We're see the those to starting reorders play of

the be And and optimistic momentum outliers no QX, second-half build so, of the taking the into Jim, to keep can that QX, second-half up to we're I but will think was unusual. the into related that we with continue that nothing actions year, the of there

Jim Ricchiuti

you. a thank Thanks in back jump lot. it, Got queue. I'll the

Ryan Martin

Thanks, Jim.

Mark Frost

Thanks, Jim.

Operator

you, Thank Jim.

is next line Palm our Group. Greg, question Craig-Hallum your coming now have Capital from We Greg open. from

Greg Palm

relative maybe worse, Thanks, just just in gotten of here, last to of good seven or maybe to amount morning, everybody. I these that the production And you be follow-up second-half? can six, the thinking bit terms orders visibility, some the on just weeks maybe better, wanted in quantify of it's maybe alluded whether unchanged of may ago? back you coming

Ryan Martin

Ryan. real spending Good first in Yes, one about in time. companies. the in them, been and bit production And the sales others a of is morning talked our we relationships talked Greg. just quarter amount long-term earnings a talked are tremendous as in we've we're repeat Kurt, they you, to Fortune call. this the their consistently before, particular I've I is Out XXX-tier I of Fathom would that a business. They've This as front cautious. little these strengths we about seen, of not of these say manufacturing customers, the had to that is many platform reduction what inventories losing have more have and with of we've And team,

that they demand seeing came their we're up the hasn't we're thought play meet as weeks would. see with inventory last as to as What down, we've here continued customers, much starting over these levels couple to slowed maybe out it

we orders orders time the a medical gotten at placed to We of saw purchase And the the in April-May that that, now, pretty end customers have starting of to large so period. year. those We reorder. they're have placed had would historically, significant couple

talked with come the done. was those that We work Coast. we've back. of semiconductor And of so, the we're meeting out our about largest week, on semiconductor one last some capital I providers East seeing equipment

seen the we've pretty I anticipating a consistent into of the pretty big this and into across think, And there, year, but is, slowness really ramp second-half which XXXX, industry. they're

visibility is pipeline, the continue. orders So, which seeing we going more to into are into and the

more to confidence that'll Greg. and and the well As a this think ultimately give second-half of visibility look lot and as into orders materialize us I that year, converts starts backlog, into

Greg Palm

more like a six more in it's we're to Why versus weeks. But quarter? are of more going activity specific this your current contribute into last these timing just sounds quarter what of for a on some tell of maybe assumptions orders guide where the thing Maybe us recent or in. the translate you that's can hit the and second-half year wouldn't revenue based the just higher

Mark Frost

to NPI where you it as Yes, in around of And familiar NPI, with. weeks, comes can order Greg, understanding let production, you're on better me for within that. versus goes this an comment turn our

you these as we to and view that have Ryan what's in April, then of once a most to shipments these cases XX to production our With in the May we indicated, both because in-house. order bring going happen get and you order for saw and out production deliver the soft a days of orders colors XX June, on orders, then continued orders, in will likely

Ryan as why see we situation deliver June, in and that basically our say have May the is expectation orders see cautious the more, in to is the I we'll we're won't Greg, capability that's multimillion second-half, said, being until Now, to starting types that of we're and optimistic. would

receiving second-half. NPI July June more it Now, if if help, being lead But the means purely we're in Greg? not orders early it's orders talking to an to today. in the about we likely what till that outperformance that or August type Does do have mid-May, is could you on production, delivered

Greg Palm

these customer touch whether on these to alluding share it million in And makes the just new understood. of these and it new have opportunities? you timing XX a customers I this just are bit million at of was clear, color little more least I'm to And hand couple of lot business. business XX That size? the and sense. Are -- or or expansion a in be around guess wallet a because new clear guess to these orders maybe of I pretty wanted do wins, lastly, Yes, significant, incremental wasn't I

Ryan Martin

been to period Yes, approved us, for for the time. it's large related customer an We've conditionally really we've a supplier expansion. of semiconductor, the been, a

able full a supplier to network them becoming allows us be their So, entire across access production buyer for that. to

well new the as working conversations on based of those and on have we had, as confident for and the opens funnel with we going be around programs different to in hand conversation numbers opportunities. so, we're up significant combination And feel new a And orders discussed them. company a we've what for it we've that pretty the

relates for a a related us customer supplier, standpoint. really the to it As thermal other production new EV is that from

new as have well, we that's from in we're incremental and orders So, then hand where ramping that. do

them And sheet first on that the so, on we've fabrication we're working for metal gotten orders parts.

Greg Palm

Understood.

all appreciate the I Okay. color.

Operator

Thank next from from you, have our Paul, Chung question open. Morgan. Greg. line Instructions] [Operator is your comes Paul now We JP

Paul Chung

the taking question. for thanks Hi,

rebound revenues. margins gross despite saw sequentially, here lower a nice So, some

think you can kind shake So, year, expand cost out the exit of on we action gross the of some where as about and margins we XQ? should of rest the on we as impact

Ryan Martin

Paul. Sure,

XX% was in number labor plan. a of cost of our force. there's by So, the the One about elements downsizing

the So, that's first of one elements.

the second completed end our was year. at consolidation The Heartland, Oakland the element of into the which facility of was

So, that one. starting triggered benefits

of our by two was which of March. was finished element consolidation end sites, the third Texas The the

two. in management contracts, cost as material a then, those the of projects, element was And better the both well savings, of benefits quarter from a fourth other as seeing savings So, then overtime. is And initiatives. the element we'll management last cost start

those of multidimensional. it's can elements see together, all So, you

in place realizing through go it's All it's gross the lot by of year. through as A of already And of question two. quarter that be just those savings been end a executed. of margins then will the we

high year, XXX So, point exit margins. that at of so, XXs Paul, confidence further improvement be the the the basis gives we the another us we towards our will year, end in gross as

Paul Chung

improvement. good very a That's great. Okay,

have kind seasonal slower So, we XQ. in of

kind cash positive free the mentioned for year. You of flow

cash through that we do you. year? builds about how Thank the think how So,

Mark Frost

improvement. sequential Yes, We're a We're negative still operating so we free cash had positive cash flow. flow. a nice

to an will So, see in and talked more savings to efforts. cost on quarter revenue see expect factors our third both about every particularly we optimism we've as AR element, aggressive, improvement contribute. And further improvement of our those as collection been second-half, Paul, in. we the in kick the is And

we're And and saw a DSO our we quarter at to drop well. So, management as we're DPO seeing the our first that looking expect inventory and and improvements. in in further see

elements by basis. get free those belief all on positive contribute run a fourth rate So, flow, quarter cash to that likely will our

Paul Chung

Great, thank so you much.

Mark Frost

Yes, no problem.

Operator

Thank you, Paul.

line & We from Needham is have question a follow-up Company. Jim, open. now Ricchiuti from your Jim

Jim Ricchiuti

you a could ones us and markets Yes, you're like lagging. particularly seeing, of I the it markets. in the end pickup Ryan, looks in about if of end little just on in give talked little demand bit semi-cap you bit medical. that some a some have been other you wonder hearing what a the on saw color

the You building capital goods change you and gives alluded mentioned you to out into guys anticipating you look that confidence demand a second-half? the I that as the Are think industry. in Mark

Ryan Martin

Great question, Jim.

of as of and a a long-term to related think bit it got semiconductor industry. familiar I slowdown very little goods, the big capital everybody then optimistic to very, very now, trends ramp, growth and the obviously I think we've the that is So, relates remain

that So, that feel see continuing we're that areas aerospace to and about we're Jim, our growth customers really really positioned Automation, those of areas. growth in key to support EV, see continuing I to we're side good some things, in positioned of with growth on well transportation, how defense, we're their

defense. haven't starting is towards of then the see I transportation, of some semiconductor see there but executives, this of lot and signs we I I'd industry year. which a to the in back from we an EV, some my second-half as be there start to there see so side from a is see having little We're industry think continuing some of bit all us and traction which And important for and where say are of this the perspective areas softness focusing things that well. second-half it year We'll aerospace seeing with conversations from -- view of is to comeback I'm to the and anticipating our we're think we're in to capital and the goods medical, investments going supply a really the industry, great so is continues customers the to really semi to as a they're and commercial building, soft. XXXX that's facilities key automation, really, more growth robust continue Chips of U.S. fab traction a the gain in beyond our happening related start lot the and Act all the the to come attention

Operator

Thank you.

line. no have questions on today's you call. concludes this and for the joining. We further Thank Ladies gentlemen,

You may lines. now disconnect your

Fathom Digital Manufacturing Corporation - Ordinary Shares (FATH) 15 May 232023 Q1 Earnings call transcript