FATH - Earnings call 3 2023 | Fathom Digital Manufacturing Corporation

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Operator

Good morning, everyone, and welcome to the Fathom Digital Manufacturing Third Quarter 2023 Earnings Conference Call. [Operator Instructions]

I would now like to turn this conference call over to our host, Investor Relations, Vanessa Winter. Please go ahead.

Vanessa Winter

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

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

uncertainties filings X, you that meaning any in only our and expectations statements of this Slide Securities to obligation forward-looking Exchange our the to the should contained of the with business only performance Act. contains management's factors disclaims forward-looking forward-looking represent as to and aware update them. risks Turning encourage of The understand become future such. statements presentation we are note that We today, read be risk the of statements and as and taken company SEC, within in estimates the the

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

Mark Carey Chief Chen, With us today are Chief Executive Frost, Officer; Financial Fathom's and the Officer.

the I will to over out now hand Mark. call

Mark Frost

and to Fathom's welcome Vanessa, Thanks, Third Call. Quarter Conference XXXX

Chen CEO of appointed that Fathom. was all you're Carey recently we As announced aware,

leader company in first Board industrial previously for has and predecessor earnings extensive experience years. We are for Carey his and Director X happy of to accomplished past is years background an X a past manufacturing served of call. for join have an the business space. He today the active with him the been an global as in us Fathom's member Fathom's

performance remarks, I return then Carey? financial I'll provide the of over introductory some and call to to will a our and for review results. operating Carey hand

Carey Chen

and today appointed I as are be My Chief as performance some outlook. those Thank of observations growth well forward. focus I'll the for top and call areas then today we brief the summary results CEO to and goals priorities will our as of recently my key quarter as well Fathom's year my for see objectives long-term value background, to as remarks discuss shareholder I as Executive financial to our also as of today will you, for review Mark. well include It's Officer. high-level back here of the where full opportunities Mark goals. operating moving our rebuild achieve year the third Fathom a a turn a as of pleasure to

in guiding first transition of My in Before traded company variety a I role manufacturing through the an Ryan experience to Martin's strong industry and and in growth-oriented as leadership company's leader several with future. leadership operational begin, I becoming wide would almost a Fathom of sectors. recognize Fathom to for decades publicly like X with establishing management prospects includes tech companies industrial the

additive strengths, other service as exist many digital amongst well cutting, as that in Fathom's molding challenges manufacturing, of injection the arena, opportunities we machining, current the manufacturing I and since have believe with provided of company years has this Board member predecessor I Mark As XXXX. on over mentioned, its X Board since understanding XXXX been past experience the Fathom's an a the on-demand CNC including capabilities. face metal me

unique value-added partner significant quality variety with solutions. I wide across believe for superior delivering and manufacturing that a given end markets we opportunity have capabilities reputation to manufacturers firmly a of our

remains Fathom leader level, in high significant with industry an a a formidable evolving underlying At strengths.

reliable a high-quality of Our customers, customer recurring base many source. represents enterprise represent whom revenue

solutions. a across of variety wide assets complementary manufacturing superior have We

a on providing wide new problem variety Evolve that verticals. We Our service solving and creativity strong other health and markets, is customer technology our growth introductions of culture end innovation, care, product of STEP which focused include and solutions. a defense reflect market-leading

And our these manufacturer we new for represent an X-figure have customer performance, examples defense injection wins, of EV several molding CNC including ones. key third contractor quarter for Both looking machining. at and a

As we have year operating to Vice teams. of done us environment this taken resources to joined our earlier Bork in the Beaton that have plans. operating Kurt Kurt exists repositioning as growth Operating our confident and we Sales. steps internal Doug today. in current add execute am our place resources respond you know, to talent Chief a and several that to Officer job recently have Doug to the I successfully sales experienced President and Both as great

our This comments leads value. my me shareholder on to approach building to

we structure built goal believe to profitability but that critical a is meaningful and plan. leverage to earnings. flow our free deliver are headed innovate taken direction. company tech sustainable time. over like deliver strong our operations solid a basis the decisive revenue position to and through room capital company go, for to actions generate and to to reduce sustainable optimization Fathom right already invest, I believer Our firm a have deliver We in to is cash expansion the am cost We've our still margin growth

our to Let of to delever structure first lenders capital to and cash and to priority initial our priorities up is me focus. work liquidity. turn my areas top our large improve immediate and My free with shareholders

details to limit offer will this continue on nonessential bit. capital We more expenditures. a Mark in also will

positive our against focus to industrial a My next resources priority new more is development sectors with put those to with business recession-resilient on efforts megatrends. reposition

earlier and reduced operating our overall expenses reduction, better by expenses sales align To we and million order maintenance to our further have we will date, and we've $XX year, In and approximately opportunity terms identify of with redundant to the flow. on continue will we execute initiated plan eliminated expense optimization this facilities.

that a to [indiscernible] our is for can priority capacity and workforce and accommodate maintaining fourth My while business incremental both low- nimble create higher-volume flexible adequate needs.

capitalize on in growth new as improve. to build is business priority position entire to to our final operations conditions A scale throughout opportunities be

during to talented that and excitement In workforce, summary, My industry. on-demand the the in our going company's lead digital Fathom time and inherent combined manufacturing capabilities, with the in excellent pivotal history. superior manufacturing based short optimism large is exists forward the opportunity strengths, I'm relationships excited customer on about and now this opportunity

continue solutions deliver forward grow way. you, meeting to public the and that help service provide will sharing investors in and and We to look customers compete value-added respective them our I outstanding progress efficiently and our to along their markets. our analysts

Now Mark? review I'll the the call financial results. to a Mark turn for of back

Mark Frost

remarks Thanks, Slide provide we begin X, Carey. I'll our my highlights. X where on quarter

representing metals including order with revenue the mixed. margin quarter, performance of the $XX.X CNC. Our prior and was X.X%. softness key precision of the several a delivered third from in and $XX.X In our expectations, million, quarter sheet experienced quarter. $X.X million, Orders in of $XX down We of our we in EBITDA end for were markets million adjusted million, line

we priority Now quarter remains wins uncertain to of key our us. for especially the on business during year-to-date. highlight X, and a this close Staying Slide during some time key third our customers,

vehicle As is less is initiatives well. on performing is of his new Carey that are mentioned, one electric well focusing cyclical market performing markets manufacturing. One or that

client received we as and proven a molding million the resilient During EV manufacturing a injection an to has for additive quarter, offer electric order market. be vehicles the for sustainability that $X.X

The I'd for for the in $XXX,XXX to a generation, one injection another notable On had X machining. CNC additive a $XXX,XXX highlight manufacturing. and contractor we sheet cyclical global wins for metal molding last is less win side, defense in one with like and power for

$X be to recurring million annually As potential the customer contributing time. last quarter, up to mentioned we a this customer has over

Slide now results X. move to on for financial begin I'll on X, which the quarter

the for third the million, which a range within from and our period ago. year was million down in revenue totaled Our guidance $XX.X quarter $XX.X same

our activities and we progress have the impacting our and strengthening continue ramping some in shipments. term, to While had impacting strategies, our our commercial both near orders business up we make headwinds in go-to-market

reducing customers delaying they sales lower ordering as Some shipments customers Other lengthening environment our and more uncertain and stock. which by to orders, out their safety is cycles. are conservatively responding pushing the our are inventory

million was total slightly Our revenue for Precision but million higher or or revenue. quarter down overall by $X.X machining of sequentially, percentage $XX.X of revenue, was product of from XX% a totaled seat the as million CNC revenue. $XX.X follows: XX.X% line metal

with this it our $XX.X drag molding million million $X.X manufacturing year-on-year was or or roughly flat total totaled $X.X sequentially, million of remains decline. XX.X% of business X.X% Additive revenue. the main revenue. Injection was While total of

$X.X a million, total of build representing the With technologies, was of expect launch smallest for our new ancillary center, more our robust X.X% technology And line, product finally, revenue. Evolve. we to pipeline

$X.X margin Turning adjusted representing quarter. adjusted In EBITDA third EBITDA to X, in million, totaled million X, our performance of XX.X% we EBITDA for to $X.X of This XXXX. compares X.X%. X quarter or quarter the a adjusted Slide provide

structure reduce customers our as significant orders lower excess so to positioned due We've to improved through impacted for was cost inventory. we action leverage. operating taken profitability noted, are As work their our

cost quarter, COGS. of approximately the realized $X.X million general administrative the improvement in to to savings million. of when execution The $XX.X bringing X million the approximately compared million we $X.X This savings our of savings of from of included plan. an quarter, $X.X savings cost approximately amount were and second the in the and During $X.X million realized cumulative first optimization continued months

million to bring to responded savings our communicated previously. to and up our additional $X lighter September quarter savings from this order quickly include an million, We $XX.X cost the $XX.X will have This cost initiative in volume expanded million. total

as customer operational Carey to we our on stated, less those markets ensure cyclical align forward, are with Going activities commitments. focus to positive continue will megatrends and our

lower This compensation a last XXX approximately decrease quarter. totaled impact costs For combination, lower and XX% driven quarter reduced business million, SG&A of our year-over-year The our X, with with associated XX% plan headcount. was improvement represents the decrease. a optimization basis decrease by along of the decline a year's and stock-based third point sequential expenses largely $X.X professional from

a stock ago. approximately expenses recurring quarter compared excluding $X.X in decreased X our million to company million $X.X public Now year compensation, to

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

of we in in term. debt to to our we have More XX-Q. available Yesterday, continued are amendment details actions our discussed to credit the agreement the signed our near pursue As past, facility. deleverage an

million XXXX. with debt $XXX.X before $XXX.X debt our of As cash, no maturities and September December total gross net debt, XX, was totaled excluding million

Now cash management. in up our in capital reflecting million totaled by improvement $X.X provided from in quarter quarter $X.X continued X, working operations million, X

improvements we by as capital year-to-date. addition, our In supported plan, optimization working cash million flow well free our $X.X by as improved

year-to-date future in $X.X IT CapEx million systems was our growth. equipment $X.X was for support million. and million purchases approximately X, This quarter $X comprised In investments of to

ERP our we X. our to on progress -- launched last the rolling In out another I program platform continue of systems. we quarter, mentioned soft make and the say, went EDP process EDP we site quarter in are in application, which with As our and ERP should quarter, fully live we

now turning scalability. actions, for X, expense provide expanded we our fourth forecast base the consolidated lowered Slide for position quarter ourselves to savings of and our as footprint cost we XXXX. our our Now We

For of the realized our fourth optimization quarter, from we plan. savings million $X approximately anticipate cost

We of expect plan the million to optimization further $X in recognize balance the of fiscal XXXX.

team to and orders as longer to operational market revenue. of members Currently, our see improves. X will well upgrading and levels. be customer to We X adjusted with come plan convert normalized environment we taking coupled conditions Now times expect with EBITDA remain continued quarter performance. lead optimistic execution the inventories quarter us we improve positions to returned in optimization down The key line to more as our continue revenue

Operator? would questions. for the now turn back I to call like the over operator to

Operator

of [Operator Jim last Ricchiuti Instructions] of our the Needham. question line comes So from

James Ricchiuti

in range more volume I'm pricing? And much a look from How back just begin go margins talk to we and to from And and when is wondering related and realistic gross sequential to like around much that decline of for the before the how guess get some came question specifically business? that, what recover, my might margin? the the to I to improving the about can came of wanted I maybe growth to of commentary profitability. you gross volumes

Mark Frost

the take call. I'll Sure.

So $XX.X revenue million. the our primary million reason dropping from was $XX to

can would about, be talked we that cost like a have, purely where unless cost. our overhead we've you as as talked immediately actions, So in have take fixed. But from acts past, labor Jim, we we've the XX% it fixed considered coming another XX% of

take we And So is labor particularly XX% basically, what resize that's happens what we our indeed unless lose we on announced actions the to force. call.

was issue primary the absorption. So

that hope to gross if get So XXs should But sort we type and $XX taking coming of back now revenue for this and able back the get to towards expectation that this X our be part low actions are to we to of we I'll step XX%, call, we and million, margin. at can a answer hope mid-XX level, of level the can is is back mid-XX we'll expectation $XX that. to your million, quarter levels of our still to even be second is we do back that

does the situation? Jim, on So give color, that better

James Ricchiuti

with It weakness your pockets think the I resiliency Potentially, we're have of signs that. hear with about presence newer do if the existing. some drive is does, resilient to sure Carey, the about or there? even some opportunities the market. to near we you term, you that it's even seeing more expanding business when Mark. both. Yes, weakness, on probably be it of I'm Appreciate really is going maybe markets, more focus growth? focus And wonder, on does. much the generating But EVs, customers I some revenue see these mean, how where you I business, as in think strategy, of

Carey Chen

Jim. Yes,

answered So for I my me. think you question

So all answer above. it is of the C,

our account puck but key what he standpoint, skating and strategic that of Wayne continue maintain it's him mentioned, you from customers. said, cultivate where But So was a new and as Gretzky, will enterprise-level managers development fan wasn't made the existing to we have business very a great to where going. always I'm to

does, there I safe. to of need remain regardless to are economy the people people of economy discussions does, still what think will whatever economy electricity country recessions and loom things attention the the of still as the that So I need think industries medical will some and on, need continue does, whatever

we examples where focus. So shift development our those new are might business

as a with good we we As a trends but far are rebound fluctuate bit that recent for XXXX current particular win, that down as concerned, that up different I EV from be markets and is the were guess sector. our hopeful will

Operator

question comes of Greg next of from Palm the Capital. line Our Craig-Hallum

Greg Palm

what line giving Carey, a the maybe what if your of encountered some thinking maybe high-level follow-up we start can I of wrong wanted just just us to with as review the bit of company a challenges. around the opportunities, Maybe little of went or the strengths, off some that strategy standpoint, anything significant pretty maybe overall of challenges the from of recent can conditions I -- have been the and over you economic But year? maybe uncertain. mind? is recent there most that macro out just top a know sort point is

Carey Chen

Sure.

of I bullish way role business into I the at very So the going look and coming Fathom remain the about still CEO, forward.

As company their and employees one some amazing I've at innovative And amazed That's manufacturing attitude, as be get with their before, I re-acquaintanced believe capabilities. others, to gotten asset. I spirit. just has mentioned to creativity the the and of know key

to enterprise ready the customers next company the have As team we take also high retention management very strong capable do that's mentioned, strong we of and a to collection very a level.

our have macroeconomic since haven't some public. difficulties mentioned, in we've we necessarily As gone been favor that you had

necessarily approach but can focus aren't to focus going instead way that the that my So things the on on control. isn't we to things our

are as either cost about, forward. Mark discussed, to or has, focus more still plan, markets our megatrends I on Jim So as as And with optimization have mentioned, talked are on then million. increased we also positive focused by that we just about going you intend $X recession-resilient which

Greg Palm

it. Got

sense. amendment Makes you Okay. mentioned And know lender's the the from I Mark, perspective.

out? it's any any filed and you amendment will when update that's will Q disclosed the what on on not sense it or entails? I yet. Can in said you the be And give think I be us Q. disclosed know that

Mark Frost

out some give will Yes, Q you afternoon. high me this level. let The be Sure.

of discussed As we amendment actions, quarters, we've to And his remarks, to continued fact. we Carey last the pursue opening have this in couple think and accomplish that mentioned should Fathom. this deleverage

couple major a So elements.

a will lot forward we long-term it think I for think give solution, future a this and first, through we us our think, We us. given support lenders Fathom. appreciate of the of works the flexibility, have

The So of a capital actually guaranteed leverage million from a the our down our resetting a element or structure. various majority or end at pay either other the letter shareholder players of second first quarter the quarter or of $XX commitment liquidity. first is form element and to within largest a of credit including of covenants, is from debt equity

So that element, ability we the significantly business. think, to will accomplish progress our deleveraging

There course, of are and amendment. full some you'll that XX-Q, file, other see we'll in the elements the

that when our able you'll to see file XX-Q be later. we So

So hopefully, amendment. that on Greg, provides enough detail, the

Operator

of line question final of Our Street. Lake from Jacob Stephan the comes

Jacob Stephan

environments maybe noted had to you about for of just than But your weaker just the end the of originally? thought kind some end talk I kind you stronger of markets you want you were focus, can expected solutions.

Mark Frost

Sure.

shot me I'll Let take at that, Carey. -- a

been one has but the business some it semiconductor Jacob, largest our that our our and the side activities. precision So of metal, of particularly hits CNC also hits sheet

one other actually off quarter, and side quarters, specifically we've Medical. imaging in seen last I'd but diagnostic few more actually say, The weakness the first the the well, started of Medical in

some sense business those end our go to they for market this that. have a to talking we largest orders high customers, this Now is seen into And is in reenergize the actually the recently That is the pause as would we Jacob, XXXX. suggest expect level. XX% and

quarter in the the for X order rate and contributed lower particularly that So business. rate to lower shipment

Jacob Stephan

about Medical your that have of for more you applications? And And think you of of focusing device Okay. resilient Medical? Could talk these point. When kind kind one side? of noted about strategy you kind just qualifications the are being more on you maybe on just the you those, pursued markets, around medical the

Mark Frost

Sure.

Jacob. certification medical of X a our have we sites, at So

focused medical. on So continue be we highly to

significant had, have of a understand sticky because all you our we probably that I industry, but certification, pause, your you a as said, if makes it think we -- customers. with I

continue on EV, vehicles continue will we very the good as as focus will and indicated, I here EV the customers focus say would that are to on. And we So relationships particularly to move electric United of stay, a States. Carey lot built significant some with forward. we to We've in

So us, area a to Jacob. be focus be continue for that -- big will

Operator

no Digital great are for you Fathom Have the your Earnings As there Quarter at of this waiting day. to a I'd all time, thank additional joining Conference on us Third like rest Manufacturing Call. XXXX questions

You may now your lines. disconnect

Fathom Digital Manufacturing Corporation - Ordinary Shares (FATH) 14 Nov 232023 Q3 Earnings call transcript