Shapeways Holdings, Inc. (NYSE:SHPW) Q1 2023 Earnings Call Transcript May 15, 2023

Shapeways Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.14 EPS, expectations were $-0.13.

Operator: Good day, ladies and gentlemen and welcome to the Shapeways First Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, May 15, 2023. I would now like to turn the conference over to Nikki Sacks, Investor Relations. Please go ahead.

Nikki Sacks: Greetings and welcome to Shapeways first quarter 2023 earnings call. [Operator Instructions] 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 facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, statements regarding our business strategy, future financial and operating performance, projected financial results for the second quarter of 2023, anticipated time line for achieving profitability, 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 cause 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 a description of the risks and uncertainties associated with our business, please see the company’s SEC filings, including the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2023. The information provided in this conference call speaks only to the broadcast today, March 15, 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 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 at 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 first quarter 2023 financial results and progress on our key initiatives and strategic growth plan. I will begin by providing a business update and Alberto Recchi, our CFO, will then discuss our first quarter financial results and outlook for the second quarter. In the first quarter, we delivered 8% revenue growth, above the high end of our expectations. We are starting to see the results of our investments and focused strategic plan centered on our software SaaS sales and enterprise manufacturing solutions which we believe is positioning us to achieve our objective of reaching profitability in the second half of 2024. We are pleased with our early momentum as we build on Shapeways legacy additive manufacturing business and proprietary software to accelerate growth with a path to profitability.

In particular, we are achieving traction with our software tools and services and, in the first quarter, saw momentum continuing to accelerate customer acquisition. As a reminder, our purpose-built proprietary software is foundational to Shapeways. It digitizes the end-to-end manufacturing process from quote through delivery. We have commercialized this software under the brand OTTO for auto manufacturers to digitize their business. We believe it is a valuable tool for global manufacturers, particularly small and medium-sized traditional manufacturers that are not able to invest the capital and time necessary to digitize their processes, thereby allowing them to offer improved customer accessibility, increased productivity and expanded manufacturing capabilities.

We are very encouraged by the reception for OTTO, with the first quarter SaaS sales bookings growing more than 50% over the fourth quarter which will be recognized as revenue over the next 12 months. Based on our pipeline, we anticipate similar sequential growth in the second quarter and further acceleration throughout the year on a path to meaningfully increase the revenue contribution from high-margin software sales. We have further enhanced our software offering with the integration of capabilities and features we acquired through the acquisition of MFG and MakerOS. With our acquisition of MFG last year, we accelerated our product road map. And in the first quarter, we launched our consolidated ordering platform across all platforms. MFG historically focused on connecting small and medium-sized manufacturers with custom part buyers through its global manufacturing database and request for quote process.

The new features expand customers’ capabilities to not only facilitate relationships with prospective new opportunities but also win more of these opportunities and manage them through the manufacturing process end to end. The rollout of new features and functionality led to a record-breaking Q1 for customer acquisition and we saw our highest ever engagement for both manufacturers and buyers on the platform. We believe that this traction is an early indication of our ability to drive increased customer acquisition, retention and lifetime value for our software product offerings. Our other key growth area is enterprise manufacturing which is also showing steady progress. We provide end-to-end manufacturing services to a broad range of customers, from small manufacturers, who cannot invest in expensive technologies to large enterprises seeking quality and efficient solutions to specific needs.

Over the past year, we have optimized our go-to-market approach and our sales force to focus on these high-value opportunities. We are seeing success, particularly in our target industries which include industrial, medical, automotive and aerospace. As an example, in the first quarter, we signed a multiyear agreement with a customer in the medical space, who is utilizing Shapeways to produce highly customized parts that are a critical part of the presurgical planning and additional applications are already being rolled out for the second half of the year. We also signed a multiyear, multimillion dollar contract with an automotive customer, supporting their injection molding needs with part delivery slated to start next year. These contracts illustrate Shapeways’ broad value proposition to manufacturers, including those seeking highly customized low-volume part produced via additive manufacturing to those seeking more efficiency in their traditional manufacturing supply chain as they scale.

Looking forward, we have a strong and growing pipeline of opportunities. With regard to our legacy e-commerce business, while it remains a competitive market, we are pleased to be seeing continued stabilization. I am confident we have a plan to achieve profitable growth as we believe we provide a compelling solution in an environment increasingly focused on mass customization and speed of part delivery. We are seeing strong traction in terms of demand and revenue growth. At this time, we have also rationalized our cost structure. We have begun executing a cost reduction plan to further reduce operating expense and optimize gross margin and expect to see the positive impact of these savings beginning in the second half of the year. As an example, we recently finalized our factory consolidation effort between Long Island City, New York and Livonia, Michigan.

While our first half results are impacted by some duplicated cost structures, the Livonia facility is now fully launched and progressing towards stable operations and should benefit our gross margin starting at the end of the second quarter. Furthermore, industry tailwinds support our growth as manufacturers are increasingly seeking flexible on-demand manufacturing services. Taken together, the traction in our software sales booking, the growing demand from enterprise customers and the stabilization of our legacy e-commerce business, combined with the cost measures we are taking, we have confidence in our positive trajectory and the path towards profitability. I would like to thank the entire Shapeways team, our customers, our investors and all of our stakeholders for their ongoing support.

Alberto will now discuss our financial results in more detail.

Alberto Recchi: Thanks, Greg. I’ll provide a recap of our first quarter 2023 performance, give an update on our balance sheet position and provide guidance for the second quarter. In the first quarter, revenue increased 8% to $8.2 million compared to $7.6 million in the prior year, above our expectations and guidance. The increase in revenue was primarily attributable to positive contributions from our software offering, scaling of our additive manufacturing capabilities and traditional manufacturing services. Our gross margin in the first quarter were 40% compared to 45% in the first quarter of 2022. We continue to deliver solid gross margins and the year-over-year change was primarily due to inflationary pressures, the continued ramping of recently deployed new technologies and a more varied product mix.

Additionally, in the first quarter, we had some duplicated operations as we finalized our factory consolidation from Long Island City to Livonia, Michigan. Our Livonia facility is now fully launched. We anticipate realizing margin expansion over time as we see more contribution from higher-margin software sales as well as the effects of our cost optimization plan. First quarter adjusted EBITDA was a loss of $6.3 million compared to a loss of $4.3 million in the first quarter of last year. SG&A expenses for the first quarter were $8.5 million compared to $6.1 million in the prior year, primarily reflecting increases to personnel costs, the 2022 acquisition, increased professional fees as well as the final expenses relating to the manufacturing facility move.

Turning to our balance sheet. As of March 31, 2023, our cash, cash equivalents and marketable securities totaled $32.5 million. During the quarter, we deployed approximately $8 million in cash which is above our normalized level of cash burn due to expenses related to the move-out of the Long Island City facility, payments related to the 2022 acquisition and severance costs. We believe the continued strength of 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. Looking ahead for the second quarter of 2023, we anticipate revenues to be in the range of $8.3 million to $8.8 million. We remain focused on those areas that we believe offer the greatest opportunity, including enterprise manufacturing solutions, commercializing our software and anticipate an accelerated ramp-up in these areas as the year progresses.

Finally, I would like to comment on our pending reverse stock split. There will be a vote at the upcoming annual meeting of the stockholders in June. After which, if approved, a final split ratio will be determined by the Board of Directors. With this, we’ve completed our prepared remarks and we’ll now open the call for questions. Operator?

Q&A Session

Operator: [Operator Instructions] First question comes from Greg Palm of Craig-Hallum Capital Group.

Operator: [Operator Instructions] The next question comes from Jim Ricchiuti of Needham & Company.

Operator: There are no further questions at this time. I will turn the call over to Greg Kress for closing remarks.

Greg Kress: Well, first off, I just want to thank everyone for joining us today on behalf of myself and the entire Shapeways team. We appreciate your interest in Shapeways and learning more about our story. We look forward to providing you additional updates in the coming months.

Operator: Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.