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spk02: Thank you for your patience. The Fathom Digital Manufacturing Conference call will begin in approximately one minute. Hello and welcome everyone to the Fathom Digital Manufacturing 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. I would now like to turn the call over to Michael Simonyi, Fathom's Director of Investor Relations. Michael, please go ahead.
spk05: Thank you, Lauren, and good morning, everyone. Welcome to Fathom's fourth quarter and full year 2021 earnings conference call. Before we begin, I'd like to mention that today's presentation and earnings press release are available on Fathom's website, at fathommfg.com, where you can also find links to our SEC filings along with other important information about our company. Turning to slide two, we note that this presentation contains forward-looking statements within the meaning of the Securities Exchange Act. We encourage you to read the risk factors contained in our filings with the SEC, become aware of the risks and uncertainties in our business, and understand that forward-looking statements are only estimates of future performance and should be taken as such. The forward-looking statements represent management's expectations only as of today, and the company disclaims any obligation to update them. On slide three, today's presentation includes non-GAAP financial measures to describe the way in which we manage and operate our business. We reconcile these measures to the most comparable GAAP measure, and you are encouraged to examine those reconciliations, which are found in the appendix to both the press release and the slide presentation. We also note Fathom has not yet completed its reporting process for the three and 12 months ended December 31st, 2021. Full financial statements for these periods will be filed on or before March 31st, 2022. Our preliminary unaudited results are based on Fathom's reasonable estimates and the information available at this time. With us today are Ryan Martin, Fathom's Chief Executive Officer, and Mark Frost, the Chief Financial Officer. I will now hand it over to Ryan.
spk04: Thanks, Michael, and welcome everyone to Fathom's first earnings conference call since becoming a publicly traded company in December. We're excited to be here today and have a full agenda as outlined on slide four. I will begin by providing a brief overview of Fathom. I will then provide a business update before turning the call over to Mark to discuss our results for the fourth quarter and full year 2021. Mark will also provide an overview on our strong capital position and outline our financial guidance for 2022. I will then provide some closing remarks before we open the call up for questions. Turning to slide five, Fathom's mission is to accelerate manufacturing innovation for the most product-driven companies in the world. We are an industry leader in on-demand digital manufacturing. with over 35 years of experience in providing enterprise level customers with integrated solutions across both additive manufacturing and advanced traditional manufacturing technologies. We do this by leveraging our 12 domestic manufacturing facilities as well as our domestic and international supply chain partners. We enable our customers to accelerate their product development and production manufacturing by giving them access to more than 25 different manufacturing processes. Fathom's comprehensive capabilities provide corporate customers with the ability to capitalize on their increasing adoption of industry 4.0 practices, including the digitization of manufacturing, further adoption of additive manufacturing, the reshoring of company supply chains. These evolving macro trends are shortening product life cycles, driven not only by higher consumer demands, but also by the advanced technologies that allow new products to be developed faster than ever before. At the same time, companies are taking steps to ensure their supply chains are more agile and resilient, giving the numerous constraints that have extended beyond the ongoing COVID pandemic. Whether it's support congestion challenges, severe weather disruptions, labor shortages, companies have had to rethink their supply chains, and COVID has only accelerated this transformation. And Fathom is uniquely poised to take full advantage of these secular tailwinds. We believe that we are the only at-scale end-to-end solution within this highly fragmented $25 billion market serving the low to mid-volume manufacturing. And we have uniquely positioned Fathom to meet the needs of some of the largest and most innovative product-driven companies in the world today. With our broad on-demand platform, we provide turnaround times in as little as 24 hours, combined with a unified digital approach, dedicated customer-facing engineers, design support and material expertise, our customers are able to iterate more efficiently in their development pipeline and ultimately get their products to market faster because of us. This helps the companies we work with to gain a competitive advantage over their competition as we become an extension of their R&D efforts and manufacturing teams. The application of our breadth of offering spans multiple industries, As we are proud to say, we work with many of the top 10 Fortune 500 tier customers within the aerospace, automotive, consumer, industrial, medical, and technology sectors. And as Mark will discuss in more detail later in the call, Fathom has an attractive financial profile with a history of profitability and cash generation. This is yet another core differentiator core differentiation of our company. We also have a leadership team with decades of combined experience and a track record of scaling high growth companies along with a stellar board comprised of a diverse group of business leaders with a track record of advising and driving innovation for some of the world's leading companies. Moving on to slide six, we will illustrate how Fathom is focused uniquely on the high margin rapid prototyping, and low to mid-volume production. We work with enterprise customers to help them develop their initial product, transforming their digital file into a physical product, utilizing our deep expertise in additive manufacturing, CNC machining, injection molding, and precision sheet metal fabrication and many more applications as well. Fathom is a service business and our service is manufacturing. Although you won't see a product in the market with Fathom's name on it, you are still interacting with hundreds if not thousands of products that we were directly impacted by our company. Whether it's the smartphone waking you up in the morning or the machine you maybe got your coffee from, the food that's in your fridge or the shoes you put on your feet, the car you drive or the plane you board, we are impacting all of those products and so many more. As I mentioned earlier in the call, We offer more than 25 different manufacturing processes across our 12 domestic manufacturing facilities. This allows us to produce anywhere from one to tens of thousands, and in some cases, hundreds of thousands of parts for certain customers. We're not producing the same part over and over again in a commoditized fashion. Instead, we focus on complex orders with high mix and low volume, which ultimately helps our customers accelerate the pace of their manufacturing innovation in a way that we believe no other company can replicate. And we do this at scale. Now turning to slide seven, we outline Fathom's differentiated strategy. Enterprise customers choose Fathom due to our focus on speed, adaptive technical responsiveness, flexible problem solving, our ability to handle quality, full service support, and comprehensive capabilities as I've outlined. We pull all of this together with a proprietary software suite that allows our customers to interact with us regarding quoting, project management, design, all the way through to production, acting as a key enablement tool for us. At Fathom, we serve at the inflection between traditional manufacturing and additive manufacturing to solve the complex challenges for some of the world's most product-driven companies, helping them to iterate faster and often shortening their development cycles from months down to days. We are a pioneer in the on-demand digital manufacturing space and an early adopter of both plastic and metal additive manufacturing. Importantly, we utilize our over three decades of manufacturing expertise and our technology agnostic approach to apply the best manufacturing process to deliver the most effective solution that achieves the desired outcome for our customer. This provides a differentiated customer experience during the process. We continue to adopt the latest technologies and materials that take hold in the evolving digital manufacturing market so that our customers can leverage them in a more efficient manner as opposed to trying to bring them all in-house. This allows our customers to consolidate their supply chain by sourcing through a unified supplier to meet their various needs. Our unique ability to essentially act as an ETF for the digital manufacturing market combined with our in-depth knowledge and insights into future trends, allows Fathom to serve as a trusted advisor for our customers. We have become an entrenched partner to some of the world's most innovative Fortune 500 companies, some of which are noted on the bottom of this slide. We have partnered with some of our top customers for over 15 years, working with them across multiple sites, and in many cases, we're developing hundreds of contacts within each of these companies providing highly reoccurring revenue streams for our business. On slide eight, we highlight some of our key business wins during the fourth quarter and year to date. The acceleration of our customer engagement is directly attributed to the ongoing execution of our strategy to both increase penetration among our existing customer base and expand through new enterprise customer relationships. Once we establish an existing relationship, we seek to broaden the number of customer contacts for each account using our automated software solution and commercial operations. This land and expand model has been very effective for Fathom, allowing us to leverage initial customer acquisition costs within these individual accounts and continue to deliver profitable growth. As you can see on this slide, this includes several multi-million dollar orders We continue to have success in expanding our share of wallet with blue chip customers and adding new corporate accounts as well. Also of note on this slide is the diversity of the end markets, which are largely high growth sectors across medical, electric vehicles, robotics, semiconductors, and others. We have an intense focus on accelerating the time to market for these customers and maintaining a more local and more agile supply chain for them. Turning now to slide nine, we provide our financial highlights for the fourth quarter. Fathom's unique go-to-market strategy, which combines our broad set of manufacturing capabilities and advanced software and deep technical expertise, allows us to adapt our manufacturing processes to our customers' specific needs. They do not need to sacrifice their design intent to match our capabilities. This has led to robust customer engagement that we have translated into positive financial results for our company. Our total orders in fourth quarter increased year over year by approximately 26%, to a record $49.1 million, further expanding our backlog of new business and increasing our visibility into future revenues. While Mark will review our financials in more detail, our reported revenue for the quarter totaled $44.3 million for a year-over-year increase of 133%, of which $6.9 million was organic and $18.3 million was through acquisition-related activity. We expect our record orders growth in Q4 to contribute to revenue throughout 2022. as shipments for new orders often extend beyond a quarter or two, depending on the size and order type. Also in Q4, we continue to deliver profitable growth with reported adjusted EBITDA increasing to 10.5 million, representing a margin of 23.8%. We believe our solid performance in Q4 reflects the strength of Fathom's unique business model and reinforces the strong fundamentals of our industry. As we continue to build upon our positive momentum, we remain focused on achieving greater market share for our additive and traditional manufacturing technologies among enterprise customers and continue to solve complex manufacturing challenges that exist throughout our large and fast-growing industry. With that, I will now turn the call over to Mark.
spk08: Thank you, Ryan, and good morning, everyone. I will begin my remarks of our preliminary unauded results on slide 10. Now for the fourth quarter, our reported revenue increased 133% to 44.3 million due to an increase in the volume of customers served primarily through revenue from new acquisitions. In 2021, we completed five acquisitions focused mainly on CNC machining. Now on an organic basis, which excludes the impact of acquisitions, our revenue climbed 18.4% in the fourth quarter, as we continue to take advantage of the strong demand for our comprehensive services and execute it on our growth strategy. During the quarter, we experienced an uptick in shipments for injection molding and precision sheet metal, primarily based on cross-selling activities from acquisitions completed in 2020. Now, looking at our quarter four reported revenue by product line, it was as follows. Additive manufacturing was up 4.5%, to 4.5 million, or 10.2% of total revenue. Injection molding increased 84% to 9 million, or 20.4% of total revenue. CNC machining increased 5.7x to 14.2 million, or 32% of total revenue. Precision sheet metal was up about 138% to 13.9 million, or 31.3% total revenue. And ancillary technologies increased 75% to 2.7 million or 6.2 percent of total revenue. Now, for the full year 2021, reported revenue increased approximately 149 percent to 152.2 million. On an organic basis, our revenue for the full year increased approximately 9 percent to 162.6 million, which surpassed the high end of our previously stated guidance range that we issued in early January. Now, on slide 11, We provide our adjusted EBITDA performance for the fourth quarter and full year 2021. For the fourth quarter, our reported adjusted EBITDA of $10.5 million was up significantly compared to $1.5 million in the prior year period. Our adjusted EBITDA margin in the quarter was 23.8%, representing a year-over-year improvement of approximately 16 percentage points. During the fourth quarter, we benefited from higher volume leverage due to the strong demand for our quick turn manufacturing services, as we mentioned earlier. This notable performance was partially offset by our sales mix stemming from the 2021 acquisitions in the relatively lower margin CNC machining product line. SG&A increased 41% to $12.3 million in quarter four, primarily due to higher expenses from acquisitions but also included expenses related to building our public company infrastructure and fully integrating the operations from our recent acquisitions, including IT standardization and ERP implementation. We expect further investments in these areas in 2022. Now, additionally, we continue to mitigate the impact of rising inflation through the nature of our on-demand platform and related customer pass-through agreements while actively managing our own supply base to help offset higher material costs. For the full year 2021, reported adjusted EBITDA increased threefold to $34.4 million for a margin of 22.6%, up 430 basis points from 2020. Now, on slide 12, we highlight our liquidity and capital resources. As mentioned earlier, we commenced trading on the New York Stock Exchange effective December 27th. The net proceeds from this transaction further enhanced our financial flexibility as we enter the year with available liquidity of 43.1 million. This includes 20.1 million in cash and cash equivalents and approximately 23 million of undrawn commitments under our new 50 million revolving credit facility, which we entered into upon closing our business combination. Our new credit facility also includes a five-year $125 million term loan which was used to refinance the more expensive debt we had as a private company. We currently expect our overall cost of debt to average approximately 5% for both the revolver and the term loan, although this rate could fluctuate based on our net leverage ratio at the end of each quarter and potential changes in LIBOR from federal rate actions. Now as of December 31st, our total gross debt, excluding cash, was $152 million, and our net debt totaled $132 million approximately. Now, our ability to service debt is predicated upon our strong adjusted EBITDA performance, as we mentioned earlier. In terms of leverage, our net debt to reported adjusted EBITDA was 3.8x as of December 31st. Now, we also issued two classes of common stock upon going public under our umbrella partnership C-Corp structure or UPC structure. There are approximately 51.6 million in conventional Class A common shares issued and outstanding with one vote per share in economic rights. These shares are listed on the New York Stock Exchange under the ticker FAF. In addition, there are approximately 84.3 million Class B common shares with one vote per share but no economic rights. Based on the combination of our Class A and Class B shares, Fathom's market cap was approximately $1.24 billion. as of March 1st. Now going forward, we believe Fathom's financial flexibility combined with our positive financial results in cash generation supports our ability to create long-term value for shareholders. Now turning to slide 13, we provide our current forecast for the full year 2022. Now we expect to accelerate Fathom's financial performance to take advantage of future growth opportunities and believe we will continue to benefit from positive tailwinds in our industry. Specifically, we anticipate continued acceleration in plastic and metal additive manufacturing, as well as injection molding technologies, along with further gains in CNC machining and precision sheet metal. Now, according to industry reports, the overall digital manufacturing market is expected to grow in the high single digits to low double digits, and we intend to outperform this growth as more companies look to smart technologies like additive manufacturing to help them drive product innovation. Now, earlier on the call, Ryan discussed our go-to-market strategy and our ongoing success, increasing share of wallet from our existing customer base and expanding through new corporate accounts. As part of our land and expand model, we plan to realize incremental synergies from past M&A activities by capitalizing on more cross-selling opportunities now that we have fully integrated our commercial operations from our most recent acquisitions in April 2021. While we continue to grow through our past acquisitions, we will also take active measures to ensure we maintain an efficient cost structure. Now, additionally, we intend to further strengthen our broad platform by introducing new technologies, including our Evolve additive solution. As we have discussed in the past, This step technology, or selective thermoplastic electrophotographic process, is a disruptive advancement in additive manufacturing, enabling the production of parts within hours or days without compromising quality, throughput, scalability, or cost, providing a significant advantage over the typical multi-month lead time for traditional injection molded tools and parts. We expect to launch this technology throughout North America under our exclusive commercial agreement by the end of the second quarter. Now currently, we anticipate full year 2022 revenue to range between 182 and 192 million. This would represent an increase of approximately 23% at the midpoint on a reported basis, or approximately 15% organic, supporting the industry outgrowth I mentioned earlier. Now based on current order flow, backlog, and ramp up of our sales and marketing activities, we expect to build steady momentum throughout the course of the year with 30% to 40% growth in quarter one on a base of $30.4 million. Now, quarter one does tend to be normally our lowest absolute dollar revenue quarter, reflecting customer and commercial behaviors. Now, turning to adjusted EBITDA in 2022, we expect it to range between $40 and $45 million with an implied margin of 22% to 23.4%. consistent with our focus on driving profitable growth. Our adjusted EBITDA performance is also expected to build during the year, but with flat adjusted EBITDA expected in the first quarter on a base of $7.8 million, we are anticipating a higher percentage of our public company costs to be incurred in the first quarter. Now, our CapEx budget is expected to total approximately 6% of annual revenue, the majority of which is focused on growth initiatives as we continue to invest in the long-term health of our business. We will continue to track global events, including the ongoing global COVID pandemic, geopolitical factors, and industry trends, and provide updates to our annual forecasts on a quarterly basis. Now, finally, it is important to note our guidance for the year does not consider the impact of any new potential acquisitions in 2022. We continue to explore new acquisition opportunities aimed at accelerating our growth strategy in a creative manner. Fathom has built a proven track record in identifying, acquiring, integrating, and growing acquisitions, and we remain excited by our inorganic growth prospects, which will complement our ongoing organic growth initiatives. Now, since going public, we have passed on several acquisition opportunities that did not meet our strict criteria, as we are committed to maintaining our disciplined approach to M&A. Now, with that, I will turn the call back to Ryan.
spk04: Ryan? Thank you, Mark. I will provide some closing comments on slide 14 now. 2021 was a monumental year in Fathom's longstanding history. We listed our shares on the New York Stock Exchange and delivered record financial results while also setting the stage for enhanced future performance. I would like to thank the entire Fathom team for all of their efforts upon embarking on this new and exciting chapter as a publicly traded company. Our highly talented workforce is truly the backbone of everything we do, which enables some of the largest and most innovative companies in the world to create better products that impact all of our lives on a daily basis. I'm proud of their many accomplishments to date, and I am incredibly confident the best is yet to come for our company. We are pleased by our strong organic revenue growth in the fourth quarter of 18.4%, which demonstrates the continued demand for our quick-turn manufacturing services and increasing share of demand gains. We successfully translated record order volumes of $49.1 million into significant top-line growth while expanding our backlog of new business. We also drew upon our scalable technology agnostic platform to generate adjusted EBITDA totaling 10.5 million in the quarter for a solid margin of 23.8%. Fathom's broad on-demand capabilities from rapid prototyping to low to mid-volume production provides timely, value-added solutions with quality assurances for global product-driven companies so they can iterate faster and ultimately reduce their time to market. With the integration of our more than 25 different quick-turn manufacturing processes across our 12 centers of excellence, our significant technical expertise, our unified suite of software, and our comprehensive support system, Fathom provides a differentiated customer experience while creating a more agile and responsive supply chain for our customers. We remain focused on further strengthening the breadth and scalability of our leading offerings and maintaining Fathom's role as an active consolidator in this large, highly fragmented industry. By leveraging our proven business model and considerable financial strength, including ample liquidity of over $43 million, We expect to build upon our solid performance in 2021 and drive further growth in 2022 and beyond for the benefit of our shareholders. This concludes our prepared remarks and we'll now open the call for questions.
spk02: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from the line of Greg Palm from Craig Hallam Capital Group. Greg, please go ahead.
spk01: Yeah, thanks. Morning, everyone, and congrats on the good results here first quarter out of the gates. Thanks, Greg. Thanks, Greg. I'm curious, you've got a couple months as a public company now, so I guess how are you viewing being public as a means to grow awareness for the brand, for all your capabilities? Can you give us just some sense on maybe what you're seeing in terms of new customers?
spk04: Yes, definitely we've been able to continue to increase the awareness. Obviously, we've been out there in the market more I think we've created a real buzz around the Fathom digital manufacturing brand, and we continue to see they work from the commercial side of things as we're able to open up more doors. As we've talked about, it's an incredibly large, fast-growing market, so there's a lot of opportunities. We do a great job with the customers we serve today, but there's an incredible white space for us to continue to grow, continue to build more awareness around our brand, and that's where we're really focusing our commercial efforts on that. And so we continue to see momentum on that side of things, Greg.
spk01: And just in terms of the growth outlook, are you seeing more opportunities within that new customer addition, or are you seeing more opportunities to maybe increase wallet spend with the existing accounts? I know it's a mix of both, but trying to get a sense for maybe what should be the biggest driver in your eyes.
spk04: Yeah, it continues to be a mix of both. We've really focused on the land and expand model that we've had in the past, and so we see a tremendous amount of opportunities, especially when we're working with a lot of these large Fortune 500 companies. They're spending hundreds of millions, in some cases billions of dollars in R&D and new product development, so there's a lot of opportunities for us to go a lot deeper within our existing customer base, but we're continuing to add resources from the commercial perspective and in other areas that we've been underserved in the past. And so we're adding a lot of new names and new corporate customers that we think have a lot of growth opportunity for us in the future. Really looking for, you know, lookalike customers where we've had success in the past and finding, you know, other players in that market where we can, that we can solve the same complex manufacturing challenges that they have as well, Greg.
spk01: Yeah. Okay, great. And then, you know, I guess last one, just trying to figure out what the, What kind of priorities are biggest priorities for 2022? You've certainly got a lot of growth, organic growth potential, but you've also talked about M&A as being a lever as well. So, you know, what's your sense in sort of the combination of both and as it relates to M&A? Can you give us some sense of what the pipeline looks like and maybe also, more importantly,
spk04: any change to you know valuation multiples you know just given what's happened here in the in the last couple months in the public markets so we we continue to see a lot of opportunities uh in the m a side of things for us it's about providing a differentiated customer experience and you know as we look at at a potential acquisition opportunities it's looking and saying, do they add a new capability for us? Do they expand on existing capabilities? Does it add a new geography? Does it add more customers that we can cross-sell the broader FATIM manufacturing platform to? And so we continue to be very focused on that. We think there's a lot of opportunities. We obviously, as we talked about, have a proven track record of identifying, acquiring, integrating, and growing acquisitions. So we anticipate continuing to be very focused on that. And we continue to be able to do it at prices that are accretive to our valuation.
spk01: Okay. I'll leave it there. Best of luck going forward. Thanks.
spk04: Thanks, Greg.
spk02: Our next question comes from the line of Jim Ricciotti from Neatown. Jim, please go ahead.
spk06: Hi, thank you. Good morning. I wanted to go back to one of the slides in your deck, slide eight. And the question really relates to what you're seeing in the business in terms of where you're seeing the most activity, the most growth by end market. So I wonder if you might be able to provide some flavor there. as to what you saw in Q4 in medical, semi, some of the other industrial markets. Any sense on how that played out?
spk04: Yeah, I think part of our value proposition is really the diversification of our customer base and being focused on some of the fastest growing end markets. We've done a lot of work, as you mentioned, in the semiconductor space, having met with a lot of companies in that space You know, one of the things that's always resonated with me in talking to them is one of their challenges when I met with some of their executives in the fourth quarter was they need to figure out how to go 50% faster than they're going today and then figure out how to go 100% faster after they figure that out. So they need partners like Fathom. that can help them accelerate their manufacturing, that can be more responsive. And so we're really tied to those industries. We continue to see the medical industry doing more reshoring, which we're positioned incredibly well for that. And so our focus continues to be on these high growth, highly innovative companies that have had, that are looking for supply chain partners that can be more responsive, that can be more on demand, and that can be more local. And those are the areas, whether it's the healthcare industry or EV is an area that we continue to see investment going, where our capabilities line up really well, the semiconductor industry. And so I would say the combination of those are all areas that we're continuing to see quite a bit of growth, and we're really positioned really well with our customer base to continue to see continued growth in 2022 on that, Jim.
spk06: So separating acquisition activity, fair to say the – strongest organic growth were in these markets that you just highlighted?
spk08: Yeah, Jim, it is consistent with what Ryan's talked about. Now, we'll crisp these numbers when we file our 10K, but we've shared before that medical, technology, industrial are some of our highest contributions in end markets. But we're seeing consistent results as we've been growing our commercial efforts and selling.
spk06: And just thanks, by the way, for the additional color that you provided on Q1. Wondering if you're seeing any change in business trends or activity as it relates to, you know, we're a little over two months or so into the quarter. versus Q4?
spk04: Yeah, I mean, as Mark mentioned in our earlier remarks, you know, Q1 typically is our, you know, from a revenue perspective and from commercial perspective is normally our slowest quarter. However, we're seeing, you know, continued pickup. We expect to see growth in Q1 and continue to build on the momentum that we had in Q4 of last year. So normally, as a lot of the companies we work with, they're getting their new budgets and they're rolling out in the January time period. And so there's a little bit of seasonality typically to Q1, and then we build momentum throughout the year is normally how we see it.
spk06: And the last question for me is just, you reference cross-selling, and that's clearly a focus as you integrate these acquisitions and you provide more cross-selling across the platform. I, as you think about that opportunity is, um, how do you see that playing out over the course of 22?
spk04: Yeah, we, we think this is, you know, from an organic growth perspective, Jim, this is probably our biggest opportunity. I mean, you know, if you look at the, uh, you know, the example on page eight and the semiconductor space, this is a, um, you know, a relationship that we got through an acquisition that we did where we were doing. a relatively good amount of CNC machining business for them, but they had deep needs in sheet metal fabrication, 3D printing. As we were able to introduce them to the broader set of capabilities that exist within the Fathom manufacturing platform, we saw almost immediate growth in the amount of orders and revenue that we were doing with them. And so we've got multitude of examples of that within our customers as we introduce them to the broader Fathom manufacturing platform and our capabilities You know, what we're hearing from these large enterprise customers is they have a lot of challenges in their supply chains. They're looking to unify their suppliers, do less, have less suppliers, and be able to do more with them and be able to serve them across that. And so that's an incredible growth opportunity for us. And that's why we focus on the large enterprise customers because we know they have complex manufacturing needs. They have a large spend and our opportunity to capture a larger share of wallets. is really a low-hanging fruit for us and something that we're incredibly focused on, Jim.
spk08: Yeah, and just building on that, Jim, a key part of our success, and both Ryan and I talked about it, is the first step in any of our acquisition process when we integrate is focusing on the commercial integration. And that allows us, now it takes a little while usually, and we saw a little bit of that in 21 because we had a whole bunch of acquisitions, But once we have them fully integrated on our commercial team, as Ryan talked about, we start seeing all the opportunities, and that usually drives outsized growth as we move forward. And that's exactly what we started to see in fourth quarter.
spk06: Got it. Thanks very much, and congrats on the quarter.
spk04: Thanks, Jim. Thanks, Jim.
spk02: As a reminder, to ask any questions, please press star followed by one on your telephone keypad. Our next question comes from Noel Ditts from Stiefel. Noel, please go ahead.
spk03: Hi, guys. Good morning. And thanks for taking my question. Good morning, Noel. I was hoping that you could chat a little bit more. Hey, good morning. I was hoping you could chat a little bit more about gross margin expectations. I think there are some factors that are kind of holding back gross margins a bit in 2022. So could you speak to sort of how you're thinking about those margins progressing through the year and some of the changes we might see as we head into 2023. Thank you.
spk08: Yeah, sure, Noelle. Good question. So 21 was impacted by some factors that we think we're going to address. We are actually already addressing in 2022. One item just hit off the start. We did have some purchase accounting implications in 21, so right off the bat, about a 1% impact will reverse and improve our gross margins from 21. The other key element is our whole operational strategy of moving to multiple shifts at sites. Secondly, we have stood up now a global supply chain organization where in 21, supply chain was decentralized, so we did take Some material impacts, although we were able to pass along most of it, we did take some impacts in 21 in our gross margins. And then the third element we actually had is, you know, your classical operational activities of Kaizen. We actually had our first Kaizen event this week at one of our sites. So our expectations is to improve from what you saw in quarter one, which was 41%. And then if you add the purchase accounting, it's around 42%. So our view is we will push above that as we go through 2022. And then as we further grow the business into the later years, our expectation is to move the gross margin up further because of some of the absorption benefits we'll see at all the sites.
spk03: Okay. Very helpful. And then second, just given what you're seeing in terms of order trends and general traction, Curious if you could speak a little bit on how you're thinking about growth across each of the manufacturing technologies for 22 and if there's any change to your longer-term expectations that you previously communicated.
spk08: Yeah. So, Noelle, you know, we don't guide clearly by technologies. We're guiding overall technologies. um you know the challenge is you can have lumpiness on an individual technology basis so we we don't plan to provide that level of detail what we can say is we continue to have and i talked a little bit and so did ryan um strong faith in additive injection molding that we should see more outsized growth in those technologies as we move forward but Across all our platforms, we're expecting pretty strong growth. I don't know if you want to add anything, Ryan.
spk04: Yeah, and the only other thing that I would add to it is, as Mark said, we really look at it in aggregate. And the reason we do that is because we believe one of our key differentiations is really our technology agnostic approach. And so it's understanding with these large enterprise customers, what's the solution, what's the outcome that they're looking to achieve, and then providing that best solution for them, whether it's additive or CNC machining or sheet metal or a combination of all of those. And ultimately, we believe that's what leads to our industry-leading margins that we're able to generate because of our ability to pull all these different technologies together and ultimately drive a solution focus for the customer.
spk03: Okay. Thank you.
spk02: Our final question comes from Troy Jensen from Lake Street Capital. Troy, please go ahead.
spk07: Hey, gentlemen, congrats on the great results. Maybe a quick start question for Ryan here. Can you just talk about capacity right now and kind of where you are? Any thoughts on needing additional investments to kind of kickstart some of these initiatives?
spk04: Yeah, well, good morning to you, Troy, and thank you for that. As Mark talked about, we're continuing to invest in next-generation additive equipment as well as advanced manufacturing technologies Many of our sites were running either a single shift or a second shift, so we have opportunities as we continue to drive the operational performance of the business to build more capacity in the existing operations that we have through multiple shifts, as well as we have robust domestic and international supply chain partnerships as well. And so really we look at that as, you know, we have quite a bit of capacity to continue to grow. We're going to continue to make investments in next-generation technology. And so we feel really good about our position to be able to continue to grow organically and execute on the numbers that we outline for the guidance for the year.
spk07: All right, perfect. Sounds good. And how about just digital conversion thoughts? Previously you guys have given us data about – how you interact with customers or how they're placing orders in your systems?
spk04: Yeah. So, you know, as we mentioned, you know, earlier, we had really strong orders growth in Q4. You know, the digital piece of things is obviously a component of that. So we continue to see, you know, growth on the digital side of things. You know, as we've talked about, You know, we really believe we have a differentiated solution on the injection molding with the world's only 30-second injection molding quoting tool, as well as the smart quote tool that we use on that side of things. And so, we really view the digital side as an enablement platform to the overall piece. You know, with our enterprise customers, we see opportunities. You know, in some cases, they want to work through a digital platform. Other cases, they want to you know, interact directly with our engineering, our customer-facing engineering support that we provide. And so it's really about providing that solution. And the digital side of things is a key piece that also is continuing to drive the record orders growth that we saw in the fourth quarter. And hopefully we can plan to continue to build momentum on that into 2022. Troy.
spk07: All right. Perfect. Nicely done. Keep up the good work.
spk08: Thanks, Troy. Thanks, Troy.
spk02: That is the end of the Q&A session today, and this concludes today's call, so thank you for joining. You may now disconnect your lines.
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