Fathom Digital Manufacturing Corporation Class A

Hello, my name is Bailey and I'll be the operator this morning. I would 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 the time. I would now like to turn the call over to Michael Cimini, Fathom's Director of Investor Relations. Please go ahead.

Thank you, Bailey, and good morning, everyone. Welcome to Fathom's fourth quarter and full year 2022 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 fathom.mfg.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 risk and uncertainties in our business, and understand that forward-looking statements are only estimates of future performance and should be taken as such. 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, 2022. The company expects to submit a notification of late filing on form 12B25 with the SEC later today. Our preliminary unaudited results are based on Fathom's reasonable estimates and the information available at this time and are subject to various adjustments that are still under review relating specifically to potential changes in the provision for income taxes. And now I would like to turn the call over to Ryan Martin, Fathom's Chief Executive Officer, and Mark Frost, our Chief Financial Officer. Ryan, the floor is yours.

Thanks, Michael, and welcome everyone to Fathom's fourth quarter and year-end conference call. In 2022, Fathom completed its first full year as a public company. During this time, we achieved important progress, advancing key strategic initiatives that further solidified our foundation and enhanced our ability to deliver profitable long-term growth. While Mark will discuss our Q4 and full year results, during which we extended our track record, of profitability in our core operations, we highlight on slide four some of our main accomplishments throughout the year. First, as we previously discussed, we launched an optimization plan last year aimed at consolidating our national footprint, enhancing operating efficiencies, and increasing the scalability of our business. We've made great progress to date in the execution of our plan, with the recent integration of our legacy Oakland facility into our corporate operations in Heartland, Wisconsin, which is enabling better utilization. We expect to generate significant cost savings from our plan in support of our future results, driving greater profitability and best-in-class margins as we maintain our focus on empowering a more lean, nimble, and unified Fathom. Second, we created a new product innovation, or MPI, center of excellence, at our headquarters in Heartland, Wisconsin, which has a unique set of capabilities unmatched in our industry. We took steps to further refresh a considerable portion of our additive solutions, namely large format SLS, DMLS, and MJF equipment in Heartland. And we added two DMG MORI 5-axis machines in support of our dedicated QuickTurn CNC cell that was launched in the second half of 2022. Our world-class MPI facility in Heartland enhances our national manufacturing footprint while serving as a valuable compliment across our other sites to provide a one-stop outsource solution that supports customization. In all, our growth CapEx in 2022 totaled approximately $10 million, further strengthening our broad on-demand capabilities. We expect to generate positive returns on these capital investments beginning in 2023. as we continue to ramp our commercial activities, which we will also highlight on this slide as our third key building block. Upon going public, we recognized the need to revitalize our commercial efforts as our team members historically had worked in small, private bureaus focused on a single technology offering. In transitioning to a platform-based strategic sales team, we successfully revamped our staff with a strong enterprise focus and public company mindset. We believe this transformation has enhanced our ability to fully leverage our comprehensive suite of nationwide offerings by taking greater advantage of potential cross-selling opportunities across our more than 25 quick-turn manufacturing processes. At the same time, we launched our first-ever sales development program to help facilitate success and promote career growth opportunities amongst our commercial teams. And finally, on this slide, we made significant improvements in our corporate capabilities in 2022. For example, we rebuilt our IT staff led by our new chief information officer, Dan Borkwin, who joined Fathom approximately one year ago. During this brief period, through Dan's leadership, we launched a single cloud-based ERP system, which will be used as the template for all of our sites and help boost productivity. while deploying new cybersecurity programs and completing an infrastructure refresh at all of our sites. We also created a shared services organization and a system for finance and accounting to help streamline company-wide processes and increase economies of scale. Notably, we achieved all of the above while successfully building out our public company infrastructure. This included developing finance and accounting teams to meet new reporting requirements, establishing internal controls, and adopting a HR model based on public company best practices and much more. The progress we achieved in 2022 contributed to year-over-year growth in spending amongst our larger accounts with annualized spend of at least $1 million and a majority of all of our customers utilizing multiple manufacturing technologies. Turning now to slide five, we believe these positive indicators that I just mentioned underscore the value of our strategy to accelerate manufacturing innovation for Fortune 500 companies and continue to give us strong confidence in Fathom's long-term growth potential. By focusing on rapid prototyping and low to mid-volume production, we work closely with enterprise customers so they can iterate faster and condense their product development cycles, often for months to days. This allows them to become more agile in bringing new products to market faster while creating a more resilient supply chain. We've built entrenched relationships by delivering hybridized solutions across both additive and traditional manufacturing technologies with an emphasis on speed, adaptive technical responsiveness, flexible problem solving, quality assurance, and a full service support system, effectively meeting the high mix and low volume production needs of companies in a manner that supports our customers' manufacturing needs. This is how we differentiate ourselves in the market. Fathom's solution-based approach is centered on applying the best manufacturing process to achieve a desired outcome. And we do this without having to sacrifice the original design intent of our customers. Our focus now is to build upon the progress we've made in the last year in solidifying our foundation and build momentum in expanding Fathom's share of wallet with our blue chip customers while continuing to add new strategic customers. On slide six, we outline our strategic priorities for 2023, which we believe will enhance our ability to navigate the near-term macro headwinds as we continue to focus on driving future performance. First, as part of our commercial enhancements, we strengthened our leadership team earlier this month with the appointment of Kurt Bork as our new Vice President of Sales. In this newly created position, Kurt brings to fathom extensive expertise in enterprise sales and strategic growth management. He is an industry veteran with more than 20 years of experience, having previously served as the Vice President of Sales and Business Development at Mayville Engineering Company, a publicly traded Wisconsin-based company that provides design, prototyping, and manufacturing solutions. During his eight and a half year tenure at the company, Kurt led sales and business development activities for its extensive manufacturing infrastructure, including 20 facilities in the U.S., and managed a team of sales and engineering professionals. Kurt's proven track record of creating performance-driven sales culture that establishes accountability and empowers team members to excel will be instrumental in our long-term growth as we seek to strengthen our go-to-market efforts. He will serve as a key member of our senior executive team providing strategic and commercial leadership, and will report directly to me at our headquarters in Heartland, Wisconsin. Rich Stump, Fathom's chief commercial officer, will be departing Fathom in Q3 of this year. Until then, he will work with Kurt to ensure a seamless transition while also leading our new technology center. I've had the opportunity to work alongside Rich for nearly four years, and I can't thank him enough for all of his contributions and continued support. We wish him well in his future endeavors. In connection with Kurt's appointment, we've recently appointed new site directors at our facilities in Heartland, Wisconsin, Tempe, Arizona, and Denver, Colorado, as we fortify our frontline leadership while seeking to attract and retain our highly talented workforce. We've also begun to reposition Fathom's commercial efforts with the creation of two teams, our MPI, our new product introduction, and production teams. This change will create greater alignment between prototype production as well as outsourced work with the right resources and tools to drive new orders. In further accelerating customer engagement, we recently opened our new Silicon Valley Technology Center, strategically located in Fremont, California. This advanced hub demonstrates our novel approach to featuring the latest cutting edge technologies while maintaining a critical presence in the Bay Area. The approximately 10,000 foot facility will serve as a catalyst to change the way we collaborate with customers as well as equipment OEMs. Our new Evolve additive solution is among the innovative technologies currently located at the Technology Center, providing an ideal platform to showcase our growing capabilities. In terms of our operations, we remain committed to right-sizing the company's cost structure to achieve our growth initiatives with greater efficiency and discipline. Consistent with these efforts, we took steps to expand our optimization plan last month. Specifically, we are consolidating our two existing facilities in Texas and reduced our workforce by an additional 14% while implementing other productivity initiatives. We believe the comprehensive steps we've taken over the past year will generate pre-tax annualized cost savings totaling approximately $19.5 million, up about three and a half times from the $5.5 million originally upon the completion of our plan in the second quarter of 2023. And lastly on this slide, we remain focused on accelerating Fathom's digital threat. We continue to make steady gains implementing a company-wide ERP system and expect to complete this multifaceted project in 2024. As we further upgrade our IT infrastructure and cybersecurity measures, we are in the process of launching our first enterprise data platform that will empower Fathom's business and ensure we keep pace with the demands of a dynamic and fast-paced market. With a relentless concentration on these strategic pillars, We are a company with a more sustainable model that will further enhance our ability to achieve operational excellence and solidify Fathom's role as a leading provider of on-demand digital manufacturing services nationwide. I will now turn the call over to Mark.