Shapeways Holdings, Inc.

Greetings and welcome to Shapeway's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. As a reminder, the 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 fact 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 fourth quarter of 2023, timing or results of any strategic transactions or future cost-cutting measures, impact of recent acquisitions, new offerings, and market opportunity 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 descriptions 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 September 30, 2023. The information provided in this conference call speaks only to the broadcast date today, November 14, 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 is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued before market open, which can be found on our website, 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?

Good afternoon, everyone. Thanks for joining us to discuss Shapeways' third 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 third quarter financial results and outlook for the fourth quarter. In the third quarter, we continue to execute our strategy to grow software and enterprise manufacturing revenues. Our conviction for Shapeway's opportunity remains unchanged. We believe that the market is shifting towards digitization of manufacturing and is approaching an inflection point in the overall adoption of digital manufacturing solutions And we believe that we are well-positioned to take advantage of this market opportunity across an array of industries due to our platform that combines high-quality, flexible, on-demand manufacturing with purpose-built proprietary software. We are encouraged by our progress with regards to our software business and the increasing traction with enterprise manufacturing customers. Additionally, we remain disciplined and prudent as we execute our operating plan and continue to refine our cost structures. Our software business is scaling as expected, and we remain encouraged by our growing traction of staff contract commitments, increased customer acquisition, improved retention, lifetime value expansion, and new initiatives such as MFG Materials, which was launched in late Q2. Through MFG Materials, we believe we are providing a compelling value proposition to our customers by helping them save on raw material costs. We have recognized 2.2 million of software revenues year-to-date up 81% from prior year period. Our software products provide a critical tool for manufacturers, allowing them to leverage end-to-end manufacturing software to scale their business and shift to digital manufacturing in order to increase productivity. Turning to our enterprise manufacturing sales, we continue to increase our customer focus towards middle market and enterprise opportunities. and anticipate seeing accelerating benefits from these investments in the coming quarters. We steered two new long-term agreements in Q3 with leading automotive and transportation manufacturers for multi-year production programs expected to ramp up to approximately $4 million annualized revenue by the end of next year. This affirms our commitment and the proficiency in partnering with tier one manufacturers to support OEM volume production. We continue to increase our share of wallet with existing customers on multi-year revenue projects and saw revenues from the first nine months of this year from our top 250 customers grow 18% compared to the same period last year. In our self-service e-commerce operations, sales remain stable, providing a good foundation for our growth initiatives. We are optimistic that we are seeing a more rational competitive backdrop with regards to our e-commerce business. While we remain encouraged by the momentum in our business in light of the elongated sales cycle and near-term macroeconomic uncertainty, we also initiated a number of cost reduction measures in the quarter. This included a reduction in force completed in October 2023, a reduction in new hires, and a reduction in non-critical capital and discretionary operating expenditures. In addition, we have also been working with advisors and considering the strategic alternatives available to the company. Potential strategic alternatives may include, without limitation, a capital raise, a merger, a business combination, a sale of a material portion of the company's asset, or other strategic transactions. We have not made any decisions regarding any potential transaction, and at this time do not have any additional details to share. I would like to thank the entire Shapeways team, our customers, our investors, and all our stakeholders for their ongoing support. Alberto will now discuss our financial results in more detail.

Thanks, Greg. I'll provide a recap of our third quarter 2023 performance, give an update on our balance sheet position, and provide guidance for the fourth quarter. In the third quarter, revenue was $8.4 million, flat from the prior year and slightly below guidance due to shipment delays from the third quarter into the fourth quarter of about half a million dollars worth of contracted revenue related to three enterprise customers. We saw growth in software and enterprise sales partially affected by lower sales from marketplace and self-service. Our gross margins in the third quarter were 41% compared to 44% in the third quarter of 2022, but grew sequentially compared to the second quarter by about 100 basis points. We continued to deliver solid gross margins, and the year-over-year change was primarily due to the ramping of recently deployed new technologies and makeshift to non-3D printing and higher shipping costs, partially offset by software growth and price increases. We anticipate realizing margin expansion over time as we see more contribution from higher margin software sales, the benefits from the consolidation of our US manufacturing operation, as well as our cost optimization plan. Third quarter adjusted EBITDA was a loss of $5 million compared to a loss of $4.6 million in the third quarter of last year. SG&A expenses for the third quarter were $11 million compared to $7.6 million in the prior year, primarily reflecting increased professional fees and a write-off of certain equipment that would not be utilized in our operation and prepaid services associated with such equipment. As Greg mentioned, we have recently implemented cost alignment initiatives, including a reduction in force of 15%, of our employees, including OPEX, which was completed subsequent to quarter end. We anticipate realizing approximately $2.4 million in annualized cost savings as a result of our headcount reorganization. Turning to our balance sheet as of September 30, 2023, our cash, cash equivalents, and marketable securities totaled $17.7 million. During the quarter, we deployed approximately $7 million in cash. and we remain prudent and focused on further improving our cash burn while proactively monitoring our liquidity. Looking ahead for the fourth quarter of 2023, we anticipate revenues to be in the range of 9.3 million to 10 million. With this, we completed our prepared remarks and we will now open the call for questions. Operator?