FATH Fathom Digital Manufacturing Corporation

First Quarter 2023 Highlights

• Revenue totaled $35.0 million
• Total orders were $34.6 million
• Net loss totaled $(1.3) million; Adjusted net loss1 was $(5.5) million
• Adjusted EBITDA1 totaled $4.1 million, representing an Adjusted EBITDA margin1 of 11.7%

Fathom Digital Manufacturing Corp. (NYSE: FATH), an industry leader in on-demand digital manufacturing services, today announced financial results for the first quarter ended March 31, 2023.

 

Three Months Ended

($ in thousands)

3/31/2023

3/31/2022

Revenue

$35,007

$40,541

Net income (loss)

$(1,332)

$18,999

Adjusted net income (loss)1

$(5,504)

$(824)

Adjusted EBITDA1

$4,100

$6,178

Adjusted EBITDA margin1

11.7%

15.2%

 

1 See “Non-GAAP Financial Information.” Reconciliations of non-GAAP financial measures are included in the appendix.

“Our results for the first quarter reflect the strong execution of our $19.5 million optimization plan, enabling Fathom to extend its history of Adjusted EBITDA and cash generation,” said Ryan Martin, Fathom Chief Executive Officer. “During the quarter, we consolidated our two existing facilities in Texas and implemented other productivity initiatives, contributing to a gross margin improvement of 810 basis points on a sequential basis. Our strategic actions focused on driving future performance continue to gain traction while the macro environment remains challenging. Going forward, we will maintain our focus on actively managing our cost structure to ensure production levels are in-line with customer demand and capitalizing on our increased scalability as market conditions improve.”

Summary of Financial Results

Revenue for the first quarter of 2023 was $35.0 million compared to $40.5 million in the first quarter of 2022, a decrease of 13.7% primarily due to lower production volumes driven by the softer macroeconomic environment.

Gross profit for the first quarter of 2023 totaled $11.9 million, or 34.1% of revenue, compared to $12.0 million, or 29.6% of revenue, in the first quarter of 2022. Excluding approximately $3.2 million in non-cash purchase accounting adjustments, gross profit for the first quarter 2022 was $15.2 million, or 37.5% of revenue.

Net loss for the first quarter of 2023 was $(1.3) million compared to net income of $19.0 million in the first quarter of 2022. Excluding the revaluation of Fathom warrants and earnout shares, stock compensation expense, optimization plan expenses, and other costs, Fathom reported an adjusted net loss in the first quarter of 2023 totaling $(5.5) million compared to an adjusted net loss of $(0.8) million for the same period in 2022.

Adjusted EBITDA for the first quarter of 2023 totaled $4.1 million versus $6.2 million for the same period in 2022 primarily due to lower volume leverage, partially offset by cost savings from the execution of Fathom’s optimization plan. The Adjusted EBITDA margin in the quarter was 11.7% compared to 15.2% in the first quarter of 2022.

Conference Call

Fathom will host a conference call on Monday, May 15, 2023 at 8:30 am Eastern Time to discuss the results for the first quarter 2023 and provide the company’s outlook for the second quarter 2023. The dial-in number for callers in the U.S. is +1-833-470-1428 and the dial-in number for international callers is +1-833-950-0062. The access code for all callers is 522761. The conference call will be broadcast live over the Internet and include a slide presentation. To access the webcast and supporting materials, please visit the investor relations section of Fathom’s website at https://investors.fathommfg.com.

A replay of the conference call can be accessed through May 22, 2023, by dialing +1-866-813-9403 (US) or +1-226-828-7578 (international), and then entering the access code 412938. The webcast will also be archived on Fathom’s website.

About Fathom Digital Manufacturing

Fathom is one of the largest on-demand digital manufacturing platforms in North America, serving the comprehensive product development and low- to mid-volume manufacturing needs of some of the largest and most innovative companies in the world. With more than 25 quick turn manufacturing processes combined with an extensive national footprint, Fathom seamlessly blends in-house capabilities across plastic and metal additive technologies, CNC machining, injection molding and tooling, sheet metal fabrication, design and engineering, and more. Fathom has more than 35 years of industry experience and is at the forefront of the Industry 4.0 digital manufacturing revolution, serving clients in the technology, defense, aerospace, medical, automotive, IOT sectors, and others. Fathom's certifications include: ITAR Registered, ISO 9001:2015 Design Certified, ISO 9001:2015, ISO 13485:2016, AS9100:2016, and NIST 800-171. To learn more, visit https://fathommfg.com/.

Forward-Looking Statements

Certain statements made in this press release are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “estimates,” “projects,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “would,” “should,” “future,” “propose,” “target,” “goal,” “objective,” “outlook” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the control of Fathom Digital Manufacturing Corporation (“Fathom”) that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include: the inability to recognize the anticipated benefits of our business combination with Altimar Acquisition Corp. II; changes in general economic conditions, including as a result of the COVID-19 pandemic or any future outbreaks of other highly infectious or contagious disease; the implementation of our optimization plan could result in greater costs and fewer benefits than we anticipate; the outcome of litigation related to or arising out of the business combination, or any adverse developments therein or delays or costs resulting therefrom; the ability to meet the New York Stock Exchange’s listing standards following the consummation of the business combination; costs related to the business combination and additional factors discussed in Fathom’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2023, as amended on May 1, 2023, as well as Fathom’s other filings with the SEC. If any of the risks described above materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by our forward-looking statements. There may be additional risks that Fathom does not presently know or that Fathom currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect Fathom’s expectations, plans or forecasts of future events and views as of the date of this press release. These forward-looking statements should not be relied upon as representing Fathom’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements. Fathom undertakes no obligation to update or revise any forward-looking statements made by management or on its behalf whether as a result of future developments, subsequent events or circumstances or otherwise, except as required by law.

Non-GAAP Financial Information

This press release includes Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures that we use to supplement our results presented in accordance with U.S. GAAP. We believe Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA margin are useful in evaluating our operating performance, as they are similar to measures reported by our public competitors and regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA margin are not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

We define and calculate Adjusted Net Income as net income (loss) before the impact of any change in the estimated fair value of the company’s warrants or earnout shares, tax receivable agreement liability, optimization plan expenses, goodwill impairment, stock-based compensation, and certain other non-cash and non-core items, as described in the reconciliation included in the appendix to this press release. We define and calculate Adjusted EBITDA as net income (loss) before the impact of interest income or expense, income tax expense and depreciation and amortization, and further adjusted for the following items: change in the estimated fair value of the company’s warrants or earnout shares, tax receivable agreement liability, optimization plan expenses, goodwill impairment, stock-based compensation, and certain other non-cash and non-core items, as described in the reconciliation included in the appendix to this press release. Adjusted EBITDA excludes certain expenses that are required in accordance with U.S. GAAP because they are non-recurring (for example, in the case of optimization plan expenses), non-cash (for example, in the case of depreciation, amortization, goodwill impairment, and stock-based compensation) or are not related to our underlying business performance (for example, in the case of interest income and expense). Adjusted EBITDA margin represents Adjusted EBITDA divided by total revenue. We include these non-GAAP financial measures because they are used by management to evaluate Fathom’s core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments.

Information reconciling forward-looking Adjusted EBITDA to GAAP financial measures is unavailable to Fathom without unreasonable effort. The company is not able to provide reconciliations of forward-looking Adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of Fathom's control and/or cannot be reasonably predicted, such as the provision for income taxes. Preparation of such reconciliations would require a forward-looking balance sheet, statement of income and statement of cash flow, prepared in accordance with GAAP, and such forward-looking financial statements are unavailable to Fathom without unreasonable effort. Fathom provides a range for its Adjusted EBITDA forecast that it believes will be achieved, however it cannot accurately predict all the components of the Adjusted EBITDA calculation. Fathom provides an Adjusted EBITDA forecast because it believes that Adjusted EBITDA, when viewed with the company's results under GAAP, provides useful information for the reasons noted above. However, Adjusted EBITDA is not a measure of financial performance or liquidity under GAAP and, accordingly, should not be considered as an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity.

Consolidated Balance Sheets

 

($ in thousands)

 

Period Ended

 

 

March 31, 2023

 

December 31, 2022

Assets

 

 

 

 

Current assets

 

 

 

 

Cash

 

$

12,129

 

$

10,713

Accounts receivable, net

 

 

26,275

 

 

28,641

Inventory

 

 

16,771

 

 

15,718

Prepaid expenses and other current assets

 

 

3,403

 

 

3,588

Total current assets

 

 

58,578

 

 

58,660

Property and equipment, net

 

 

47,809

 

 

47,703

Right-of-use lease assets, net

 

 

12,804

 

 

12,565

Intangible assets, net

 

 

246,877

 

 

251,412

Other non-current assets

 

 

190

 

 

175

Total assets

 

$

366,258

 

$

370,515

Liabilities and Shareholders’ Equity

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

 

$

7,280

 

$

7,982

Accrued expenses

 

 

8,701

 

 

8,176

Current lease liability

 

 

2,294

 

 

2,374

Other current liabilities

 

 

4,617

 

 

4,828

Current portion of debt, net

 

 

48,377

 

 

42,744

Total current liabilities

 

 

71,269

 

 

66,104

Long-term debt, net

 

 

111,738

 

 

114,327

Fathom earnout shares liability

 

 

1,780

 

 

5,960

Sponsor earnout shares liability

 

 

280

 

 

930

Warrant liability

 

 

1,000

 

 

2,780

Payable to related parties pursuant to the tax receivable agreement (includes $4,300 and $4,000 at fair value, respectively)

 

 

28,160

 

 

25,360

Noncurrent lease liability

 

 

10,799

 

 

11,083

Total liabilities

 

 

225,026

 

 

226,544

Commitments and Contingencies:

 

 

 

 

Contingently Redeemable Preferred Equity:

 

 

 

 

Redeemable non-controlling interest in Fathom OpCo

 

 

84,283

 

 

92,207

Shareholders' and Members' Equity:

 

 

 

 

Class A common stock, $0.0001 par value; 300,000,000 shares authorized; issued and outstanding 69,546,514 and 65,808,764 shares as of March 31, 2023 and December 31, 2022, respectively

 

 

7

 

 

7

Class B common stock, $0.0001 par value; 180,000,000 shares authorized; issued and outstanding 66,692,781 and 70,153,051 shares as of March 31, 2023 and December 31, 2022, respectively

 

 

7

 

 

7

Additional paid-in-capital

 

 

591,011

 

 

587,941

Accumulated other comprehensive loss

 

 

(107)

 

 

(107)

Accumulated deficit

 

 

(533,969)

 

 

(536,084)

Shareholders’ equity attributable to Fathom Digital Manufacturing Corporation

 

 

56,949

 

 

51,764

Total Liabilities, Shareholders’ Equity, Members' Equity, and Redeemable Non-Controlling Interest

 

$

366,258

 

$

370,515

Consolidated Statements of Comprehensive Income (Loss)

 

 

 

Three Months Ended

($ in thousands)

 

March 31, 2023

 

March 31, 2022

 

 

 

 

 

Revenue

 

$

35,007

 

$

40,541

Cost of revenue

 

 

23,062

 

 

28,544

Gross profit

 

 

11,945

 

 

11,997

Operating expenses

 

 

 

 

Selling, general, and administrative

 

 

10,771

 

 

14,763

Depreciation and amortization

 

 

4,576

 

 

4,517

Restructuring

 

 

650

 

 

-

Total operating expenses

 

 

15,997

 

 

19,280

Operating loss

 

 

(4,052)

 

 

(7,283)

Interest expense and other (income) expense

 

 

 

 

Interest expense

 

 

3,470

 

 

1,473

Other expense

 

 

365

 

 

116

Other income

 

 

(6,610)

 

 

(27,165)

Total interest expense and other (income) expense, net

 

 

(2,775)

 

 

(25,576)

Net (loss) income before income tax

 

 

(1,277)

 

 

18,293

Income tax expense (benefit)

 

 

55

 

 

(706)

Net (loss) income

 

$

(1,332)

 

$

18,999

Net loss attributable to Fathom OpCo non-controlling interest

 

 

(3,447)

 

 

(5,259)

Net income attributable to controlling interest

 

 

2,115

 

 

24,258

Comprehensive income:

 

 

 

 

Loss from foreign currency translation adjustments

 

 

-

 

 

(107)

Comprehensive income, net of tax

 

$

2,115

 

$

24,151

Weighted average Class A common shares outstanding

 

 

 

 

Basic

 

 

67,047,713

 

 

50,785,656

Diluted

 

 

136,124,236

 

 

135,839,973

Q1 2023 Revenue by Product Line

 

 

 

 

 

 

 

Three Months Ended

($ in thousands)

3/31/2023

% Revenue

3/31/2022

% Revenue

% Change

Revenue By Product Line

 

 

 

 

 

Additive manufacturing

$3,588

10.2%

$4,149

10.2%

-13.5%

Injection molding

$4,679

13.4%

$6,815

16.8%

-31.3%

CNC machining

$14,230

40.6%

$13,326

32.9%

6.8%

Precision sheet metal

$10,383

29.7%

$14,683

36.2%

-29.3%

Other revenue

$2,127

6.1%

$1,568

3.9%

35.7%

Total

$35,007

100.0%

$40,541

100.0%

-13.7%

Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income (Loss)

 

($ in thousands)

 

Three Months Ended

 

 

March 31, 2023

 

March 31, 2022

Net income (loss)

 

$

(1,332)

 

$

18,999

Stock compensation

 

 

1,093

 

 

2,128

Inventory step-up amortization

 

 

-

 

 

3,241

Restructuring

 

 

650

 

 

-

Change in fair value of warrant liability (1)

 

 

(1,780)

 

 

(8,100)

Change in fair value of earnout shares liability (1)

 

 

(4,830)

 

 

(18,970)

Change in fair value of tax receivable agreement (1)

 

 

-

 

 

-

Integration, non-recurring, non-operating, cash, and non-cash costs (2)

 

 

395

 

 

1,878

Adjusted net income (loss)

 

$

(5,504)

 

$

(824)

1 Represents the impacts from the change in fair value related to the earnout shares liability, the warrant liability and the tax receivable agreement associated with the business combination completed on December 23, 2021; 2 Represents adjustments for other integration, non-recurring, non-operating, cash, and non-cash costs related primarily to integration costs for acquisitions and severance.

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

  ($ in thousands)

Three Months Ended

 

March 31, 2023

March 31, 2022

Net income (loss)

$

(1,332)

$

18,999

Depreciation and amortization

 

6,079

 

6,208

Interest expense, net

 

3,470

 

1,500

Income tax benefit

 

55

 

(706)

Stock compensation

 

1,093

 

2,128

Inventory step-up amortization

 

-

 

3,241

Restructuring

 

650

 

-

Change in fair value of warrant liability (1)

 

(1,780)

 

(8,100)

Change in fair value of earnout shares liability (1)

 

(4,830)

 

(18,970)

Change in fair value of tax receivable agreement (1)

 

300

 

-

Integration, non-recurring, non-operating, cash, and non-cash costs (2)

 

395

 

1,878

Adjusted EBITDA

$

4,100

$

6,178

1 Represents the impacts from the change in fair value related to the earnout shares liability, the warrant liability and the tax receivable agreement associated with the business combination completed on December 23, 2021; 2 Represents adjustments for other integration, non-recurring, non-operating, cash, and non-cash costs related primarily to integration costs for acquisitions and severance.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230514005053/en/

Michael Cimini Director, Investor Relations Fathom Digital Manufacturing (262) 563-5575 michael.cimini@fathommfg.com