Fast Radius, Inc. (NASDAQ:FSRD) Q2 2022 Earnings Conference Call August 11, 2022 9:00 AM ET
Company Participants
Alex Thompson – IR
Lou Rassey – CEO and Co-Founder
Pat McCusker – Co-Founder, President and Interim CFO
Conference Call Participants
Chris Grenga – Needham & Company
Operator
Good morning. My name is Lauren and I will be your conference operator today. At this time, I would like to welcome everyone to Fast Radius Q2 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. At this time, I would like to turn the conference over to Alex Thompson of Investor Relations. Please go ahead.
Alex Thompson
Thank you operator. Good morning, ladies and gentlemen, and welcome to the Fast Radius second quarter 2022 conference call. Delivering today’s remarks are Co-Founder, CEO and Chairman, Lou Rassey; and Co-Founder, President and Interim CFO, Pat McCusker. Following their remarks, we will open the call for your questions.
Before we go further, I will now read the company’s Safe Harbor statement that provides important cautions regarding forward-looking statements. On today’s call, we will be referring to the press release issued this morning, that details the company’s second quarter 2022 results, which can be downloaded from the investor relations page at ir.fastradius.com, where you’ll also, find the latest earnings presentation that supplements the information discussed on today’s call. A recording of the call will be available on the Investor section of the company’s website later today.
Please be aware that some of the comments made during this call may include forward-looking statements within the meaning of the federal securities laws. Statements about the company’s beliefs and expectations containing words such as may, will, could, believe, expect, anticipate, and similar expressions constitute forward-looking statements. These statements involve risks and uncertainties regarding the company’s operations and future results that could cause Fast Radius’ results to differ materially from management’s current expectations.
While the company believes that its expectations are based upon reasonable assumptions, numerous factors may affect actual results and may cause results to differ materially. So, the company encourages you to review the Safe Harbor statements and risk factors contained in today’s press release and in its filings with the Securities and Exchange Commission, including its Form 10-Q in periodic reports, which identify specific risk factors that also may cause actual results or events to differ materially from those described in our forward-looking statements. The company does not undertake to publicly update or revise any forward-looking statements after this call.
The company also notes that on this call, it will be discussing non-GAAP financial information including adjusted EBITDA. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States, or GAAP. You can find additional information and a reconciliation of these metrics to the company’s reported GAAP results in the reconciliation tables provided in today’s earnings release and presentation.
And now, I’ll turn the call over to Lou Rassey. Lou?
Lou Rassey
Good morning, everyone and thank you for joining us. On today’s call, I will summarize our second quarter of 2022 results and then cover the progress we are making against our key initiatives. Pat McCusker, our President and Interim CFO will then take us through our financials in more detail, and then I’ll return with closing remarks.
First, I’ll take a moment to recap who we are and what we do at Fast Radius. Fast Radius is a leading cloud manufacturing and digital supply chain company. Our purpose is to make new things possible to improve the state of the world. Manufacturing is central to our lives. And now in a digital age, the sector’s potential to drive progress in the world is significant and clear. We have new tools to design, make, and move products in ways we couldn’t have imagined even a decade ago.
With that mission guiding us, our product is the Fast Radius cloud manufacturing platform, a first of its kind platform that provides software applications, manufacturing solutions, and a network of factories that help engineers design, make, and fulfill commercial grade parts. This enables companies to manufacture and ship parts more easily, flexibly, and sustainably.
We operate in a large addressable market that we believe presents a significant opportunity ahead. First, there is a market that is making component parts. Today, we make money by making parts for customers across a wide range of industries, including automotive, healthcare, robotics, industrial goods, and consumer goods.
For making component parts less than 100,000 units annually, the total addressable market is approximately $350 billion, which includes a wide selection of manufacturing technologies we implement including additive manufacturing, injection molding, and CNC machine.
And the software side is considered the market that is opened up by cloud manufacturing, the opportunity over the long-term can become even larger. Similar to cloud computing is a platform for digital innovation, cloud manufacturing is a platform for manufacturing innovation, ushering a new era of software tools and manufacturing solutions.
Manufacturing sector has been reached out by powerful forces including industry 4.0. Industry 4.0 is not simply one new technology that’s advancing the state of manufacturing, but many innovations that are reimagining together how we can design, make, and move products in this world.
Other tailwinds include our expertise in industry 4.0 innovation versus broader industry pace to adopt these innovations, the demand for modern software-driven experiences by our customers, mirroring consumer-like digital experiences, and the need for more flexible and sustainable supply chains. These are all tailwinds and opportunities, which we are attacking and working to capitalize on.
So, taking these things together, we’re making it possible to store parts digitally instead of on a warehouse shelf. We’re making it possible to ship parts digitally instead of by boats and planes. We’re making it possible to make things local to where they’re needed. We’re allowing customers to move away from carbon-intensive supply chains and helping manufacturers adapt to the needs of our time. We’re codifying substantial manufacturing knowledge and putting it in software. We’re empowering any engineer with a browser to design new things and new ways and then have the power to manufacture them.
With that, I’ll now summarize our recent performance. Our second quarter revenue was $7.3 million, up 49% compared to the same quarter of the prior year. Combined with first quarter, our first half year revenue of $13.5 million is an increase of 56% over the first half of the prior year. Pat will cover our financials in more detail shortly.
Next, I’ll cover the progress we’ve made against our 2022 strategic initiatives. Earlier this year, we laid out four priorities that we are focused on; enhancing our customer acquisition notions for both new and existing customers with a common theme of driving digital engagement; enhancing our user experience, our marketing, sales, manufacturing, supply, and product teams working together to improve the customer’s journey from beginning to end; building out and optimizing our supplier, network and marketplace; and lastly, securing additional capital.
Let’s take each one of these in turn and the progress we’ve made. First, we’re focused on enhancing customer acquisition, our digital direct sales team and managed sales team making headway to improve our acquisition efficiency and our lead quality. Specifically in Q2, we saw increased sales velocity of qualified leads and were able to close deals more quickly than in previous months.
Firstly, the final sale, we’re seeing shorter cycle-times. We are also seeing customers engage with us to our software platform, increasingly getting self-serve real-time feedback on manufacturability, cost, and lead-time.
Second, we’ve been focusing on enhancing our user experience. This quarter, we saw more users creating portal accounts and adopting our front end software tools. To close Q2 with 37% growth in our user base from approximately 14,000 years in January to over 20,000 At the end of June. We believe this increase in users is attributable to new feature launches in the customer portal along with substantial marketing efforts in order to drive awareness.
As a recall in Q1, we launched Studio. Studio provides manufacturing intelligence and insights to engineers about the partner design. Studio provides the ability to discover new ways to innovate, be it save on product costs, accelerate lead-times, or embrace new manufacturing methods or materials.
Studio provide users with upstream value designing a product and discovering how to best make that product. It then provides a seamless transition to order and make the parts when they need them. If users are satisfied with their part design of Studio, they simply move their part into the quoting stage with just one click versus the traditional manufacturing industry approach, which is how the manual email and phone call driven multi-step process to move from design to quoting and ordering.
In Q2, we launched new features and updates in Studio that have helped make progress to improve the insights and the velocity of the customer experience. Here are some highlights.
First, instant quoting capability. We have expanded instant quoting coverage across additive manufacturing and CNC machining processes and materials. For additive manufacturing, we doubled our list of material offerings and expanded the additive technologies which we can instantly quote. Specifically, we’ve gone from 20 to 40 additive materials available within Studio.
We have also added SLA or stereo lithography to our suite of existing additive technologies that include Digital Light Synthesis, Multi Jet Fusion, and FDM. With these advancements, by the end of Q2, we were able to been quote 70% of incoming additive requests from our customers in the portal.
We also launched CNC Machining Instant Quoting. In Q2, users were able to select the 20 material options for 3-axis milling, this new feature by the end of Q2 we were able to provide machine eligibility and cost estimates for over 15% of incoming CNC requests up from less than 1% in Q1. This will be further expanded with the recent addition of 5-axis machining and additional materials.
Taken together, these enhancements have resulted in our ability to [indiscernible] large portion of our total orders. Improvements in this area have significantly improved our average time to quote compared to the end of Q1 2022.
As we move through Q3 and execute against a roadmap, we expect to continue to grow the number of orders or instant quoted across additive manufacturing and CNC machine.
Next, we enhanced our comparison tool. Across additive manufacturing processes and materials, users can now quickly find the most cost-effective 3D printing process and materials for their parts that also aligns with their required lead-times. Comparison tool allows our customers to look at options side-by-side.
We also enhanced our cost curves. Users can access details about the price per part and total cost of part production at varying order volumes, helping them quickly determine an appropriate order quantity to get the best price, while also assisting in predicting manufacturing costs at scale.
Final highlight from Studio has been the progress we’ve made in expanding our instant design for manufacturability analyses. Across additive manufacturing, CNC Machining, and injection molding, customers can easily identify potential manufacturability issues with their part design and chosen manufacturing process. They can see where the issues occur and accept insights on how to adjust their design to improve manufacturability.
These new features are not only enhancing the customer experience, but also strengthening our customer acquisition notion. The tools I just outlined provide users with insights in the early design and discovery stage in a seamless transition into the quoting and ordering process.
Our long-term vision is to codify the world’s manufacturing knowledge and make it available to everyone with a browser. We’ll get there one step at a time and we’re excited by the progress in this past quarter.
The third priority for 2022 is to build out and optimize our global and domestic supplier network marketplace. Early in the year, we released our partner portal. Throughout Q2, we continue to make improvements on onboard supplier capabilities.
Our network of suppliers can now view, accept, and counter quote requests from the Fast Radius team in the portal, as well as view all supporting documents, lead-times, and pricing in one digital interface.
We believe that creating a seamless experience for our suppliers will continue to allow us to attract and onboard more partners, expanding our breadth manufacturing capabilities and capacity over time.
Specifically, at the end of Q2, the substantial majority of our suppliers have been onboard to the new partner portal. In Q3, we plan to nurture our current supplier relationships and look for new supply partnerships to expand our marketplace and plug into our cloud manufacturing platform.
This will extend our manufacturing capability, which we believe will result in an enhanced customer experience by improving lead-times, technology options costs and quality production.
Lastly, we’ve been focused on securing additional capital in 2022. While we are facing challenging market conditions, we are actively pursuing alternatives to address our liquidity needs. We are engaged with our financial advisors and Board on this and it remains a top priority. While we have seen progress in the first half of the year, these four strategic priorities remain key focus areas for us in the back half of this year.
With that, I’d like to hand it over to Pat for commentary on our Q2 financial performance.
Pat McCusker
Thanks Lou and good morning, everyone. As we mentioned, our revenue for the second quarter of 2022 increased nearly 50% year-over-year to $7.3 million compared to $4.9 million a year ago. The increase was driven by incremental sales to new and existing customers.
Our gross margin was 4% in the second quarter of 2022 compared to 17% in the year ago period. Gross margin in the quarter was significantly impacted by a new manufacturing facility from 2021. It is not running at full capacity, as well as the net impact of shipping and duties. The company expects gross margin to improve in the second half of 2022 upon addressing both of these factors, and planned efficiency improvements.
Our sales and marketing spend was $5.9 million for the second quarter of 2022 compared to $5.3 million for the year ago period. The slight increase was attributable to higher employee headcount in the function.
Our general and administrative spend was $14.7 million in the second quarter of 2022 compared to $8.8 million in the second quarter of 2021. The increase was attributable to higher subscription fees associated with our software arrangement with Palantir, higher employee compensation costs, and incremental costs associated with being a public company.
Research and development costs were $1.9 million for the second quarter of 2022 compared to $1.5 million for the year ago period. The small increase was related to our continued focus on developing the cloud manufacturing platform.
As a result of these increases in operating expenses, our loss from operations for the second quarter of 2022 was $22.2 million compared to a loss of $14.8 million for the second quarter of 2021.
Adjusted EBITDA for the second quarter of 2022 was a loss of $17.3 million compared to a loss of $13.5 million for the year ago quarter. The higher loss in adjusted EBITDA compared to the prior year was driven by the increase in operating expenses as previously noted.
For the second quarter, we had approximately 7 million in total bookings representing 13% year-over-year growth. As of June 30th, 2022, we had approximately $38 million in cash and cash equivalents.
Lou, I hand it back to you.
Lou Rassey
Thanks Pat. As we move into the back half of the year, we are updating our revenue guidance to a range of $27 million to $30 million. This is in consideration of our restructuring actions in Q2 and in light of headwinds from market conditions, inflationary concerns, geopolitical tensions, and supply chain efficiencies.
At the end of Q2, we took restructuring actions in order to reduce our operating expenses. The actions included the reduction of approximately 20% of our workforce, including the elimination of open roles, facilities consolidation, and other operational expense management actions.
As a result of these actions, we expect to realize annual run rate cost savings of more than $10 million. We expect these restructuring actions to be substantially complete by the end of Q3 2022. To generate these cost savings, we will incur some non-recurring expenses in 2022, specifically expenses associated with actions we’ve implemented in order to retain and motivate our employees. These will offset some cost savings in 2022 and our updated guidance reflects this.
Despite the challenging operating and macroeconomic environment, as we discussed, we continue to make progress against our four key priorities, enhancing our customer acquisition notions, enhancing user experience in digital workflows, building out and optimizing our supplier network marketplace, securing additional capital.
Before taking Q&A, I’ll close with a few thoughts on a particular challenge in capital markets. As we mentioned last quarter, we appreciate the pressures on the capital markets and what it has on us and companies like us.
Investors continue to shift their investment focus to combat rising interest rates, inflationary pressures, and geopolitical tensions, and investors are prioritizing profitability.
We enter the public markets beginning of the year, we shared expectations on what we would do and how we would continue growing. As we look at the first half of the year performance, our team’s been proud of nearly 50% year-on-year growth and significant progress and serving our customers and building out our cloud manufacturing platform, building out a new modern infrastructure for designing, making and moving things to better meet the needs of our time.
Yet, we recognize that our balance sheet currently provides us with significant operating limitation and we continue to actively pursued evaluate appropriate ways to raise more capital this year, all while operating in a disciplined manner.
I mentioned the important measures we are taking to both contain costs and streamline our operations, we’re being very purposeful in balancing between investing for growth while preserving our balance sheet, controlling our costs, and minimizing disruptions to our execution.
We understand that there is more work to be done as we focus on serving our customers, employees, and shareholders, while never losing sight of our purpose to play our part to advance the state of manufacturing and support the critical work of making it more accessible for everyone.
Thank you for joining us today to listen in. And we’ll now take questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]
Our first question comes from Jim Ricchiuti with Needham & Company.
Chris Grenga
Hi, good morning. This is actually Chris Grenga on for Jim. Just wondering, could you talk about the factors a little bit more that contributed to the revised revenue guidance? And how much visibility do you have into revenues in the second half?
Lou Rassey
I think there are a few factors there, Chris, and thanks for joining us this morning. As we mentioned, the restructuring actions that we took, including pulling back some of the investments in growth, as we think about our sales resources and marketing and customer acquisition notion. That’s the first part.
And secondly, I think we look at some of the uncertainty in the macroenvironment and some of the macro pressures that are out there, and I think in combination led us to provide the guidance today.
Chris Grenga
Got it. And on gross margins, utilization was also a headwind in Q1. Could you talk about the factors that contributed to the margin decline? And whether or not utilization improved or got worse over the quarter? And the timing of when that utilization could normalize? Thank you.
Pat McCusker
Thanks Chris. I can take that, this is Pat. Yes. So, as you as you highlighted the headwinds in the first half of the year were primarily due to under-utilization of internal manufacturing assets. And as I mentioned, in my prepared remarks, we have taken some initiatives to address that headwinds, specifically as well as the shipping and duties that we mentioned in the gross margins. And as we look to the second half of the year, we anticipate that the bulk of that headwind will be mitigated, and that’s both due to improving utilization and other moves we’re making to drive efficiencies in the operations and ultimately, bring up gross margin from where it’s been in the first half of the year.
Lou Rassey
Chris, I would add a bit more specifically, and as mentioned in the prepared remarks that the CNC factory that we set up last year from a utilization and a GP drag perspective is, as far the biggest contributor there, and as Pat noted, we’re taking actions and we’re seeing progress.
Chris Grenga
Got it. Thank you. And have you have you observed any changes in the ordering patterns from customers that might be weighted more towards consumer end use?
Lou Rassey
I think for our platform and our customer base, these are industrial customers focused on making products that are used in end applications. I think we work with customers across automotive, aerospace, consumer products, industrial products fully focused on end production is where our platform is primarily used.
I’d say there are occasionally more individual consumers that may come to our platform is a very, very small part of what we do. We’re very focused in our platform is built for industrial production. Does that answer your question, Chris?
Chris Grenga
Yes. Thank you very much. I’ll hop back in the queue.
Operator
[Operator Instructions]
We’ll take a follow-up question from Needham & Company.
Chris Grenga
Hi, just — how is the pace of supplier onboarding change throughout the quarter? And then are you finding that there’s any changes in the competitive landscape to onboard suppliers in the sense that there’s maybe more of your peers also soliciting to add the suppliers to their networks as well?
Lou Rassey
Thanks for the question. I think, as we noted, we have launched our new supplier portal in Q2 and this provides a digital interface for us to engage with our supplier network, really streamlining the day-to-day operations from providing opportunities and receiving quotes and completing orders and getting status updates on those orders and we’ve seen real adoption of that new supplier portal, since we launched in Q2 and the vast majority of our revenue is flowing through that.
And so in that sense, it really has accelerated the pace of digital engagement with a supply base, and I think it’s accelerating the pace of work for our customers, as well as easing the experience of our suppliers of plugging into the cloud platform and making parts with us.
I think in terms of the — and over time, we will continue to add functionality to that portal experience where we can provide additional insight to our suppliers and our suppliers can provide additional data and insight to us and ultimately, to our customers about when things are made, how they are made, in a way that really opens up the black box of traditional manufacturing. We’re excited about really big progress on that front in Q2 and much more to come.
I think with regard to the competitive landscape; our approach has been to focus on a curated set of supplier partners that are focused on industrial production and that can scale with us. And so it is dozens of key suppliers as opposed to thousands of key suppliers that are partnered with us.
I think that is a bit different than some other approaches that are out there. And for us, because we are curating this network, it allows us to build deeper relationships, as well as for these suppliers to make further commitments to us on how we work together in partnership.
And so from that perspective, we think it’s a differentiated in the market, we are expanding our supply base and we’re excited about the partners we’ve onboard in Q2 and that is accelerating. But it’s still under a strategic intent that these are curated relationships that we build over time, where they can now lean in with us as we lean in with them. And that is the strategy we’re pursuing, which is a bit different than I think some others in the industry.
Chris Grenga
Got it. That’s helpful. Thanks. And with the growth that you saw in the quarter, how much of that was existing customers, versus new and any comments on the trend and average order value?
Lou Rassey
The majority of our revenue is from — was from existing customers and keep you consistent with historical repeat customer purchasing. It’s one of the things that that we get really excited about is there is a very strong repeat rate and growth within customers when they first onboard and start making parts with the cloud manufacturing platform and that continued in Q2.
We are seeing our average sales price and order size increase. I think that is a reflection of continued adoption by our customers were initially when they first worked with us can start small and simple. But over time, we do see continued expansion of the kind of work that we can do for them as they trust the cloud and our platform for making industrial grade parts at real volume and we’re seeing that trend continue.
I think the other thing that we would highlight from our prior call is we implemented a new sales structure earlier this year with two teams running in parallel, one of them a managed sales team that is focused on larger engagement with our customer base. And then a digital direct sales team focused on a smaller opportunities, primarily through the portal and driving a higher velocity, lower touch experience for our customers.
We are seeing momentum on both, but that managed sales team specifically is also seeing traction that is driving up an average order size that’s coming through platform.
Chris Grenga
Very helpful. Thank you.
Lou Rassey
Thank you.
Operator
And we have no further questions at this time. This does conclude today’s conference call. You may now disconnect.
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