Stock Story -
3D printer provider Markforged (NYSE:MKFG) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 14.8% year on year to $21.69 million. On the other hand, the company's full-year revenue guidance of $92.5 million at the midpoint came in 6.2% below analysts' estimates. It made a GAAP loss of $0.07 per share, improving from its loss of $0.10 per share in the same quarter last year.
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Markforged (MKFG) Q2 CY2024 Highlights:
- Revenue: $21.69 million vs analyst estimates of $21.69 million (small beat)
- EPS: -$0.07 vs analyst estimates of -$0.13 (46.2% beat)
- The company dropped its revenue guidance for the full year from $100 million to $92.5 million at the midpoint, a 7.5% decrease
- Gross Margin (GAAP): 50.2%, up from 47% in the same quarter last year
- Market Capitalization: $56.4 million
Beginning as a start-up at SolidWorks World–an annual design and engineering conference, Markforged (NYSE:MKFG) offers 3D printers and softwares to manufacturers of various industries.
Custom Parts ManufacturingOnshoring and inventory management–themes that grew in focus after COVID wreaked havoc on global supply chains–are tailwinds for companies that combine economies of scale with reliable service. Many in the space have adopted 3D printing to efficiently address the need for bespoke parts and components, but all companies are still at the whim of economic cycles. For example, consumer spending and interest rates can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last four years, Markforged grew its sales at a mediocre 7.3% compounded annual growth rate. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Markforged's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.5% annually.
This quarter, Markforged reported a rather uninspiring 14.8% year-on-year revenue decline to $21.69 million of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 25.4% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Unprofitable industrials companies require extra attention because they could get caught swimming naked if the tide goes out. It's hard to trust that Markforged can endure a full cycle as its high expenses have contributed to an average operating margin of negative 78.5% over the last five years. This result is surprising given its high gross margin as a starting point.
Analyzing the trend in its profitability, Markforged's annual operating margin decreased by 52.8 percentage points over the last five years. The company's performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn't pass those costs onto its customers.
In Q2, Markforged generated an operating profit margin of negative 78.6%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Although Markforged's full-year earnings are still negative, it reduced its losses and improved its EPS by 2.3% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. Sadly for Markforged, its EPS declined more than its revenue over the last two years, dropping by 125%. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
We can take a deeper look into Markforged's earnings to better understand the drivers of its performance. A two-year view shows Markforged has diluted its shareholders, growing its share count by 6.6%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, Markforged reported EPS at negative $0.07, up from negative $0.10 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts are projecting Markforged's EPS of negative $0.58 in the last year to reach break even.
Key Takeaways from Markforged's Q2 Results We were impressed by how significantly Markforged blew past analysts' EPS expectations this quarter on the back of a small revenue beat. On the other hand, its full-year revenue guidance missed. Overall, this was a mixed quarter for Markforged, but the market seems to be focusing on the positives. The stock traded up 8.9% to $0.29 immediately following the results.
