Shapeways’ Q3 Financial Report: Net Losses & Unveiling of New Restructuring Strategies for Profitability in 3D Printing Sector

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Shapeways (Nasdaq: SHPW) has revealed its financial results for the third quarter of 2023. The period was characterized by consistent advancement intertwined with certain difficulties. Despite sustaining steady revenue, the company also encountered a decrease in gross profit and margin. Moreover, a surge in net losses underscored the difficult path to profitability in the industry.

Regarding financial performance, Shapeways reported a revenue of $8.37 million, akin to the $8.45 million in revenue from the same quarter the previous year. Nevertheless, the company experienced a decrease in its gross profit, going down from $3.7 million in the third quarter of 2022 to $3.4 million this year. This downturn was also seen in the gross margin, dropping modestly from 44% to 41%.

Challenges

Shapeways CFO Alberto Recchi posits that the downturn in gross margin can be accredited to multiple factors. The company is vigorously escalating its newly established technologies, usually incurring higher initial costs before realizing efficiencies. There’s also been a shift in the product mix leaning towards non-3D printing alternatives and elevated shipping expenses, both of which can lead to increased operational costs.

Despite rising business costs, the software division, which typically generates higher profit margins, demonstrated growth. This development, along with the implementation of price increases, helped offset some of these added expenses, the executive outlined during a call with investors. Shapeways is forecasting an enlargement in its gross margin moving forward. This positive outlook is grounded in the assumption of increased earning contributions from its more lucrative software sales and the advantages of streamlining its manufacturing operations in the U.S.

However, what gives cause for concern in the earnings report is the uptick in net loss. This rose to $19.2 million, a significant increase from the prior year’s loss of $4.6 million. This inflated figure is reflected in the adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which fell from a loss of $4.6 million to a loss of $5 million. There was also a rise in the selling, general, and administrative expenses (SG&A) for the quarter, coming in at $11 million compared to the previous year’s $7.6 million. This increase is due to hiked professional fees and various write-offs related to equipment and prepaid services.

Persistent Challenges

In light of these financial outcomes, Shapeways has been making proactive adjustments to its strategic planning and operational practices. The corporation confirmed that the revenues from the software division increased by 39.6%, compared to the same quarter the previous year. The company’s launch of innovative features, for example, the MFG Materials platform, is designed to curb raw material costs for consumers, which could be partially responsible for this trend.

Users can get 3D printed parts delivered. Image courtesy of Shapeways/Otto.

Shapeways has also made significant progress in its business with larger corporate clients. It successfully secured two major long-term agreements with leading players in the automotive and transportation industries. These contracts are expected to contribute roughly $4 million in annual revenues by the end of next year. Meanwhile, its eCommerce operations have remained stable.

With sales taking longer to complete and amid economic uncertainties, Shapeways has begun several cost reduction measures. These include reductions in workforce and non-essential spending. According to Recchi, there will be a 15% staff cut, which could roughly mean at least 25 employees will lose their jobs, considering the company has close to 200 workers.

Moreover, Shapeways CEO Greg Kress told investors they are exploring various strategic alternatives, including potential mergers, business combinations, capital raise, or asset sales, to strengthen the financial outlook. However, no decisions regarding any possible transaction have yet been made.

Shifts

As of September 30, 2023, Shapeways reported having $17.7 million in cash reserves. Despite this, the company’s expenditure of about $7 million in the third quarter highlights the need for sound financial management. Shapeways predicts its revenues to be between $9.3 million and $10 million for the fourth quarter of 2023. This estimate indicates possible growth in comparison to the $8.7 million revenue reported in the last quarter of 2022, an increase from the $8.3 million reported in the same period in 2021.

The company’s stock hit a low point of $2.20 on November 17, 2023. This follows a larger market trend, with looming recession worries severely impacting companies. Shapeways, which is at the convergence of tech and manufacturing stocks, is also grappling with challenges inherent to the manufacturing industry. Primarily, there has been a contraction in activity for multiple consecutive months, reflecting an economic slowdown and suggesting sustained low industrial demand.

Focussing on the remainder of 2023 and on to 2024, the management highlighted that strict emphasis will be maintained on achieving profitability and managing cash burn. This management strategy involves leveraging the investments made in 2022 to expand its digital manufacturing platform. Even though Shapeways is seeing growth in its software and enterprise manufacturing sectors, indicating potential paths for future expansion, the rise in net losses and economic tribulations pushes the business further from its immediate break-even expectations.

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