Fathom Digital Manufacturing Corp (FATH) 2023 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Fathom Digital Manufacturing third-quarter 2023 earnings conference call. (Operator Instructions) I would now like to turn this conference call over to our host, Investor Relations, Vanessa Winter. Please go ahead.

大家早安，歡迎參加 Fathom Digital Manufacturing 2023 年第三季財報電話會議。 （操作員說明）我現在想將本次電話會議轉交給我們的主持人投資人關係部 Vanessa Winter。請繼續。

Thank you, and good morning, everyone. Welcome to Fathom's third-quarter 2023 earnings conference call. Before we begin, I'd like to mention that today's presentation and earnings press release are available at Fathom's website at fathommfg.com, where you will also find links to our SEC filings, along with other important information about our company.

謝謝大家，大家早安。歡迎參加 Fathom 2023 年第三季財報電話會議。在我們開始之前，我想提一下，今天的演示和收益新聞稿可在 Fathom 的網站 fathommfg.com 上找到，您還可以在其中找到我們 SEC 文件的鏈接，以及有關我們公司的其他重要信息。

Turning to slide 2, we note that this presentation contains forward-looking statements within the meaning of the Securities Exchange Act. We encourage you to read the risk factors contained in our filings with the SEC, become aware of the risks and uncertainties in our business, and understand that forward-looking statements are only estimates of future performance and should be taken as such. The forward-looking statements represent management's expectations only as of today, and the company disclaims any obligation to update them.

轉向投影片 2，我們注意到本簡報包含《證券交易法》含義內的前瞻性陳述。我們鼓勵您閱讀我們向 SEC 提交的文件中包含的風險因素，以了解我們業務中的風險和不確定性，並了解前瞻性陳述僅是對未來業績的估計，應如此對待。這些前瞻性陳述僅代表管理階層截至目前的預期，本公司不承擔任何更新這些前瞻性陳述的義務。

And we also note today's presentation includes non-GAAP financial measures described in a way in which we manage and operate our business. We reconciled these measures to the most comparable GAAP measure, and you are encouraged to examine these reconciliations, which can also be found in the appendix to our press release and the slide presentation.

我們還注意到今天的演示包括以我們管理和運營業務的方式描述的非公認會計準則財務指標。我們將這些衡量標準與最具可比性的公認會計準則衡量標準進行了調整，我們鼓勵您檢查這些調整，這些調整也可以在我們的新聞稿和幻燈片簡報的附錄中找到。

With us today are Carey Chen, Fathom's Chief Executive Officer; and Mark Frost, the Chief Financial Officer. I will now hand the call over to Mark.

今天與我們在一起的有 Fathom 執行長 Carey Chen；和財務長馬克‧弗羅斯特(Mark Frost)。我現在將把電話轉給馬克。

Thanks, Vanessa, and welcome to Fathom's third-quarter 2023 conference call. As you are all aware, we recently announced that Carey Chen was appointed CEO of Fathom. We are happy to have him join us today for his first earnings call. Carey has been an active member of Fathom's Board for the past two years and previously served as a Director of Fathom's predecessor company for the past four years. He is an accomplished business leader with experience in global manufacturing and an extensive background in the industrial space. I will hand the call over to Carey for some introductory remarks, and then I'll return to provide a review of our operating performance and financial results. Carey?

謝謝 Vanessa，歡迎參加 Fathom 2023 年第三季電話會議。眾所周知，我們最近宣布任命 Carey Chen 為 Fathom 執行長。我們很高興他今天參加我們的第一次財報電話會議。 Carey 在過去兩年中一直是 Fathom 董事會的活躍成員，並在過去四年中擔任 Fathom 前身公司的董事。他是一位卓有成就的商業領袖，擁有全球製造經驗和工業領域的廣泛背景。我會將電話轉交給凱裡，讓他做一些介紹性發言，然後我會回來對我們的營運績效和財務表現進行審查。凱裡？

Thank you, Mark. It's a pleasure to be here today as Fathom's recently appointed Chief Executive Officer. My remarks today will include a brief summary of my background, some high-level observations of where we are today, as well as the growth opportunities I see for Fathom moving forward. I will also discuss our long-term goals and objectives to rebuild shareholder value as well as my top priorities and key areas of focus as CEO to achieve those goals. I'll then turn the call back to Mark for a review of our operating performance and financial results for the third quarter of the year, as well as our full-year outlook.

謝謝你，馬克。我很高興今天作為 Fathom 最近被任命的執行長來到這裡。我今天的演講將包括對我的背景的簡要總結、對我們今天所處位置的一些高層觀察，以及我認為 Fathom 未來發展的機會。我還將討論我們重建股東價值的長期目標和目標，以及我作為執行長實現這些目標的首要任務和重點關注領域。然後，我將把電話轉回給馬克，讓他回顧我們今年第三季的經營業績和財務業績，以及我們的全年展望。

Before I begin, I would first like to recognize Ryan Martin's leadership role in guiding Fathom through the company's transition to becoming a publicly-traded company and establishing Fathom as an industry leader with strong prospects for the future.

在開始之前，我首先要感謝 Ryan Martin 在引導 Fathom 完成向上市公司轉型以及將 Fathom 打造成具有良好未來前景的行業領導者方面所發揮的領導作用。

My experience in manufacturing includes almost three decades of operational and management leadership with several growth-oriented tech companies in a wide variety of industrial sectors. As Mark mentioned, I have been on Fathom's Board since 2021 and a Board member of its predecessor companies since 2019. I believe this experience over the past four years has provided me with an understanding of Fathom's strengths, the current challenges we face, as well as the opportunities that exist in the on-demand digital manufacturing arena, including additive manufacturing, metal cutting, CNC machining, injection molding, amongst many other service capabilities.

我在製造業的經驗包括在多個工業領域的多家成長型科技公司擔任營運和管理領導職務近三十年。正如 Mark 所提到的，我自 2021 年起加入 Fathom 董事會，並自 2019 年起成為其前身公司的董事會成員。我相信過去四年的經歷讓我了解了 Fathom 的優勢、我們當前面臨的挑戰以及按需數位製造領域存在的機遇，包括積層製造、金屬切割、數控加工、射出成型以及許多其他服務能力。

I firmly believe that we have a significant opportunity to partner with quality manufacturers across a wide variety of end markets given our superior manufacturing capabilities and reputation for delivering unique, value-added solutions. At a high level, Fathom remains a formidable leader in the evolving industry with significant underlying strengths. Our customer base represents high quality enterprise customers, many of whom represent a reliable recurring revenue source.

我堅信，鑑於我們卓越的製造能力以及在提供獨特的增值解決方案方面的聲譽，我們有很大的機會與各種終端市場的優質製造商合作。從高水準來看，Fathom 仍然是不斷發展的行業中令人敬畏的領導者，具有顯著的潛在優勢。我們的客戶群代表高品質的企業客戶，其中許多代表可靠的經常性收入來源。

We have superior manufacturing assets across a wide variety of complementary solutions. Our evolved step technology and our new product introductions reflect a strong culture of innovation, problem solving, and creativity that is focused on providing market-leading customer solutions. We service a wide variety of end markets, which include health care, defense, and other growth verticals. And looking at our third-quarter performance, we have several key wins, including an easy EV manufacturer for injection molding and a defense contractor for CNC machining. Both of these new customer examples represent seven figure wins.

我們在各種互補解決方案中擁有卓越的製造資產。我們不斷發展的步進技術和新產品的推出反映了強大的創新、解決問題和創造力的文化，專注於提供市場領先的客戶解決方案。我們為各種終端市場提供服務，包括醫療保健、國防和其他成長垂直市場。看看我們第三季的業績，我們有幾個關鍵的勝利，包括一個簡單的注塑成型電動車製造商和一家進行數控加工的國防承包商。這兩個新客戶的例子都代表了七位數的勝利。

As you know, we have taken several steps earlier this year to add experienced talent to our operating and sales teams. Doug Beaton recently joined us as Chief Operating Officer and Kurt Bork as Vice President of Sales. Both Doug and Kurt have done a great job in repositioning our resources to respond to the current operating environment that exists today. I am confident that we have the internal resources in place to successfully execute our growth plans.

如您所知，我們今年稍早採取了多項措施，為我們的營運和銷售團隊增添經驗豐富的人才。 Doug Beaton 最近加入我們，擔任營運長，Kurt Bork 擔任銷售副總裁。道格和庫爾特在重新配置我們的資源以應對當今的營運環境方面做得非常出色。我相信我們擁有適當的內部資源來成功執行我們的成長計劃。

This leads me to my comments on our approach to building shareholder value. Our goal is to position the company to deliver sustainable revenue growth and leverage our operations to deliver meaningful profitability and margin expansion over time. We've already taken decisive actions to reduce our cost basis through our optimization plan. We still have room to go, but believe we are headed in the right direction. I'm a firm believer that a solid capital structure built to generate free cash flow is critical for a tech company like Fathom to invest, innovate, and deliver strong, sustainable earnings.

這讓我對我們建構股東價值的方法發表了評論。我們的目標是使公司能夠實現可持續的收入成長，並利用我們的業務隨著時間的推移實現有意義的盈利能力和利潤率擴張。我們已經採取果斷行動，透過優化計畫降低成本基礎。我們還有前進的空間，但相信我們正朝著正確的方向前進。我堅信，為產生自由現金流而建立的堅實資本結構對於像 Fathom 這樣的科技公司進行投資、創新和實現強勁、可持續的盈利至關重要。

Let me turn to my initial top priorities and our areas of immediate focus. My first priority is to work with our lenders and large shareholders to delever our capital structure to free up cash and improve liquidity. We will also continue to limit nonessential capital expenditures. Mark will offer more details on this in a bit. My next priority is to reposition our new business development efforts to put resources against more recession, resilient industrial sectors with a focus on those with positive megatrends.

讓我談談我最初的首要任務和我們當前關注的領域。我的首要任務是與我們的貸款人和大股東合作，去槓桿化我們的資本結構，以釋放現金並改善流動性。我們也將繼續限制非必要的資本支出。馬克稍後將提供更多詳細資訊。我的下一個優先事項是重新定位我們的新業務開發工作，投入資源以應對更多衰退、有彈性的工業部門，並專注於那些具有積極大趨勢的工業部門。

In terms of our expense maintenance and reduction, we will continue to execute on the optimization plan we initiated earlier this year, and we will further identify opportunities to better align our expenses with sales and order flow. To date, we've reduced overall expenses by approximately $13 million and have eliminated redundant operating facilities. My fourth priority is to create a flexible and nimble workforce that can accommodate both our low and higher-volume business while maintaining adequate burst capacity for incremental needs. A final priority is to build scale throughout our entire operations to be in position to capitalize on new growth opportunities as business conditions improve.

在費用維持和減少方面，我們將繼續執行今年早些時候啟動的優化計劃，並將進一步尋找機會，使我們的費用與銷售和訂單流更好地保持一致。迄今為止，我們已減少了約 1300 萬美元的整體開支，並消除了多餘的營運設施。我的第四個優先事項是建立一支靈活、靈活的員工隊伍，既能適應我們的小批量和大批量業務，同時保持足夠的突發能力以滿足增量需求。最後一個優先事項是在我們的整個營運中建立規模，以便能夠隨著業務狀況的改善而利用新的成長機會。

In summary, I'm excited about the opportunity to lead Fathom during this pivotal time in the company's short history. My excitement and optimism is based on our inherent strengths, superior manufacturing capabilities, excellent customer relationships, and talented workforce, combined with the large opportunity that exists now and going forward in the on-demand digital manufacturing industry. We will continue to provide outstanding service to our customers and deliver value added solutions that help them grow and compete efficiently in their respective markets. I look forward to meeting you, our public investors and analysts, and sharing our progress along the way.

總而言之，我很高興有機會在該公司短暫歷史的關鍵時期領導 Fathom。我的興奮和樂觀是基於我們的固有優勢、卓越的製造能力、良好的客戶關係和才華橫溢的員工隊伍，再加上按需數位製造業現在和未來存在的巨大機會。我們將繼續為客戶提供卓越的服務，並提供增值解決方案，幫助他們在各自的市場中成長和有效競爭。我期待與您、我們的公共投資者和分析師見面，並分享我們一路走來的進展。

Now I'll turn the call back to Mark for a review of the financial results. Mark?

現在我將把電話轉回給馬克，以審查財務結果。標記？

Thanks, Carey. I'll begin my remarks on slide 3, where we provide our quarter three highlights. Our performance for the quarter was mixed. We experienced order softness in several of our key end markets, including precision sheet metals and CNC. In the third quarter, we delivered revenue of $31.5 million in line with our expectations and adjusted EBITDA of $3.1 million, representing a margin of 9.8%. Orders were $29.1 million, down from $38 million in the prior quarter.

謝謝，凱裡。我將從第三張幻燈片開始我的發言，我們將在其中提供第三季的亮點。我們本季的業績好壞參半。我們在幾個關鍵終端市場（包括精密鈑金和CNC工具機）經歷了訂單疲軟。第三季度，我們實現了 3,150 萬美元的收入，符合我們的預期，調整後的 EBITDA 為 310 萬美元，利潤率為 9.8%。訂單量為 2,910 萬美元，低於上一季的 3,800 萬美元。

Now on slide 4, we highlight some of our key business wins during the third quarter and year to date. Staying close to our customers, especially during this uncertain time, remains a key priority for us. As Carey mentioned, one of his new initiatives is focusing on markets that are less cyclical or performing well. One market that is performing well is electric vehicle manufacturing. During the quarter, we received a $1.5 million order for injection molding and additive manufacturing for an EV client as the sustainability that electric vehicles offer has proven to be a resilient market. On the less cyclical side, we had two wins in power generation, one for $400,000 sheet metal, and another for $300,000 for injection molding and additive manufacturing.

現在在投影片 4 上，我們重點介紹了第三季和今年迄今為止的一些關鍵業務成果。與客戶保持密切聯繫，尤其是在這個不確定的時期，仍然是我們的首要任務。正如凱裡所提到的，他的新舉措之一是專注於週期性較小或表現良好的市場。電動車製造是表現良好的市場之一。本季度，我們收到了一家電動車客戶 150 萬美元的注塑和增材製造訂單，因為電動車提供的可持續性已被證明是一個有彈性的市場。在周期性較小的方面，我們在發電方面取得了兩項勝利，一項是 40 萬美元的鈑金，另一項是 30 萬美元的注塑和增材製造。

The last one I'd like to highlight is a notable win with a global defense contractor for CNC machining. As we mentioned last quarter, this customer has the potential to be a recurring customer contributing up to $3 million annually over time.

我想強調的最後一個是與全球國防承包商的 CNC 加工的重大勝利。正如我們上季度提到的，隨著時間的推移，該客戶有可能成為經常性客戶，每年貢獻高達 300 萬美元。

I'll now move on to the financial results for quarter three, which began on slide 5. Our revenue for the third quarter totaled $31.5 million, which was within our guidance range and down from $40.2 million in the same period a year ago. While we continue to make progress in ramping up our commercial activities and strengthening our go to market strategies, we have had some headwinds impacting our business in the near term, impacting both our orders and shipments. Some core customers are ordering more conservatively and reducing inventories, they lower their safety stock. Other customers are responding to the uncertain environment by pushing out orders, which is delaying our shipments and lengthening our sales cycles.

現在我將介紹第三季的財務業績，該業績從幻燈片 5 開始。我們第三季的收入總計 3,150 萬美元，在我們的指導範圍內，低於去年同期的 4,020 萬美元。雖然我們在加強商業活動和加強市場策略方面繼續取得進展，但短期內我們的業務遇到了一些不利因素，影響了我們的訂單和出貨。一些核心客戶更保守地訂購並減少庫存，他們降低了安全庫存。其他客戶透過推遲訂單來應對不確定的環境，這延遲了我們的發貨並延長了我們的銷售週期。

Our revenue by product line for the quarter was as follows. CNC machining totaled $12.5 million or 40% of revenue, slightly down from $13.2 million sequentially, but a higher percentage of overall revenue. Precision sheet metal was $9.5 million or 30.3% of total revenue. While this business was roughly flat with $10.2 million sequentially, it remains the main drag of our year-on-year decline. Injection molding was $5.4 million or 17.1% of total revenue. Additive manufacturing totaled $2.7 million or 8.6% of total revenue. With the launch of our new technology center, we expect to build a more robust pipeline for evolve. And finally, ancillary technologies, our smallest product line, was $1.4 million, representing 4.3% of total revenue.

本季我們按產品線劃分的收入如下。 CNC 加工總計 1,250 萬美元，佔營收的 40%，略低於上一季的 1,320 萬美元，但佔總營收的比例較高。精密鈑金收入為 950 萬美元，佔總收入的 30.3%。雖然該業務與上一季大致持平，為 1,020 萬美元，但它仍然是我們同比下降的主要拖累。注塑業務收入為 540 萬美元，佔總收入的 17.1%。積層製造總計 270 萬美元，佔總收入的 8.6%。隨著我們新技術中心的啟動，我們期望建立一個更強大的進化管道。最後，輔助科技（我們最小的產品線）為 140 萬美元，佔總收入的 4.3%。

Turning to slide 6, we provide our adjusted EBITDA performance for the third quarter. In quarter three, adjusted EBITDA totaled $3.1 million, representing a margin of 9.8%. This compares to adjusted EBITDA of $7.1 million or 17.5% in quarter two 2023. As noted, profitability was impacted due to lower orders as our customers work through their excess inventory. We've taken significant action to reduce our cost structure, so we are positioned for improved operating leverage. During the quarter, we realized cost savings of approximately $4.7 million from the continued execution of our optimization plan. This included approximately $2.5 million of general administrative savings and $2.6 million in COGS.

轉向幻燈片 6，我們提供了第三季調整後的 EBITDA 業績。第三季度，調整後 EBITDA 總計 310 萬美元，利潤率為 9.8%。相比之下，2023 年第二季調整後的 EBITDA 為 710 萬美元，即 17.5%。如上所述，由於我們的客戶處理過剩庫存，訂單減少，獲利能力受到影響。我們已採取重大行動來降低成本結構，因此我們有能力提高營運槓桿。本季度，我們透過持續執行最佳化計畫實現了約 470 萬美元的成本節省。其中包括約 250 萬美元的一般管理節省和 260 萬美元的銷貨成本。

The savings were an improvement when compared to cost savings of $4.3 million realized in the second quarter, bringing the cumulative amount of the first nine months to approximately $14.7 million. We have responded quickly to the lighter order volume this quarter and expanded our cost savings in September to include an additional $4 million. This will bring our total cost savings initiative to $23.1 million, up from $19.5 million communicated previously. Going forward, as Carey stated, we will continue to focus on less cyclical markets and those of positive megatrends to ensure our operational activities align with our customer commitments.

與第二季實現的 430 萬美元成本節省相比，這項節省有所改善，使前 9 個月的累積金額達到約 1,470 萬美元。我們對本季訂單量減少的情況做出了快速反應，並在 9 月擴大了成本節約，額外節省了 400 萬美元。這將使我們的總成本節約計畫從先前通報的 1,950 萬美元增至 2,310 萬美元。展望未來，正如凱裡所說，我們將繼續專注於週期性較小的市場和積極的大趨勢市場，以確保我們的營運活動與我們的客戶承諾保持一致。

For quarter three, our SG&A totaled $8.1 million, a year-over-year decline of approximately 32% and a 14% sequential decrease. This decrease represents a 400-basis point improvement from last year's third quarter. The decrease was largely driven by the impact of our optimization plan, along with lower professional costs associated with the business combination, reduced stock-based compensation expenses, and lower headcount. Now excluding stock compensation, our recurring public company expenses in quarter three decreased to approximately $0.9 million compared to $1.1 million a year ago.

第三季度，我們的 SG&A 總額為 810 萬美元，年減約 32%，季減 14%。這一下降比去年第三季提高了 400 個基點。這一下降主要是由於我們的優化計劃的影響，以及與業務合併相關的專業成本的降低、股票薪酬費用的減少以及員工人數的減少。現在，不包括股票報酬，我們第三季的經常性上市公司費用從一年前的 110 萬美元減少到約 90 萬美元。

Now on slide 7, we show our liquidity and cash flow. We ended the third quarter with available liquidity of $15.8 million. This includes $7.8 million in cash and cash equivalents and $8 million of undrawn commitments under our $50 million revolving credit facility. As discussed in the past, we have continued to pursue actions to deleverage our debt near term. Yesterday, we signed an amendment to our credit facility. More details of the agreement are available in our 10-Q.

現在在幻燈片 7 上，我們展示了我們的流動性和現金流。第三季末，我們可用的流動資金為 1580 萬美元。其中包括 780 萬美元的現金和現金等價物以及我們 5000 萬美元循環信貸額度下的 800 萬美元未提取承諾。正如過去所討論的，我們在短期內繼續採取行動去槓桿化我們的債務。昨天，我們簽署了信貸安排修正案。有關該協議的更多詳細信息，請參閱我們的 10-Q。

As of September 30, our total gross debt, excluding cash, was $159.2 million and net debt totaled $151.4 million with no debt maturities before December 2026. Now cash provided by operations in quarter three totaled $2.3 million, up from $1.7 million in quarter 2, reflecting continued improvement in our working capital management. In addition, supported by our working capital improvements as well as our optimization plan, we improved free cash flow by $3.8 million year to date. In quarter three, our CapEx year to date was $4.3 million, this was comprised of $2.3 million equipment purchases and approximately $2 million for investments in IT systems to support future growth.

截至9 月30 日，我們的總債務（不包括現金）為1.592 億美元，淨債務總額為1.514 億美元，在2026 年12 月之前沒有債務到期。現在，第三季營運提供的現金總額為230 萬美元，高於第二季的170 萬美元。反映出我們營運資金管理的持續改善。此外，在我們的營運資本改善和優化計畫的支持下，我們今年迄今的自由現金流增加了 380 萬美元。第三季度，我們年初至今的資本支出為 430 萬美元，其中包括 230 萬美元的設備採購和約 200 萬美元的 IT 系統投資，以支持未來的成長。

As we mentioned last quarter, we continued to make progress with our ERP and EDP systems. In the quarter, another site went live on our ERP platform, and we soft launched our EDP program application, I should say, which we are in the process of fully rolling out in quarter four.

正如我們上季度提到的，我們的 ERP 和 EDP 系統繼續取得進展。本季度，另一個網站在我們的 ERP 平台上上線，我應該說，我們軟啟動了我們的 EDP 程式應用程序，我們正在第四季度全面推出該應用程式。

Now turning now to slide 8, we provide our forecast for the fourth quarter of 2023. We expanded our cost savings actions, consolidated our footprint, and lowered our expense base, as we position ourselves for scalability. For the fourth quarter, we anticipate realized cost savings of approximately $4 million from our optimization plan. We expect to recognize the balance of $4 million further of the optimization plan in fiscal 2024. While we continue to see orders taking longer to convert to revenue, we remain optimistic market conditions will improve as lead times come down and customer inventories return to more normalized levels. Currently expect quarter four revenue and adjusted EBITDA to be in line with our quarter three performance. The continued execution of our optimization plan, coupled with upgrading key operational team members, positions us well as the environment improves.

現在轉向投影片 8，我們提供了 2023 年第四季的預測。我們擴大了成本節約行動，鞏固了我們的足跡，並降低了我們的費用基礎，因為我們為可擴展性做好了定位。對於第四季度，我們預計優化計劃將實現約 400 萬美元的成本節省。我們預計將在2024 財年進一步確認優化計劃的400 萬美元餘額。雖然我們仍然看到訂單需要更長的時間才能轉化為收入，但我們仍然樂觀地認為，隨著交貨時間的縮短和客戶庫存恢復到更正常化的狀態，市場狀況將會改善水準。目前預計第四季度的營收和調整後的 EBITDA 將與我們第三季的業績保持一致。我們優化計劃的持續執行，加上關鍵營運團隊成員的升級，使我們在環境改善方面處於有利地位。

I would now like to turn the call back over to the operator for questions. Operator?

我現在想將電話轉回給接線員詢問問題。操作員？

(Operator Instructions) Jim Ricchiuti, Needham.

（操作員說明）Jim Ricchiuti，Needham。

Hi. Thank you. Good morning. I wanted to go back to some of the commentary around improving the growth and profitability. And maybe before we get specifically to that, can you talk about the sequential decline in gross margin. How much of that came from volume and how much came from pricing? And I guess my question is just related to more to when the volumes begin to recover? And I'm wondering what a realistic range of gross margins might look like for the business.

你好。謝謝。早安.我想回到一些關於提高成長和獲利能力的評論。也許在我們具體討論這個問題之前，您能談談毛利率的連續下降嗎？其中有多少來自銷售量，有多少來自定價？我想我的問題只是與銷售何時開始恢復有關？我想知道該業務的實際毛利率範圍可能是什麼樣的。

Sure. I'll take the call. The primary reason was our revenue dropping from $34 million to $31.5 million. We have, as we've talked in the past, 30% of our cost would be considered overhead purely fixed, but we have another 40% coming from labor where unless you can immediately take actions, Jim, as we've talked about, it acts like a fixed cost. So basically what happens is we lose 70% unless we take actions to resize, particularly our labor force, and that's indeed what we announced on the call. The primary issue was absorption. To answer the second part of your call, our expectation still is if we can get back to a mid 30 revenue levels that we should be back to the low 30s to mid 30 type of gross margin. But coming to this level, now I'll step back and we are taking actions that we hope even at this level of 31, 32 million, we can get back towards 30%, and that is our expectation and hope for quarter four, is we'll be able to do that. So does that give better color, Jim, on the situation?

當然。我會接電話。主要原因是我們的收入從 3,400 萬美元下降到 3,150 萬美元。正如我們過去所說，我們的成本中有 30% 被認為是純粹固定的管理費用，但我們還有另外 40% 來自勞動力，除非你能立即採取行動，吉姆，正如我們所說，它就像固定成本。因此，基本上，除非我們採取行動調整規模，特別是我們的勞動力規模，否則我們會損失 70%，而這確實是我們在電話會議上宣布的。主要問題是吸收。為了回答您電話的第二部分，我們的期望仍然是，如果我們能夠回到 30 左右的收入水平，那麼我們的毛利率應該會回到 30 左右到 30 左右的低水平。但到了這個水平，現在我要退後一步，我們正在採取行動，希望即使在 31、3200 萬的水平上，我們也能回到 30%，這是我們對第四季度的期望和希望，我們將能夠做到這一點。那麼，吉姆，這是否能讓我們更了解情況？

It does, Mark. Yes, it does. Appreciate that. Hey, Carey, if we think about your strategy, the focus you have on some of these more resilient markets, here even EVs, I mean, how much resiliency is there? Potentially, we're seeing some signs of weakness, even pockets of weakness in that market. And I wonder as you think about the business, is the focus going to be more on generating business with newer customers or really expanding the presence with existing? I'm sure it's probably both. But near term, where do you see the opportunities to maybe drive some revenue growth?

確實如此，馬克。是的，它確實。感謝。嘿，凱裡，如果我們考慮一下您的策略，您對一些更具彈性的市場的關注，甚至是電動車，我的意思是，有多少彈性？我們可能會看到該市場的一些疲軟跡象，甚至是局部疲軟。我想知道，當您考慮業務時，重點是否會更多地放在與新客戶建立業務上，還是真正擴大現有客戶的業務？我確信可能兩者都是。但短期內，您認為哪些機會可能會推動營收成長？

Yes, Jim. So I think you've answered my question for me. It is answer C, all of the above. We have a very key strategic account managers that will continue to maintain and cultivate our existing enterprise-level customers. But as you mentioned from a new business development standpoint, I am a fan of Wayne Gretzky and he always said what made him great wasn't skating to where the puck was, but to where it's going. So as discussions of recessions and things of that continue to loom on, there are some industries regardless of what the economy does, I think people still need electricity, whatever the economy does. I think people will still need medical attention and whatever the economy does, the country will need to remain safe. So those are examples where we might shift our new business development focus.

是的，吉姆。所以我想你已經回答我的問題了。答案是C，以上皆是。我們有非常關鍵的策略客戶經理，他們會繼續維護和培養我們現有的企業級客戶。但正如你從新業務發展的角度提到的，我是韋恩·格雷茨基的粉絲，他總是說讓他偉大的不是滑到冰球所在的地方，而是滑到冰球要去的地方。因此，隨著對經濟衰退和相關問題的討論繼續出現，無論經濟如何發展，有些行業我認為無論經濟如何發展，人們仍然需要電力。我認為人們仍然需要醫療護理，無論經濟如何發展，國家都需要保持安全。因此，這些都是我們可能轉移新業務開發重點的例子。

As far as EV is concerned, I guess we were a bit different from the current trends with our recent win. But we are hopeful that as markets fluctuate up and down that 2024 will be a good rebound for that particular sector.

就電動車而言，我想我們最近的勝利與當前的趨勢有些不同。但我們希望，隨著市場的上下波動，2024 年該特定產業將出現良好反彈。

Okay. Thank you. I'll jump back in the queue. Thanks. Good luck.

好的。謝謝。我會跳回到隊列中。謝謝。祝你好運。

Thank you.

謝謝。

Greg Palm, Craig-Hallum Capital.

格雷格·帕爾姆，克雷格-哈勒姆資本。

Hey, thanks. Good morning and thanks for taking the questions. Carey, I just wanted to follow-up a little bit with your line of thinking around the strengths, the opportunities, some of the challenges, maybe if we can just start off, giving us a high-level review of maybe what went wrong or what the company encountered as some of the most significant challenges over and maybe the recent year, I know macro and overall economic conditions have been pretty uncertain. But just from a strategy standpoint, is there anything that you can point out that maybe it's top of mind?

嘿，謝謝。早上好，感謝您提出問題。凱裡，我只是想跟進一下您對優勢、機會和一些挑戰的看法，也許我們可以開始，對可能出現的問題或問題進行高水平的審查我知道宏觀和整體經濟狀況相當不確定，該公司可能在最近一年中遇到了一些最重大的挑戰。但僅僅從策略的角度來看，有什麼是你可以指出的，也許這是首要考慮的事情嗎？

Sure. So the way I look at the business and coming into the role of CEO, I still remain very bullish about Fathom going forward. As I mentioned before, I believe the company has amazing manufacturing capabilities. That's one key asset. And as I've gotten to be reacquainted with some of the employees and get to know others, just amazed at their attitude, their creativity, and innovative spirit.

當然。因此，從我看待業務和擔任執行長的角度來看，我仍然非常看好 Fathom 的未來。正如我之前提到的，我相信該公司擁有驚人的製造能力。這是一項關鍵資產。當我重新認識一些員工並了解其他員工時，我對他們的態度、創造力和創新精神感到驚訝。

As we also mentioned, we do have a very strong collection of high retention enterprise customers and a very strong capable management team that's ready to take the company to the next level.

正如我們也提到的，我們確實擁有大量高保留率的企業客戶和一支非常強大、有能力的管理團隊，準備好將公司提升到一個新的水平。

As you mentioned, we have had some macroeconomic difficulties that haven't necessarily been in our favor since we've gone public. My approach isn't to necessarily focus on the things that aren't going our way but instead to focus on the things that we can control. As Mark discussed, we are still focused on our cost optimization plan which is, as you mentioned, increased by about $4 million. And then as I also just talked with Jim about, we intend to focus on markets that are either more recession resilient or have positive megatrends going forward.

正如您所提到的，我們遇到了一些宏觀經濟困難，自從我們上市以來，這些困難不一定對我們有利。我的方法不一定是專注在那些不符合我們意願的事情，而是專注在我們可以控制的事情上。正如 Mark 所討論的，我們仍然專注於我們的成本優化計劃，正如您所提到的，該計劃增加了約 400 萬美元。正如我剛剛與吉姆談到的那樣，我們打算專注於那些更具經濟衰退彈性或未來有正面大趨勢的市場。

Got it. Okay, makes sense. And Mark, I know you mentioned the amendment from the lender perspective, and I think you said it's disclosed or will be disclosed in the Q. I know that's not filed yet. Can you give us any sense on that amendment and what it entails? And any update on when the Q will be out?

知道了。好吧，有道理。馬克，我知道您從貸方的角度提到了修正案，我認為您說過它已經在問題中披露或將在問題中披露。我知道還沒有提交。您能否告訴我們該修正案及其意義？ Q 何時發布有任何更新嗎？

Sure. The Q will be out this afternoon. Let me give you some high-level. You know, as we've discussed the last couple of quarters, we have continued to pursue actions and Carey mentioned this on in his opening remarks, to deleverage on Fathom. We think this amendment should accomplish that fact. A couple of major elements. I think first, we appreciate the support our lenders have given us. We think this will give us a lot of flexibility and it worked through a long-term solution. We think for the forward future of Fathom. The first element is our resetting of various covenants, including leverage and liquidity. The largest element actually is a commitment from our majority shareholder or other players to pay down $50 million of our debt at the end of first quarter within the second quarter, either from a form of equity capital or a guaranteed letter of credit structures. So that element we think will accomplish our ability to significantly progress deleveraging on the business.

當然。 Q將於今天下午發布。讓我給你一些高水準的。你知道，正如我們在過去幾個季度所討論的那樣，我們繼續採取行動，凱裡在開場白中提到了這一點，以對 Fathom 進行去槓桿化。我們認為這項修正案應該實現這一事實。幾個主要元素。我認為首先，我們感謝貸方給予我們的支持。我們認為這將為我們帶來很大的靈活性，並且它是一個長期解決方案。我們為 Fathom 的未來著想。第一個要素是我們重置各種契約，包括槓桿和流動性。實際上，最大的因素是我們的大股東或其他參與者承諾在第二季度第一季末以股本形式或擔保信用狀結構償還我們 5000 萬美元的債務。因此，我們認為這項要素將實現我們顯著推進業務去槓桿化的能力。

There are some other elements that you'll see in the 10-Q and we'll file of course the full amendment. So you'll be able to see that when we file our 10-Q later. Hopefully that provides enough detail, Greg, on the amendment.

您將在 10-Q 中看到其他一些內容，我們當然會提交完整的修正案。因此，當我們稍後提交 10-Q 時，您將能夠看到這一點。格雷格，希望這提供了有關修正案的足夠細節。

Yes, no, that does interesting. Okay, thanks a lot.

是的，不，這確實很有趣。好的，非常感謝。

Jacob Stephan, Lake Street.

雅各史蒂芬，湖街。

Yeah. Hey, guys. Thanks for taking my questions. Just kind of want to focus, you know the stronger end environments for your solutions, but maybe can you just talk about some of the end markets you can you thought were weaker and than you had expected originally?

是的。大家好。感謝您回答我的問題。只是想集中精力，您知道您的解決方案的最終環境更強大，但也許您可以談談您認為比您最初預期更弱的一些終端市場嗎？

Sure. I'll take a shot at that, Carey. The largest one has been the semiconductor side of our business, Jacob, and that hits enough, particularly our precision sheet metal, but it's also hit some of our CNC activities. The other one actually started off well, I'd say the first quarter. But the last few quarters, we've actually seen weakness in medical and more specifically in the diagnostic imaging side of medical. Now talking to those customers, Jacob, the sense is this is a pause and they expect this to re-energize as we go into 2024. And we actually have recently seen a motors would suggest that. That is our largest end market for the business in the high 20% level. So that particularly contributed in quarter three to the lower order rate and lower shipment rate for the business.

當然。我會嘗試一下，凱裡。最大的一個是我們業務的半導體方面，雅各布，這已經足夠了，特別是我們的精密鈑金，但它也影響了我們的一些數控活動。另一個實際上開始得很好，我想說的是第一季。但在過去的幾個季度中，我們實際上看到了醫療領域的弱點，更具體地說是醫療診斷影像的弱點。現在，雅各布，在與這些客戶交談時，我感覺這是一個暫停，他們預計隨著2024 年的到來，這種情況會重新煥發活力。實際上，我們最近看到一台電機會表明這一點。這是我們 20% 高水準業務的最大終端市場。因此，這尤其導致了第三季業務訂單率和出貨率的下降。

Okay. And maybe just on that point, when you think about the more resilient markets, you noted medical being one of those. Are you focusing more on the medical device side and have you pursued the qualifications for these applications? Could you just talk about your strategy around medical?

好的。也許就在這一點上，當您想到更具彈性的市場時，您會注意到醫療就是其中之一。您是否更關注醫療器材方面，並且是否已獲得這些應用的資格？您能談談您在醫療方面的策略嗎？

Sure. We have a medical certification at two of our sites, Jacob. We continue to be highly focused on medical. I think we had, as I said, a pause but we have a significant because of our certification. If you all probably understand that industry, it makes you sticky with your customers. So we will continue to focus on that as we move forward. And as Carey indicated, EV, we will continue to focus on. We've built some very good relationships with a lot of the significant EV customers. And I would say electric vehicles are here to stay, and particularly in the United States. So that will be continue to be a big focus area for us, Jacob.

當然。雅各布，我們的兩個工廠都有醫療證明。我們持續高度關注醫療。正如我所說，我認為我們有一個暫停，但由於我們的認證，我們有一個重要的暫停。如果你們都了解這個行業，它會讓你們對客戶產生黏性。因此，在我們前進的過程中，我們將繼續關注這一點。正如凱裡表示，我們將繼續關注電動車。我們與許多重要的電動車客戶建立了非常良好的關係。我想說電動車將繼續存在，尤其是在美國。因此，這將繼續成為我們雅各的重點領域。

Okay. That's helpful. I'll hop back in the queue here. Best of luck going forward, guys.

好的。這很有幫助。我會回到這裡的隊列。祝大家好運。

Thank you.

謝謝。

Thank you.

謝謝。

Thank you. As there are no additional questions waiting at this time, I'd like to thank you all for joining us for the Fathom Digital Manufacturing third-quarter 2023 earnings conference call. Have a great rest of your day. You may now disconnect your line.

謝謝。由於目前沒有其他問題，我謹感謝大家參加 Fathom Digital Manufacturing 2023 年第三季財報電話會議。祝您有個愉快的一天。現在您可以斷開線路。