Markforged (MKFG) - 2022 Q4 - Annual Report

PART I Item 1. Business Markforged's 'Digital Forge' platform provides additive manufacturing solutions with 3D printers, materials, and software for industrial-strength parts. Company Overview - Markforged's core offering is 'The Digital Forge,' an additive manufacturing platform integrating 3D printers, proprietary metal and composite materials, and cloud-based software for resilient supply chains[19] - The platform serves thousands of customers globally across industries like aerospace, military, healthcare, and automotive, producing millions of mission-critical, end-use parts for various needs[20] - Key technologies include patented Continuous Fiber Reinforcement (CFR) for strong composite parts and the Metal X system for printing advanced metal parts, managed through a secure cloud infrastructure with AI-powered solutions like Blacksmith[24] Industry Background - Traditional manufacturing faces limitations in design, skilled labor availability, and complex supply chains, leading to increased costs and lead times[25][26][27] - Additive manufacturing offers solutions by enabling new design capabilities, being more accessible to a digitally-trained workforce, and shortening supply chains through on-demand production[28] - Most 3D printing solutions historically focused on design and prototyping, lacking the industrial applicability and distributed manufacturing capabilities that Markforged's Digital Forge aims to provide[29][30] Our Growth Strategy - Markforged's growth strategy is centered on five key areas[31] - Fuel Integrated Platform with Software Solutions: Invest in platform features to solve more customer problems, generate data for AI-powered solutions (Simulation, Blacksmith), and improve part accuracy, driving a continuous growth and improvement cycle - Expand Customer Use Cases and Applications: Develop faster, larger, more precise printers (e.g., FX20) and new industrial materials to broaden application possibilities for customers - Drive Deeper, More Efficient Go-To-Market Coverage: Grow global distribution footprint and optimize the go-to-market model to increase sales - Expand Position as a Trusted Brand: Invest in building a meaningful industrial technology brand to generate organic interest and lower customer acquisition costs - Target Strategic M&A Opportunities: Pursue inorganic growth by acquiring companies with complementary technologies and talent Our Competitive Strengths - Markforged's competitive strengths include[32] - Accessible, Industrial-Strength Parts: Offers proprietary composite (patented CFR process) and metal printers/materials capable of replacing traditional steel and aluminum parts - Clear and Tangible ROI: Provides cost-effective and reliable solutions, enabling significant cost and time savings for customers, leading to repeat purchases and new applications - Integrated, Modern Software Platform: Cloud-based architecture connects printers, generates data for AI-learning algorithms, and drives faster innovation and continuous improvement 3D Printers - Markforged offers three main categories of 3D printers[34] - Desktop: Precision-built professional machines for quality parts in limited spaces - Industrial: Provides predictable functionality through advanced sensors, software, materials, and print modes - Metal: Fabricates complex metal parts using various advanced metals, including high-volume binder jetting solutions Materials - The Digital Forge supports a wide range of proprietary materials for composite, continuous fiber, and metal parts, offering flexibility for design and manufacturing[34] - Composite: Onyx™, Onyx FR™, Onyx ESD™, ULTEM™ 9085 Filament, Smooth TPU 95a, Precise PLA, and Nylon - Continuous Fiber: Carbon Fiber, Carbon Fiber FR, Aramid Fiber (Kevlar®), HSHT Fiberglass, and Fiberglass - Metal: 17-4 PH Stainless Steel, Copper, Inconel 625, H13 Tool Steel, and A2 and D2 Tool Steel - The patented Continuous Fiber Reinforcement (CFR) process significantly enhances part strength (up to 25 times stronger than ABS plastics), allowing replacement of machined aluminum parts with customizable reinforcement[35][36] Software - Markforged's integrated software platform streamlines the manufacturing workflow from design to part, offering advanced part slicing, cloud-based part repositories, real-time enterprise fleet management, and simulation capabilities[37][44] - Advanced part slicing and printing: Secure, fast, and intuitive browser-based workflow for designing, printing, and monitoring parts - Integrated cloud part repository: Securely stores, versions, edits, and prints part files from anywhere - Real-time enterprise-grade fleet management: Premium software subscription provides analytics, usage data, live telemetry, and automatic updates for managing printer fleets globally - Simulation: Replaces slow physical testing with virtual testing to ensure part strength for demanding production applications Customers - Markforged serves thousands of customers globally, from small to Fortune 100 manufacturers, across industries like aerospace, military, healthcare, and automotive, for prototyping, tooling, production, and aftermarket parts[38] Research and Development - R&D is central to Markforged's strategy, focusing on designing, developing, and enhancing products, including 3D printers, software, and materials[39] Research and Development Expense | Year Ended December 31, | Expense (in millions) | | :---------------------- | :-------------------- | | 2022 | $42.4 | | 2021 | $32.2 | - R&D expenses increased by 31.7% YoY and are expected to continue rising as the company enhances existing products and develops new ones for current and new markets[40] Sales and Marketing - Markforged primarily sells products and services through a global network of approximately 100 value-added reseller partners (VARs), providing global scale and operating leverage[42] - The global marketing team focuses on new customer acquisition, retention, expansion of existing customers, and showcasing product capabilities[43] Manufacturing and Suppliers - Printer manufacturing involves both internal facilities in Billerica, Massachusetts, and third-party contract manufacturers, while consumable materials are sourced and manufactured in-house for flexibility and competitive advantage[44] Our Competition - The additive manufacturing industry is fragmented and competitive, with Markforged competing against conventional and additive manufacturing solution providers[45] - Markforged believes it compares favorably based on its cloud-based, AI-learning software, proprietary CFR process, accessible metal printing, robust IP, proven customer adoption, ease of use, scalability, and security[50] Human Capital - As of December 31, 2022, Markforged had 428 full-time employees, primarily in the greater Boston area, with a majority in engineering, operations, and related functions[46] - The company emphasizes attracting and retaining qualified employees by fostering an inclusive culture, upholding business ethics, and providing comprehensive benefits[47][48] Intellectual Property - Markforged protects its intellectual property through patents, trademarks, copyrights, trade secrets, and contractual agreements[49] - As of December 31, 2022, the company owned 55 issued U.S. patents, 36 issued foreign patents, and had 109 pending or allowed patent applications related to additive manufacturing[50] - The company also holds 2 issued U.S. trademarks and 23 issued foreign trademarks, with 4 pending U.S. and 2 pending foreign applications[51] Government Regulations - Markforged is subject to various federal, state, and local laws and regulations concerning environmental, health and safety, anti-corruption, and export controls, and believes it is in material compliance[52] Environmental Matters - The company's operations are subject to domestic and foreign environmental laws regarding emissions, hazardous substances, waste disposal, and site remediation, requiring environmental permits[53] - Export of products internationally also subjects the company to chemical import/export regulations like TSCA and REACH, requiring evaluation and registration of certain chemicals[54] Export and Trade Matters - Markforged must comply with global anti-corruption laws (e.g., U.S. FCPA, U.K. Bribery Act) and trade restrictions (e.g., OFAC sanctions, export controls), which prohibit transactions with certain entities or countries[55] - Increased U.S. government focus on export controls for 'emerging and foundational technologies' in additive manufacturing may lead to additional compliance costs and licensing requirements[55] Corporate Information - Markforged Holding Corporation was formed on July 14, 2021, through a merger and domestication of a Cayman Islands company (