10-Q 1 mkfg-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-39453

Markforged Holding Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware

92-3037714

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

60 Tower Road

Waltham, MA

02451

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (866) 496-1805

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.0001 per share

Redeemable Warrants, each whole warrant exercisable for one share of Common Stock, $0.0001 par value

MKFG

MKFG.WS

New York Stock Exchange

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 8, 2024, the registrant had 201,365,126 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements

1

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (Unaudited)

1

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (Unaudited)

2

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024 and 2023 (Unaudited)

3

 

Statement of Changes in Stockholders' Equity for the three months ended March 31, 2024 and 2023 (Unaudited)

4

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

Signatures

72

 

 


 

 

Risk Factors Summary

 

The risk factors detailed in Item 1A entitled “Risk Factors” in this Quarterly Report on Form 10-Q are the risks that we believe are material to our investors and a reader should carefully consider them. Those risks are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. The following is a summary of the risk factors detailed in Item 1A:

We have a history of net losses and may not be able to achieve profitability for any period in the future or sustain cash flow from operating activities. We have a relatively limited operating history and have experienced rapid growth, which makes evaluating our current business and future prospects difficult and may increase the risk of your investment. Our operating results may fluctuate significantly from period-to-period.
The additive manufacturing industry in which we operate is characterized by rapid technological change, which requires us to continue to develop new products and innovations to meet constantly evolving customer demands and which could adversely affect market adoption of our products.
Declines in the global economy, geopolitical and social uncertainties, global health crises and difficulties in the markets that we serve may adversely impact our business.
Adverse developments affecting the financial services industry or other third parties, such as a liquidity crisis, increased levels of defaults or non-performance by financial institutions or transactional counterparties or the perception that any of these events could occur, could adversely affect our current and projected business operations and our financial condition and results of operations.
We face significant competition in our industry. If we are unable to create new products or meet the demands of our customers, our business could be materially adversely affected.
We depend on our network of value-added resellers and our business could be materially adversely affected if they do not meet our expectations.
We depend heavily on third-party suppliers. If they or their facilities become unavailable or inadequate, our business could be adversely affected. We may experience significant delays in the design, production and launch of our additive manufacturing solutions and enhancements to existing products, and we may be unable to successfully commercialize products on our planned timelines.
We rely on a limited number of third-party logistics providers for distribution of our products, and their failure to effectively distribute our products, including because of delays and disruptions caused by current conditions in global shipping capacity, would adversely affect our sales.
If demand for our products does not grow as expected, or if market adoption of additive manufacturing does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected.
Defects in new products or in enhancements to our existing products that give rise to product returns or warranty or other claims could result in material expenses, diversion of management time and attention, and damage to our reputation.
We may be unable to consistently manufacture our products to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance level. As manufacturing becomes a larger part of our operations, we will become exposed to accompanying risks and liabilities. We depend on a limited number of third-party contract manufacturers for a substantial portion of our manufacturing needs and we depend on a number of suppliers for other parts and components; since the second half of 2021, we have increasingly experienced, and expect to continue to experience, price increases, supply shortages and delays and any such delay, disruption or quality control problems in their operations which could cause harm to our operations, including loss of market share, reduced margins and damage to our brand.
We have experienced, and expect to continue to experience, rapid growth and organizational change since our inception. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or attract new employees and customers.
A real or perceived defect, security vulnerability, error or performance failure in our software or technical problems or disruptions caused by our third-party service providers could cause us to lose revenue, damage our reputation and expose us to liability.

 


 

Our existing and planned global operations subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. Our business is subject to risks associated with selling machines and other products in non-United States locations. Global economic, political and social conditions and uncertainties in the market that we serve may adversely impact our business.
A significant portion of our business depends on sales to the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business.
We are, and have been in the recent past, subject to business and intellectual property litigation. We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply. We could face liability if our additive manufacturing solutions are used by our customers to print dangerous objects.
If we are unable to adequately protect our proprietary technology or obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
If we are unable for any reason to meet the continued listing requirements of the New York Stock Exchange (“NYSE”), such action or inaction could result in a delisting of our securities.
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain effective internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.

 

 


 

 

EXPLANATORY NOTE

On July 14, 2021, we consummated the merger (the "Merger") contemplated by the Agreement and Plan of Merger, dated as of February 23, 2021 (the “Merger Agreement”), by and among one, a Cayman Islands exempted company limited by shares (“one”), Caspian Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of one (“Merger Sub”), and MarkForged, Inc., a Delaware corporation (“Legacy Markforged”). As a result of the Merger, Legacy Markforged merged with and into Merger Sub with Legacy Markforged surviving as our wholly-owned subsidiary and, following one’s filing of a notice of deregistration and necessary accompanying documents with the Cayman Islands Registrar of Companies, and a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which one was domesticated, one changed its name to “Markforged Holding Corporation.”

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for our future operations of Markforged Holding Corporation (“Markforged,” the “Company,” “we,” “us”). These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “possible”, “potential”, “predict”, “project”, “should”, “strive”, “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements in this Quarterly Report on Form 10-Q include, for example, statements about:

the benefits of the Merger, and other acquisitions and our ability to realize such benefits;
our financial performance;
the effect of uncertainties related to economic downturns and global supply chain disruptions, or any future pandemics;
the expected growth of the additive manufacturing industry;
our anticipated growth and our ability to achieve and maintain profitability in the future;
the impact of the regulatory environment and complexities with compliance related to such environment on us;
the effect of and our ability to respond to general economic, political and business conditions, including recent increases in interest rates, rising inflation, foreign exchange fluctuations and risk of recession;
our ability to access sources of capital, including debt financing and other sources of capital to finance operations and growth;
the success of our marketing efforts and our ability to expand our customer base;
our ability to develop and deliver new products, features and functionality that are competitive and meet market needs;
our ability to maintain an effective system of internal control over financial reporting;
our ability to remediate our material weaknesses in our internal control of financial reporting;
our ability to grow and manage growth profitably and retain key employees; and
the outcome of legal or governmental proceedings that may be instituted against us.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

 

MARKFORGED HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March 31, 2024 and December 31, 2023

(In thousands, except share data and par value amounts) (Unaudited)

 

 

March 31,
2024

 

 

December 31,
2023

 

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

 

$

107,924

 

 

$

116,854

 

Accounts receivable, net of allowance for expected credit losses ($271 and $360, respectively)

 

 

21,493

 

 

 

24,059

 

Inventory

 

 

23,792

 

 

 

26,773

 

Prepaid expenses

 

 

3,328

 

 

 

2,756

 

Other current assets

 

 

1,733

 

 

 

2,022

 

Total current assets

 

 

158,270

 

 

 

172,464

 

Property and equipment, net

 

 

17,893

 

 

 

17,713

 

Intangible assets, net

 

 

15,924

 

 

 

17,128

 

Right-of-use assets

 

 

35,809

 

 

 

36,884

 

Other assets

 

 

3,734

 

 

 

3,763

 

Total assets

 

$

231,630

 

 

$

247,952

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities

 

 

 

Accounts payable

 

$

11,877

 

 

$

13,235

 

Accrued expenses

 

 

12,451

 

 

 

9,840

 

Litigation judgment payable (Note 15)

 

 

17,300

 

 

 

 

Deferred revenue

 

 

9,609

 

 

 

8,779

 

Lease liabilities

 

 

7,316

 

 

 

7,368

 

Other current liabilities

 

 

1,500

 

 

 

1,526

 

Total current liabilities

 

 

60,053

 

 

 

40,748

 

Long-term deferred revenue

 

 

5,457

 

 

 

6,083

 

Contingent earnout liability

 

 

1,540

 

 

 

1,379

 

Long-term lease liabilities

 

 

34,647

 

 

 

35,771

 

Other liabilities

 

 

2,030

 

 

 

2,361

 

Total liabilities

 

 

103,727

 

 

 

86,342

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2024 and December 31, 2023; 199,399,503 and 198,581,263 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

19

 

 

 

19

 

Additional paid-in capital

 

 

369,561

 

 

 

366,281

 

Accumulated deficit

 

 

(240,610

)

 

 

(204,664

)

Accumulated other comprehensive (loss) income

 

 

(1,067

)

 

 

(26

)

Total stockholders’ equity

 

 

127,903

 

 

 

161,610

 

Total liabilities and stockholders’ equity

 

$

231,630

 

 

$

247,952

 

 

See notes to the unaudited condensed consolidated financial statements.

1


MARKFORGED HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31, 2024 and 2023

(In thousands, except share data and per share data) (Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Revenue

 

20,547

 

 

 

24,090

 

Cost of revenue

 

10,414

 

 

 

12,508

 

Gross profit

 

10,133

 

 

 

11,582

 

Operating expenses

 

 

 

 

 

Sales and marketing

 

7,844

 

 

 

10,576

 

Research and development

 

9,935

 

 

 

10,380

 

General and administrative

 

12,165

 

 

 

12,128

 

Litigation judgment

 

17,300

 

 

 

 

Total operating expenses

 

47,244

 

 

 

33,084

 

Loss from operations

 

(37,111

)

 

 

(21,502

)

Change in fair value of derivative liabilities

 

31

 

 

 

189

 

Change in fair value of contingent earnout liability

 

(161

)

 

 

808

 

Other expense, net

 

(135

)

 

 

(204

)

Interest expense

 

(154

)

 

 

 

Interest income

 

1,400

 

 

 

1,691

 

Loss before income taxes

 

(36,130

)

 

 

(19,018

)

Income tax (benefit) expense

 

(184

)

 

 

1

 

Net loss

$

(35,946

)

 

$

(19,019

)

Weighted average shares outstanding - basic and diluted

 

199,290,500

 

 

 

195,369,245

 

Net loss per share - basic and diluted

$

(0.18

)

 

$

(0.10

)

 

See notes to the unaudited condensed consolidated financial statements.

2


 

MARKFORGED HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the three months ended March 31, 2024 and 2023

(In thousands, except share data and per share data) (Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net loss

$

(35,946

)

 

$

(19,019

)

Other comprehensive loss, net of taxes:

 

 

 

 

 

Unrealized loss on available-for-sale marketable securities, net

 

 

 

 

(50

)

Foreign currency translation adjustment

 

(1,041

)

 

 

158

 

Total comprehensive loss

$

(36,987

)

 

$

(18,911

)

 

See notes to the unaudited condensed consolidated financial statements.

3


 

MARKFORGED HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2024 and 2023

(In thousands, except share data) (Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated Other Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Total

 

December 31, 2022

 

 

194,560,946

 

 

$

19

 

 

$

352,564

 

 

$

(101,097

)

 

$

1,068

 

 

$

252,554

 

Exercise of common stock options

 

 

502,299

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Stock vested under compensation plan
   less shares withheld to cover taxes

 

 

580,375

 

 

 

 

 

 

(118

)

 

 

 

 

 

 

 

 

(118

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,144

 

 

 

 

 

 

 

 

 

4,144

 

Earnout stock-based compensation expense

 

 

 

 

 

 

 

 

212

 

 

 

 

 

 

 

 

 

212

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,019

)

 

 

 

 

 

(19,019

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108

 

 

 

108

 

March 31, 2023

 

 

195,643,620

 

 

$

19

 

 

$

356,982

 

 

$

(120,116

)

 

$

1,176

 

 

$

238,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

198,581,263

 

 

$

19

 

 

$

366,281

 

 

$

(204,664

)

 

$

(26

)

 

$

161,610

 

Stock vested under compensation plan
   less shares withheld to cover taxes

 

 

818,240

 

 

 

 

 

 

(181

)

 

 

 

 

 

 

 

 

(181

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,498

 

 

 

 

 

 

 

 

 

3,498

 

Earnout stock-based compensation expense

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

(37

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(35,946

)

 

 

 

 

 

(35,946

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,041

)

 

 

(1,041

)

March 31, 2024

 

 

199,399,503

 

 

$

19

 

 

$

369,561

 

 

$

(240,610

)

 

$

(1,067

)

 

$

127,903

 

 

See notes to the unaudited condensed consolidated financial statements.

4


 

MARKFORGED HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2024 and 2023

(In thousands, except share data) (Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating Activities:

 

 

 

 

 

 

Net loss

 

$

(35,946

)

 

$

(19,019

)

Adjustments to reconcile net loss to cash used in operating activities

 

 

 

 

 

 

Depreciation, amortization, and non-cash lease interest

 

 

3,099

 

 

 

2,430

 

Provision for doubtful accounts

 

 

161

 

 

 

(523

)

Provision for excess and obsolete inventory

 

 

260

 

 

 

150

 

Change in fair value of derivative liabilities

 

 

(31

)

 

 

(189

)

Change in fair value of contingent earnout liability

 

 

161

 

 

 

(808

)

Amortization (accretion) of (discounts) premiums on available-for-sale securities

 

 

 

 

 

(670

)

Stock-based compensation expense

 

 

3,461

 

 

 

4,356

 

Other

 

 

(2

)

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

2,339

 

 

 

3,708

 

Inventory

 

 

2,533

 

 

 

(2,998

)

Prepaid expenses

 

 

(584

)

 

 

511

 

Other current assets

 

 

272

 

 

 

(28

)

Other assets

 

 

20

 

 

 

85

 

Accounts payable and accrued expenses

 

 

18,676

 

 

 

(2,117

)

Other current liabilities

 

 

(22

)

 

 

 

Deferred revenue

 

 

226

 

 

 

788

 

Other long term liabilities

 

 

(185

)

 

 

 

Other non-current lease liabilities

 

 

(1,854

)

 

 

(1,218

)

Net cash provided by (used in) operating activities

 

 

(7,416

)

 

 

(15,542

)

Investing Activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,323

)

 

 

(1,646

)

Purchases of available-for-sale securities

 

 

 

 

 

(18,950

)

Proceeds from sales and maturities of marketable securities

 

 

 

 

 

2,500

 

Net cash provided by (used in) investing activities

 

 

(1,323

)

 

 

(18,096

)

Financing Activities:

 

 

 

 

 

 

Proceeds from exercise of common stock options

 

 

 

 

 

180

 

Taxes paid related to net share settlement of equity awards

 

 

(181

)

 

 

(118

)

Net cash provided by (used in) provided by financing activities

 

 

(181

)

 

 

62

 

Effect of exchange rate changes on cash

 

 

(10

)

 

 

8

 

Net change in cash, cash equivalents, and restricted cash

 

 

(8,930

)

 

 

(33,568

)

Cash, cash equivalents, and restricted cash

 

 

 

 

 

 

Beginning of year

 

 

118,284

 

 

 

124,242

 

End of period

 

$

109,354

 

 

$

90,674

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash and cash equivalents

 

$

107,924

 

 

$

90,674

 

Restricted cash in other non-current assets

 

 

1,430

 

 

 

1,430

 

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows

 

$

109,354

 

 

$

92,104

 

Non cash investing activities

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued expenses

 

$

280

 

 

$

899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to the unaudited condensed consolidated financial statements.

5


 

MARKFORGED HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization, Nature of the Business, and Risks and Uncertainties

Organization and Nature of Business

Unless otherwise indicated or the context otherwise requires, references to the “Company” and “Markforged” refer to the consolidated operations of Markforged Holding Corporation and its subsidiaries. References to “AONE” refer to the company prior to the consummation of the Merger and references to “Legacy Markforged” refer to MarkForged, Inc. and its consolidated subsidiaries prior to the consummation of the Merger.

Legacy Markforged was founded in 2013 to transform the manufacturing industry with high strength, cost effective parts using additive manufacturing. Markforged produces and sells 3D printers, materials, software, and other related services worldwide to customers who can build parts strong enough for the factory floor with significantly reduced lead time and cost. The printers print in plastic, nylon, metal, and the parts can be reinforced with carbon fiber for industry leading strength at an affordable price point.

On February 23, 2021, one, a Cayman Islands exempted company (“AONE”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Caspian Merger Sub Inc., a wholly owned subsidiary of AONE (“Merger Sub”), and Legacy Markforged, pursuant to which (i) AONE would deregister as a Cayman Islands company and domesticate as a corporation in the State of Delaware and would be renamed “Markforged Holding Corporation” (the “Domestication”) and (ii) Merger Sub would merge with and into Legacy Markforged with Legacy Markforged surviving as a wholly owned subsidiary of Markforged Holding Corporation (the “Merger”). AONE's shareholders approved the transactions contemplated by the Merger Agreement on July 13, 2021, and the Domestication and the Merger were completed on July 14, 2021 (the "Closing").

Cash proceeds of the merger were funded through a combination of AONE’s $132.5 million of cash held in trust (after redemptions of $64.2 million) and an aggregate of $210.0 million in fully committed common stock transactions at $10.00 per share. Immediately prior to the Closing, Legacy Markforged repurchased shares of common stock from certain of its stockholders, for a total value of $45.0 million, referred to as the “Employee Transactions”. Total net proceeds upon Closing, net of the Employee Transactions and transaction costs paid at Closing of $27.1 million, were $288.8 million.

Risks and Uncertainties

We continue to monitor, analyze, and respond to evolving developments regarding supply chain disruptions and the economic downturn. The Company is unable to predict the ultimate impact that these factors will have on the business, future results of operations, financial position or cash flows. The potential risks to the Company including certain accounting estimates around its supply chain, accounts receivable, inventory and related reserves, and intangible assets, were assessed and had no material impact as of and for the three months ended March 31, 2024. There may be changes to those estimates in future periods, and actual results could differ from those estimates.

The Company has funded its operations to date primarily through the sale of convertible preferred stock, the proceeds from the Merger, including the sale of common stock, and the sale of its products. Management believes that existing cash will be sufficient to fund operating and capital expenditure requirements through at least one year after the date these condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.

Note 2. Summary of Significant Accounting Policies

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s fiscal year end is December 31 and, unless otherwise stated, all years and dates refer to the fiscal year.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X

6


 

pertaining to interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The condensed consolidated financial statements include the Company’s accounts and those of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the financial information for the interim periods presented reflects all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the Company’s financial position, results of operations, and cash flows. The results reported in these condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.

Reporting Currency

The Company’s reporting currency is the U.S. Dollar, while the functional currencies of its foreign subsidiaries are the currencies of the primary economic environment in which each of them operate.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s significant estimates include allowance for doubtful accounts, reserve for excess and obsolete inventory, fair value of contingent earnout liability, fair value of earnout share awards, fair value of the private placement warrant liability, assumptions in revenue recognition, and valuation of intangibles and goodwill. The Company evaluates its estimates based on historical experience, current conditions, and various other assumptions that it believes are reasonable under the circumstances.

Cash and Cash Equivalents

The Company considers all highly liquid investments including money market funds, treasury securities, and commercial paper with original maturities of 90 days or less to be cash equivalents.

Restricted Cash

Restricted cash represents cash and cash equivalents that are restricted to withdrawal or use as of the reporting date. Restricted cash as of March 31, 2024 and December 31, 2023 of $1.4 million relates to deposits to secure letters of credit. The deposits are related to contracts that have a remaining term greater than twelve months, thus this cash is included in other noncurrent assets.

Short-term Investments

The Company has invested its excess cash in fixed income instruments denominated and payable in U.S. dollars including U.S. treasury securities, commercial paper, corporate bonds and asset-backed securities in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital. Investments in marketable securities are recorded at fair value, and unrealized gains and losses are reported within accumulated other comprehensive income (loss) as a separate component of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline in market value has occurred. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. When such reductions occur, the cost of the investment is adjusted to fair value through recording a loss on investments in the consolidated statements of operations. Realized gains and losses and declines in the value of securities attributable to actual or expected losses are included in other income (expense), net in the consolidated statements of operations. All investments in marketable securities mature within one year.

The Company did not hold any short term investments as of March 31, 2024 or December 31, 2023. Cash equivalents are invested in the following:

7


 

 

 

March 31, 2024

 

(in thousands)

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Money market funds

 

$

104,622

 

 

$

 

 

$

 

 

$

104,622

 

Total cash equivalents

 

$

104,622

 

 

$

 

 

$

 

 

$

104,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

(in thousands)

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Money market funds

 

$

110,775

 

 

$

 

 

$

 

 

$

110,775

 

Total cash equivalents

 

$

110,775

 

 

 

 

 

 

 

 

$

110,775

 

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Credit losses are estimated for accounts receivable considered to be uncollectible based on management’s assessment of collectability, which considers specific customers’ abilities to meet their financial obligations, the length of time receivables are past due, and historical collection experience. If circumstances related to specific customers change, or economic conditions deteriorate such that past collection experience is no longer relevant, the Company’s estimate of the recoverability of accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

The following presents the changes in the balance of the Company’s allowance for doubtful accounts:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Balance at beginning of period

 

$

360

 

 

$

1,559

 

Provision adjustment

 

 

161

 

 

 

(523

)

Write – offs

 

 

(250

)

 

 

(250

)

Balance at end of period

 

$

271

 

 

$

786

 

Fair Value of Financial Instruments

The Company is required to provide information according to the fair value hierarchy based on the observability of the inputs used in the valuation techniques. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

 

 

Level 1

Quoted prices in active markets for identical assets or liabilities

 

Level 2

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

 

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

 

8


 

 

The following table presents information about the Company’s assets and liabilities that are measured at fair value as of March 31, 2024 and December 31, 2023 and indicates the fair value hierarchy of the valuation:

 

 

Fair Value Measurements

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds included in cash and cash equivalents

 

$

104,622

 

 

 

 

 

 

 

 

$

104,622

 

Total cash and cash equivalents

 

$

104,622

 

 

$

 

 

$

 

 

$

104,622

 

Total assets

 

$

104,622

 

 

$

 

 

$

 

 

$

104,622

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent earnout liability

 

$

 

 

$

 

 

$

1,540

 

 

$

1,540

 

Private placement warrant liability

 

 

 

 

 

 

 

 

158

 

 

 

158

 

Teton acquisition contingent earnout liability

 

 

 

 

 

 

 

 

1,500

 

 

 

1,500

 

Total liabilities

 

$

 

 

$

 

 

$

3,198

 

 

$

3,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds included in cash and cash equivalents

 

$

110,775

 

 

 

 

 

 

 

 

$

110,775

 

Total cash and cash equivalents

 

$

110,775

 

 

$

 

 

$

 

 

$

110,775

 

Total assets

 

$

110,775

 

 

$

 

 

$

 

 

$

110,775

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent earnout liability

 

$

 

 

$

 

 

$

1,379

 

 

$

1,379

 

Private placement warrant liability

 

 

 

 

 

 

 

 

189

 

 

 

189

 

Teton acquisition contingent earnout liability

 

 

 

 

 

 

 

 

1,500

 

 

 

1,500

 

Total liabilities

 

$

 

 

$

 

 

$

3,068

 

 

$

3,068

 

 

The Company remeasures its Private Placement Warrants (as defined below) at fair value at each reporting period using Level 3 inputs via the Binomial Lattice Model. The valuation of the earnout shares is based on a Monte Carlo simulation. The significant assumptions used in preparing the above models are disclosed in Note 12 Stock Warrants and Note 11 Earnout. The Teton Software Simulation ("Teton") contingent earnout is related to development and business milestone metrics estimated using a scenario-based approach discussed in Note 2, Contingent Earnout Liability. The Teton development milestone was met and settled in 2022. The Teton business milestone was met as of March 31, 2024 and will be settled in the second quarter of 2024. There were no transfers between levels during the periods presented.

(in thousands)

 

Contingent Earnout Liability

 

 

Private Placement Warrant Liability

 

 

Teton Acquisition Contingent Earnout Liability

 

 

Total

 

Fair Value as of December 31, 2022

 

$

2,415

 

 

$

661

 

 

$

602

 

 

$

3,678

 

Change in fair value

 

 

(808

)

 

 

(189

)

 

 

 

 

 

(997

)

Fair Value as of March 31, 2023

 

$

1,607

 

 

$

472

 

 

$

602

 

 

$

2,681

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value as of December 31, 2023

 

$

1,379

 

 

$

189

 

 

$

1,500

 

 

$

3,068

 

Change in fair value

 

 

161

 

 

 

(31

)

 

 

 

 

 

130

 

Fair Value as of March 31, 2024

 

$

1,540

 

 

$

158

 

 

$

1,500

 

 

$

3,198

 

 

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company does not require collateral from customers for amounts owed. As of March 31, 2024 and December 31,

9


 

2023 no one customer represented greater than 10% of the accounts receivable balance. No one customer represented 10% of total revenue for the three months ended March 31, 2024 and 2023. Historically, the Company has not experienced any significant credit loss related to any individual customer.

Additionally, we have cash and cash equivalents held on deposit at two primary financial institutions.

Impairment of Long-Lived Assets

The Company evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant reassessment or that the carrying value of these assets may not be recoverable. When a triggering event is identified, management assesses the recoverability of the asset group, which is the lowest level where identifiable cash flows are largely independent, by comparing the expected undiscounted cash flows of the asset group to the carrying value. When the carrying value is not recoverable and an impairment is determined to exist, the asset group is written down to fair value.

The Company determined the litigation judgment discussed in Note 15 is a triggering event. The undiscounted cash flows of the asset groups were determined to exceed carrying value, as such there was not any impairment to long-lived assets as of March 31, 2024.

Sales and Marketing

Advertising costs, a component of sales and marketing expenses, were $0.5 million and $0.6 million during the three months ended March 31, 2024 and 2023, respectively.

Warranty Reserves

Substantially all of the Company’s hardware products are covered by a standard assurance warranty of one year. In the event of a failure of a product covered by this warranty, the Company may repair or replace the product, at its option. The Company’s warranty reserve reflects estimated material and labor costs for potential or actual product issues for which the Company expects to incur an obligation. The Company periodically assesses the appropriateness of the warranty reserve and adjusts the amount as necessary. If the data used to calculate the appropriateness of the warranty reserve are not indicative of future requirements, additional or reduced warranty reserves may be necessary.

Warranty reserves are included within accrued expenses on the condensed consolidated balance sheets. The following table presents changes in the balance of the Company’s warranty reserve:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Balance at beginning of period

 

$

886

 

 

$

620

 

Additions to warranty reserve

 

 

398

 

 

 

173

 

Claims fulfilled

 

 

(285

)

 

 

(309

)

Balance at end of period

 

$

999

 

 

$

484

 

 

Warranty reserve is recorded through cost of revenue in the condensed consolidated statements of operations.

Segment Information

The Company determines its chief operating decision maker (“CODM”) based on the person responsible for making resource allocation decisions. Our operating segment is the component of the business for which the CODM regularly reviews discrete financial information.

Common Stock Warrant Liabilities

The Company assumed 5,374,984 publicly-traded warrants (“Public Warrants”) and 3,150,000 private placement warrants originally issued by AONE (“Private Placement Warrants” and, together with the Public Warrants, the “Common Stock Warrants”) upon the Merger, all of which were issued in connection with AONE’s initial public offering and subsequent overallotment and entitle the holder to purchase one share of the Common Stock at an exercise price of $11.50 per share. The Common Stock Warrants became exercisable the later of 30 days after the Company completed the Merger or 12 months from the closing of AONE’s initial public offering, but can be terminated on the earlier of 5 years after the Merger, liquidation of the Company, or the Redemption Date as determined by the Company. During the three months ended March 31, 2024 and 2023, no Public Warrants or Private Placement

10


 

Warrants were exercised. The Public Warrants are publicly traded and are exercisable for cash unless certain conditions occur which would permit a cashless exercise, such as the failure to have an effective registration statement related to the shares issuable upon exercise or redemption by the Company under certain conditions. The Private Placement Warrants are not redeemable for cash so long as they are held by the initial purchasers or their permitted transferees but may be redeemable for common stock if certain other conditions are met. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

The Company evaluated the Public Warrants and Private Placement Warrants and concluded that the Private Placement Warrants do not meet the criteria to be classified within stockholders’ equity. The agreement governing the Common Stock Warrants includes a provision that, if applied, could result in a different settlement value for the Private Placement Warrants depending on their holder. Because the holder of an instrument is not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Private Placement Warrants are not considered to be “indexed to the Company’s own stock.” As the Private Placement Warrants meet the definition of a derivative, the Company recorded these warrants as liabilities on the consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in the condensed consolidated statements of operations at each reporting date as part of change in fair value of derivative liabilities, as described in Note 12. The provisions referenced above are not applicable to the Public Warrants which do not have differing settlement provisions based on the warrant holder. The Public Warrants are not precluded from being considered indexed to the Company’s stock and were recognized at fair value in stockholders’ equity on the closing of the Merger.

Contingent Earnout Liability

In connection with the Reverse Recapitalization and pursuant to the Merger Agreement, A-Star, the sponsor of AONE (the "Sponsor") surrendered 2,610,000 shares ("Sponsor Earnout Shares") and eligible Markforged equity holders were entitled to receive as additional merger consideration 14,666,667 shares of the Company’s Common Stock ("Markforged Earnout Shares") upon the Company achieving certain Earnout Triggering Events (as described in the Merger Agreement and Note 11). The contingent obligations to issue Markforged Earnout Shares in respect of Markforged common stock and release from lock-up Sponsor Earnout Shares, are accounted for as liability classified instruments in accordance with Accounting Standards Codification Topic 815-40, as the Earnout Triggering Events that determine the number of Sponsor and Markforged Earnout Shares required to be released or issued, as the case may be, include events that are not solely indexed to the fair value of common stock of Markforged. The liability was recognized at the reverse recapitalization date and is subsequently remeasured at each reporting date with changes in fair value recorded in the condensed consolidated statements of operations.

Markforged Earnout Shares issuable to employees with vested equity awards and Earnout RSUs (as described in the Merger Agreement) issuable to employees with unvested equity awards are considered a separate unit of account from the Markforged Earnout Shares issuable in respect of Markforged common stock and are accounted for as equity classified stock compensation. The Earnout Shares issuable to employees with vested equity awards are fully vested upon issuance, thus there is no requisite service period and the value of these shares is recognized as a one-time stock compensation expense for the grant date fair value. Earnout RSUs are contingent upon an employee completing a service vesting condition, and as such, reflect a transaction in which the Company acquires employee services by offering to issue its shares, the amount of which is based in part on the Company’s share price. Expense related to Earnout RSUs is recognized using graded vesting over the requisite service period for the Earnout RSUs.

The estimated fair values of the Sponsor Earnout Shares, Markforged Earnout Shares, and Earnout RSUs were determined by using a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the five-year Earnout Period as defined in Note 11. The preliminary estimated fair values of Sponsor Earnout Shares, Markforged Earnout Shares, and Earnout RSUs were determined using the most reliable information available, including the current Company Common Stock price, expected volatility, risk-free rate, expected term and dividend rate.

The contingent earnout liability is categorized as a Level 3 fair value measurement (see Fair Value of Financial Instruments accounting policy as described above) because the Company estimated projections during the Earnout Period utilizing unobservable inputs. Contingent earnout payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

Teton Software Simulation Contingent Earnout

Contingent consideration represents potential future payments that the Company may be required to pay in the event negotiated milestones are met in connection with a business acquisition. Contingent consideration is recorded as a liability at the date of acquisition at fair value. The fair value of contingent consideration related to the development milestone and business milestone metrics is estimated using a scenario-based approach, which is a special case of the income approach that uses several possible future

11


 

scenarios. Under this approach, the value of the milestone payment is calculated as the probability-weighted payment across all scenarios. Significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of the milestones could result in a significantly higher or lower fair value of the contingent consideration liability. The development milestone related to product technical milestones was achieved and settled in 2022. The business related contingent consideration, which is based on stated sales or usage metrics, was determined to be highly probable as of December 31, 2023 and determined to be met as of March 31, 2024.

Leases

The Company accounts for leases in accordance with ASC Topic 842, Leases (“ASC 842”). In accordance with ASC 842, the Company determines whether an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company classifies leases at the lease commencement date, when control of the underlying asset is transferred from the lessor to the lessee, as operating or finance leases and records a right-of-use (“ROU”) asset and a lease liability on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months. The Company has elected to not recognize leases with a lease term of 12 months or less on the balance sheet and will recognize lease payments for such short-term leases as an expense on a straight-line basis over the lease term.

The Company enters into contracts that contain both lease and non-lease components. Non-lease components may include maintenance, utilities, and other operating costs. For leases of real estate, the Company combines the lease and associated non-lease components in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of right-of-use assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.

Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease if readily determinable. If the rate implicit is not readily determinable, the Company utilizes its incremental borrowing rate based upon the available information at the lease commencement date. ROU assets are further adjusted for initial direct costs, prepaid rent, or incentives received. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Finance lease assets are amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term. Finance lease payments are bifurcated into (i) a portion that is recorded as interest expense and (ii) a portion that reduces the finance liability associated with the lease. The Company did not have any finance leases during the three months ended March 31, 2024 and 2023.

Business Combinations

The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The Company generally values the identifiable intangible assets acquired using a discounted cash flow model. The significant estimates used in valuing certain of the intangible assets, include, but are not limited to future expected cash flows of the asset, discount rates to determine the present value of the future cash flows and expected technology life cycles. Intangible assets are amortized over their estimated useful life; the period over which the Company anticipates generating economic benefit from the asset. Fair value adjustments subsequent to the acquisition date, that are not measurement period adjustments, are recognized in earnings.

Intangible Assets

Intangible assets consist of identifiable intangible assets acquired, specifically, developed technology, customer relationships, and trade names. The Company evaluates definite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through future operations. If indicators of impairment are present, the Company then compares the estimated undiscounted cash flows that the specific asset is expected to generate to its carrying value. If such assets are impaired, the impairment recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value.

Capitalized Software

The Company capitalizes qualifying internal-use software development costs, primarily related to its cloud platform. The costs consist of personnel costs that are incurred during the application development stage. Capitalization of costs begins when two criteria

12


 

are met: (1) the preliminary project stage is completed, and (2) it is probable that the software will be completed and used for its intended function. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all significant testing. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred. The capitalized costs are amortized on a straight-line basis over the estimated useful life of the asset, which is typically 3 years.

Foreign Currency Translation

The assets and liabilities of our subsidiary, Digital Metal AB (“Digital Metal”), are translated from its functional currency (Swedish Krona) to U.S. dollars at the exchange rate in effect at the end of the quarter, and the consolidated statements of operations are translated at the average exchange rate each month.

Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. All such differences are recorded in Other expense, net in the consolidated statements of operations. Assets and liabilities resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date. Differences are recorded in other comprehensive income (loss).

Comprehensive Income (Loss)

The Company follows the requirements of ASC 220, Income Statement - Reporting Comprehensive Income, for the reporting and presentation of comprehensive income (loss) and its components. The guidance requires unrealized gains or losses on the Company's foreign currency translation adjustments to be included in other comprehensive income (loss). Realized gains and losses and declines in the value of investment securities attributable to actual or expected losses are included in other income (expense), net in the consolidated statements of operations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures, which prescribes standard categories for the components of the effective tax rate reconciliation and requires disclosure of additional information for reconciling items meeting certain quantitative thresholds, requires disclosure of disaggregated income taxes paid, and modifies certain other income tax-related disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and allows for adoption on a prospective basis, with a retrospective option. The Company is currently evaluating the potential impact of the adoption of ASU 2023-09 on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, and requires retrospective adoption to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the potential impact of the adoption of ASU 2023-07 on its consolidated financial statements and related disclosures.

Note 3. Acquisitions

Teton Simulation Software (“Teton”)

On April 4, 2022, the Company acquired Teton Simulation Software (“Teton”) through a statutory merger in exchange for total consideration of $6.6 million, payable in a combination of cash and equity shares. Teton is a software company whose SmartSlice™ technology automates validation and optimizes part performance for additive manufacturing application. The Company integrated Teton's technology with its printing software solution, Eiger™, as a subscription add-on that offers manufacturing customers a streamlined workflow spanning part design, testing, optimization, validation and printing at the point of need, all on a single, cloud-based platform.

A portion of the acquisition consideration is contingent on achievement by Teton of certain business and development milestones, with a fair value of $1.6 million as of the date of acquisition. The Company will pay up to $1.5 million of business related contingent consideration based on stated sales or usage metrics, which had a fair value of $0.6 million as of the date of acquisition. The fair value of this milestone was determined to be $1.5 million as of December 31, 2023 and the milestone was determined to have been met as of March 31, 2024. The development earnout related to product technical milestones, which had a fair value of $1.0 million as of the date of acquisition. This milestone was met and $0.75 million of cash and 312,489 shares were disbursed in 2022. Of

13


 

the acquisition date cash and equity consideration indicated below, $0.25 million of the cash consideration and $0.25 million of the equity consideration was “held-back” and settled in the second quarter of 2023.

Digital Metal AB (“Digital Metal”)

On August 31, 2022 (the “Closing Date”), pursuant to a Sale and Purchase Agreement (the “Purchase Agreement”) by and between Markforged and Höganäs Aktiebolag, a limited liability company incorporated under the laws of Sweden (the “Seller”), the Company completed its acquisition of all of the outstanding share capital of Digital Metal AB, a limited liability company incorporated under the laws of Sweden (“Digital Metal”). At the closing, the Company issued 4,100,000 shares of common stock of the Company, and paid approximately $33.5 million in cash. The cash payment was comprised of $32.0 million related to the purchase price and $1.5 million to settle certain intercompany balances between the Seller and Digital Metal. The acquisition of Digital Metal, the creator of a precise and reliable binder jetting solution, extends Markforged's capabilities into high-throughput production of metal additive parts.

 

Note 4. Revenue

Contract Balances

For the three months ended March 31, 2024, the Company recognized $2.6 million from the deferred revenue account balances as of December 31, 2023. For the three months ended March 31, 2023, the Company recognized $2.3 million the deferred revenue account balance as of December 31, 2022.

Deferred revenue is expected to be recognized when the Company provides hardware maintenance services or contractual performance obligations for which the customer has already provided payment with $8.2 million expected to be recognized in the remainder of 2024, $4.4 million expected to be recognized in 2025, $1.9 million expected to be recognized in 2026, and $0.6 million thereafter.

Disaggregation of Revenue

The following table disaggregates the Company’s revenue based on the nature of the products and services:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Hardware

 

$

11,274

 

 

$

15,195

 

Consumables

 

 

6,404

 

 

 

6,455

 

Services

 

 

2,869

 

 

 

2,440

 

Total Revenue

 

$

20,547

 

 

$

24,090

 

 

Note 5. Property and Equipment, net

Property and equipment consist of the following:

 

(in thousands)

 

March 31,
2024

 

 

December 31,
2023

 

Machinery and equipment

 

$

12,084

 

 

$

11,249

 

Leasehold improvements

 

 

12,478

 

 

 

12,613

 

Computer equipment

 

 

3,490

 

 

 

3,481

 

Furniture and fixtures

 

 

447

 

 

 

438

 

Computer software

 

 

260

 

 

 

242

 

Construction in process

 

 

355

 

 

 

523

 

Property and equipment, gross

 

 

29,114

 

 

 

28,546

 

Less: Accumulated depreciation

 

 

(11,221

)

 

 

(10,833

)

Property and equipment, net

 

$

17,893

 

 

$

17,713

 

 

Depreciation expense for property and equipment was $1.0 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively.

14


 

Note 6. Inventory

Inventory consists of the following:

 

(in thousands)

 

March 31,
2024

 

 

December 31,
2023

 

Raw material

 

$

3,571

 

 

$

4,324

 

Work in process

 

 

536

 

 

 

555

 

Finished goods

 

 

19,685

 

 

 

21,894

 

Total inventory

 

$

23,792

 

 

$

26,773

 

 

The Company maintained reserves for obsolete and excess inventory of $2.1 million and $1.8 million as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, obsolete and excess inventory related to finished goods is $1.5 million and $0.6 million is related to raw materials. As of December 31, 2023, the obsolete and excess inventory reserve related to finished goods is $1.3 million and $0.5 million is related to raw materials. The reserve for obsolete and excess inventories is recorded within cost of revenue in the condensed consolidated statements of operations.

Note 7. Goodwill and Intangible Assets

The following tables summarizes the Company’s intangible assets, all of which are related to the acquisitions of Teton Simulation Software in April 2022 and Digital Metal AB in August 2022 (in thousands):

The Company recorded a full goodwill impairment charge of $29.5 million in the condensed consolidated statements of operations during the three months ended September 30, 2023. This impairment was driven by the decline in the Company’s actual and forecasted operating results, as well as a decline in market capitalization.

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

Estimated Useful Life

 

Gross Carrying Value

 

 

Accumulated Amortization

 

 

Net Book Value

 

 

Gross Carrying Value

 

 

Accumulated Amortization

 

 

Net Book Value

 

Acquired technology