It’s not eactly a great moment for some leading US-based digital manufacturing service providers. Their real businesses are doing rather well, even considering the complex geopolitical and macroeconomic situation, however their dismay performances on the stock market after recently going public, are generating some significant headwinds. That was definitely the case for Fast Radius, that just filed voluntary Chapter 11 bankruptcy petitions, and it is now the case for Fathom, a California-based manufacturing services provider that went public as a result of the merger with SPAC company Altimar Acquisition Corp.
The company continued to grow in terms of revenues but recorded a $1 billion dollar ($1,046.1 million) net loss in Q3 due to “a non-cash goodwill impairment charge of $1,066.6 million as the result of an interim impairment analysis, which was triggered by the sustained decline in Fathom’s share price, lower market multiples for a relevant peer group, higher discount rate due to the rising interest rate environment and challenging macroeconomic conditions.”
Goodwill impairment is an accounting charge that companies record when goodwill’s carrying value on financial statements exceeds its fair value. When testing an asset for impairment, the total profit, cash flow, or other benefits that can be generated by the asset is periodically compared with its current book value. If the book value of the asset exceeds the future cash flow or other benefits of the asset, the difference between the two is written off, and the value of the asset declines on the company’s balance sheet. The interim impairment analysis adjusted the value of Fathom’s assets to their reduction in value.
Apart from the stock performance, which follows its own financial logic, the company’s real performance is still solid with Fathom revenues growing by 13.8% to $122.7 million in the first nine months of 2022 and a minor decrease in revenues (from $41.5 million to $40.2 million) in Q3. The company’s adjusted net lost (excluding the non-cash goodwill impairment charge of $1,066.6 million) was $1.8 million.
“Our results for the third quarter were in-line with management’s expectations as Fathom extended its proven track record of profitability in the company’s core operations and cash generation despite the challenging macro environment,” said Ryan Martin, Fathom Chief Executive Officer. “We also continue to build positive momentum for our new commercial activities as both orders and revenue achieved monthly sequential growth throughout the quarter, highlighted by record orders for our additive manufacturing services in the month of September. Our focus remains on accelerating engagement with Fortune 500-tier customers and increasing the scalability of our robust on-demand digital manufacturing platform to drive long-term profitable growth.
Gross profit for the third quarter of 2022 totaled $15.1 million, or 37.5% of revenue, compared to $14.9 million, or 35.9% of revenue, in the third quarter of 2021. Gross profit for the nine months ended September 30, 2022, was $42.6 million, or 34.7% of revenue, which includes approximately $3.2 million in non-cash purchase accounting adjustments, compared to $41.8 million, or 38.7% of revenue, for the same period in 2021. Excluding the $3.2 million in non-cash purchase accounting adjustments, gross profit for the nine months ended September 30, 2022 totaled $45.8 million, or 37.3% of revenue.
Excluding goodwill impairment as well as the revaluation of Fathom warrants and earnout shares, stock compensation expense, and other costs, Fathom reported an adjusted net loss in the third quarter of 2022 of $(1.8) million compared to an adjusted net loss of $(1.1) million for the same period in 2021.
Adjusted EBITDA for the third quarter of 2022 totaled $7.1 million versus $8.6 million for the same period in 2021 primarily due to lower volumes as well as the incurrence of public company expenses totaling approximately $2.1 million. The Adjusted EBITDA margin in the quarter was 17.5% compared to 20.8% in the third quarter of 2021.
For the nine months ended September 30, 2022, Adjusted EBITDA totaled $21.9 million versus $23.8 million for the same period in 2021 primarily due to recurring public company expenses totaling approximately $6.4 million. The Adjusted EBITDA margin for the nine months ended September 30, 2022 was 17.8% compared to 22.1% for the same period in 2021.
For the full year 2022, Fathom expects revenue to range between $163 million and $165 million, representing year-over-year growth of approximately 7% to 8.5%. Fathom also expects Adjusted EBITDA to range between $30 million and $32 million, representing a year-over-year decrease of approximately (12.5%) to (7%) and an implied Adjusted EBITDA margin of 18.4% to 19.4%. This outlook, as of November 14, 2022, reflects management’s current projections and macroeconomic outlook, and excludes the impact of any potential acquisitions.