10-Q

ROC

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 September 30, 2023


☐	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: 001-39994

Fathom Digital Manufacturing Corporation

(Exact name of registrant as specified in its charter)


Delaware	40-0023833
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1050 Walnut Ridge Drive Hartland, WI	53029
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (262) 367-8254

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

FATH

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, a 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 November 10, 2023, there were 3,507,084 shares of the registrant's Class A common stock outstanding and 3,327,379 shares of the registrant's vote-only, non-economic Class B common stock outstanding.

Table of Contents


		Page

	Cautionary Note regarding forward-looking statements	3

PART I	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statement of Shareholders' Equity and Redeemable Non-Controlling Interest	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II	OTHER INFORMATION	35

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are “forward looking statements.” Statements regarding our expectations regarding our business are “forward looking statements.” In addition, words such as “estimates,” “projected,” “expects,” “estimated,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “would,” “future,” “propose,” “target,” “goal,” “objective,” “outlook” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q and in our other periodic filings are not guarantees of future performance, conditions or results and are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those risks described under Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q and "Risk Factor Summary" Item 1A. "Risk Factors” and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as amended by Amendment No.1 thereto (as amended the "2022 Form 10-K"). Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We may face additional risks and uncertainties that are not presently known to us, or that we deem to be immaterial, which may also impair our business, financial condition or prospects. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Fathom Digital Manufacturing Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)


	Period Ended
	September 30, 2023 (Unaudited)			December 31, 2022
Assets
Current assets
Cash	$	7,821		$	10,713
Accounts receivable, net (1)		22,040			28,641
Inventory		16,779			15,718
Prepaid expenses and other current assets		2,403			3,588
Total current assets		49,043			58,660
Property and equipment, net		47,164			47,703
Right-of-use lease assets, net		11,469			12,565
Intangible assets, net		237,807			251,412
Other non-current assets		142			175
Total assets	$	345,625		$	370,515
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	9,401		$	7,982
Accrued expenses		7,691			8,176
Current lease liability		2,143			2,374
Other current liabilities		2,671			4,828
Current portion of debt, net		157,321			42,744
Total current liabilities		179,227			66,104
Long-term debt, net		-			114,327
Fathom earnout shares liability		283			5,960
Sponsor earnout shares liability		49			930
Warrant liability		191			2,780
Payable to related parties pursuant to the tax receivable agreement (includes $4,416 and $4,000 at fair value, respectively)		25,800			25,360
Noncurrent lease liability		9,709			11,083
Total liabilities		215,259			226,544
Commitments and Contingencies:
Contingently Redeemable Preferred Equity:
Redeemable non-controlling interest in Fathom OpCo		76,144			92,207
Shareholders' Equity:
Class A common stock, $0.0001 par value; 15,000,000 shares authorized; issued and outstanding 3,507,084 and 3,290,438 shares as of September 30, 2023 and December 31, 2022, respectively(2)		-			7
Class B common stock, $0.0001 par value; 9,000,000 shares authorized; issued and outstanding 3,327,379 and 3,507,653 shares as of September 30, 2023 and December 31, 2022, respectively(2)		-			7
Class C common stock, $0.0001 par value; 500,000 shares authorized; 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		-			-
Preferred stock, $0.0001 par value; 500,000 shares authorized; 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		-			-
Additional paid-in-capital		595,785			587,941
Accumulated other comprehensive loss		(107	)		(107	)
Accumulated deficit		(541,456	)		(536,084	)
Shareholders’ equity attributable to Fathom Digital Manufacturing Corporation		54,222			51,764
Total Liabilities, Shareholders’ Equity, and Redeemable Non-Controlling Interest	$	345,625		$	370,515

(1) Inclusive of allowance for expected credit losses of $580 as of September 30, 2023 and allowance for doubtful accounts of $876 as of December 31, 2022, respectively

(2) Periods presented have been adjusted to reflect the 20-for-1 reverse stock split effective on September 28, 2023. Additional information regarding the reverse stock split may be found in Note 2- Basis of Presentation.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Fathom Digital Manufacturing Corporation

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(In thousands, except shares, and per share amounts)


	Three Months Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022

Revenue	$	31,458		$	40,210		$	100,939		$	122,737
Cost of revenue (1) (2)		23,194			25,144			70,196			80,126
Gross profit		8,264			15,066			30,743			42,611
Operating expenses
Selling, general, and administrative		8,117			11,960			28,335			38,341
Depreciation and amortization		4,627			4,627			13,845			13,595
Restructuring		718			996			2,774			996
Goodwill impairment		-			1,066,564			-			1,066,564
Total operating expenses		13,462			1,084,147			44,954			1,119,496
Operating loss		(5,198	)		(1,069,081	)		(14,211	)		(1,076,885	)
Interest expense and other expense (income)
Interest expense		3,993			2,406			11,422			5,738
Other expense		435			81			573			276
Other income		(1,049	)		(25,548	)		(9,152	)		(88,771	)
Total interest expense and other expense (income), net		3,379			(23,061	)		2,843			(82,757	)
Net loss before income tax		(8,577	)		(1,046,020	)		(17,054	)		(994,128	)
Income tax expense (benefit)		(9	)		(7,050	)		110			(8,435	)
Net loss		(8,568	)		(1,038,970	)		(17,164	)		(985,693	)
Net loss attributable to Fathom OpCo non-controlling interest (Note 14)		(4,206	)		(556,027	)		(11,792	)		(561,728	)
Net loss attributable to controlling interest		(4,362	)		(482,943	)		(5,372	)		(423,965	)
Comprehensive loss:
Loss from foreign currency translation adjustments		-			-			-			(107	)
Comprehensive loss, net of tax	$	(4,362	)	$	(482,943	)	$	(5,372	)	$	(424,072	)
Earnings per Share:
Net loss per share attributable to shares of Class A common stock
Basic (4)	$	(1.24	)	$	(153.76	)	$	(1.56	)		(153.20	)
Diluted (4)	$	(1.24	)	$	(153.76	)	$	(1.56	)	$	(153.20	)
Weighted average Class A common shares outstanding
Basic (4)		3,504,859			3,140,809			3,448,030			2,767,401
Diluted (4)		3,504,859			3,140,809			3,448,030			2,767,401

(1)

Inclusive of $1,621 and $1,707 of depreciation and amortization for the three months ended September 30, 2023 and September 30, 2022, respectively; and of $4,947 and $4,944 for the nine months ended September 30, 2023 and September 30, 2022, respectively;

(2)

Inclusive of $1,611 and $2,573 of cost of revenue related to inventory purchases from a related party for the three months ended September 30, 2023 and September 30, 2022, respectively; and $5,689 and $7,513 for the nine months ended September 30, 2023 and September 30, 2022, respectively;

(3)

Inclusive of $0 and $0 of inventory step-up amortization for the three months ended September 30, 2023 and September 30, 2022, respectively, and $0 and $3,241 for the nine months ended September 30, 2023 and September 30, 2022, respectively; and

(4)

Periods presented have been adjusted to reflect the 20-for-1 reverse stock split effective on September 28, 2023. Additional information regarding the reverse stock split may be found in Note 2- Basis of Presentation.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Fathom Digital Manufacturing Corporation

Condensed Consolidated Statement of Shareholders' Equity and Redeemable Non-Controlling Interest

(Unaudited)

(In thousands, except share amounts)


	Class A Common Shares				Class B Common Shares
	Number of Shares (1)		Par Value ($0.0001 per share)		Number of Shares (1)			Par Value ($0.0001 per share)		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity Attributable to Fathom			Redeemable Non-controlling Interest
Balance at January 1, 2023		3,290,438	$	-		3,507,653		$	-	$	587,955		$	(536,084	)	$	(107	)	$	51,764		$	92,207
Equity based compensation		-		-		-			-		1,093			-			-			1,093			-
Net income (loss)		-		-		-			-		-			2,115			-			2,115			(3,447	)
Vesting of restricted shares, net of tax withholding		13,874		-		-			-		-			-			-			-			-
Exchange of Class B common stock and Fathom OpCo units		173,014		-		(173,014	)		-		-			-			-			-			-
Non-controlling interest remeasurement		-		-		-			-		4,477			-			-			4,477			(4,477	)
Tax receivable agreement liability on capital transactions		-		-		-			-		(2,500	)		-			-			(2,500	)		-
Balance at March 31, 2023		3,477,326	$	-		3,334,639		$	-	$	591,025		$	(533,969	)	$	(107	)	$	56,949		$	84,283
Equity based compensation		-		-		-			-		1,239			-			-			1,239			-
Net loss		-		-		-			-		-			(3,125	)		-			(3,125	)		(4,139	)
Vesting of restricted shares, net of tax withholding		7,191		-		-			-		-			-			-			-			-
Issuance of Class A shares under Employee Stock Purchase Plan		12,482		-		-			-		86			-			-			86			-
Exchange of Class B common stock and Fathom OpCo units		7,260		-		(7,260	)		-		-			-			-			-			-
Non-controlling interest remeasurement		-		-		-			-		85			-			-			85			(85	)
Tax receivable agreement liability on capital transactions		-		-		-			-		(353	)		-			-			(353	)		-
Balance at June 30, 2023		3,504,259	$	-		3,327,379		$	-	$	592,082		$	(537,094	)	$	(107	)	$	54,881		$	80,059
Equity based compensation		-		-		-			-		1,139			-			-			1,139			-
Net loss		-		-		-			-		-			(4,362	)		-			(4,362	)		(4,206	)
Vesting of restricted shares, net of tax withholding		2,825		-		-			-		-			-			-			-			-
Exchange of Class B common stock and Fathom OpCo units		-		-		-			-		-			-			-			-			-
Non-controlling interest remeasurement		-		-		-			-		(291	)		-			-			(291	)		291
Tax receivable agreement liability on capital transactions		-		-		-			-		2,855			-			-			2,855			-
Balance at September 30, 2023		3,507,084	$	-		3,327,379		$	-	$	595,785		$	(541,456	)	$	(107	)	$	54,222		$	76,144

(1)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Fathom Digital Manufacturing Corporation

Condensed Consolidated Statement of Shareholders' Equity and Redeemable Non-Controlling Interest

(Unaudited)

(In thousands, except share amounts)

Class A Common Shares

Class B Common Shares

Number of Shares (1)

Par Value ($0.0001 per share)