FATH (FATH) 2022-05-16 Earnings Call Transcript

Hello and welcome everyone to Fathom Digital Manufacturing Earnings Conference Call. This call is being recorded and a replay will be available later today. After the company's presentation there'll be a Q&A session with instructions to follow at the time. For now let me turn the call over to Michael Cimini, Fathom’s Director of Investor Relations to begin. Michael, please go ahead.

Thank you, Charlie. And good morning, everyone. Welcome to Fathom’s First Quarter 2022 Earnings Conference Call. Before we begin, I'd like to mention that today's presentation and earnings press release are available on Fathom’s website at fathommfg.com, where you will also find links to our SEC filings along with other important information about our company. Turning the Slide 2, we note that this presentation contains forward looking statements within the meaning of the Securities Exchange Act. We encourage you to read the risk factors contained in our filings with the SEC to become aware of the risks and uncertainties in our business. And understand that forward-looking statements are only estimates of future performance and should be taken as such. The forward-looking statements represent management's expectations only as of today, and the company disclaims any obligation to update them. We also note today's presentation includes non-GAAP financial measures to describe the way in which we manage and operate our business. We reconcile these measures to the most comparable GAAP measure. And you are encouraged to examine those reconciliations which are found in the appendix to both the press release and the slide presentation. With us today are Ryan Martin, Fathom’s Chief Executive Officer; and Mark Frost, the Chief Financial Officer. I will now hand it over to Ryan.

Thanks, Michael. And welcome everyone to Fathom’s First Quarter 2022 Conference Call. I'm excited to share our progress with you this morning. And we'll begin my remarks on Slide 3. Fathom delivered positive results in the first full quarter as a public company following our successful listing on the New York Stock Exchange in December of 2021. Our performance in the first quarter builds upon our long-standing history of profitability and cash generation as we continue to focus on delivering not just growth, but profitable growth a key differentiator for our company. Our broad on demand capabilities within the fast-growing rapid prototyping and low to mid volume manufacturing market remain in high demand fueled by companies actively seeking to modernize their supply chain and ensuring these supply chains are built on a resilient foundation and continuing to accelerate the pace of their manufacturing innovation. By leveraging our expansive national footprint and extensive expertise in both additive and traditional manufacturing technologies, our customers who are some of the largest and most innovative companies in the world, can iterate faster and reduce their time to market. This provides an important competitive advantage for them as they become more agile in bringing their new products to market faster, and ultimately enabling them to capture more market share. More broadly, the condensing of product development for life cycles has also contributed to a consolidation and reshoring of supplier partnerships, enabling companies to increase efficiencies and better respond to an increasing number of unanticipated high impact events. Whether it's a global health crisis, geopolitical conflicts, trade tensions, climate change, port congestion, electrical components shortages, logistics and other inflationary pressures. And all of these and many more. All of these are factors at both a macro and a micro level that have motivated companies to rethink their production and supply chain networks away from just a pure cost minimization, and now are looking to utilize new technologies to digitize their supply chains. The acceleration of the gold global supply chain transformation has also enabled companies to realize more eco-friendly benefits, such as lower energy consumption and waste, along with lighter weight, higher strength parts that preserve their functionality. At Fathom, we continue to capitalize on this increasing adoption of next generation industry 4.0 practices by working closely with Fortune 500 tier companies to help them create a more efficient and responsive supply chain. We address the complex manufacturing challenges and we promote sustainability. We remain at the forefront at the forefront in delivering timely hybridized solutions across are more than 25 Quick Turn manufacturing processes, including plastic and metal additive manufacturing, CNC machining, injection molding, precision sheet metal fabrication, and many other ancillary technologies that we leverage to serve our customers and we've brought them all together with our unmatched service with a unified software suite that acts as a key enablement tool for us. As we have stated in the FATH in the past, we believe our integrated technology agnostic approach uniquely positioned Fathom to apply the best manufacturing process to achieve a desired outcome. Our value proposition resonates by combining speed, flexibility, quality control, technical ingenuity, and problem solving to enterprise level customers within the low volume high mix production that supports customization. But we also accomplish this at scale. While Mark will discuss our quarterly results in more detail, our Q1 revenue performance was in line with management's expectations. Total orders in the quarter increased year over year by approximately 17% to $43.8 million as we maintain our focus on accelerating customer engagement. During the first quarter, we secured a two-year $10 million agreement with a Fortune 50 Global Health Care company continuing to expand mid volume production of an existing program with this customer. We also entered into a new multimillion dollar agreement in the quarter with a global semiconductor company to provide low volume sheet metal production for them. This is an expanded offering following previous work we've done with this customer focus mainly on CNC machining. That continued execution of our go to market strategy utilizing a land and expand approach has enabled Fathom to build a deep and entrenched partnerships with some of the top product driven companies across a very diverse end markets that we serve. Based on our strong orders volume, we increase revenue in the first quarter by approximately 33% while expanding our backlog of new business. As a reminder, shipments for new orders often extend beyond a quarter or two depending on the size and order type. Additionally, we delivered a profitable quarter consistent with our differentiated business model as adjusted EBITDA in the quarter totaled $6.2 million, representing a margin of 15.2%. Turning now to Slide 4. We provide some more examples of Fathom success in accelerating manufacturing innovation, and transforming the supply chain for some of our larger enterprise customers. As you can see on this slide, the application of our breadth of offering spans across multiple fast growing end markets. During the first quarter, we worked closely with an existing customer who is a global leader in gas measurement, instruments and technologies as noted on the right side of this page. We help them consolidate their supplier partnerships. In this case, the customer is looking to ramp production of their product from 25 units per month to nearly 75 units. But their existing supplier could not ramp to meet the demand or hit the necessary quality requirements. So the customer reached out to Fathom with this challenge and we stepped in immediately. And given our numerous certifications, which validate not only our capabilities, but we're able to combine them with our extensive national footprint. This customer made the strategic decision to redirect the parts production to Fathom. By sourcing through a unit unified supplier to meet their various needs, this company has been able to meet the higher demand and more than double their output, allowing the customer to accelerate tens of millions of dollars of revenue, while also benefiting from considerable efficiencies and superior service by working with Fathom. This is yet just another example of how Fathom is able to identify and capitalize on new organic growth opportunities that expand our share of wallet, build entrenched, long-lasting partnerships with enterprise customers and generate attractive reoccurring revenue streams that benefit not only our company, but our shareholders. Fathom has built a proven track record of strong performance with significant growth potential. And we're confident in our ability to further build upon our solid foundation and drive long term success. With that, I will now turn the call over to Mark.

Thank you, Ryan and good morning, everyone. I'll begin my remarks of our quarter one results on slide 5. Our revenue for the first quarter totaled $40.5 million for a year over year increase of 33%, of which $2.3 million was organic, and $7.7 million which from acquisitions. In the first quarter of 2021, we completed the acquisition of a domestic injection molding company. This transaction was followed by the consummation of four additional acquisitions focused on CNC machining during the second quarter of 2021. Now excluding the impact of these five acquisitions, our organic revenue in the first quarter increased approximately 6% as we delivered higher shipments for sheet metal and CNC technologies, primarily from cross selling activities. Now for quarter one, our reported revenue by product line is as follows: Additive Manufacturing was down 8.6% to $4.1 million, or 10.2% of total revenue. We maintained our pricing discipline in the quarter and even with a decline, we continue to invest in new additive technologies and remain bullish on the long-term growth of our attitude platform. Injection Molding increased 2.7% to $6.8 million, or 16.8% of total revenue. CNC Machining was up 176% to $13.3 million, or 32.9% of total revenue reflecting primarily the benefit of the acquisitions, but we also saw strong double digit organic growth in the quarter. Precision Sheet Metal increased 11.9% to $14.7 million, or 36.2% of total revenue, and Ancillary Technologies increased $11.4 million to $1.6 million, or 3.9% of total revenue. So as we mentioned on our previous call, the first quarter tends to be our lowest revenue quarter based on customer and commercial behaviors. In addition to seasonal factors our quarter one revenue was impacted by a domestic slowdown in early January due to the spread of the Omicron variant, which reduced additive revenue. We also experienced a reduction in our outsource business stemming from the COVID lockdowns in Asia, which impacted particularly our injection molding shipments. We continue to actively manage our overseas supply chain which reopened toward the end of quarter one. We utilize our outsourcing supply chain to supplement our capacity and manage costs. Now despite the current uncertainties in the global macro and economic environment, we believe Fathom remains well positioned to achieve further market penetration for its additive and traditional manufacturing technologies, while benefiting from the positive long-term fundamentals within the large and fragmented 25 billion digital manufacturing market. Now on Slide 6, we will provide our adjusted EBITDA performance for the first quarter. In quarter one, we reported adjusted EBITDA of $6.2 million, representing a margin of 15.2%. This compares to $7.7 million and a margin of 25.2% in the prior year period. Now during the first quarter, we experienced an increase in the volume of customers serve primarily through revenue from new acquisitions, as I mentioned earlier. Now similar to our fourth quarter results, we did incur a dilution impact from the CNC acquisitions on our gross margin compared to the prior year, which reduced the adjusted EBITDA of benefit. This had been built into our EBITDA expectations for the quarter in year. Now in addition, we saw modest absorption decline from lower volume in quarter one verse quarter four. Our plan assumes and absorption improvement as we increase revenue in the succeeding quarters. In addition, we are also scheduling additional Kaizen events at our facilities following our initial multi day workshop at our Miami location in quarter one to help drive continuous improvement in our processes as part of our lean manufacturing effort, which is built into our future cost improvements. Now one final note, our GAAP gross margin in the quarter was impacted by a fair mark -- market inventory step up as well as intangible amortization, which led to a charge of approximately $3.5 million excluding these non-cash purchase accounting adjustments which are not connected as which are connected to the closing of our business combination on December 23 ‘21, and unrelated to normal business activities. Our quarter one gross margin was 38.2%. The inventory step of $3.2 million was non-recurring. Now SG&A year over year increased significantly to $14.8 million quarter one primarily because of costs related to building our public company infrastructure. This includes expanding our executive team and supporting staff across multiple functions, leading up to and following our public list in quarter four, whereas these costs did not exist in quarter one 2021. We also worked with third party consultants with public company experience to ensure complex accounting and other business track -- transactions were documented in a regular regulatory compliant manner leading up to the publication of our inaugural annual report as well as other filings with the SEC. Now excluding stock compensation, our public company costs in quarter one totaled approximately $3.6 million, of which approximately $1.3 million was non-recurring, as we recognize a higher percentage of our overall public company costs for the year in the first quarter. These costs which were higher than anticipated, should begin to normalize in the second quarter of ’22 at roughly approximately 45% of the quarter one events -- quarter one amount. On Slide 7, we highlight our liquidity and cash flow. We ended the first quarter was available liquidity of $40 million. This includes $12 million in cash and cash equivalents and approximately $28 million of undrawn commitments under our $50 million revolving credit facility. Our cash balance of the end of quarter reflects the pay down of $5.8 million in debt and some lower collections. The higher than usual public company costs I mentioned a moment ago also impacted our cash balance at the end of the quarter. Now as of March 31, our totaled gross debt excluding cash was $146.2 million, and our net debt totaled $134.2 million. In terms of leverage our net debt to bank adjusted EBITDA, per credit agreement was 3.92x as of March 31 within the compliance terms of our facility. Our net cash operations in quarter one was $0.7 million, and we remain on track to generate positive cash flow from operations for the full year. Now in quarter one, we invested $3.3 million in capital expenditures related to capacity expansion, particularly in additive as well as the integration of multiple ERP technologies into a single scalable cloud-based solution to boost productivity. Our first site went live in the first quarter, and we expect to complete the full ERP integration process in 2023. Now while we continue to invest in the long-term health of our business, we believe we have sufficient liquidity to consummate tuck in acquisitions, and deleverage the balance sheet for the full year. Turning now to Slide 8, we provide our current outlook for 2022. For the full year, we have reiterated our previously stated guidance of revenue between $182 million and $192 million, representing increase approximately 23% and then midpoint on a reported basis. We continue to ramp our sales and marketing activities as anticipated following the seasonally slow first quarter. Importantly, our revenue growth gradually improved each month during quarter one in this positive momentum has carried over to date in the current second quarter. Reflecting these factors, we anticipate quarter two revenue growth to range between 17% to 25% on a baseline of $35.9 million in quarter to ’21, when we have an organic growth expectation of approximately 10% or greater. Now in further strengthening or additive capabilities, we remain on track to commercially deploy our new evolve step technology in the middle of 2022. This advancement in additive manufacturing is another example of Fathom leading the transition from prototyping into additive production as this technology dramatically reduces lead times for parts compared to traditional injection molding tools and parts. In addition, we recently installed a new laser sintering system with two high powered lasers for Polymer 3D printing, enabling the rapid production of parts. This is a major step up from predecessor systems leading to greater efficiencies, and productivity. We also expect to benefit from incremental revenue synergies from the integration of our sales and marketing team for our 2021 acquisitions. This process typically takes 10 months to 12 months before pivoting to operational commercial improvements, as we remain focused on ensuring an efficient cost structure. Now our full year outlook for adjusted EBITDA is also unchanged, as we expect to generate between $40 million and $45 million in 2022 for an implied margin of 22% to 23.4%. We anticipate in quarter two to leverage our higher revenue growth through stronger cost absorption and the ramp up of lean manufacturing activities. We also expect your SG&A costs particularly public company expenses to moderate downward, which will support generating a double digit increase in adjusted EBITDA off a base of $7.5 million in quarter two 2021. Now as a reminder, our current outlook excludes the impact of any future acquisitions. We continue to actively explore potential M&A candidates, mainly regional manufacturers to accelerate our growth and remain this -- and remain disciplined in our approach as we pass them several opportunities to date that did not meet our specific criteria. Now we continue to monitor the impact of global macro events, including the ongoing payment -- pandemic inflationary concerns, rising interest rates, recent geopolitical events and lingering supply chain shortages, and will provide an update to our annual forecasts when we'll report our Q2 earnings in August. I'll now turn the call back over to Ryan. Ryan?

Thank you, Mark. I will provide some closing comments on slide 9. I am proud of our team's performance in our first full quarter as a public company and remain highly confident in the future growth ahead for Fathom. We continue to work with enterprise customers to help them achieve their goals of creating a more responsive and more agile supply chain, localizing production and shortening their product development cycles. In April, we hosted a customer event at our corporate headquarters in Hartland, Wisconsin, with over 30 representatives from a diverse group of customers representing leaders in health care, power generation, consumer products, and automotive. Existing and prospective customers alike obtained a preview of our new evolve additive solution and received a guided tour of our 117,000 square foot facility providing a more in-depth overview of Fathom’s leading offerings. We are encouraged by the positive reception from this half day event, as we continue to build the Fathom brand and provide a differentiated customer experience. The ongoing demand for our comprehensive manufacturing services combined with the secular tailwinds in our industry, led to Q1 orders volume of $43.8 million, up 17% from the prior year period. Our success in expanding our market share with blue chip customers and adding new corporate accounts contributed to revenue growth up 33% in the quarter. We also posted adjusted EBITDA of $6.2 million consistent with our unique business model. Based on our performance in the seasonal first quarter, in addition to our current backlog and order flow, we remain on track to meet our financial guidance for 2022. Our focus remains on leveraging our digital manufacturing platform and delivering strong cash generating financial results, which will give us the financial flexibility to continue to execute our growth strategy and create a long-term value for our shareholders. This concludes our prepared remarks and will now open the call for questions.

Yes, sounds great. I look forward to seeing you tomorrow, Detroit.

Thank you for your questions, Troy. At this time, we currently have no further questions. Therefore, this concludes today's call. Thank you for joining in, and you can disconnect your lines.

Thank you. [Operator Instructions] Our first question comes from Greg Palm of Craig-Hallum Capital Group. Greg. Your line is now open.

Hey guys, this is Danny Eggerichs for Greg today. Thanks for taking the questions

Good morning, Danny.

I appreciate the color on kind of the monthly cadence you saw in Q1 and then even kind of the quarter date trends? Wondering if you could maybe comment on what you're seeing by segments. So far quarter date, if you've seen any kind of bounce back and an additive or if any of the segments are outperforming or underperforming, underperforming, maybe your expectations?

Yes. For us, as I mentioned in our prepared remarks, I mean, we're really focused on providing the enterprise customers with a solution, based on the unique manufacturing challenge. And so, obviously, we break out the four different segments, but it's really about providing the best solution for the customer. We're continuing to see, as Mark mentioned, we remain very, very bullish on Additive Manufacturing. As Mark mentioned, we've made capital investments, they're both in our -- on our SLS, DMLS. And as well as the new evolve technology. And so we really believe will continue to be a leader in that space. We're seeing continued uptick in the CNC machining. We're seeing the injection molding and sheet metal side of the business also continue to grow where we have it. We really believe we have a differentiated solution, particularly on the injection molding side of things with the digital tools and the 32nd injection molding quoting capability that we have there, Danny.

Okay, good. And then maybe on some of those larger contractual agreements with enterprise customers, how have you seen that pipeline progress over the last few months? Is that something that's increasing? And is this -- are you seeing customers with these contracts that have been, long standing customers or their new customers that are coming in and joining that pipeline quickly, or what do you see in there?

It's a little bit of a combination of all of the above. But I would say where we've seen with a lot of our customers, we've historically been more of an overflow surge supplier in some cases. And now as they've looked at the disruptions in their supply chain, they've said, not only are these disruptions, we really got to look at this from a transformational perspective. And they've looked at shoring up their supply chain and have committed to, to volumes, to be able to have us support them on a longer term, more consistent basis. And what we're also seeing is this success in the land and expand with our larger enterprise customers where, historically, maybe we had been selling them CNC machining. And now because of the capabilities across the Fathom platform. Now they're tapping into our sheet metal fabrication capabilities, or our additive manufacturing capability. So really seeing the success of our enterprise approach with these large customers that have multiple needs is they're looking to consolidate the amount of suppliers that they're working with. There's we're seeing a lot of the benefit from that, Danny, and I think we're going to continue to see that accelerate throughout the year.

Got it. Maybe one more on gross margin, obviously, excluding that that one-time impact in the quarter. What is it going to take to get back to that low 40s? Is that something that's kind of just, increasing those volumes to average fixed costs? And is that, do you see that in Q2? Or is that something that's, that's maybe more in the second half with the with the revenue ramp?

Yes, there's Danny's three factors are going to drive it first. As I said, in my remarks, we did take a little bit of an absorption hit in the first quarter. But we're pretty close to our expectations, when you back out the inventory step up. So three elements will drive it, so first will be further cost absorption, we will start seeing that in quarter two. I think the second element is and I mentioned the example of it, we are accelerating our lean activities, which will start contributing to cost out in quarter two. So that's the second element of improving our margins. And a third element is, the usage of outsourcing, which we had some impact in the first quarter. We expect that will mitigate in quarter two, so we'll get a benefit from using outsourcing on our margins. So that's probably the most minor impact on it. The first two are more important. And our expectation is we will be towards that low 40% in quarter two.

All right, that's helpful. Thanks, guys.

Thank you for your questions, Greg. Our next question comes from Jim Ricchiuti of Needham & Co. Jim. Your line is now open.

Thank you. Good morning. Couple of questions, maybe just following up on, again that that improvement that you've seen monthly as you went through the quarter, and as you continue to early Q2, I'm wondering if you can give us any color as to where you're seeing that improvement by some of your major verticals. I assume some of it continues to be strong when he talked about winning some business with existing customers and medical, but when I need color, you can have on where you're seeing if there is any noticeable change.

Yes, sure, Jim, where we have seen some of the biggest improvement and we still continue to have, a similar level of contribution from our medical, from our technology, which would include semiconductor from industrial, you hit on it to have them medical, and technology continue to see strong improvements and growth in those markets. But they're at sort of similar level, maybe medical going up a little bit. I would say the reshoring impact that Ryan talked about. We're seeing more of that trend in medical, and therefore seeing a little more benefit in that vertical. It is what I would say to respond to your questions, Jim.

Got it. That's helpful. And I wonder if we could just talk a minute about -- you've talked about the evolve step technology. And can you elaborate, is that going to be going into one of your facilities and I'm wondering how we think about that as we looked out over the balance of the year into early ‘23. It's what extent could add the driver for your AM business?

Yes, so that that will, you know transition from their manufacturing facility up in Minnesota to our facility here or headquarters in Hartland, Wisconsin, we're certainly going to see some benefit towards the second half of this year. We've seen a lot of excitement from a lot of very large enterprise customers is -- I think the benefit of that is, as you may be well aware, is that you can get real thermoplastic parts you similar quality to, or the same quality as injection molded parts in in weeks instead of months. And so, there's a lot of applications for that we think there's a tremendous amount of interest in this product. And so we're, -- we'll see a benefit in the second half of this year from a revenue standpoint, but where we see, really, the big uptick is as going into 2023, as we start to really ramp some of these customers from the early development all the way through into production. And that's where we see the longer-term benefit of this particular technology. And really, why Fathom wants to be on the leading edge of this is, as you know, as a company that has decades of manufacturing experience in additive technologies, an early adopter of both plastic and metal additive. We're very convinced that this technology is going to really lead that from that prototyping into production. And we think it can be a really transformative technology that that we're going to have here, locally in, in Wisconsin.

Yes, that's helpful. Last question for me, I'll jump back in the queue. Ryan, I'm not sure if you spent mentioned much in an update on new customer acquisition activity. And clearly, you're getting traction with existing, how satisfied are you with the progress you're making and securing some new customer relationships, and particularly now that you're public?

Yes, obviously, we're one quarter into it as a public company, but I would say, as we know, from a branding, marketing perspective, and opening more doors, I'd say we're very, very pleased with how that's been going, Jim. I think our ability to get in front of large enterprise customers at a much higher level than we had in the past is certainly materializing. Some of those, relationships take a little longer to, actually trans transition into orders and revenue. But from where we're seeing the quoting side of things, the engagements, moving higher into the organization, and really becoming more of a strategic partner, as a strategic supply chain partner for these large enterprise customers, really happy with how that transition has been going. Where we're at, and I think is, as I mentioned, my confidence in the long-term growth and how we've positioned this company to work with some of the largest, most strategic product driven enterprise customers. It's probably stronger now than even it was, and we talked a couple months ago. And so seeing a lot of success there. And I'm very confident as we talk about through the rest of this year, and really into 2023, that we're going to see the benefits from all the hard work that's being done by our commercial team right now and building those relationships and really getting entrenched with some of these larger enterprise customers, both new and existing that we have.

Got it. Thank you.

Thank you, Jim. [Operator Instructions] Our next question comes from Wamsi Mohan of Bank of America. Wamsi. Your line is now open.

Yes, thank you. Good morning. I think I missed your comments are on Q2 growth expectations. Would you mind just reiterating what those what those were?

Sure, yes, our expectation is to grow in the range of 17% to 25%, off a base of $35.9 million for last year.

Okay, great. And so what when we looked at the organic trend here in the quarter, relative to what you're forecasting, can you help us think through what's driving that acceleration? And I think you called out specifically, on the additive side, there were some headwinds that you experienced in the quarter. I was wondering if you could maybe elaborate a little bit on those.

Sure, so, one of the things on the additive side is we have seen some pricing pressure, as Ryan talked about, and we've talked about in past calls. We're not just about growth or about profitable growth. We continue to believe in additive and as Ryan talked about, we're making investments in various technologies to drive that growth. So I think it's a matter of time. That we'll get the additive story. So right now, we're technology agnostic. So whatever the customer needs, and I'll be honest, if you look at first quarter, three of our five technology areas did grow double digits, precision sheet metal, CNC, and ancillary. And we're continuing to see particularly strong growth in CNC and precision sheet metal, because of our strategic customers in the cross sell and the capability, our expectation is, we should start seeing some improvement in additive and injection molding. Injection molding was also influenced by the COVID lock down at the end of the first quarter. So we expect that should improve in quarter two. And we'll see some acceleration injection molding shipments in the quarter wants it.

Okay. Yes Mark, thank you appreciate the color there. And then one last one, if I could. In terms of operating expenses as we go through the course of the year. How are you thinking about managing that? I know you did incur incremental costs associated with being a public company here. But as we as we look over the next few quarters, how should we take relative to the revenue growth rate? Thank you.

Yes. I mean, we're clearly balancing growth versus ensuring profitability. As I said, the SEC costs and public costs should moderate significantly. And that will happen in quarter two. We are also doing some of -- we launched put our first ERP in place as part of an effort to be more efficient on the on the G&A. side. I would say, when you take out the impact, I talked about the public caution run around 45% of the number I mentioned, you take that out. I think that's the run rate long see; you should see the rest of the year. Notwithstanding, obviously, if any further efficiencies, get identified through the ERP, but that that's a 12 month to 18 month process. So we don't anticipate significant benefit from that in 2022.

Okay, great. Thank you so much.

Thank you, Wamsi. Our next question comes from Troy Jensen of Lake Street Capital. Troy. Your line is now open.

Hey gentleman, congrats on the results. Maybe a first question here for Mark, just looking at the Q2 numbers here. 17% to 25% growth, up $35.9 That gets you like $43.5 million. Did you also say that there is 10% organic growth rate baked into that?

Within that our expectation is we would be 10% or more depending where we end in the range. So there is an acquisition impact in that number, Troy.

Right, exactly. So I guess my question for you, Mark, is if you look at Q3 and Q4, that will be pure organic, right? Because...

Correct.

Okay. To get to the low end of your full year guidance, that's going to play closer to 20%, organic growth in Q3, and Q4. So just talked about just the confidence to see such as inflection and kind of the organic growth rate in the second half.

Yes, there's a number of drivers on that. And I'll let Ryan add to it, we are seeing an expansion of wallet with our customers on the strategic side. We do expect some of our outsourcing business to ramp up. We do expect a further increase in our additive side. One of the things that I've talked to in the past is, we're now just seeing the benefit on our acquisitions of fully indicated -- integrating the sales and marketing teams. And we tend to see 10 months to 12 months out a benefit where you get towards that 20% growth rate. So for all those reasons, we think we'll start seeing that step up into the second half. And Ryan, I don't know if you want to add anything further then?

Yes, absolutely. Good morning, Troy, exactly like Mark said, and as I mentioned with Jim, earlier, we are seeing that the strategic, the strategic account management and the land expand, we're continuing to see success of that. I know from a lot of the efforts that we've made, just in the first four months of this year. What we're seeing from a coding perspective, we know we're going to continue to start winning some of those larger opportunities and converting those into revenue in the second half of this year. As Mark also mentioned, we've made it continued investments you saw the strong growth in Q1 on CNC machining. I think you've seen that across the industry, there's a lot of demand out there for quick turn, high mix lower volume CNC machine, we've made some investments there as well, to be able to better serve that market continue to see growth there. We've also continued to refine and consolidate our supply chain side of our business, which I also believe will continue to see benefits from that and efficiencies that we're going to be able to drive there. As well as the ICOMO business I mentioned a little bit earlier, we really feel that that continues to be a differentiated tool, we're continuing to make investments there and improvements there. And we've added some more technical sales resources to be able to support that business, we get a great inflow from that. And we really think that there's a lot of opportunity to continue to grow that business and really take market share in in this environment into the second half of the year. And so it's really a multi-pronged approach across multiple different things. But that really speaks to the, you know, the technology agnostic, focusing on the customer understanding what their manufacturing challenges. And then because of this platform we've created, we've got a lot of different levers to pull, but it's all based on the relationships that we have with the customers. And so it's across those areas that we really feel convicted, I feel very strongly convinced that, that we can hit those organic growth goals into the second half of this year, Troy.

Okay, perfect. And then maybe another follow up for you, Ryan. Can you talk about digital adoption and your platform, I think of you guys as a leader in that category? And I believe there's better gross margins on it. So can you just update us on digital?

Yes, so the digital software suite remains, a key driver for Fathom, as I mentioned, especially on the injection molding side of things. We've got the world's only 32nd injection molding quoting tool. It's -- we believe it's an incredible differentiator for our business. We're continuing to invest in the smart quote tool, as it relates to that. We've really look at the as the software tool as an enablement for our enterprise customers, it's a piece of the solution that brings the entire platform together. And we think the value is really this hybridized approach. So being able to have a customer operate not only in the software tool, but also have technical engineering expertise that they can easily leverage. What we, what our customers tell us is they don't want to work inside of a box, they don't they need, they need flexibility. And that's why they choose Fathom, because we can allow them to drive their innovation, and drive, higher complexity, which can help allow them to differentiate their product. They don't want to make sacrifices to have to work with us. And we believe if you become too rich managing any software, you're forcing the customer to make sacrifices. For us, we want to have that software solution that makes it really easy for them to work. But if they need to be able to leverage a more hybridized approach, we're able to provide that as well. And so that's our approach. We really believe it works for especially the larger enterprise customers that are looking to drive complexities and innovation. And that's where we continue to be focused. And we're still really good about the platform where we're at today, Troy, but we're going to continue to invest and continue to refine it and continue to improve it.

Perfect. All right, guys. Good luck, and I'll see you in Detroit.