Q3 2021 Desktop Metal Inc Earnings Call
Greetings and welcome to the desktop metal third quarter 2021 financial results conference call at.
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A brief question and answer session will follow the formal presentation.
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I'll now like to turn the conference over to your host Mr. Jacobs, Cao Vice President of Investor Relations. Please go ahead.
Thank you and thanks to everyone for joining today's call with me today are Rick <unk>, CEO, chairman and founder of desktop metal and Jane Haley CFO of desktop metal.
Please note that our financial results press release and presentation slides referred to on this call are available under the events and presentations section of our Investor Relations website.
This call is also being webcast live with a link at the same investor Relations website the.
The webcast and the accompanying slides will be available for replay for 12 months. Following the call. The content of today's call is the property of desktop metal it cannot be reproduced or transcribed without our prior consent.
Before we begin I would like to refer you to our safe Harbor disclaimer on slide two of the presentation. Today's call will include forward looking statements. These forward looking statements reflect desktop metals used and expectations only as of today November 15, 2021, and actual results may vary materially based on a number of.
Risks and uncertainties.
For more information about the rest of the manpack desktop metals business and financial results. Please refer to the risk factors section of the annual report on Form 10-K as amended in addition to the company's other filings with the SEC.
We assume no obligation to update the forward looking statements.
Additionally, during this presentation and the following Q&A session, we may refer to non-GAAP measures, including EBITDA, adjusted EBITDA and non-GAAP gross profit.
These measures are intended to supplement but not substitute for performance measures calculated in accordance with GAAP.
Our financial results release contains the financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures.
With that it's my pleasure to turn the call over to Rick Moore, CEO and founder of desktop metal.
Thank you Jay and good afternoon, everyone and thank you for joining us today.
I want to kick off the call by welcoming the talented <unk> team to the desktop metal.
As you know we completed the acquisition of X one last week and we're thrilled at the opportunities ahead for the combined company today.
Today, I will highlight a few financial and business developments for the third quarter and will provide an overall business strategy update.
I'll, then turn the call over to James to walk through the third quarter financial results in more detail and our outlook for the balance of the year before opening it up for Q&A.
Let's start on slide three.
Revenue for the third quarter, 2021 was $25 $4 million, representing sequential quarterly growth of 34% and more than 900% growth year over year.
Revenue growth was driven by a combination of strong performance in our core metals business as well as the contribution from recent acquisitions. We also saw continued gross margin expansion as non-GAAP gross margins increased 27% in Q3 more than 180 basis points sequentially.
With some great developments in our business this quarter, we're seeing strong momentum in commercial opportunities with a number of fortune 500 companies across our volume production platforms, including the production system be 50.
We continue to aggressively develop these opportunities against the backdrop of P 50 progressing towards the initial commercial shipments.
We're completing final procurement and have started production of the initial P 50 belts targeted for shipments this quarter.
While supply chain challenges are impacting us across the business, we have our best people focused on getting P 50 out.
We're confident enough in both our broad progress and the demand to increase our manufacturing capacity with a new facility dedicated to P 50 production.
After the significant development cycle of this product we're excited to begin shipments to customers and we look forward to updating you on this milestone as well as our customer use cases for this game changing platform.
We successfully closed our acquisition of X one in this landmark transaction cements, our leadership an area wide added manufacturing technologies for mass production.
We also made two small acquisitions in metal additive and I grow the dovetail nicely to our core metals business and the traditional print platform Fedex one brings to the portfolio.
Speak to each of these in a bit more detail later on the call.
We unveiled our strategic relationship with Safeway last week, we're excited to make our product portfolio and broad range of materials available through their digital manufacturing platform to businesses that may not be ready to purchase full systems that need overflow manufacturing capacity on demand.
And finally, we launched a new initiative on their desktop help to build out our dental them by fabrication parts platform is a key element of our strategy to attack these markets and I'll go into further detail later in the presentation.
Before diving into some of these highlights I want to address our performance in the third quarter.
There are some headwinds that prevented us from achieving the results we have targeted when the quarter began well.
Supply chain and logistics disruptions did have an effect towards the end of the quarter. Our team has done a great job adapting to the current environment, but these issues did impact our ability to ship some of our products in quantities, we expected, especially our port of polymer platforms, such as the extreme making.
Ultimately, what we didn't execute to our plan for the quarter. We're in a good position to drive very strong sequential growth in the fourth quarter and then you are strong.
And James will speak more to our full year guidance during this section.
Slide four I want to spend a few moments reviewing our acquisition of its one which strengthens our competitive stance in many areas together, we offer an unparalleled product portfolio across speed cost resolution in part size.
Particularly thrilled with the opportunity to combine X one sand printing expertise with our low cost architectures to make digital casting more accessible and grow that market.
Our combined materials science efforts will allow us to introduce new materials to our customers at a faster rate.
We look forward to leveraging our complementary go to market activities to drive outsized growth while seizing.
An opportunity to flip excellence business to a more turnkey build to forecast model, which we believe will accelerate growth and the conversion of excellence robust backlog.
$57 million at the end of Q3.
Next on slide five I'd like to review two other tuck ins that in conjunction with X one reflect our strategy around printers materials and killer apps in materials. We're excited to announce the addition of our next generation Binder technology focused on reducing park shrinkage through our acquisition of meta.
Meta has developed non sacrificial binders organometallic tin particles of functional build material to bind and infiltrate the powder bed simultaneously during the binder jetting process with binder IP has a potential to revolutionize binder jetting by extending the technology to markets that require larger part sizes and a broader powder materials will.
We'll look forward to developing qualifying made us functional binders on a high speed better getting platforms to enable customers to print larger parts with faster turnaround times improved tolerances, even greater productivity.
The right side of the slide I'd also like to highlight Idaho, a liter and added manufacturing them next generation manifolds, hydraulics and fluid power systems.
In metals, we view those use cases is killer apps for additives.
I agreed to serve as a foundation to deliver customers a differentiated offering in this market for AGA was an early adopter of a M.
With World Class design expertise and know how and where it is.
Started to work with their talented team to leverage a combination of desktop metal and next one is grid platforms to produce fluid power systems and manifolds optimized for am.
Turning to slide six as a management team, we remain laser focused on achieving double digit share added it by the end of the decade is called guides our strategy across both organic product development and M&A activities and we're working towards that by expanding the serviceable portion of our addressable market.
As well as bringing a M into new applications not accessible to legacy AAM processes offered by our peers ambition. For example has opened up the Palmer and market with its pioneering area wide photopolymer platforms and digital casting solutions, which.
We have reinforced with our acquisition of X one industry, leading at Max platform. We've introduced forest that process for three D printing indias would parking production, extending amped obligations, including home furnishings and luxury interiors.
We've added by a fabrication capabilities through beacon by which we are in advanced stages of R&D and have the potential to enable new killer apps, such as you heard from repair and other soft tissue cases.
Finally, Denver as a $30 billion opportunity that has been largely got served by an.
Particularly non orthodontic applications. We believe this market can reach over 75% penetration of digital a M workflows and we have introduced materials made investments towards our part strategy to address this opportunity.
Each of these developments is consistent with our strategic pillars of our business that has unlocked opportunities for our technology that would capitalize on to deliver outsized growth in the longer.
Turning on to slide seven you can see the full portfolio of added manufacturing to point our solutions. We have built to achieve long term success at the top we're focus on area wide grid platforms that can support a step function improvement in throughput up to 100 times legacy additive manufacturing processes. Our goal here is to help customers added manufacturing and production volumes cost effectively versus.
Commercial manufacturing.
Critically desktop metals proprietary printing technologies achieved superior economics, and throughput while also enabling surface finish accuracy of mature properties required for end use parts.
And we provide these platforms alongside proprietary software centric solutions that make it easier to adopt for businesses of all sizes.
Partnering these advantages with an extensive and growing materials library translates into support for a broad range of production applications across verticals.
Knowing us to diversify our end markets and customer base.
We're super confident in this platform and believe they can generate significant revenue scale in the near term and will serve as a foundation for us to achieve double digit chair of additive in the long term.
Turning to slide eight.
So the context for our new initiatives, we launched in Q3 under desktop how many of you will recognize our added manufacturing to point us strategy slide, which we've shown where nearly every quarterly optical.
We're focused on three primary areas first we want to be a leader in <unk> platforms. Our mass production that use area why technologies that improve in performance overtime benefiting from Moore's law, allowing us to continually increase our competitiveness versus conventional manufacturing second we want to vertically integrate into high margin consumable revenue streams by owning abroad.
Gross portfolio with best in class properties, developing printers and materials together allows us to offer integrated solutions that can reliably yield high performance parts for our customers.
Third we're focused on developing killer apps for additive.
For most of these applications, we plan on being a technology provider with a high margin recurring revenue stream through consumables, but there are some applications, where a large portion of the profit pool accrues to the application provider.
These segments, we believe the best way to maximize value of our technology assets is to provide an end to end solution that includes printing and providing high margin and just parts to customers.
Turning to slide nine we see dental and by fabrication is important emerging killer apps for additive because parts are unique to the patient.
There are huge markets with only a few percentage of parts printed today.
The traditional production methods include labor and resource intensive congressional manufacturing processes. As a result, this market is sports adult rapidly towards additive.
We're already well positioned as a technology provider in both dental and buy a fabrication with a thriving business selling differentiated solutions across printers and materials.
We're also launching a new parts platform to vertically integrate into design and parts production capabilities that will allow us to provide a more comprehensive end to end offering that can that accelerate adoption of three D printing in dental and biopharm vacation for dental specifically this efforts are critical to make church side printing successful at scale and drive value creation.
For desktop metal.
We believe that our strategy is a consolidator can enable an industry, leading additive focused business that provides printers materials and end use parts for dental biofabrication costumers with additive manufacturing at its core.
Today, we're seeing real results from the steps, we've taken to position the dental business to execute this strategy.
And through our acquisition of <unk> bio we have five fabrication materials in advanced R&D long term plan to implement Biofabrication solutions under this initiative.
With SAP this opportunity with leaders from the industry in an effort led by Louis era for Mercy of Dental solutions group.
Our goal is to form a global platform underneath desktop health.
Able to accelerate the precision of additive manufacturing, while maximizing wallet share in this segment.
We've acquired our initial targets under this strategy and will be rapidly digitizing. This properties without proprietary added manufacturing solutions to increase their profitability and product capabilities.
The long term opportunity for dental and bought by vacation is just starting to hit the uptake of the S curve and we believe our strategy to drive adoption through our new platform positions us to capture a significant share of this massive opportunity.
And finally on slide 10, I'd like to wrap up my section by reiterating that would build desktop metal with durable competitive advantages in order to accomplish our mission of double digit share in the additive manufacturing market by the end of this decade.
We have the fastest print platforms in the market supported by proprietary software centric capabilities that enable adoption for customers of all sizes.
Hence the end growing mature portfolio enables a more diverse array of applications for our customer space.
We focus on killer apps, providing end to end solutions, including design and parts production to deliver high margin escaped this Friday.
We have a world class go to market organization with complementary indirect and direct channels as well as robust global service and support capabilities and finally, our vertical integration and materials not only enables reliable high performance parts for customers, but also creates high margin recurring revenue streams for consumables for our business.
This is the blueprint for how we will win in the marketplace and we look forward to updating you on how these competitive differentiation.
Continued market share gains and consistent financial outperformance for years to come.
I will now turn the call over to our CFO, James Hayley to share our third quarter financial highlights James.
Thanks, Rick beginning on Slide 12, you will see a summary of our financial performance for the third quarter 2021. Please note, we will be referring to several financial metrics on a non-GAAP basis reconciliations to GAAP data is included in the filed appendix consolidated revenues for the quarter.
Was $25 $4 billion up 34% sequentially from the second quarter 2021.
Revenue strength was driven by our core metals business and contributions from acquisitions, partially offset by weakness in the polymers business like many other companies the global supply chain and logistics network presented challenges specifically in the envision tech business, which impacted our quarterly results while third quarter.
Revenue growth was less robust than previous quarters, we are poised to rightsize performance and return to.
The expectations, we have set for the business in the fourth quarter.
We delivered another quarter of non-GAAP gross margin expansion non-GAAP gross margin increased over 180 basis points sequentially to 27% for the quarter gross margin strength was primarily driven by operating leverage as revenue continues to scale across overhead.
Cost as well as product mix towards higher E. S. P cells, such as our metal systems.
Adjusted EBITDA for the third quarter of 2021 was negative $26 million versus negative $15 5 billion.
Third quarter of 2020.
The year over year adjusted EBITDA decline was primarily due to increased expenses related to operating as a public company investments in our core business and loss contributions from acquisitions, we ended the quarter with $423 $9 million in cash cash equivalents and short term investments.
As of September 30th 2021.
This excludes the impact of the acquisition of that's one which includes the deal consideration in cash of approximately $67 million excluding transaction fees.
And finally moving to our guidance on slide 13.
We're revising our full year 2020, one revenue and adjusted EBITDA outlook to take into account our third quarter performance current expectations for the fourth quarter and anticipating contributions from recent acquisitions no. The full year 2021 outlook excludes any impacts from the X one acquisition.
We now expect to generate total revenue in the range of $92 million to $102 million for the whole year 2021.
I mean, 459% to 519% growth over full year 2020.
This updated revenue range includes between $36 million to $46 million and expected fourth quarter 2021 revenue.
Which implies 43% to 82% sequential growth over the third quarter 2021 for the full year 'twenty or 'twenty, one for our core desktop metal and envision tech businesses. Excluding contributions from recent acquisitions, we expect to generate revenue in the range of $75 million to $85 million.
Also please note this updated guidance does not rely on meaningful revenue from a P 50 system.
We also updated our adjusted EBITDA outlook now in the range of negative $80 billion to $90 billion again, excluding the effects of acquiring X. One. This updated figure takes into account third quarter 2021 performance and increased operating losses from recent acquisitions completed since our.
Our second quarter 2021 financial results call on August 11, 2021.
With that I will turn the call back over to Rick.
Thank you James to conclude I'd like to reiterate our vision of accelerating adoption of additive manufacturing to point now on our way to achieving double digit share of the additive market by the end of this decade.
Near the end of 2021.
Are you better positioned with the right portfolio of differentiated additive manufacturing solutions to drive consistent growth through 2022 and over the long term.
I remain as excited as ever about the momentum of our business and our opportunity to deliver value to all of our stakeholders with that I will now open up the call for questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Greg Palm with Craig Hallum Capital Group.
You May go ahead.
Alright, yeah. Thanks for taking the questions here I guess, just starting off on the shortfall in the quarter any way to quantify you know the the revenue impact from you know whether it was supply chains or some of these logistical challenges that you ran into.
Hey, great. Thanks for the question.
Definitely Q Q3, definitely fell short a little bit.
Really we had some supply chain issues, we had some logistics issues as well.
Say the encouraging item for us is that on the metal side, we did see sequential growth.
From Q2 to Q3, however in the polymer.
Weaker than we expected.
That is really where we had had more of the supply chain issues with specifically on the polymer side.
And are you are you I guess I'm, specifically trying to figure out if it was material as in you know.
10% of revenue that couldn't get shipped or something more of that can you can you have you.
We had some.
Yes, Greg we had to make.
The parts that we're expecting towards the end of.
A quarter that we didn't end up receiving and weren't able to ship.
Some of our products for example, extreme 8-K.
We just had a lot of them waiting for components that should have been.
In house on time, but.
We have made.
Strides in receiving those and hopefully we will continue to.
Catch up on that throughout this quarter yeah. So the other thing I would certainly say I mean this revenue growth is the journey for us and we.
We continue to project strong Q4 to end the year.
And we really expect that.
Have a great sequential growth between Q on Q Q3, and Q4 here.
Certainly Q3.
Less than our expectations, but we do believe these long term growth thesis is intact.
Yep, Okay fair enough and I guess my follow up specifically on kind of the implied guide for Q4.
Is there any P 50 contribution that's that's baked into the guide and I guess you know, it's it's excluding ex one but how much X. One contribution do you expect in Q4.
Sure so.
First on the X one pad so that transaction just closed Friday as you know one of the challenges we are evaluating any other purchase accounting implications. If you just looked at sort of their their prior guidance.
They've actually live in Q3 that would yield a Q4 result somewhere in the Twentyish neighborhood and then.
We still have to determine how much of it will be sort of post post acquisition and any.
Any implications for the purchase accounting.
Mentioned.
And then in terms of your question a L. P 50 at this point there is no P 50 in our revenue forecasts and we still plan to ship by the end of this year, but any associated revenue and this plant will be deferred until next year. So we won't start to see the benefits of P 50 until until Q1.
Got it okay, all right I'll leave it there thanks.
Our next question comes from Ashley Ellis with Cross Research you May go ahead.
The supply chain I'm wondering what are your expectations for fourth quarter. It seems like you've lowered full year. So while the parks came in I guess after the quarter closed you're still it doesn't seem like you are necessarily recouping that revenue fourth quarter. So do you expect to still.
Kind of struggled with the supply and then.
What are you doing can ensure that you do have enough supply for that piece and then I'll follow up thank you.
So for Q4 here I mean, certainly we're still expecting a pretty substantial growth the challenge for us.
With a lower base for from Q3 in terms of the specific supply chain.
One of the challenges we have had is on the logistics side of things so there.
I think we're very encouraged that the margins have continued to expand despite the fact that we have had to expedite.
So.
Right along the way.
But really Q4 see feed growth there.
We believe that we have.
On track.
The growth in Q4 here.
But there is a need there is.
As Rick alluded to on the extreme 8-K, we had some specific product challenges, there, which honestly delayed the launch of the product into Q4.
Not as you just get the product in now.
Got the parts, we're assembling them are going through all of the.
Various testing and validation and hope to ship that product.
In the fourth quarter here.
Okay that makes sense and then for the P 50, it with you.
Sorry that triples capacity I'm wondering do you expect could be at full capacity sometime during 2022 or will it be a slower ramp for the P 50, and maybe more.
<unk>.
I mean any product you start to ramp gradually although we have.
Plans to two fairly significant capacity.
<unk> as the year progresses so.
The first couple are in production right now and as.
So we start to ramp and get systems in the field that number will continue to increase on a monthly basis, and we'll be delivering more and more product SCR progressive next year.
Okay, and how are you feeling I'm, okay with components or could that also be a challenge.
No I mean that is a significant.
Product with lots of parts.
Got a lot of good people in supply chain working on it.
And.
We are.
Putting our best people on it so we've we've got.
<unk>.
Parts in house, but.
Beyond the first few systems, we could run into trouble when we Fortunately a lot of those parts that are mechanical I think you could fab in in sort of a short run capabilities, but there are components that.
If we get surprised by so we are trying to do our best.
And be creative as we as we try to resolve these challenges, but so far.
I don't see it as an impediment from shipping it just adds a lot more work for our teams to work around some of this logistic issues.
Right understood. Good luck. Thank you.
Thank you.
Our next question comes from Noelle Dilts with Stifel.
You May go ahead.
Hi, good afternoon.
I was hoping that you could just provide us with a bit of an update on the.
The pipeline for P 50 in terms of orders.
But you've talked about in the past and you know basically if you could also touch on what kind of gives you the confidence to.
Expanded manufacturing capacity, there that would be great. Thank you.
I mean, we have a significant pipeline for P. 50, it keeps developing is with several large fortune 500 companies for four large applications and.
That.
Yeah.
It is.
Moving at a pretty good clip, we're putting capacity when we need it so.
We feel very good about it.
We've got applications with Oems they could.
A significant number of units.
What we're that's what we're doing.
Okay.
And then given the.
X one deal and you know that you've been pretty active on the acquisition front could you speak to how youre thinking about M&A heading into 2022 and sort of what the.
The pipeline looks like at this point in terms of companies that you're engaging with thanks.
Okay. So I think we have an M&A strategy that continues to.
It really hasn't changed it's really centered around three areas.
Print platforms that are.
The area wide they provide.
Improvements over time.
Is that.
It basically dependent benefit from Moore's law vertical integration into the consumables that our systems.
<unk> utilized and then finally the ability to have.
Impact on killer apps, and we look at the profit pool on these applications and really focus on.
What is the maximum.
Way too too to get share and maximize value and leverage long run so.
We've had a consistent strategy that companies that have been going after.
The same companies that we add on our target list since before we were.
We're a public company and we had segmented the market.
Basically it does.
It was $12 billion size market with segmented it in that.
Sort of $2 billion worth of businesses that are very attractive and another $10 billion that are not you wouldnt want to own and so we're focusing on that $2 billion.
Which is going to grow faster than the market.
Have.
Strategic.
Leverage point for us to two.
Gained share long run.
Okay. Thank you.
Yeah.
Yes.
Again, if you have a question.
Please press Star then one.
Our next question comes from Martin Yang with Oppenheimer.
You May go ahead.
Hi, Good afternoon. Thank you for taking my question.
Now that you have many more detailed announcements regarding your partnership which Safeways can you maybe talk about what the nature and structure of your commercial deal and where should we expect.
The commercial agreement of $20 million to fall on your income statement.
Yes, we started with some amount of revenue that that.
A hit in Q3, it bounced may hit in Q4.
I would say.
It is still too early to tell.
Where the bulk of it is going to be what quarter. We have a lot of work to do for our point of view.
<unk>.
Yes.
First there are some strategic things that we're doing because the two companies I think one of the great things about this deal is that it is going to provide.
M with.
Our capability to have all of our technologies and materials available.
In a solution that's easily accessible for people that aren't ready to buy equipment and then in the long run.
Yes.
We have a lot of work to do to fully execute it you have to deliver install procure or launch in their process. A lot of this material. So I think this is going to continue for some time.
But it is a strategic partnership for us and there are some things that we haven't fully announced yet that we're doing with them. We think are very exciting.
And that will be very well received by the market. So.
You should note that shape was has been a longtime customer of the company through.
Through the ambition Tech side and also now through <unk> as well so.
There's quite a bit of business between the companies.
It has been for the years.
That's great.
Go ahead.
We do not expect to receive the full $20 million in calendar year 2021 from a Rev Rec standpoint.
To Rick's point, we will see how that pans.
Pans out.
But it is meant to be a long term relationship.
Yeah.
Got it thanks for the clarification and looking in maybe at your pipeline are there any other similar commercial agreements like the one you have which safeways.
Which you already secured but have not announced.
Well.
If we haven't announced that we usually let our customers do the announcements in this case. It was you had to put something on a filing about a lot of the deals.
In in large systems are large number of deals. So if somebody is taking our product to Boeing production with technology like ours.
That would certainly be the case and.
We let you know in those cases particular customers are sensitive to.
That getting out before.
They announced a product or be for something shipping has started production. So.
If we can talk about it or they are okay with us talking about it we would talk about it.
But we let our customers do the PR in those cases.
I mean, the one thing where you got lucky we have numerous strategic relationship.
Hey, Dan.
Several service bureaus, but our customers, it's not just safeways, but I would say.
We would.
We have a strategic partnership with <unk> doesn't preclude us from working with other people as well.
Got it thanks flip fabrication.
Again, if you have a question. Please press Star then one.
There are no further questions. This concludes our question and answer session I'd like to turn the conference back over to Rick Philip for any closing remarks.
Alright, I want to thank everybody for joining the call today as always I, especially want to thank all of our employees, including the new X. One team for their continued dedication to advancing our vision of added manufacturing for mass production. We look forward to speaking with you again at the year end call. Thank you.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.