Q3 2022 Desktop Metal Inc Earnings Call
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Greetings and welcome to desktop metals third quarter 2022 financial results Conference call.
At this time, all participants will be in a listen only mode.
A brief question and answer session will follow performance presentation.
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I'd now like to turn the conference over to your host Mr. Jay against Cao.
Vice President Investor Relations.
Please go ahead.
Good afternoon, and thanks for joining us on elevated third quarter 2022 earnings conference call earlier today, we issued a press release with our third quarter results a copy of the release is available on our website at investors that elevate dot com today's call is being webcast is accompanied by a slide presentation, which is also available on our website. Please refer now to <unk>.
Slide two of that presentation.
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Greetings and welcome to desktop metals third quarter 2022 financial result.
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And starting again greetings and welcome to desktop metals third quarter 2022 financial results conference call. At this time, all participants will be in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. Jay It sounds Kao Vice President Investor Relations.
Please go ahead.
Good afternoon, everyone and thank you for joining us to discuss desktop metal its financial results for third quarter 2022. Please.
Please note 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 exchange site.
Webcast and accompanying slides will be available for replay for 12 months. Following this 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'll refer you to our safe Harbor disclaimer on slide two of the presentation.
I would also like to remind you that today's call will include forward looking statements.
These forward looking statements reflect desktop metals views and expectations only as of today November nine 2022, and actual results may vary materially based on a number of risks and uncertainties.
For more information about the risks that may impact desktop metals business and financial results. Please refer to the risk factors section of the annual report on Form 10-K, and quarterly report on Form 10-Q. In addition to the company's other filings with the SEC.
Management has no obligation to update or revise the forward looking statements.
Additionally, during this presentation and the following Q&A session. We may refer to our results on a non-GAAP basis non-GAAP 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 <unk>, founder and CEO of desktop metal.
Thank you Jay and good afternoon, I'm going to thank you all for taking the time to join today's discussion for our third quarter 2022 results before we begin it's my pleasure to welcome to the call desktop metals <unk> CFO Jason call.
I am very excited to have John D and DM.
Jason This is a highly accomplished finance executive who is joining us from an 18 year career at analog devices.
Recently, a divisional CFO of a $10 billion business overseeing 12000 employees and 15 internal sites Jason.
Jason brings more than 20 years of experience in global finance operations and supply chain management, M&A integration and F. PMA.
We're thrilled to have him on board.
Same hailey is also on the call today and will transition into an advisory role beginning tomorrow to ensure a seamless transition.
I'd like to thank my friend James for all his contributions to our collective efforts and wish him. The best of luck in his future.
Turning to the quarterly update.
I'll start with a review of third quarter of 2022 financial results, including detailing a few recent actions in response to our results in the current business environment.
Followed with a number of recent business developments of note, including a promising new strategic partnership with align technology.
Jason will then provide further color to our financial results I will close with our financial outlook and then transition to Q&A.
I'll start by addressing our results for the quarter on slide three.
So all of that revenue for the third quarter was $47 1 million, representing a year over year growth of 85%, including contributions from acquisitions third quarter 2022, non-GAAP gross margins were 19, 9% and adjusted EBITDA was negative $28 million.
Simply put performance did not meet our expectations for the quarter I'd like to unpack what happened in our response.
Relative to internal forecast as reflected in our public guidance, we saw lower than expected sales volume towards the end of the quarter, which is typically when we see a sharp acceleration in volume as Europe and to a certain extent the U S come out of the slower summer months.
This divergence from the expected trend was not uniform across all business lines.
Our printed casting business continues to perform well and we feel very good resiliency in our dental and health care platforms, but these strengths were offset by softness across the balance of our portfolio.
The challenging macroeconomic environment created headwinds for our business. We exited the first half of this year are tracking towards our financial targets with a robust pipeline of healthy customer momentum.
As the third quarter progressed, and some cases orders we expect it to close shifted into later quarters. We believe this is a result of customers pausing on capex spend as they become cautious about the macro landscape.
In particular on larger deals require more significant capex outlays, we saw customers delayed purchase decisions economic concerns, which was not the case at the start of the quarter.
In addition, we experienced currency headwinds in international markets, which compounded to the lengthening of sales cycles towards the end of the quarter.
At the gross margin level underperformance was primarily a function of lower than expected sales volumes and the associated overhead absorption impacts.
While our product gross margins continue to improve and are well ahead of overall gross margins, there's a sizable overhead in our Cogs. It has a major impact on lower revenues.
To a lesser degree margins were also impacted by product mix and a challenging transportation and freight backdrop.
Our cost reduction initiatives announced in June significantly reduce our expenses on a dollar basis. The adjusted EBITDA trailed our internal forecast as a result of decreased sales volumes relative to expectations. This is not the first time, a recessionary cycle has impacted growth in the additive market.
The compounded annual growth rate of 18% experienced in the prior two years did not occur in a straight line. We've had three similar periods, where the market has stalled between one or two years coinciding with recessions. The last time. This happened in a meaningful way pre Covid was 2008 2009, when the market contracted 3% on an annualized basis.
And in the decades that followed the market rebounded significantly compounding at 27% growth.
The long term trends supporting broader adoption of additive manufacturing and growth to over $100 billion in the next decade remain impact, particularly for mass production additive solutions unlock benefits of lower cost onshoring digital inventories assembly consolidation and design freedom among others.
We're enabling businesses to remain resilient and react more quickly to external circumstances in both supply and demand.
As I've said in the past production based <unk> printing is less affected than prototyping in challenging environments and I still believe that is the case.
However projects that are still not fully green lighted on the production side can be delayed as companies across the economy face tighter capex budgets.
The durability of these benefits remains incredibly strong and the trends driving more and more customers to embrace <unk> printing will last well past the current short term macro challenges.
Equally confident desktop metals portfolio of production focused <unk> solutions is very well positioned to continue to capture share of this growing market and take advantage of the next stage of long term secular growth.
Notwithstanding current macroeconomic impacts on the business.
We are not satisfied with our execution of our performance in Q3.
But we're focusing on how we navigate our current set of circumstances and respond as a company.
We have already taken Swift actions to course, correct in order to reduce our expense structure well beyond what we outlined in June .
Getting profitable as our number one priority.
In June we announced a strategic integration and cost optimization initiatives.
The actions, we took have achieved $40 million of annualized cost savings.
The closing of Q3, it has become clear we need to further intensify our expense reduction efforts in light of the current environment.
As a result, we're cutting costs, even more aggressively in quicker than initially planned producing our cost structure improves our path to profitability timeframe and enable us to reach our adjusted EBITDA breakeven by the end of 2023, even on lower revenue threshold, if microeconomic headwinds persist.
We will continue to monitor the macro environment and make adjustments to expenses as needed to ensure this company towards profitable under the current capital structure in line with our commitments.
Now, let's shift gears and discuss a number of very positive recent developments for the business.
With significant revenue potential for 2023 and beyond.
<unk> continues to offer advantages versus traditional manufacturing for a host of applications and we're seeing continued traction from both customers and major strategic partners and the added manufacturing ecosystem that are embracing these benefits.
Last week, we announced a new strategic partnership with align technology to bring digital dentistry and workflows for printing to the mass market.
We're very excited about the opportunity in this partnership and I'll go into further detail on the following slide.
We expect tangible financial benefits of this partnership will be reflected beginning in 2023.
We also announced a multifaceted partnership with Siemens to advanced additive manufacturing with a focus on large manufacturers that among other efforts will integrate desktop metals <unk> solutions into seamless simulation and planning tools, enabling production scale factory planning and automation.
In addition, we expanded our partnership with Henkel to qualify additional industrial for our polymer materials for the extreme 8-K, the world's largest DLP printer for high volume production of Indias parts.
We're delighted to work with a strong partner like henkel to expand our differentiated material obligations, we can offer to our customers in the photopolymer AAM to point out space.
We're actively engaged with some of the largest companies in the world on the production system and $2 50 in particular and we remain steadfast in our plans to build major business for Hyperscale is on this platform, which provides the highest throughput and lowest cost part production of any metal printer in the market.
Starting in December we're planning to begin hosting quarterly open house meetings to showcase our progress from <unk> to the industry and potential customers.
We also expanded our lineup for shop system. It was best selling metal binder jet system with <unk> system, plus and shop system probe.
The shop system has become a global success and we've already taken sensor based production processes that used to take required specialized knowledge and made a turnkey easy to use and accessible to all manufacturers. These new auctions and more versatility functionality and value to our already strong shop system platform.
And finally at <unk> in September we launched a figure June 15, the first commercial platform of its kind to say standard sheet metal on demand directly from a digital design file use.
Using patent pending technology manufacturers now have a new competitive way to form sheet metal parts and products quickly that the high upfront costs associated with stamping presses and dies, which typically have a long lead time and are expensive to produce.
It'll formulas figured 15, its accessible flexible and cost effective even at low and medium volumes.
Manufacturers in the automotive aerospace appliance and other industries can now produce a fully formed part in less than an hour without major investment in time and money.
While this product is still in its early commercialization triggers a one of a kind turnkey solution for the more than $300 billion sheet metal, forming and fabrication industry that we're very excited about.
Turning to slide five I'd like to provide more color on the recently announced partnership with align technology. The undisputed category leader in clear liners, intraoral scanners and <unk> software.
We're really thrilled to partner with aligned to bring a first of its kind solution. We believe what we're building together will be a significant growth driver for align desktop labs and desktop health.
More and more dentists are looking for an integrated digital dentistry platform that encompasses scanning and printing hardware dental parts made with best in class materials and design and production services through this partnership alliance market, leading Antero and Charles scanners will be offered as a seamless managed service to dentists and our subscription model with Rick.
<unk> revenue dentist can then order a liners or exclusively drive three D printed restorations to desktop labs. Our goal is to develop a very sticky service that delights customers. This is a gateway for our connected suite of digital dentistry solutions with seamless workflows backed by desktop labs experienced network of dental laboratories, and premium desktop <unk> printers and material.
Yeah.
This integrated solution will allow dentists to capture patient data with <unk> scanners.
Digital files, using desktop lapsed design capabilities and <unk>, Brent custom parts, either in their office or using desktop <unk> printers for using desktop labs outsourced manufacturing services, it's a fully integrated chair side workflow, providing real time technical communication workflow management digital design and case support.
We expect most if not all of the $30 billion in annual dental parts market spend to move to three D printed manufacturing this decade.
Technology that is ready for prime time, we expect new CDP classification of materials used for dental insurance goes to be published in December this year to cover our class II printed restorations in the U S.
With that backdrop, we aim to reach thousands of general practices over the next 12 months with this integrated workflow and potentially tens of thousands over the coming years.
The addressable market for this opportunity with align is over $2 million general practitioners globally.
We're thrilled.
To commence this partnership will align to offer the dental industry is seamless solutions for digital restorations and are Super excited about the additional potential opportunities to accelerate adoption of digital dentistry with align.
Moving on to slide six we continue to grow the moat around desktop metal products.
Since we entered the public markets in 2020, our portfolio of patents and patent applications has grown from approximately 120 to over 950. This is one of the largest and most valuable intellectual property portfolios in the additive manufacturing market.
And is primarily focused around mass production and technologies like Biogen, and DLP, which benefit from Moore's law and become more cost effective over time.
We've already demonstrated that blocking potential of this portfolio with our recent successful injunctive action against a key competitor, we successfully implemented a royalty bearing license and structure to begin monetizing this portfolio and intend to expand our efforts over the coming years.
As an additional IP monetization activities should be a tailwind to the product mix.
Turning to the following slide.
We really had some great customers that adopted our continue to adopt our technology in the third quarter.
We've highlighted a few here on the left side of the slide.
Precision castparts.
<unk> J Board first solar comments ultra safe nuclear Corporation, and solid comp to name a few.
Many of these customers have multiple systems and continue to expand their partnership with desktop metal to change the way they make their products.
On the right side I'd like to highlight one of our customers demonstrated repeat success with our products on both metals and polymers.
<unk> is a growing parts of manufacturing based in Iceland.
Kind of a year <unk> purchased eight systems, including four studio systems for metal parts production to envision ones for polymer printing and to dance entrants rent assistance.
Metal solutions are enabling <unk> to produce engines parts for both metal and polymers.
Significantly reduces lead times and speed time to market. This is a game changer for ROI, driven SME companies that can't afford the delays associated with legacy conventional manufacturing and <unk> is just one example of the cross platform success, we're seeing from many customers.
With that let's see.
Taking a closer look at our numbers over to you Jason.
Thanks, Rick beginning on slide nine you will see highlights of our financial performance for the third quarter of 2022. Please note, we will be referring to several financial metrics on a non-GAAP basis.
Conciliation to GAAP data is included in the filed appendix.
As Rick detailed to start the call this was a challenging quarter.
<unk> revenue for the third quarter 'twenty, two was $47 1 million, including contributions from acquisitions up 85, 1% year over year from $25 4 million in the third quarter of 2021.
As previously detailed compared to our internal plan revenue was significantly impacted by customers delaying purchase decisions amidst an uncertain macroeconomic backdrop.
non-GAAP gross margin was 19, 9% for the third quarter 'twenty, two as lower than expected sales volumes and the associated overhead absorption impacts weighed on gross margins.
We expect ongoing cost reduction actions detailed earlier in the call we will improve our high absorption burden and drive important gross margin improvements in the fourth quarter and in the coming years.
On the next slide non-GAAP operating expenses were $41 5 million for the third quarter 2002.
Through initial actions under our cost optimization initiatives, we reduced non-GAAP operating expenses sequentially by $4 5 million versus the second quarter of 2022.
And $10 $5 million versus the first quarter of 2022.
Third quarter 22, non-GAAP operating expenses as a percentage of revenue were 88%, which is an improvement versus 138% in the third quarter of 'twenty one.
Adjusted EBITDA for third quarter, 2022 was negative $28 2 million.
Revenue contribution weighed on our adjusted EBITDA, despite considerable improvement in our expense structure.
Nevertheless, we're committed to improving adjusted EBITDA going forward as we prioritize our path to profitability.
We ended the third quarter 2022, with $217 3 million in cash cash equivalents and short term investments.
We are well funded from our cash position, even in a challenging macro environment with our increased efforts to reduce our expense structure expected to drive meaningful cash flow improvements.
We ended third quarter 2022, with $91 2 million in inventory.
Inventory reflects our multi quarter focus on supply chain resiliency and we're now in a position to release that inventory over the next several quarters with that I'll turn the call back over to Rick.
Thank you Jason.
Moving to our financial guidance.
<unk>, our revenue and adjusted EBITDA outlook to take into account, our third quarter financial performance in a challenging environment affecting capex spending due to recessionary concerns as.
As a result.
Our fourth quarter 2022, we expect to generate revenue in the range of 51% to $62 million, implying a full year 2022 revenue of $200 million to $210 million or.
Or <unk>, 78% to 87% growth over 2021.
While customer traction is still very strong.
We're taking a very conservative approach to revenue expectations, we are working very hard to improve visibility given the macroeconomic environment.
Additionally for fourth quarter of 2022, we expect adjusted EBITDA to be negative, 20% to $26 million, implying a full revised 2022, adjusted EBITDA of negative $117 million to $123 million.
In closing, while the third quarter presented greater than expected challenges I can assure you we are working with urgency to execute on one of outlined today.
While macroeconomic factors are impacting our industry are present, the benefits of mass production added manufacturing are only increasing we're working very hard to mitigate some of the external factors and I remain extremely confident in the value of our A&P no mass production solutions that we bring to our customers and the massive long term opportunity and added manufacturing with that ill open it up.
For your questions.
If you would like to ask a question. Please press star one on your telephone keypad now.
You'll be placed into the queue in the order received.
Please be prepared to answer your question when prompted.
Once again, if you have a question. Please press star one on your phone now.
And our first question.
Comes from Noelle Dilts from Stifel.
Your line is open.
Hi, Thanks.
I was hoping you could just dig into the cost reduction initiatives a little bit more.
Could you kind of go into a little bit more detail on sort of where you stand in terms of the previously announced initiatives and then any more quantification you can give us around.
This kind of expansion of those initiatives would be helpful. Thank you.
Absolutely no thanks, and great to hear from you. So we outlined in June earlier. This year that we would kind of approximately $40 million on a run rate basis for the year were ahead of that plan right now.
At this moment, we have continued to move beyond it and we have quite a bit of levers to go above.
Our initial plan and were going to.
Essentially.
<unk> as needed until we get to cash flow breakeven.
The good news is at the company with got you would look at Horizon, one horizon two horizon three in terms of the way we look at our products and things that are shipping today are things that are going to ship next year in 'twenty three.
Et cetera, and then things that are quite futuristic 'twenty four 'twenty five and onwards, and we have a multi generational roadmap and we have quite a bit of leverage to to adjust spending on things that are not going to have an impact.
Next year. So we're not we're not cutting things that are revenue generating next year, but we are trimming expenses and all these other areas we've got quite.
Quite a number of facilities that were consolidating.
And have.
Lots of lots of levers. So we are going to go beyond what we initially outlined.
In June and we're already beyond that right now.
Okay. Thanks.
And then.
In terms of I guess.
You obviously commented on the <unk> and also just this extended.
On extended decision making.
I guess, you've talked before about the safety of these hyperscale customers largest larger customers do you think that thats really.
Pushed out until we start to see some economic recovery I guess my question is really just how are you thinking about the timeline or the time horizon for in terms of how long it's been.
How extended these decisions have become and if you think we could see some larger programs our orders in the near term or if you think that's pushed out.
Thanks <unk>.
<unk> seen an acceleration in some of those programs.
Needs to diversify our supply chain outside of China.
For some of these consumer electronic companies.
We have multiple customers that we're engaged in and continue to make very good progress in this area and I think it's going that.
No.
For us.
We have a lot of people working in this area.
We continue believe it is going to be a meaningful part of our business in the long run.
It's.
An area that can become significant.
Business proceeds.
Most produce type of parts in the world.
I'm very bullish on all the activities, we've got going on.
In that area.
Okay, great. Thanks for taking my questions.
Sure.
And our next question comes from Shannon Cross from Credit Suisse.
Your line is open.
Hi, Shannon.
Shannon Cross please go ahead.
I'm, so sorry, I had it on mute.
Hi, everyone can you can you talk a bit Rick about how youre thinking about approaching the cost reductions and.
What I'm wondering is will this be a U.
Cutting.
I don't know if products are you there.
Just how to go about it because obviously.
The top line is not coming through as expected you do have some cash which gives you a bit of a cushion, but I'm just wondering what your approaches and maybe.
How things have changed in your thinking relative to say three months ago. Thank you.
Absolutely.
First of all.
We remain super bullish in the long term prospects of additive we believe it's going to be $100 billion industry still by the end of the decade.
We do think like I said earlier and if you look at slide three of our presentation various periods of time and additive when you enter a recession.
And you have essentially a slowdown of growth in.
And no one <unk> it was flat or slightly negative same in <unk> nine and then there was only 5% growth in 2020, So I would say what we saw in September was.
A very.
Very quick pullback to decisions and things moving to the right.
On programs.
We really had enough deals in play towards the end of the quarter or last three weeks that we thought.
We can meet our numbers.
And it was as we approach the end of the quarter that we realized.
The things we're going to slide you have the pound at 100 deals in the UK got whole did you have the energy issues that were going on in Europe with people thinking about.
Capex spending and so I would say.
Uh huh.
We do we do have.
Bullish view on the future of expenses to get to your question.
Where are the things that you cut we're not cutting anything that's revenue generating next year or this year. So horizon one horizon two projects are continue to be.
Fully funded we're adjusting our spending on things that are nice to have not need to have in particular longer term more futuristic projects. We do have a benefit at DIAM that we've kind of.
And R&D.
R&D.
Horsepower that I would say.
<unk> can be at the limit of anybody else in this industry and doing very innovative work and we have some things that are more futuristic that werent going to generate revenue next year. So we're trimming expenses in those areas, we've got quite a bit of cost synergies from the M&A that we did if I can look backwards.
Stake.
I felt like I didn't want to break any of the things required by going to quickly as we as we were acquiring I think we would have been.
In hindsight, maybe we should've been totally on it less as soon as we close the deal.
As opposed to wait until we get our arms around them and we Werent us.
Focused in that area. However, we are laser focused on it now.
We have already cut more than what we outlined in June and we continue to have a plan to trim. We have a lot of levers so that we get to.
Two are.
Our breakeven targets at the time that we've told the market or for faster even.
Conditions persisted in a challenging environment.
And I guess, how are you thinking about.
How do you think about the stock price given where it's at now I mean is this something where you would pursue maybe a reverse stock split have you guys gotten any indications from any of the exchanges that there's concerns about delisting I just trying to get ahead of this because you know a lot of the than comp.
And is that risk factor, obviously trading at very low levels.
Well I would say.
I mean, we are monitoring our stock price, we haven't received any indications that would force us to do anything at the moment.
At all of these things we've got plenty of cash good.
Good liquidity position, we have quite a bit of inventory that we will.
We've built.
Built in advance to SMB.
Essentially have.
Offer with supply chain issues.
And we'll be clearing that over the course of the next year and releasing quite a bit of cash flow from a balance sheet point of view I don't feel like.
We have any liquidity issues, but I think your question on the stock market. We don't have an issue at the moment.
Take the listing rules are being booked in.
We would do whatever.
It was required by the stock market.
As a business I do feel very bullish that we're going to have.
Continued growth.
In growth faster than the market.
As we are positioned in the production area that is growing faster than prototyping and tooling and I think that next year.
We've been working on are you work on this projects the projects have to mature eventually.
Take off we have a lot of irons in the fire that should lead to growth next year.
Would be faster than the market and we feel we feel good about it we will provide guidance.
In Q4, but but.
I would say this readjustment.
A more conservative stance is based on what we saw at the end of September .
And our next question comes from Troy Jensen from Lake Street capital.
Your line, Hey, gentlemen, thanks for taking thanks for taking my question here a question for you Rick you don't get growth has slowed in the industry, it's fairly obvious but do you still think.
The growth rate in additive is going to be a positive member this year flat or negative.
I think that the first half of the year was definitely a good growth rate I think that there are a lot of capex decisions will go get scrutinized more heavily in the second half of the year.
If you ask anybody at the beginning of the year, they never expected us to when we when people gave their their projections for the year.
We don't do quarterly guidance at the moment, maybe we should but we do yearly guidance nobody expected there will be a war.
Nobody expected there to have business in the supply chain side from the currency issues that occurred in Europe .
And some of those other challenges with the fed continue to.
With that macro backdrop, I think is definitely part of what's affecting our industry and we've seen it before I mean <unk> bin.
One of our experienced.
Towards the industry.
<unk>.
I would say.
It's probably similar to eight or nine or similar to a one for one or two in there.
People sort of delaying decisions versus canceling adoption of technology.
When you come out of this recession to come out with extremely strong tailwind.
And I think we're well capitalized to get through this and then benefit from it on the other side so.
We've got a great portfolio, where market market leadership and metal binder jetting Thats dominated.
Very good place.
Eminent market leadership in printed castings with dominant market leadership in class II medical.
Parts and dental so three segments are going to $1 billion plus dollars and then we have some growth segments and new things like what we're doing in sheet metal. It can be a multibillion dollar business, what we're doing homes, where we're the only company with.
Industrial high throughput from printing.
It can also be $1 billion. This isn't we're the market leader to the name printed hydraulics. So we have six ways to win here in areas that individually could be billion dollar businesses. So I feel very bullish about the long term prospects of our company I think we are a highly undervalued today at this price.
<unk>.
I think.
We will see how the next year progressive cannot feel bullish about our prospects I think are patents zoro Preston.
So I would agree with you Rick I think I came in the year thinking you know this industry is going through 18% to 20% and I guess I feel still feel like there is positive growth for additive.
If you looked at your 10-K filing from the beginning of the year you guys said that if he had owned all your acquired businesses.
As of January 1st you did only 2.2 hundred $8 million in revenue and the midpoint of the guidance right now.
205 million, so you really kind of implying.
Flat year over year organically.
I'm guess I'm curious to know whats, what's growing which segments are growing for you guys and which ones are shrinking.
Expecting a relatively flat year on an organic basis.
That's a great question I think we are confident the guidance. We just provided now for fourth quarter.
We're already in the middle of it and we are.
Trying to put.
A number that we feel like.
And having gone through this now we want to make sure that we hit this number but.
We feel confident on it so I would say.
To answer your question the dental market for us given that we have the best performing materials of the market with best properties.
We're going to have.
Insurance coverage next year for our products.
<unk> is very strong.
We have this partnership with a line that's going to deliver.
Very good growth next year, so we're really well positioned in that segment.
I think that.
One of the things that differentiates us in the printed casting side is that we.
I have not been a service Bureau, where actually been primarily.
A technology provider to large companies and those large companies are not going from there <unk>.
First or second or fifth or 10th system now to Mega deployments in that step change in.
Our deployment of this particularly as people look at that re shoring is going extremely well. So we have a lot of tailwind for next year.
That segment of the market for us as well.
I would say we have growth.
On the.
Industrial plastics industrial.
The metal parts on the radio side I think what we've seen in this past quarter as we saw the delayed decision making and.
It is driven in our opinion by macroeconomic uncertainty things like upon being at 100 at the end of the quarter or things like that so we will see how that.
How much that persists eventually in an inflationary environment. If you put one of the flow of Capex, so that because they know that they won't be able to afford in the future to do some of this think of it as a way to like.
Improved profitability so.
If you look back at the <unk> or a periods of high persistent inflation eventually over their capex growth none at the beginning so I don't know how long, we're going to be in a recessionary period, but but.
I think nobody expected.
Last December that would still be raising rates at this time people thought that right now things would have abated and inflation will come down.
Maybe we're back in the 1982 environment, where just thinks just took an extra year to pan out in the fed's going to keep going at it we will see but but I do see.
The foundation of our business is strong I like the product portfolio. We've got we've got we're not like the number of three year number five market share in a bunch of things. We're the number one player in the things that we plan and we have a portfolio set up to have superior growth to our competitors. We've got some opportunities like this hyperscale opportunities theyre going to be fantastic.
And I feel really really good about where we.
We are going with our customers in this area.
Multiple customers, so I feel like.
We look we took our lumps earlier in the year and raise cash broadly.
People looked at US like we were from outer space, because we did that but I wish we did it before but we did it when we did it and I think we're glad that we did it.
Now in this environment so.
And as a reminder, if you do have a question. Please press star one on your telephone keypad now.
And we have a question from Greg Palm from Craig Hallum Capital Group.
Your line is open.
Hey, guys. This is Danny <unk> on for Greg today.
I was hoping to maybe dig into the aligned partnership a little bit more.
Obviously this this initial partnership is kind of on the scanner side.
A lot of language and in some of the releases.
Suggests some some potential expansion of that partnership so maybe just some thoughts on the growth opportunity there and what other I guess one other applications you can parts, possibly.
And that relationship.
Absolutely I mean, we have a very good.
Business that we are setting up with our partners and our line is profitable out of the gate we expect.
This subscription recurring revenue managed service business is going to provide.
Significant growth opportunity for our company.
I'd be happy to walk you through the through the economics, but as you know we provide.
Manage design and <unk> printed parts through our desktop lapse partnership services.
Bundling of the scanner with parts and a managed service.
Dental.
Rental market and it is really very much the future of how those products are going to be consumed.
As the number one market share player in the capture side.
This is going to allow us to.
Essentially converting business to the people selling printers and materials and we may have doctors that don't have the full capability to design themselves.
Very much.
Very small.
Group of early adopters, but the vast majority of doctors aren't set up to use it just in the current.
Offering and with this service, we have a white glove offering.
That goes from just printers to a much more holistic solution. It's recurring revenue it's a subscription.
And it's very sticky and it provides a significant amount of value to.
The practitioner now the goal is to capture.
A larger percentage of the total spend they spend every month to unlock that value up over multiple years and provide additional superior solutions over time.
We have.
Really a great long term potential relationship with our partners that align we work with them in many things and this is obviously.
We cannot pre announce things that are beyond what were currently talked about and we hope to.
How this marriage of <unk> with desktop labs and.
Desktop health products provide a new level.
Capabilities to dentist and bring them from the world of milling to a world of printing much faster.
Okay. That's good.
I'm wondering if I could get your thoughts.
Yeah go ahead.
It's a $30 billion addressable spend a year is going to move this decade are 100% to printing.
$30 billion.
The opportunity, we get insurance reimbursement and starting in January so, it's a really exciting.
The opportunity I don't want to understate, how big of a deal and it can be for our company.
Yeah understood.
I Wonder if I could get maybe your thoughts on the comfort level and your inventory levels and.
Any thoughts on working capital requirements in Q4 up here.
Absolutely I think.
I feel really really great about where we are.
From.
Inventory position now we're going to start to bleed that off free up cash.
There is some benefit from an inflation point of view that we acquired this inventory earlier.
When it was less expensive and.
It is it is what it is but but.
I feel like we're going to.
Get to a very good place over the.
Over the next.
12 months and.
We have a big focus on the supply chain too to become a more mature company.
Hopefully that answers it.
Okay.
And we have no further questions in queue.
Okay.
Okay.
Well. Thank you very very much once again I'd like to thank everybody for taking the time to join the call and all your interest in desktop metal.
As always I want to extend my appreciation to all the members of team DM for their continued work and dedication to advancing our vision of additive manufacturing to point out for mass production.
If you have any questions. Please don't hesitate to reach out we look forward to speaking to you again.
Either at form next or future upcoming investor events and on our fourth quarter financial results call. Thank you very much again.
That concludes today's conference call. Thank you for joining have a pleasant day.
The host has ended this call goodbye.