Q4 2023 Desktop Metal Inc Earnings Call
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Operator: Greetings and welcome to Desktop Metal's fourth quarter and full year 2023 earnings conference call. At this time, all participants are in listen-only mode.
Greetings and welcome to desktop metals fourth quarter and full year 2023 earnings conference call.
At this time all participants are in a listen only mode.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Jordan, Vice President, Finance and Treasury. Please do so.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. Michael Jordan, Vice President Finance and Treasury. Please go ahead.
Michael Jordan: Good morning, and thank you for joining today's call. With me today are Ric Fulop, founder and CEO of Desktop Metal, and Jason Cole, CFO of Desktop Metal. 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 at the same site.
Good morning, and thank you for joining today's call with me today are Rick <unk>, founder and CEO desktop metal and Jason called CFO desktop metal.
He's 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 at the same site.
Michael Jordan: The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is a property of desktop metal, and it cannot be reproduced or transcribed without our prior consent.
The webcast and accompanying slides will be available for replay for 12 months. Following this call. The content of today's call is a property of desktop metal it cannot be reproduced or transcribed without our prior consent.
Michael Jordan: Before we begin, I'll refer you to our Safe Harbor disclaimer on slide three of the presentation. As a reminder, today's call will include forward-looking statements. These forward-looking statements reflect Desktop Metal's views and expectations only as of today, March 15, 2024, and actual results may vary materially based on a number of risks and uncertainties. For more information about the risks that may impact Desktop Metal's business and financial results, please refer to the Risk Factor section on Form 10-K, in addition to the company's other filings with the SEC. Additionally, during the 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.
Before we begin I'll refer you to our safe Harbor disclaimer on slide three of the presentation. As a reminder, today's call will include forward looking statements. These forward looking statements reflect desktop metals views and expectations only as of today March 15th 2024, 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 factor section on Form 10-K. In addition to the company's other filings with the SEC, we assume no obligation to update or revise the forward looking statements.
Actually during the 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 are 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.
Ric Fulop: Our financial results release contains the financial and other quantitative information to be discussed today, as well as a reconciliation of GAAP to non-GAAP measures. I'll now turn the call over to Ric. Thank you, Michael, and welcome to our fourth quarter 2023 conference call. We're in the final stages of our restructuring to get profitable on the cash we have. As part of this effort, our process is to aggressively prioritize our lines of business based on time to cash flow, given the headwinds our industry faced when rates went up. Additive manufacturing is a growth industry, and it's grown double digits annually over the past two decades to about $18 billion a year, apart from very short periods in 2008 and 2020.
I'll now turn the call over to Rick.
Thank you Michael and welcome to our fourth quarter 2023 conference call.
We're in the final stages of a restructuring to get profitable on the cash we have.
Part of this effort our process is to aggressively prioritize our lines of business based on time to cash flow given the headwinds our industry faced when rates went up.
Additive manufacturing is a growth industry and it's grown double digits annually over the past two decades to about $18 billion a year.
Apart from very short periods in 2008 and 2020.
Ric Fulop: From 2015, when we started Desktop Metal, and through 2022, our core technology, BinderJet, grew at a compounded annual growth rate of about 40%. While we saw growth slow in 2022 as rates went up, we expected growth to come back in 2023, but we learned together with our peers the effect of higher costs of capital and project delays on new technology. As a result, our industry was flat in the past year, but we expected it to go back to double-digit growth over time as CFOs get accustomed to this new environment.
On 2015, when we started desktop metal and through 2022, our core technology Binder jet grew at a compounded annual growth rate of about 40%.
While we saw growth slow in 2022 as rates went up we expected growth to come back in 'twenty, three but learned together with our peers the effect of higher cost of capital and project delays on new technology.
As a result, our industry was flat in the past year and we expect it to go back to double digit growth overtime, our cfo's get accustomed to this new environment.
Ric Fulop: As such, we have planned conservatively this year, but we do see signs of growing demand in defense, aerospace, healthcare, and many other segments, which I will outline in detail on this call. The use of our machines and recurring revenue is at a record all-time high, proving that customers who have adopted the technology are getting great value from it. Recurring revenue is defined as services revenue along with consumables and subscription revenues.
As such we have planned conservatively this year, but we do see signs of growing demand in defense aerospace healthcare and many other segments, which I will outline in detail on this call.
The use of our machines and recurring revenue is that a record all time high.
This proves customers who have adopted the technology are getting great value from it.
Recurring revenue is defined as services revenue along with consumables and subscription revenues, we have record recurring revenue of $65 million in 2023, and as a percentage of total revenue grew by 29% year over year.
Ric Fulop: We have record recurring revenue of $65 million in 2023, and as a percentage of total revenue, it grew by 29% year over year, which represents a record 34% of revenue. That's up from only 24% of revenue in 2022. In terms of getting profitable,
Who represent a record 34% of revenue that's up from only 24% of revenue in 2022.
In terms of getting profitable.
Ric Fulop: We believe we're ahead of our peers. We started our journey to get profitable before others, and we have cut OPEX costs by about 40% since we began our effort, with only a modest revenue loss. While we didn't make our internal target of adjusted to be that positive by the end of last year, as some customer projects rolled into 2024, we're now very, very close to that goal at this new lower cost structure. And we see many opportunities in 2024 that will help us get there. For example,
We believe we are ahead of our peers.
We started our journey to get profitable before others, and we have cut opex cost by about 40% since we began our effort.
With only modest revenue losses.
While we didn't make our internal target of adjusted EBITDA positive by the end of last year as some customer projects rolling into 'twenty 'twenty four we're now very very close to that goal.
These new lower cost structure.
And we see many opportunities in 'twenty 'twenty four it will help us get there.
For example.
Ric Fulop: Some areas that are outperforming the industry include our printed castings business, which grew 27% in 2023 to a record $73 million. This technology is rapidly being adopted in the defense industry and by aerospace companies like SpaceX, Airbus, and Boeing, or by automotive leaders like Tesla and Toyota. We're the leading player in this segment with over 80% of the share in systems, and with huge growth potential this decade as we expand to key global markets where we haven't had a strong go-to market presence in the past, such as Latin America. Less than 5% of foundries have adopted this technology, but we see a day when every single one of them will be using it. We estimate this will be a $20 billion addressable opportunity that will one day see over a billion dollars a year of systems sold as the process matures and reaches full penetration by the more than 25,000 foundries globally. I will detail customer adoption examples later in the presentation.
Some areas that are outperforming the industry include our printed castings business, which grew 27% in 2023 to a record $73 million.
This technology is rapidly being adopted in the defense industry and by aerospace companies like Spacex Airbus and Boeing are automotive leaders like Tesla and Toyota.
We're the leading player in this segment with over 80% share in systems and with huge growth potential. This decade, as we expand into key global markets, where we haven't had a strong go to market presence in the past such as Latin America.
Less than 5% of foundries have adopted this technology, we see a day, where every single one of them will be using it.
We estimate this will be a $20 billion addressable opportunity that will one day see over $1 billion a year of system sold as the process matures and reaches full penetration by the more than 25000 foundries globally.
I will detail customer adoption. Examples later in the presentation.
Ric Fulop: Another fantastic growth area is our scanapp.org digital dentistry product, which we are doing in partnership with Align Technology. We have already signed over $32 million in total contract value in our first year of growth in this product, compounded at over 25% quarter over quarter. We expect this new business to be a meaningful part of our company by the end of the year, as this is an attractive way for dentists and DSOs to digitize their practices and adopt printed restorative parts. Restorative dentistry is supposed to go 100% digital over the coming decade.
Another fantastic growth area is our scan after our digital dentistry product.
Which we are doing in partnership with our line technologies.
We have already signed over $32 million in total contract value in our first year in growth in this product compounded at over 25% quarter over quarter.
We expect this new business to be a meaningful part of our company by the end of the year. As this is an attractive way for dentists and dsos to digitize their practices and adopt printed restaurant if parts.
Restaurant of Dentistry is supposed to go 100% digital over the coming decade, and this represents a $30 billion a year global opportunity.
Ric Fulop: And this represents a $30 billion-a-year global opportunity. I will detail these and other promising examples of our growth drivers later in our call. We are 100% focused on fixing the portions of our business where we've had challenges. One of them is a direct middle business for systems under half a million dollars. Those used to be traditionally sold through the channel versus direct sales.
I will detail these and other promising examples of our growth drivers later in our call.
We are 100% focused on fixing the portions of our business, where we've had challenges.
One of them is a direct metal business for systems under half a million dollars.
Those used to be traditionally sold through channel versus direct sales.
Ric Fulop: And in this case, we used to use the Stratasys channel, which was a legacy of their original investment in desktop metal in 2015. As we lost access to the Stratasys channel partners throughout 2022 and 2023, our sales in the sub half a million dollar segment were impacted. And since last fall, we have been adding go-to-market resources to remedy that. The access to a go-to-market channel was one of the attractive features of that merger last year, and we're now taking our medicine and building our own go-to-market in that sector. We have continued to work diligently to bring our cost structure in line with our current revenue run rate and near-term opportunities ahead of us, which was evident in the fourth quarter.
And in this case, we used to use the Stratasys channel, which is a legacy of their original investment in desktop metal in 2015.
As we lost access to the Stratasys channel partners throughout 2022, and 2023 ourselves into sub half a million dollars segment were impacted and since last fall, we have been adding go to market resources to remedy that.
The access to our go to market channel.
It was one of the attractive features of that merger last year, and we're now taking our medicine and building our own go to market in that segment.
We have continued to work diligently to bring our cost structure in line with our current revenue run rate and near term opportunities ahead of us.
Which was evident in the fourth quarter.
Ric Fulop: For the full year, we reported revenue of $190 million compared to $209 million in the prior year. This result was in line with the expectations we shared in the third quarter, and it largely reflects the impact of the macro environment on CapEx budgets that weighed on our volume throughout the year. Lower system sales were partially offset by a 29% increase in recurring revenue.
For the full year, we reported revenue of $190 million compared to $209 million in the prior year.
This result was in line with the expectations, we shared in the third quarter and it largely reflects the impact of the macro environment on capex budgets that weighed on our volume throughout the year lower system sales were partially offset by a 29% increase in recurring revenues.
Ric Fulop: We have made excellent progress reducing losses, and Jason will detail this in a few minutes. We expect our adjusted EBITDA run rate to be positive in the second half of the year. Our full year adjusted loss decreased from negative $118 million in 2022 to negative $69 million in 2023. From Q1 2022, the last full quarter since commencing our cost reduction efforts, adjusted EBITDA losses have decreased 78%, closing in 2023 at $9 million in the fourth quarter. His fourth quarter 2023 adjusted for a loss is also down 56% compared to fourth quarter 2022.
We have made excellent progress, reducing losses, and Jason will detail in a few minutes.
We expect our adjusted EBITDA run rate to be positive in the second half of the year.
Our full year adjusted EBITDA loss decreased from negative $118 million in 2022 to negative $69 million in 2023.
From Q1 2022, the last full quarter since commencing our cost reduction efforts adjusted EBITDA losses have decreased 78% closing 2023 at $9 million in the fourth quarter.
Fourth quarter 2023, adjusted would be that loss is also down 56% compared to fourth quarter 2022.
We continue to be on a relentless march to adjust our cost structure and reach profitability and we're making excellent progress in this effort.
Ric Fulop: We continue to be on a relentless march to adjust our cost structure and reach profitability, and we are making excellent progress in this effort. We're focusing on execution and are looking forward to letting our results speak for themselves this year.
We're focusing on execution and are looking forward to leading our results speak for themselves this year.
Ric Fulop: While none of our peers are truly profitable, we have outpaced our industry in our execution to get profitable and are now very, very close. We're looking forward to crossing the Adjusted Evita Profitability Threshold in 2024 and getting back to growth as we focus on the parts of our business where we have the best-in-class solutions that solve the most important customer problems. We believe after we complete the cost actions outlined today, we'll be adjusted to be that positive in the second half of 2024, even with omitted growth. As we prioritize our offerings for time to cash flow today, we have also announced our intention to de-emphasize specific subsets of our business, principally focused on some of our photopolymer technologies.
While none of our peers are truly profitable, we have outpaced our industry and our execution to get profitable and are now very very close.
We're looking forward to crossing the adjusted to be that profitability threshold in 2024 and getting back to growth as we focus on the parts of our business, where we have the best in class solutions that solve the most important customer problems.
We believe after we complete the cost actions outlined to date will be adjusted EBITDA positive in the second half of 'twenty 'twenty four even a muted growth.
As we prioritize our offerings for time to cash flow today, we have also announced our intention to deemphasize specific subsets of our business.
Principally focused on some of our photopolymer technologies.
Ric Fulop: To be clear, we continue to believe in the strength of these technologies and their long-term potential. While difficult, this decision helps us stream cash-consuming businesses and focus on our more profitable product lines. And we believe this will further accelerate our path to adjust ADB. profitability. We continue to have the industry-leading portfolio for mass production, with nearly 100% of our products focused on end-use parts, and any small amount of growth at this cost structure will yield very good results on the bottom line. While we're prudently managing our business for the environment that we're in, we believe there remains a substantial near and long-term growth opportunity available to us as the added manufacturing 2.0 secular growth story resumes. We're positioned to emerge as the leader in the space with the broadest set of products and capabilities for mass production in our industry.
To be clear, we continue to believe in the strength of these technologies and their long term potential.
While difficult this decision helps us dream cash consuming businesses and focus on our more profitable product lines and we believe this will further accelerate our path to adjusted EBITDA profitability.
We continue to have the industry, leading portfolio for mass production with nearly 100% of our products focused on engine parts in any small amount of growth at this cost structure will yield very good results in the bottom line.
While we are prudently managing our business for the environment that we're in.
We believe there remains a substantial near and long term growth opportunity available to us as the added manufacturing coupon a secular growth story resumes.
We're positioned to emerge as the leader in this space.
With the broadest set of products and capabilities for mass production in our industry.
We hold the leading market share position in binder, jetting, and the leading position in health care applications with our D. L. P technology across a very wide array of materials and end users and have an enviable IP position with close to 1000 patents.
Ric Fulop: We hold the leading market share position in binder jetting and the leading position in healthcare applications with our DLP technology across a very wide array of materials and end uses and have an enviable IP position with close to a thousand patents. We have the best materials in healthcare, including restorative dental parts. This past quarter, we officially launched scanup.org after a one-year trial with our partner, Align Technology.
We have the best materials and health care restaurateur dental parts. This past quarter, we officially launched scan upload org after a one year trial with our partner align technologies.
I encourage you to visit the site.
We also recently launched our flip zero base, Ultra plus which has much better properties.
Ric Fulop: I encourage you to visit the site. We also recently launched our Flexera Base Ultra Plus, which has much better properties than competitors, making Flexera the leading solution for restorative dental parts. Since its inception, we have sold more than 20 metric tons of Flexera, which is enough to make more than a million dentures, crowns, and other dental products. That makes Luxera the leading solution for permanent digital restorations in a total addressable market estimated to be several billion dollars. Flexera is also a very profitable business for DM with gross margins approaching 70%, and it also shows no signs of slowing down. We continue to see record adoption of Tluxera.
Petters, making flex Sara the leading solution for restaurant of dental parts.
Since its inception, we have sold more than 20 metric tons of like Sarah.
Which is enough to make more than a million ventures crowds and all the dental products.
That makes like Sarah the leading solution for permanent digital restorations in our total addressable market estimated to be several billion dollars.
Like Sarah is also a very profitable business for D M with gross margins approaching 70%.
It also shows no signs of slowing down we continue to see record adoption of clicks era.
In terms of application adoption in binder jet, we have made excellent progress.
We're changing the way cars planes in space parts are made.
We have grown into a global leader in silicon carbide for additive manufacturing.
Carbides and other advanced ceramics are materials with amazing properties and are used in electric vehicles cutting tools optics is based structures desktop metal now has parts in space with many of the major defense contractors and several large satellite constellations are already using or planning to use our technology.
Ric Fulop: In terms of application adoption in BinderJet, we have made excellent progress. We're changing the way cars, planes, and space parts are made. We've grown into the global leader in silicon carbide for added manufacturing. Carbides and other advanced ceramics are materials with amazing properties and are used in electric vehicles, cutting tools, optics, and space structures.
It was a huge milestone for desktop metal to get both silicon carbide and metal production parts flying in space in 2023.
Ric Fulop: Desktop Metal now has parts in space, with many of the major defense contractors and several large satellite constellations already using or planning to use our technology. It was a huge milestone for desktop metal to get both silicon carbide and metal production parts flying in space in 2023. On the metal front, we now have several printed castings in the SpaceX Raptor engine with our technology. In 2023, we also saw our parts get to the moon on the intuitive lander. That's an amazing accomplishment.
On the metal front, we now have several printed castings in the Spacex wrapped our engine with our technology.
In 2023, we also saw our parts get to the Moon on the intuitive lender.
That's an amazing accomplishment I never would have believed was possible when we started the company.
We also saw and continue to see great adoption for our technology and printed nuclear materials. We're the only company in the world that makes printers for this application in many next generation propulsion and energy systems are now using our technology in that market.
Ric Fulop: I never would have believed it was possible when we started the company. We also saw and continue to see great adoption for our technology in printed nuclear materials. We're the only company in the world that makes printers for this application, and many next-generation propulsion and energy systems are now using our technology in that market. We also saw giants like Airbus and Boeing use our systems for many applications, including large tooling for wings and winglets in their most advanced airliners like the 787. We have seen adoption across the board with the Defense Logistics Agency to print components for marine and underwater applications.
We also saw Giants like Airbus and Boeing use our systems for many applications, including large embark tooling for wings and Winglets and their most advanced airliners like the 787.
We have seen adoption across the board with the defense logistics agency to print components for marine and under water applications.
The fuel systems for the F. 35 are now made with our technology by our customer.
And we now have parts flying in multiple production jet engines. For example, the Rolls Royce Trent also with our customer Eaton and.
And on Pratt and Whitney jet engines, with our customer Magellan Aerospace Tesla has also had great success with their giga casting process for our binder jetting of malls is now extensively used in the front end of the process to cost effectively enable this new vehicle design and engineering approach.
Ric Fulop: The fuel systems for the F-35 are now made with our technology by our customer. And we now have parts flying in multiple production jet engines, for example, the Rolls-Royce Trent, also with our customer Eaton, and on Pratt & Whitney jet engines with our customer Magellan Aerospace. Tesla has also had great success with their gigacasting process, where BinderJetting of molds is now extensively used in the front end of the process to cost effectively enable this new vehicle design and engineering approach. All the customers, like Toyota and other OEMs, are going all in and are racing to adopt this new way of making cars, which reduces the number of parts in a vehicle and means huge growth opportunities for BinderJet.
All of our customers like Toyota and other Oems are going all in and are racing to adopt this new way of making cars, which reduces the number of parts in a vehicle and means huge growth opportunities for binder jet.
These are huge accomplishments for 2023 that will yield significant growth opportunities in the near term.
The U S Department of Defense has been a great partner in helping US advance the state of the art of this technology and we have a large backlog of programs in line that should also yield tens of millions in additional growth in 'twenty 'twenty, four and 'twenty 'twenty five.
Almost all Sikorsky helicopters now have at least a dozen parts made with our technology and we have major programs like these at the moment with companies like Northrop Grumman Lockheed Martin L. Three coherent and many others.
Ric Fulop: These are huge accomplishments for 2023 that will yield significant growth opportunities in the near term. The U.S. Department of Defense has been a great partner in helping us advance the state of the art of this technology, and we have a large backlog of programs in line that should also yield tens of millions in additional growth in 2024 and 2025. Almost all Sikorsky helicopters now have at least a dozen parts made with our technology. And we have major programs like these at the moment with companies like Northrop Grumman, Lockheed Martin, L3, Coherent, and many others. Magnesium parts for aerospace are also a highlight of our capabilities as this lightweight alloy is not processable with other forms of printing, and we have qualified this process for aerospace and now have parts with these lightweight materials flying in various defense and commercial aircraft.
Magnesium parts for aerospace is also a highlight of our capabilities is this lightweight alloy is not process are all with all forms of printing and we have qualified these process for aerospace and now have parts with these lightweight materials flying in various defense and commercial aircraft are.
Figure sheet metal forming products have had great early adoption and we have sold out our initial builds.
We project. This will also be a great area for growth in the coming year.
In terms of sizing up how large can that printed casting market yet.
This is an area, where we grew 27% in the past year.
So how big can this be.
We have 25000 sound foundries globally.
Today, the penetration is well under 5% for this technology and we believe that over the next 10 to 15 years every single one of these foundries will be using printed castings as this becomes a standard process to make these types of metal parts.
Ric Fulop: Our figure sheet metal forming products have had great early adoption, and we have sold out our initial build. We project this will also be a great area for growth in the coming year. In terms of sizing up, how large can the printed casting market get? This is an area where we grew 27% in the past year. So how big can this be?
That translates to more than $20 billion capex cycle that gets installed over a 10 to 15 year period.
If you believe in S curves and we're at a 3% Mark we're looking at a market that can eventually grow to more than 1 billion a year as this technology gets broadly deployed into they where the 80% market share player in this segment.
Ric Fulop: We have 25,000 sound founders globally, and today the penetration is well under 5% for this technology. And we believe that over the next 10 to 15 years, every single one of these foundries will be using printed castings as this becomes the standard process to make these types of metal parts. That translates to more than a $20 billion CAPEX cycle that gets installed over a 10 to 15 year period. If you believe in S-curves, and we're at the 3% mark, we're looking at a market that can eventually grow to more than a billion a year as this technology gets broadly deployed. And today, we're the 80% market share player in this segment. We have a larger pipeline of projects today than we've ever had.
We have a larger pipeline of projects today than we've ever had.
I do believe that it's only a matter of time till double digit growth resumes in our sector and we're poised to benefit dramatically as it does.
Most analysts project of five X increase in the size of our market by the end of the decade, pushing adoption from 18 billion a year over 100 billion of year by 2031, and this doesn't even include the impact of market. So the future where artificial intelligence is driving accelerated traction in new segments like humanoid robots.
Let me pause here for a second and give you. An example of how this can be a massive opportunity for desktop metal.
Ric Fulop: I do believe that it's only a matter of time till double-digit growth resumes in our sector, and we're poised to benefit dramatically as it does. Most analysts project a 5x increase in the size of our market by the end of the decade, pushing adoption from $18 billion a year to over $100 billion a year by 2031. And this doesn't even include the impact of markets of the future, where artificial intelligence is driving accelerated traction in new segments like humanoid robots. Let me pause here for a second and give you an example of how this could be a massive opportunity for Desktop Metal.
We've been big believers in artificial intelligence since we started our company.
Before most other companies in 2018, we launched one of the world's first generative design tools in the market.
This is an artificial intelligence powered product called VI parts.
Over time, we reposition that for simulation of powder metallurgy through our industry, leading product life Center.
That allowed us to build the world's largest neural network library of materials to stimulate powder metallurgy consolidation.
Today, it's used by all of our customers in major companies like Lam research to make their products and it's an area that sets our company apart and ahead of competitors.
If you believe artificial intelligence is real and the future of artificial intelligence and printing will equal humanoid robots.
Ric Fulop: We've been big believers in artificial intelligence since we started our company. Before most other companies in 2018, we launched one of the world's first generative design tools in the market. This is an artificial intelligence-powered product called LiveParts. Over time, we repurposed that for simulation of powder metallurgy through our industry-leading product Life Center. That allowed us to build the world's largest neural network library of materials to simulate pyrometallurgi
And we're very well positioned for this future.
We're also a leader here with our printed hydraulic technology from Idaho.
And our low cost lightweight metal printing solutions that can be used to make aluminum and magnesium limbs.
We have several customers developing solutions for these markets and while today. This is a very tiny portion of our revenue. We believe this application has tremendous potential.
Ric Fulop: Today, it's used by all of our customers in major companies like Lam Research to make their products, and it's an area that sets our company apart from and ahead of competitors. If you believe artificial intelligence is real, and the future of artificial intelligence and printing will equal humanoid robots, then we're very well positioned for this future. We're also a leader here with our printed hydraulic technology from Hydra and our low-cost lightweight metal printing solutions that can be used to make aluminum and magnesium lamps.
This market will create huge opportunities for added manufacturing and for actuators, which today represent the bulk of the cost in these robots.
The biggest challenge to this market will be cost and power consumption.
Most of the cost in a humanoid robot is in the near Dania empowered actuators and the lightweight complex three D limbs.
Or the hydraulic actuators.
As a leader in low cost printed castings materials like magnesium and printed hydraulics, we have the technology to be one of the leading providers of picks and shovels as this coming Revolution materializes.
Ric Fulop: We have several customers developing solutions for these markets, and while today this is a very tiny portion of our revenue, we believe this application has tremendous potential. This market will create huge opportunities for added manufacturing and for actuators, which today represent the bulk of the cost in these robots. The biggest challenge to this market will be cost and power consumption. Most of the cost in a humanoid robot is in the neodymium-powered actuators and the lightweight, complex 3D limbs for the Hydraulic Oscillator. As a leader in low-cost printed casting materials like magnesium and printed hydraulics, we have the technology to be one of the leading providers of picks and shovels as this coming revolution materializes. In coordination with our MIT research partners, we recently began to adapt our artificial intelligence-driven generative design tool, LiveParts, so that it can generate shapes for smart limbs. The weight savings and the energy capture opportunities from structural series elastic actuation allow you to reduce the power consumption in this robot.
In coordination with our M. I T Research partners, we recently began to adapt our artificial intelligence driven generative design tool.
Life parts, so that it can generate shapes for smart limbs.
The weight savings and the energy capture opportunities from structural series elastic actuation allows you to reduce the power consumption and this robots.
Our presentation shows a preview of this exciting work and we look forward to sharing more about this as we get these tools and parts in the hands of more customers and they start to showcase their work.
This is an application that one day it could be bigger than everything we did today combined and it could be a killer app for our printed casting technology.
Finally.
We've just begun to see the benefits of an expanded global installed base that is using added manufacturing equipment for real production year.
Utilization of our products at our customer sites are increasing as evidenced by growth of recurring revenue streams.
Our recurring revenue grew in 2023 by 29% from $50 million in 2022 to a record $65 million in 2023.
Further our services business continues to supplement our growth, which increased 15% year over year as I noted.
Ric Fulop: Our presentation shows a preview of this exciting work, and we look forward to sharing more about it as we get these tools and parts in the hands of more customers and they start to showcase their work. This is an application that one day could be bigger than everything we do today, combined, and it could be a killer app for our printed casting technology.
Importantly this.
This demonstrates that while some projects may be delayed by higher cost of capital our customers continue to expand their usage and engagement in our solutions. During the same time period, demonstrating clear product market fit as recurring revenue grew from 24% of revenue.
Ric Fulop: We've just begun to see the benefits of an expanded global installed base that is using added manufacturing equipment for real production. Utilization of our products at our customer sites is increasing, as evidenced by the growth of recurring revenue streams. Our recurring revenue grew by 29% in 2023 from $50 million in 2022 to a record $65 million in 2023. Additionally, our services business continues to supplement our growth, which increased 15% year-over-year, as I noted.
In 2022 to a record 34% of revenue.
In closing, while 20 twenty-three proved to be a challenging year I missed higher cost of capital headwinds, we remain confident in the long term growth potential of additive manufacturing and desktop metals, leading position in mass production.
Our focus for 'twenty 'twenty, four is reaching profitability through the reallocation of our cost saving initiatives.
In the long run additive manufacturing is the future and desktop metal is poised to emerge from this cycle as a clear leader.
I want to thank our employees customers partners and shareholders for their continued support and sacrifices.
Ric Fulop: Importantly, this demonstrates that while some projects may be delayed by higher costs of capital, our customers continue to expand their usage and engagement in our solutions during the same time period, demonstrating clear product market fit, as recurring revenue grew from 24% of revenue in 2022 to a record 34% of revenue. In closing, while 2023 proved to be a challenging year amidst higher cost of capital headwinds, we remain confident in the long-term growth potential of additive manufacturing and desktop metals' leading position in mass production. Our focus for 2024 is reaching profitability through the realization of our cost saving initiatives. In the long run, additive manufacturing is the future, and desktop metal is poised to emerge from this cycle as a clear leader.
We look forward to updating you on our progress next quarter with that I will turn the call over to our CFO Jason call Jason.
Thanks, Rick beginning on Slide 17, you will see highlights of our financial performance for the fourth quarter and full year of 2023. Please note we will be referring to several financial metrics on a non-GAAP basis reconciliation to GAAP data is included in the filed appendix.
Before diving into our results I would like to spend a minute discussing the strategic actions, we have taken to improve our costs.
While our industry has struggled to reach scale, we remain committed to driving desktop metal the profitability on the cash we have.
As our top line softened, you'll recall, we announced $100 million in annualized cost reductions in <unk> 'twenty.
Jason Cole: I want to thank our employees, customers, partners, and shareholders for their continued support and sacrifice. We look forward to updating you on our progress next quarter. With that, I will turn the call over to our CFO, Jason Cole.
Followed by an additional $50 million of annualized reductions January of 'twenty four for a total of $150 million in cumulative annualized reduction.
Jason Cole: Thanks, Rick. Beginning on slide 17, you will see highlights of our financial performance for the fourth quarter and full year of 2020. Please note that we will be referring to several financial metrics on a non-gAP basis. Reconciliation to GAP data is included in the file dependent.
These reductions have driven efficiencies across cost of sales and opex, which have steadily improved our operating leverage across 23 and will continue to do so into 2024.
Today, we are also announcing additional cost reduction measures, which include our intention to deemphasize select business lines, principally within our photo polymer businesses, where a lack of growth and scale have been a headwind to profitability.
Jason Cole: Before diving into our results, I would like to spend a minute discussing the strategic actions we have taken to improve our cause. While our industry has struggled to reach scale, we remain committed to driving desktop metal to profitability with the cash we have. As our top line softened, you'll recall we announced $100 million in annualized cost reductions in 1Q22, followed by an additional $50 million of annualized reductions in January of 2024 for a total of $150 million in cumulative annualized reductions.
These actions are above and beyond the previously announced $150 million.
These are technologies, we believe holds tremendous potential for future growth and profitability.
Unfortunately, we also accepted the current scale they are loss leaders within our portfolio and we are no longer position to shepherd them to profitability.
We are committed to exit these businesses and are exploring alternatives and how best to do so which may include divestiture.
Jason Cole: These reductions have driven efficiencies across cost of sales and OPEX, which have steadily improved our operating leverage across 23 and will continue to do so into 2024. Today, we are also announcing additional cost-reduction measures, which include our intention to deemphasize select business lines, principally within our photopolymer business, where a lack of growth and scale have been a headwind to profitability. These actions are above and beyond the previously announced $150 million.
Overall I am pleased with the progress we are seeing since 2023 in the following slides will demonstrate the progress we have continued to make.
Consolidated revenue for the fourth quarter of 2023 was $52 3 million compared with $60 6 million in the fourth quarter of 2022.
Sequentially revenue increased 22, 4% prior quarter.
For the full year of 2023 consolidated revenue of $189 7 million compared to $209 million in 2022.
Jason Cole: These are technologies we believe hold tremendous potential for future growth and profitability. Unfortunately, we also accept at their current scale, they are lost leaders within our portfolio, and we are no longer positioned to shepherd them to profitability. We are committed to exiting these businesses and are exploring alternatives on how best to do so, which may include the best. Overall, I am pleased with the progress we are seeing since 2023, and the following slides will demonstrate the progress we have continued to make. Consolidated revenue for the fourth quarter of 2023 was $52.3 million compared with $60.6 million in the fourth quarter of 2022. sequentially, revenue increased 22.4% from the prior quarter.
Product revenue decreased primarily due to a reduction in units shipped during 2023, driven by the macroeconomic conditions impacting the additive manufacturing industry.
This was partially offset by strength in our recurring revenues of 29% year on year.
non-GAAP gross margins were 34% for the fourth quarter of 2020.
Gross margins improved 970 basis points versus the prior year period, driven by improved absorption of fixed cost.
Essentially gross margins improved from 21, 9% in the third quarter.
On the right side of the slide full year 2023, non-GAAP gross margins were 27%.
A 450 basis point improvement over the prior year period of 22, 5% driven by the actions we have taken to improve our cost structure.
Jason Cole: For the full year of 2023, consolidated revenue of $189.7 million compared to $209 million in 2022. Product revenue decreased primarily due to a reduction in units shipped during 2023, driven by the macroeconomic conditions impacting the additive manufacturing industry. This was partially offset by strength in our recurring revenues of 29% year on year, and non-gap gross margins of 34% for the fourth quarter. Gross margins improved 970 basis points versus the prior year period, driven by improved absorption of fixed costs. Consequently, gross margins improved from 21.9% in the third quarter. On the right side of the slide, full year 2023 non-GAAP gross margins were 27%, a 450 basis point improvement over the prior year period of 22.5% driven by the actions we have taken to improve our cost structure.
On the next slide non-GAAP operating expenses were $31 6 million for the fourth quarter of 2023.
Through actions under our initial 2022 cost optimization initiatives, we reduced non-GAAP operating expenses sequentially by $1 6 million and year over year by $6 8 million.
Fourth quarter 2023, non-GAAP operating expenses closed at $31 6 million down 17% year over year compared to $37 9 million fourth quarter of <unk>.
Adjusted EBITDA for the fourth quarter of 2023 was negative $9 2 million improving year over year by $11 9 million compared to the fourth quarter of <unk>.
Full year 2023, adjusted EBITDA was negative $69 1 million compared to prior year period of 100 in.
$4 million.
Adjusted EBITDA is trending in the right direction as the $100 million and cost reduction actions completed in 2023 continue to positively impact adjusted EBITDA.
The $50 million of cost reductions announced in January of this year combined with the cost reduction measures announced today will continue this trend.
Jason Cole: On the next slide, non-GAAP operating expenses were $31.6 million for the fourth quarter of 2023. Through actions under our initial 2022 cost optimization initiative, we've reduced non-GAAP operating expenses sequentially by 1.6 million and year over year by 6.8 million. Fourth quarter 2023 non-gap operating expenses closed at 31.6 million, down 17% year over year compared to 37.9 million for the fourth quarter of 2020. Adjusted EBITDA for the fourth quarter of 2023 was negative $9.2 million, improving year-over-year by $11.9 million compared to the fourth quarter of 2020. Full year 2023 adjusted EBITDA was negative 69.1 million compared to the prior year period of 118.4 million.
With respect to the $50 million cost out program announced in January we expect to begin realizing the majority of these savings in the first quarter with the balance completed through the year end.
These measures included a further 20% reduction in our workforce three additional site consolidations continued efforts to streamline centralized costs and the sunsetting of several slow moving product offerings.
We believe we are now positioned to be at or near breakeven in 'twenty 'twenty four assuming no material growth.
As a further proof point of cost reduction progress. This quarter's cash consumption from operations was down 62% when compared to $56 3 million consumed in the first quarter of 2022 as a reminder, <unk> 22 was the last full quarter of results before commencing our cost reductions with continued improvement throughout.
Jason Cole: Adjusted EBITDA is trending in the right direction as the $100 million in cost reduction actions completed in 2023 continue to positively impact Adjusted EBITDA. The $50 million of cost reductions announced in January of this year, combined with the cost reduction measures announced today, will continue this trend. With respect to the $50 million cost-out program announced in January, we expect to begin realizing the majority of these savings in the first quarter, with the balance completed through the year end. These measures included a further 20% reduction in our workforce, three additional site consolidations, continued efforts to streamline centralized costs, and the sunsetting of several slow-moving product offerings. We believe we are now positioned to be at or near breakeven in 2024, assuming no material growth. As a further proof point of cost reduction progress, this quarter's cash consumption from operations was down 62% when compared to $56.3 million consumed in the first quarter of 2022. As a reminder, 1-2-22 was the last full quarter of results before commencing our cost reductions with continued improvement throughout. Lastly, we finished the year with $82.6 million in inventory.
<unk>.
Lastly, we finished the year with $82 6 million in inventory.
We are positioned to execute on expected first half demand and remain committed to optimizing inventory management monetizing the inventory we have in improving our cash flow and working capital in 2024.
Moving to our financial outlook on slide 21.
We are continuing to observe some persistent macro and industry wide headwinds, which began to emerge in mid 2022, and we're well underway by early 2020.
We believe we are well positioned from a cash cost perspective, while being ready to capitalize on the significant growth opportunities that remain in front of us once conditions become more favorable we anticipate generating revenue in the range $175 million $215 million in 2024, we expect.
The momentum in the improvement of adjusted EBITDA to continue throughout 2024, and as such we expect full year 2024, adjusted EBITDA to be negative $30 million to negative 10 million.
We do expect in the second half of 2024 that we will begin recognizing positive adjusted EBITDA as we realize the nearly full benefit of the $150 million cost savings programs.
Jason Cole: We are positioned to execute an expected first half demand and remain committed to optimizing inventory management, monetizing the inventory we have, and improving our cash flow and working capital in 2024. Moving to our financial outlook on slide 21, We are continuing to observe some persistent macro and industry-wide headwinds, which began to emerge in mid-2022 and were well underway by early 2020. However, we believe we are well positioned from a cash and cost perspective while being ready to capitalize on the significant growth opportunities that remain in front of us once conditions become more favorable. We anticipate generating revenue in the range of $175 million to $215 million in 2024. We expect the momentum in the improvement of adjusted EBITDA to continue throughout 2024, and as such, we expect full-year 2024 adjusted EBITDA to be negative $30 million to negative $10 million. We do expect in the second half of 2024 that we will begin recognizing positive adjusted EBITDA as we realize the nearly full benefit of the $150 million cost savings program. Additionally, the guidance reflected today does not include any businesses which may roll off as part of our strategic review process.
Additionally, the guidance reflected today does not include any businesses, which may roll off as part of our strategic review process.
With that we'll take some questions operator.
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Thank you and our first question will be from the line of Greg Palm with Craig Hallum. Please proceed with your questions.
Yeah. Good morning, Thanks for taking the questions I guess, starting with the guidance range for fiscal 'twenty four its a fairly wide range. So maybe you can give us some some color or maybe your assumptions on the top end versus low end and some some of the assumptions behind that and certainly what are what you need to accomplish to get to the midpoint.
Yes, Thanks, Greg.
You know I think that range is.
Is it plus or minus 20 million about 10%. So I think it's narrower than we did last year, but.
But I appreciate it and we still feel right to you.
We think our.
Our seasonality curve is basically one and <unk> typically softer sequentially with strength in <unk> and <unk> we.
We do believe this is a year where we.
We see some opportunities to return to year on year growth across all of 'twenty three that was not the case.
Operator: With that, we'll take some questions. Operator? Thank you. We'll now be conducting the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
So the midpoint at 195, I think we feel like that's just modestly above I think our expectation would be that we think we can perform at the top half of that I think we generally guide with that expectation, but there's also we've been surprised before so I think we're navigating sort of AR.
Some of the weakness we saw continuing into the beginning of the year, but we think we can turn the corner and we have some good opportunities in front of us. So I guess, we will look forward to seeing how we performed in <unk> and <unk>.
Operator: For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. And our first question will be from the line of Greg Palm with Craig Callum. Please receive your, Yeah, good morning. Thanks for taking the questions.
Proving it.
Not getting ahead of ourselves before we can provide.
And just any color on kind of the cadence of the year. I mean Q1 is almost done at this point I guess, a couple more weeks left in the quarter, but cadence of revenue any expectations for the year.
Yes, I mean again I think the seasonality curves will kind of follow the same structure. While it is close to the end of <unk>. We have a late breaking kind of product revenue cycle. So we're still kind of working on a variety of things down the stretch, which gives us some degree of variability <unk> at this moment, but we're looking forward to the middle of May giving you that update.
Gregory William Palm: I guess I'll start with the guidance range for fiscal 24. It's a fairly wide range. So maybe you can give us some color or maybe assumptions on your top end versus the low end and some of the assumptions behind that, and certainly what you need to accomplish to get to the midpoint. Yeah, thanks, Greg. You know, I think that range is, Honestly, above. I think our expectation would be that, you know, we think we could perform in the top half of that. I think we generally guide with that expectation. But there's also We've been surprised before.
I guess, the only thing I didn't touch on was the profitability I think the profit the adjusted EBITDA range that we guided.
Basically reflects it's going to improve across the years the $150 million continued to take hold so it's probably more front end loaded, but we feel like we can perform well in that range as well.
Jason Cole: So I think we're navigating sort of a, some of the weakness we saw at the beginning of the year, but we think we can turn the corner, and we have some good opportunities in front of us. So I guess we'll look forward to seeing how we perform in one cue and proving it and not getting ahead of ourselves before we can, and just any color on kind of the cadence of the year. I mean, Q1's almost done at this point, I guess there are a couple more weeks left in the quarter, but the pace of revenue, any expectations for the year? Yeah, I mean, again, I think the seasonality curves will kind of follow the same structure.
Got it.
Then just last one I.
I know Rick you talked a lot about various kind of end markets and technologies and you know ones you're seeing some success.
Maybe I missed it but I didn't hear a lot on consumer electronics, which was supposed to be a big kind of area of focus and growth in 'twenty four or so can you maybe just give us a little bit of.
Jason Cole: While it is close to the end of 1Q, we have a late breaking kind of product revenue cycle. So we're still kind of working on a variety of things down the stretch, which gives us some degree of variability. You know, we're not here to guide 1Q at this moment.
Color on what you're seeing in that end market specifically.
Look absolutely it is still a huge opportunity for added manufacturing was still work on it.
But we got the base of our customers so.
We will continue to work and it's driving those segments.
Jason Cole: But we're looking forward to the middle of May giving you that update. I guess the only other thing I didn't touch on was profitability. I think the adjusted EBITDA range that we guided basically reflects that it's going to improve across the years, the $150 million continues to take hold. So it's probably more front-end loaded, but we feel like we can perform well in that. Okay. And then just last one.
We have some areas of the business that performed extremely well as you as you saw in our slides we today have.
Part of the business that outgrew the pace of growth of our industry where were dominant like in our printed casting segment, where we did 27% growth.
In the past year.
And we also have been surprised by the strength of our business in the defense and aerospace segments.
Ric Fulop: I know, Rick, you talked a lot about various kinds of end markets and technologies and, you know, ones you're seeing some success with. Maybe I missed it, but I didn't hear a lot about consumer electronics, which was supposed to be a big kind of area of focus and growth in 24. So can you maybe just give us a little bit of color on what you're seeing in that end market specifically? Absolutely.
If you asked me at the beginning of last year did we expect to see desktop metal parts in the Moon.
I Didnt if you asked me.
At the beginning I mean, I know, we have programs that thinks but you know the things.
Actually did get there and we have department of defense building important constellation of satellites.
Extensively use our technology those are now flying in space.
Ric Fulop: It is still a huge opportunity for added manufacturing; we still work on it, but we go at the pace of our customers. So we will continue to work in striving for those segments. We have some areas of the business that performed extremely well. As you saw on our slides, we today have parts of the business that outgrew the pace of growth of our industry where we're dominant, like in our printed castings segment, where we did 27% growth in the past year. And we also have been surprised by the strength of our business in the defense and aerospace segments. If you asked me at the beginning of last year, did we expect to see desktop metal parts on the moon? I didn't do it.
We had a.
Starship with Spacex yesterday, there is.
Close to 200 printed castings that are used in that in that system platform and so we're very proud of those efforts and there are many areas of the business that are growing.
<unk> really nicely there are some other areas that are challenging and there are some customers, they're going to be massive but they take longer to get their products out.
I highlighted in our presentation two slides on an upcoming market that I think is pretty interesting that I also didn't expect that the beginning of the year, where we'd have.
A real pause.
The ability to build a massive business and that then.
Artificial intelligence, driven humanoid robots I've been surprised by the investments.
Ric Fulop: And if you ask me, at the beginning, I mean, I know we have programs and things, but you know, the things actually did get there. And we have the Department of Defense building important constellations of satellites that extensively use our technology. Those are now flying in space.
For multiple major companies some of them, which are customers, who are planning to launch products that some analysts forecast to be very very large market and so if.
If those things happen, we could be a major purveyor of the smart limbs.
Ric Fulop: We had, you know, Starship with SpaceX yesterday; there are close to 200 printed castings that are used in that platform. And so we're very proud of those efforts. And there are many areas of the business that are growing really nicely. There are some other areas that are challenging.
Go in those systems, which today projected about a third of the cost structure of that and some analysts have talked about those markets eventually becoming as large as the cell phone industry or electric vehicles I think it's too early to tell whether that's going to.
Ric Fulop: And there are some customers, they're gonna be massive, but they take longer to get their products out. You know, I highlighted in our presentation two slides on an upcoming market that I think is pretty interesting and that I also didn't expect at the beginning of the year as a real possibility for us to build a massive business, and that's in artificial intelligence-driven humanoid robots. I've been surprised by the investments from multiple major companies, some of them that are our customers who are planning to launch products that some analysts forecast to be very, very large markets. And so if those things happen, we could be a major purveyor of the smart limbs that go in those systems, which today project about a third of the cost structure of that. And some analysts have talked about those markets eventually becoming as large as the cell phone industry or electric vehicles. But I think it's too early to tell whether that's gonna happen that way.
Happen that way, but.
I think we can all agree that added manufacturers, then have a growing and more important.
<unk> globally is.
As the industry matures.
And we are a part of it we're in platforms like F 35, we are on.
Pretty much all of the major helicopter systems.
From the U S and other countries.
Major companies like Lockheed and Sikorsky.
Our large customers, there's a lot of investment in naval So we were surprised by the strength in that part of the business and it is offset at some some.
Sort of activities that that some of our large consumer electronics customers.
We have had in deploying this technology, but activities continue and we will update us they make progress.
But just to be clear on consumer electronics, specifically, so are you, saying, that's not going to be an area of growth and I think 24, maybe that's pushed it out.
Ric Fulop: But I think we can all agree that additive manufacturing is gonna have a growing and more important position globally as the industry matures. And we're a part of it, like we're on platforms like the F35. We are on pretty much all of the major helicopter systems from the U.S., and in other countries, you know, major companies like Lockheed and Sikorsky are large customers.
I will say that when we entered 'twenty three I didn't expect to have parts in the moon or in May.
Large meter class structures in major constellations or or.
They would've been huge success on on things.
Things like Stacey.
Basic Mo.
Recent market so to be very honest with you.
Ric Fulop: There's a lot of investment in naval, so we were surprised by the strength in that part of the business, and it's offset some of the activities that some of our large consumer electronics customers have had in deploying this technology. But activities continue, and we will update as they make progress. But just to be clear on consumer electronics specifically.
Or also the adoption of these giga casting process, which is now scaling from Tesla, which invented the technology and where our binder jet is a key portion of the front end of that process.
Now scaling with all the major Oems, what I'm, saying is at the beginning of last year.
I thought maybe.
Maybe some of these other segments will become our largest portion of our business very quickly, but we've had green shoots in some segments and other areas have taken longer to happen. So I'm, not saying, they're not going to happen, but it's very hard for me to predict I know theres a lot of activity from our customers. There. They are in that particular industry. They are.
Ric Fulop: So are you saying that's not going to be an area of growth in 24? Maybe that's pushing out to other areas? I would say that when we entered 23, I didn't expect to have parts on the moon, or in mate, you know, large meter-class structures in major constellations, or, or, that there would have been huge success with things like SpaceX's most recent rocket.
More secretive about their plans and.
It'll go it at its own pace.
You will eventually see many products and you can see it.
Ric Fulop: So to be very honest with you, or also that the adoption of this gigacasting process, which is now scaling from Tesla, which invented the technology, and where our BinderJet is a key portion of the front end of that process, is now scaling with all the major OEMs. What I'm saying is, at the beginning of last year, I thought maybe some of these other segments would become our largest portion of business very quickly. But we've had branches in some segments, and other areas have taken longer to happen. So I'm not saying they're not going to happen. But It's very hard for me to predict.
The evolution of those systems were.
Let's say look at this new.
It meant that reality.
Hardware, it's extremely heavy additive manufacturing is a key way to make those things lightweight it's a key way to enable thinner more performance.
Products in the future. So you will see it we continue to have activities across the board with multiple companies in that space, but it hasnt become the largest part of our revenue yet.
I'm, hoping to report on at once you can go to a store and buy a well known product.
Ric Fulop: I know there's a lot of activity from our customers. They are in that particular industry; they are more secretive about their plans, and it'll go at its own pace. You will eventually see many products, and if you see how the evolution of those systems were, let's say, look at this new augmented reality. Hardware, it's extremely heavy. Additive manufacturing is a key way to make those things lightweight. It's a key way to enable thinner, more performant products in the future. So you will see it.
Yeah understood, Okay, I will leave it there thanks.
Our next question is from the line of Troy Jensen with Cantor Fitzgerald. Please proceed with your question.
Hey, gentlemen, good morning, and thanks for taking my questions here.
Maybe to start with you Rick I, just want to hear Photopolymer, I guess I think envision tech.
I think of the 8-K, and obviously yeah same product line seems to be a bulk of the business, but can you just speak more specifically about the products that you guys are shut in here and put upon us.
Ric Fulop: We continue to have activities across the board with multiple companies in that space, but it hasn't become the largest part of our revenue yet. And I'm hoping to report on it once you can go to a store and buy a well-known, Yes, understood. Okay, I will leave it there. Thanks. Our next question is from the line of Troy Jensen with Cantor Fitzgerald. Hey, gentlemen, good morning.
So we're not saying we're shutting a product.
Just to be very clear and I sent a note. This morning to our employees I encourage you to read it but we are looking at options that would allow us to properly get the distribution of those products deserve.
I'm open to partnerships and other things that would help us grow our business in the photopolymer space. We've sold over 20 metric tons of like Sarah which is over 1 million dentures.
Troy Jensen: Thanks for taking my questions here. Maybe to start with you, Rick, just when I hear photopolymers, I guess I think Envision Tech, you know, I think of the 8k, and obviously, the Einstein product line seems to be the bulk of the business. But can you just speak more specifically about the products that you guys are shedding here and photopolymers? Yeah, so we're not saying we're shedding a product. So just to be very clear, and I sent a note this morning to our employees; I encourage you to read it. But we are looking at options that would allow us to properly get the distribution that those products deserve. And I'm open to partnerships and other things that would help us grow our business. In the photopolymer space, we've sold over 20 metric tons of Flexera, which is over a million dentures, the market leader in permanent restorations by far.
<unk> market share leader in permanent restorations by far and I think when you look at.
<unk>.
The really incredible technologies, we havent foams and elastomers and other segments we had.
Continue to grow that business had been actually grow last year, but we haven't been able to get in as many hands as it deserves and so.
That's a part of frustration for me and so we're looking at how can we make that product those products more successful.
And.
If you have suggestions I'm always open to.
Right.
Really.
Those are the best in the World.
And.
The products are very good just trying to figure out how we can get.
Get them to flourish.
Yep Yep I agree. Okay. Next question are you know last year. The series a lot about that P 50, right and kind of direct metal printing can you give us an update and I'm. Just curious have you guys think you're going to recognize much revenue for <unk>. This year.
It's really a great question and look.
Ric Fulop: And I think when you look at the really incredible technologies we have in foams and elastomers and other segments, we have, you know, we've continued to grow that business. That business actually grew last year, but we haven't been able to get it in as many hands as it deserves. And so we're, you know, that's a part of frustration for me. And so we're looking at how we can make that product, those products, more successful. And if you have suggestions, I'm always open to them. The materials are the best in the world, and the products are very good. Just trying to figure out how we can get them to Florida.
We've had to make tough choices as a company.
We have.
Seven quarters.
Continuously reducing operating expenses eight quarters of gross margin expansion and.
Some of these very advanced technologies that sometimes are a little bit ahead of themselves.
Lead to spending on the technology side that you can't afford so we're trying to pair our spending and control our destiny.
You have to work on these things.
Basically we get to become a sustainable profitable business and so we'll work with our customers too.
The drive that.
Ric Fulop: Yep, yep, I agree. Okay, next question. You know, last year, the story was a lot about that P50, right? And kind of, you know, direct metal printing. Can you give us an update?
Those efforts and get get the products.
<unk> to market.
As fast as possible, but sometimes we have to dialog this things and make those choices. So.
It hasnt become a significant part of our business at least the single best Jetting portion has not yet but it is the highest performance.
Ric Fulop: And I'm just curious to know if you guys think you're going to recognize much revenue for P50 this year? It's really a great question. And look, we've had to make tough choices as a company. We have seven quarters of continuously reducing operating expenses, and eight quarters of gross margin expansion. And some of these very advanced technologies that sometimes are a little bit ahead of themselves lead to spending on the technology side that you can't afford. So we're trying to balance our spending and control our destiny.
Fine powder.
System in the market and as the industry.
Industry matures I think you will eventually see lots of adoption of single fascinating systems, but we're navigating that in carving a path from a to Z here, where we can get this company profitable is something that we are doing very delicately to preserve the value of these technologies and at the same time make customer successful with it.
Ric Fulop: And, you know, you have to work on these things at the proper pace, so we get to become a sustainable, profitable business. So we work with our customers to drive those efforts and get the products to market as fast as possible. But sometimes we have to balance all these things and make tough choices.
So we.
That's probably the best.
The example, I can give you I would love to know it's perfect.
Awesome.
Thanks, Rick maybe just the last follow up.
For Jason here I love, the teradyne kind of the non-GAAP.
Operating expenses in the declines we've seen and I know you're doing more cuts here can you just give us help what do you think this bottoms or.
Ric Fulop: So it hasn't become a significant part of our business, at least the single pass jetting portion has not yet, but it is the highest performance, fine powder system in the market. And as the industry matures, I think you will eventually see lots of adoption of single pass trading systems. But we're navigating that and carving a path from A to Z here where we can get this company profitable is something that we're doing very delicately to preserve the value of these technologies and, at the same time, make customers successful with them. So we, you know, that's probably the best example I can give you. I would love to, Unknown Speaker as I understand it. Thanks, Rick. And maybe I thought just a last follow up for Jason here.
Are we going to see two or three more quarters of sequential or what has to Q <unk> Q3 operating expenses look like.
Yeah. Thanks, John I appreciate the question.
We're definitely not at the bottom because you recall in January we announced the fresh cut of $50 million.
Some of that was enacted in late for Q. The decisions were made and <unk> announcements.
It did.
The answers are kind of in January so, it's definitely going to get lower from where it is I'll, probably stop short of saying exactly how low and one in <unk>.
I think if you know as Youre working through your models when you look at the revenue and profitability range.
On an annualized basis, and you're just taking the $50 million. This.
Troy Jensen: I love the chart on kind of the non-gap operating expenses and the clients we've seen. And I know you're doing more cuts here. Can you just give us a hand?
This is not counting the fresh decisions that we've announced today I think you can expect probably a similar mix of about 20% to 25% in cost of sales.
Jason Cole: Where do you think this, you know, bottom is? You know, are we going to see two or three more quarters of sequential or, what is, two Q2 QQ three operating expenses? Yeah, thanks, Troy. I appreciate the question. We're definitely not at the bottom, because as you recall, in January, we announced a fresh cut of $50 million. Some of that was enacted in late 4Q. The decisions were made in 4Q, but with the announcement, actually, they said the announcements were coming in January. So it's definitely going to get lower from where it is. I'll probably stop short of saying exactly how low in 1 and 2Q.
875% in Opex.
With those figures you can kind of see how low we think we can get it.
Okay. Yeah. That's helpful. I appreciate that and good luck going forward here.
Thank you I appreciate it thank you Chuck.
Thank you.
My final question is from the line of Jacob Stefan with Lake Street Capital markets. Please proceed with your questions.
Yeah, Hey, good morning, guys.
So I'm just kind of wanted to follow up on the foundry opportunity you talked about maybe you can kind of help me understand how to.
You kind of think about this opportunity and maybe what are you.
What are you actually doing.
Andre.
Okay. So.
Batteries need patterns in malls to poor metal into.
When you do them by hand.
Or in an analog process or with analog tooling you have.
Dozens or hundreds of parts that get assembled into to make what the shape of a complex casting is.
Jason Cole: But I think as you're working through your models, and you look at the revenue and profitability range, on an annualized basis, we've just taken 50 million. This is not counting the fresh decisions that we've announced today. You know, I think you can probably expect a similar mix of about 20 to 25% in cost of sales and 80 to 75% in OPEX. So with those figures, you can kind of see how low we think we can get it. Okay, yeah, that's helpful. I appreciate that.
That leads to tolerance, Stackup, where you lose fidelity as all those parts kind of get back together with.
With added manufacturing you can make a single component and so your tolerance of our superior you can reach shapes that are much more complex.
Yet you can enable apart with the level of complexity of additive manufacturing and they're sophisticated shapes, but.
Do that in a way that your cost of the part approaches the cost of the raw material, which in the case of aluminum would be you know I don't know $2, a kilogram, which is much lower than the cost of powders and all the other metals that technology is more mature than some of the other things that we do in metals ceramics and as a result.
Troy Jensen: And guys, good luck going forward here. Thank you. Appreciate it. Our final question is from the line of Jacob Steffen with Lake Street Capital Markets. Yeah, hey, morning, guys.
Jacob Steffen: So I just kind of wanted to follow up on the Foundry opportunity you talked about. Maybe you could kind of help me understand how to kind of think about this opportunity. And maybe, you know, what are you actually doing for the Foundry? Okay, so Boundaries need patterns and molds to pour metal into. When you do them by hand, or in an analog process, or with analog tooling, you have dozens or hundreds of parts that get assembled to make the shape of a complex casting. That leads to tolerance stacking, where you lose fidelity as all those parts kind of get stacked together.
It has been adopted.
Foster and the micro structure that you get from those types of products is also much better understood than the micro structure and the fatigue properties that you get from added manufactured parts. When you do laser and some other processes that fatigue properties are not as good as they are in printed castings and <unk>.
There are many standards for adoption of these technologies and aerospace and as a result as these companies have been acquiring in adopting products.
Sure.
Having a larger percentage of the content in this.
Ric Fulop: With additive manufacturing, you can make a single component, and so your tolerance is superior, and you can reach shapes that are much more complex, yet you can enable a part with a level of complexity added manufacturing, and very sophisticated shapes, but do that in a way that your cost of the part approaches the cost of the raw material, which in the case of aluminum would be, you know, I don't know, $2 a kilogram, which is much lower than And as a result, it has been adopted faster. And the microstructure that you get from those types of products is also much better understood than the microstructure in the fatigue properties that you get from added manufactured parts. When you do laser and some of the processes, the fatigue properties are not as good as they are in printed castings.
Platforms made through additive.
It is one of the leading technologies. It's also one of the few technologies that is able to deliver very large parts that are multi meter in size, which is something that most other added manufacturing process don't do is dramatically faster than I mean dramatically faster than.
Any other process. So for example.
The average laser system is about.
80 cubic centimeters per hour, let's say of Ela system, the fastest would be the SLM and <unk> 601000 cubic centimeters and our <unk> 12000, and a printed casting system.
Like our S. Max Pro is about 150000, so 80 <unk> versus 150000 for our printed casting solutions and our cereal system.
It can go as fast as 250000 cubic centimeters and that's the reason it's being adopted in automotive where cost matters is being adopted in many other segments.
Ric Fulop: And as a result, as these companies have been acquiring and adopting products for having a larger percentage of the content in these platforms made through additive, it is one of the leading technologies. It's also one of the few technologies that is able to deliver very large parts that are multimeters in size, which is something that most other additive manufacturing processes don't do. And it is dramatically faster. And I mean, dramatically faster than any other process. So for example, the fastest laser system is about 80 cubic centimeters per hour, let's say a Velo system. The fastest would be the SLM NXG600 at 1,000 cubic centimeters an hour.
Like aerospace and.
It's a great technology and as part of the family of <unk>.
This is an added manufacturing each type of part.
Probably best suited to a particular process. It doesn't mean that we're going to make all the parts through this process. There is plenty of room for laser technologies, but we are seeing great adoption in this segment and we're also.
Unique in that we have.
Very sophisticated automation attached to these products. So we have.
That includes 24 seven printing without humans involved in.
Automated that'd be powdering at a different level of maturity than any of the other added manufacturing processes I mean, its being used to make in 96.
Ric Fulop: A P50 is 12,000. In a printed casting system, like our S-Max Pro, it is about 150,000. So 80 for a Velo versus 150,000 for our printed casting solutions in our exterior system can go as fast as 250,000 cubic centimeters an hour. And that's the reason it's being adopted in the automotive industry, where cost matters. It's being adopted in many other segments, like aerospace. And it's a great technology, and it's part of the family of processes in additive manufacturing, each type of part. You know, so it's less than 5%. So you're in the early part of an S curve.
B six engines for people like BMW or parts, where people like to SSO. It is abroad.
The process at scale.
With much better post processing and automation in our approaches with mechanical properties that are well understood and that are mature and as a result that industry is poised for scale. If you look at the addressable market.
There's about 25000 and foundries that could take advantage of this equipment, but 3% have adopted it and.
So it's less than 5%. So you are in the early part of an S curve.
Ric Fulop: I do believe that in this next deck, we've seen an acceleration; I think we made more revenue in this area. Unknown Speaker, Unknown Speaker, Unknown Speaker, Unknown Speaker, Unknown Speaker, If you look at that, we added products that came from Envision Tech in this segment, like RS Max Flex, which allows you to go to countries like South America and other locations, and it gives you broader access to sorts of folks that couldn't afford a machine that cost more than a million dollars. And we pair it with a best-in-class solution from X1. We've added desktop metal software and controls.
I do believe that in this next day, we've seen an acceleration I think we did more revenue in this area then.
X one did in in the year, we acquired that a couple of years back.
If you look at that we added the products that came from envision tech in this segment like our S. Max Flex, which allows you to go to.
Countries like South America and in other locations and.
Gives you.
A broader access to two sort of folks that couldn't afford a machine that costs more than a million dollars and we pair it with the best in class solutions for mix. One we've added desktop metals software and controls and so now this isn't a full integrated with market. These through the X one brand because they had a great brand and in the.
Ric Fulop: And so now these systems are fully integrated. We market these through the X1 brand because they have a great brand on the printed casting side. And we're building a great business in this area. So think of 25,000 potential customers. Only 3% of them have them.
The printed casting side and.
We are building a great business in this area. So think of 25000 potential customers only 3% of them have it. They are all going to have some of these machines, there's going to be like a $20 billion capex cycle over I don't know 10 15 years. So you should expect that this should continue to be adopted over time.
Ric Fulop: They're all going to have some of these machines; this is going to be like a $20 billion CAPEX cycle over, I don't know, 10, 15 years. So you should expect that this should continue to be adopted over time. And eventually, one day, it's going to be a much bigger business than many other things we do today combined. And it could get to be, I don't see a reason why, at some point, it could be a billion dollar business, especially if we have new applications for this technology, like I was describing in this... robotics plus AI revolution that we're going to see in the coming decades. Got it. But that's helpful. There is a lot of color there.
Eventually one day, it's going to be.
So in a much bigger business than many other things, we do today combined and it could get to be.
I don't see a reason why.
At some point it could be $1 billion business, especially if we have new applications for this technology like I was describing in this.
Robotics, plus AI revolution that we're going to see in the coming.
Decades.
Got it that's helpful. A lot of color there and then just one so.
Jacob Steffen: And then just we are by far the dominant market share player in this space. We outsell our competitors at a systems level, not you know, some of our competitors in that segment sell parts instead of machines. But on the machine business, which is pretty much all we do, the really, Unknown Speaker We're like 95% systems. We have our competitors almost five to one. So it's, it's not even fair.
So we are we are by far.
The dominant market share player in this space, we outsell our competitors at a systems level.
Some of our competitors in that segment sell parts instead of machines, but under machine business, which is pretty much all we do.
They really like.
We're like 95% systems.
We are sorry competitors almost five to one.
It's not even there we were really good at this.
Ric Fulop: We're really good at, Okay. And yeah, just the last one could be the Latin American market. It sounds like it's a focus. Maybe you could talk about kind of the initial steps that you've taken or, you know, how long or, I guess, how far we are in kind of the initial pipeline there? Well, you know, we have systems around the world. And what we are seeing is that we now have solutions that are cost-effective for those markets with our flex system, which is a really great machine. And I think there are also very large foundries in those markets, you know, whether it's in Mexico or in South America, Brazil, etc. So we basically started hiring resources to go to market for those those areas before people had to like, find us and come to see it in the US and had You know, primarily, we spoke to Western companies who had overseas production.
Okay.
Drifting.
And yes.
Just last one for me.
Latin American market it sounds like it is a focus.
Maybe you could talk about kind of initial steps that you've taken or.
How long.
I guess, how far are we in Canada.
Pipeline there.
Well.
We have the systems around the world.
And what we're seeing is that we now have solutions that are cost effective for those markets with our flex system, which.
Is it really great machine and I think.
There is also a very large foundries in those markets, whether it's in Mexico or in South America, Brazil et cetera. So we basically started hiring go to market resources for those those areas before people had to like.
Find us and come to see it in the U S and had to.
You know, primarily we sold to western companies, who had overseas production and now we are.
Ric Fulop: And now we're going to support and help companies around the world adopt this technology, whether it's in Southeast Asia, or in India, or in South America, or in the Middle East. We've had growth in these emerging economies, and we're excited to add capabilities to better support them and make them make our customers successful in those markets. Got it. Thanks, guys. Best of luck going forward. Thank you. We're excited.
Sure.
Going to support and help companies around the world adopt this technology, whether it's in southeast Asia or.
In India or in South America or in the Middle East we've had growth in this.
Emerging economies and.
We're excited to add capabilities to better support them and make them to make our customers successful in those markets.
Got it thanks, guys best of luck going forward here.
Thank you Ware.
Ric Fulop: Thank you. We've reached the end of the question and answer session, and I'll turn the call back over to management for closing remarks. Unknown Speaker: Okay, well, I really want to thank everybody and, In closing, I really want to thank our customers, partners, and all the incredibly dedicated Desktop Metal employees. Reducing our spend over seven consecutive quarters in the pursuit of sustainable profitability really comes with many sacrifices for this team. And I also believe this experience has made Depth of Metal stronger, and it gives me very good confidence in our ability to navigate 2024 and beyond as the industry comes back to double-digit secular growth. Thank you again for your relentless efforts and dedication. And I look forward to speaking with you again about the first quarter earnings. Thank you. This will conclude today's conference. We will disconnect your lines at this time, and thank you for your participation.
Excited.
Thank you we've reached the end of the question and answer session and I will turn the call back over to management for closing remarks.
Okay, well I really want to thank everybody and.
In closing I really want to thank our customers partners and all the incredibly dedicated desktop metal employees.
Reducing our spend over seven consecutive quarters and our pursuit of sustainable profitability really comes with many sacrifices for this team and I also believe this experience has made desktop metal stronger and it gives me very good confidence in our ability to navigate 2024 and beyond as the industry comes back to double digit secular growth.
Thank you again for your relentless efforts and dedication and I look forward to speaking with you again on our first quarter earnings call.
Thank you.
This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.