Desktop Metal, Inc. Class A

Greetings and welcome to Desktop Metals' fourth quarter and full year 2020 financial results conference. At this time, all participants are on 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. Arjun Agarwal, Chief Product Officer. Thank you, sir. Please go ahead.

Thank you, and thanks to everyone for joining us today for Desktop Metal's fourth quarter and full year 2020 earnings conference call. With me on the call are Rick Fulop, CEO, Chairman, and co-founder of Desktop Metal, and James Haley, CFO of Desktop Metal. Earlier today, we issued a press release and made a slide presentation available on our investor relations website. which provides an overview of our business and financial highlights for the fourth quarter and full year 2020. This call is being webcast live on Desktop Metal's investor relations website, and the webcast and the 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 can't be reproduced or transcribed without our prior written consent. Before we begin, I would like to refer you to slide two of our presentation, which contains our safe harbor disclaimer. Today's call will include forward-looking statements. These forward-looking statements reflect Desktop Metals' views and expectations only as of today, March 15, 2021, and actual results may vary materially based on a number of risks and uncertainties. For more information about the risk factors that may impact Desktop Metals' business and financial results, Please refer to the risk factors section of the annual report on Form 10-K that we filed with the SEC in addition to the company's prior filings with the SEC. We assume no obligation to update the forward-looking statements. Additionally, during this presentation or the following Q&A session, we may refer to non-GAAP measures, including EBITDA and adjusted EBITDA. These measures are intended to supplement but not substitute for performance measures calculated in accordance with GAAP. Our earnings 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, I'd like to turn it over to Ray. Thank you, Arjun.

Good day, everyone. We're excited to welcome you to our first earnings call as a public company. The past several months has been transformational for Desktop Metal. In the fourth quarter alone, we completed the transaction between Trine and Desktop Metal, started trading on the New York Stock Exchange, and began shipping several new products core to our long-term roadmap, ending the year with over $595 million on the balance sheet to fund our growth strategy. I'd like to start today by providing an overview of our business for those that are new to our story, highlight some of the key milestones we achieved in the fourth quarter, and discuss some of our strategy going forward. After my remarks, James will cover our evolution to a public company. discuss our financial results for the fourth quarter and full year 2020, and provide guidance for 2021. First, an overview of our business, starting with our investment highlights on slide three. Desktop Metal is the only pure play additive manufacturing 2.0 company. We're pioneering a new generation of additive manufacturing technologies focused on the production of end-use parts to help businesses make high performance products faster, more sustainably, and at cost and volume competitive with conventional manufacturing processes. The added manufacturing market is a significant and growing opportunity that's expected to go from roughly $12 billion in 2019 to about $146 billion by 2030. This 11x growth is being propelled by a shift from prototyping and tooling into mass production applications, and the industry has strong secular tailwinds around onshoring and supply chain flexibility. We have a growing portfolio of additive manufacturing 2.0 solutions focused on volume production of end-use parts that we think has industry-leading price performance and capabilities across the portfolio with over 190 materials qualified across polymers, metals, ceramics, composites, and biocompatible resins. Our products include some of the largest and fastest DLP systems in the market with the Envision One HD and the Xtreme 8K. And we've got the fastest metal printer in the market with the production system P50 It's about 100 times faster than prior generation technologies like laser powder bed fusion. We've also got a series of developing businesses in composites and biofabrication that we're going to expand, as I'll discuss shortly. This portfolio is packed by differentiated technology modes. That includes printers, software, materials, and over 260 patents issued or pending. We have a second major mode around distribution. And we now have over 250 partners in 68 countries around the world. We're doubling down on a combination of horizontal and vertical focus for the channel to go after a variety of markets. We've got a solid dental and jewelry business, and we'll continue to expand our focus into verticals such as healthcare, automotive, aerospace, and oil and gas. We've got a very compelling financial profile. The products I highlighted earlier each have high-margin recurring revenue streams from consumables and service, which generate a multiple of the upfront revenue and gross profit over the lifetime of the system. On the whole, we anticipate significant gross margin improvements and operating leverage as we scale revenue over time. And finally, we believe there's a significant inorganic upside potential in the business, and we've got a team with experience executing transactions. We've ended the year with a very robust liquidity profile, and we expect to use this to fund organic activities, but also generate a return as we add strategic capabilities to the business, in line with a strategy focused on enabling killer apps for additives. Taking a step back to look at the additive manufacturing industry as a whole on slide four. Today, a small percentage of the spend in a program goes to design prototypes, tooling, and jigs and fixtures. These use cases has traditionally been the focus of additive manufacturing. This actually used to be an industry called rapid prototyping, but the vast majority of the spending in a program really goes to the end use parts in production. Turning to slide five, To take added manufacturing, or AM, to mass production, there's four key hurdles. Each has a high bar, given the maturity of conventional manufacturing processes. In the polymer space, for example, surface finish has traditionally been a barrier. Having parts that look and feel like induced parts. Photopolymer AM has cleared this hurdle, but for a long time, the parts didn't have the required accuracy. Today, there are resins available that fully cure during printing. So you can achieve the finish and accuracy needed to go to market with AM parts. Material properties is also a recent area of innovation with multicure resins, which now enable making parts from materials that level or exceed widely available thermoplastics. And finally, speeds have gradually been increasing since about 2011, primarily through continuous printing, which we patented. And they are now reaching a point where you can use photopolymer AM production in high volumes. The story is very similar on the metal side, where over time technology advances have cleared each of these bars, The key hurdle we at VM are now addressing is speed and cost, where throughput has historically limited the use of metal AM because parts and systems have not been cost effective. Turning to slide six, we're focused on print processes with productivity that continues to improve over time, writing semiconductor scaling loss. In metals, we've got the fastest binder jetting systems in the market. The engine that drives the throughput is inkjet. which has doubled in throughput every roughly 18 to 24 months for the past 20 years by improving nozzle density and droplet firing frequency, whereas vector-based print processes typically require more time or more cost to scale throughput. An area-wide process that gains efficiencies over time, like our proprietary single-pass jetting technology, drives the economics of additive down the cost curve to make it competitive with conventional manufacturing at volumes up to hundreds of thousands of units per day. in even larger volumes as a new generation print engine is introduced. On slide 7, we see the same thing happening in photopolymers, with the move to UV diodes as a light source for curing. EnvisionTech's photopolymer printers have scaled speed roughly every 24 months as new generations of diodes come out. Now you've got their new patented approach called projection arrays, which multiplies improvements in power output and enables print speeds to scale even faster. Resolution has also had scaling with rapid advancements in underlying image projection technology. This allows you to have larger built platforms with more parts. The result of all this is that our photopolymer printers can now use these improvements in power and resolution to shift further the cost curve, making at-scale printing of end-use polymer parts viable. With this focus on technologies that ride third-party improvements in efficiency and power, we have the wind behind our sails and we anticipate growing more competitive with conventional manufacturing each year. Turning to slide eight, added manufacturing 2.0 or AM 2.0 represents this next generation of technologies that enables volume production of induced parts with finish, accuracy, properties, and economics that are actually competitive with conventional manufacturing. The AM market has compounded at 20% annually over the last decade to $12 billion by 2019. In the last three years before 2019, it actually compounded at 25% annually. We think the market overall exhibited a strong bounce back from COVID-19 in the fourth quarter. That points to a promising year ahead. And the industry is expected to continue to compound at roughly 25% over the next decade to get to $146 billion by 2030. This inflection is really being driven by more and more businesses shifting towards end-use parts powered by AM2.0. And that $146 billion only represents 1% penetration of the overall $12 trillion in the global manufacturing industry. So there's plenty of room to continue to grow. Turning to slide 9, the reason so many businesses are looking to use additive for end-use parts is that it eliminates the need for tooling, which has created significant pain points in conventional manufacturing. For example, long lead times, minimum volume requirements, time-sensitive machine programming, and significant material waste. Conventional manufacturing also creates design limitations that can negatively impact performance and cost in favor of manufacturability. Additive enables benefits like the ability to design complex parts using generative design tools that optimize for real-world physics, or assembly consolidation which takes many components and prints them as a single part with dramatic efficiencies in weight or performance, or mass customization of parts to particular markets or environments. Or finally, re-engineering supply chains around the on-demand, flexible manufacturing capacity and digital inventories where businesses ship files across borders for local manufacturing. There's a dramatic opportunity to reshape global commerce and improve CO2 footprints as we develop more efficient ways to mass produce and ship products to consumers. And these are key long-term tailwinds for AM 2.0. I'd like to spend some time to highlight some exciting initial applications that are becoming cost-effective with our AM2.0 solutions. In the past, you've probably heard of additive being used for very high-end, very low-volume parts like jet engine components. I think one of the problems with additive is it costs too much to be used at scale in larger markets. One of the more exciting things about our solutions is that we can now use AM2.0 technologies to make hundreds of thousands of parts in applications that you never would have considered using additive for in the past. On slide 10, You can see one of our customers, for example, a company called EAC in France. They're a major supplier of metal accessories for swimwear, cosmetics, and luxury goods for companies such as Chanel and Louis Vuitton. More and more, they're using our shop system to mass-produce pieces that can end up in stores that you as a consumer could go to and purchase. That is a fantastic, fantastic development for Additive. They received their system middle of last quarter, and it's already making parts in high volumes. The shop system helped the EAC increase their leather hardware production from 10,000 pieces per week to more than 70,000 parts per week. Those are real manufacturing numbers. Tens of thousands of pieces per week. Shop system also allows them to create volume quantities of these accessories, which significantly reduce lead times, which is important in the fashion industry, and minimal to no manual assembly required. This is a game changer for an SME business like this that's supplying end-use parts to a market. and it illustrates several core benefits of the shop system binder jetting solution. Turnkey flexible manufacturing, volume production of real end use parts with faster time to market, and the ability to get up and running quickly with minimal prior binder jetting experience. As a plug and play solution, it's extremely easy to install and deploy. On slide 11, another exciting case study is with one of our P1 customers, Freeform Technologies. They've got a very experienced team in Pennsylvania and are dedicating themselves to making parts with metal binder jetting. With the P1, the part quality and throughput has enabled them to continually gain business with their customers, fulfilling small quantities of parts at first and then growing to a large volume. And because it's a digital manufacturing process, they can economically turn around thousands of parts in one to two weeks versus two to three months with conventional manufacturing or older generation AM systems. At 75%, to 90% reduction in lead time. On top of supporting direct material and process transfers to production P50, the P1 is a great tool for high-speed serial production of small and complex parts. Turning to slide 12. Since the fourth quarter, we also entered a fast-growing photopolymer additive market with our acquisition of EnvisionTech, the original inventor of digital light processing or DLP printing. an area-wide photopolymer 3D printing process. They have significant blocking IP in this segment, which has bolstered our DM patent portfolio. Together, we create a one-stop shop for AM 2.0 solutions across polymers and metals. What we're excited about with EnvisionTech is that their solutions have been used to produce end-use parts at scale with over 10 million parts in 2020 alone. They're a market leader in fast-growing segments like dental, where sales of their EnvisionOne platform group over 3x in 2020 despite the challenges from COVID-19. EnvisionTech gives us a fantastic platform as we expand the business to reach a whole new set of verticals and applications that benefit from polymer parts and volume. And on top of this, we grow our channel in both number and geographic reach with great opportunity for cross-selling metal and polymer solutions. Looking at the product portfolio as a whole on slide 13, We feel it's the most compelling and diverse set of AM2.0 solutions in the market, and it can cater to metals, composites, ceramics, photopolymers, and even include digital casting and bioprinting capabilities. And what's great is that it can address use cases across a product lifecycle from pre-production all the way to volume and use parts. This is a killer product lineup. Almost all of these products have been refreshed and released within the last year, and we believe they can take us to significant scale. They're backed by a very strong IP portfolio of over 260 issued and pending patents and supported by a library of over 190 materials. To build these products, we really had to pioneer a set of disruptive technologies. On slide 14 now, single pass jetting is the patent pending technology that powers our production system platform. Unlike competitive binder jetting systems, which typically require 20 to 30 seconds to print a layer, the production system P1 and P50 can print a layer in under three seconds. This equates to build speeds that are up to 100 times faster than powder bed fusion and significantly faster than conventional binder jetting. The P50 can support production of up to millions of parts annually at costs that are competitive with conventional manufacturing at reasonable volumes. And this is really key because businesses won't adopt additive if it can't compete on cost. The production system platform offers the only inert processing environment in the market, so we're actually able to print reactive materials via binder jets. As an example, we had a great announcement last week on a breakthrough in the development of aluminum for binder jetting, where we've collaborated with our partners to achieve extremely promising results of over 99% dense 6061 aluminum material with properties better than rot with comparable heat treatment. On the metal side, we've also got advanced sintering technology we've developed in-house to be affordable and easy to install. It makes binder jetting an accessible turnkey solution It can be adopted rapidly by businesses and individuals without experience with printing or metallurgy. Both of these technologies are enabled by LifeCenter, a proprietary sintering simulation software designed to improve part accuracy and eliminate the trial and error for powder metallurgy-based added manufacturing. It dynamically simulates the sintering step of the binder jetting process to predict shrinkage and distortion and corrects geometries before printing to minimize any deviations from the intended design of the final part. This software, too, will be a key enabler for broader adoption of biodegrading. Turning to slide 15, on the photopolymer side, we have a unique patented technology in continuous digital light manufacturing. This is an extremely cost-effective solution for mass production of photopolymer parts that uses proprietary domeless basement technology to provide higher accuracy prints than membrane alternatives. The Envision One HD, which began shipping in the first quarter, of 2021 is the only commercially available high temperature high viscosity photopolymer system shipping in volume today and we think this is the future in photopolymer AM this technology allows businesses to achieve properties on par or exceeding conventional thermoplastics and these systems are doing extremely well on the right here is the new Xtreme 8K solution, which uses patented protection array technology to achieve native 8K resolution and effective 16K resolution at very high speeds. It's the most advanced polymer AM system in the market. Compared to an industrial Fortis 450 FDM printer from Stratasys, this system's up to 100 times faster with a build envelope that's roughly the same size. And it offers superior price performance to comparable industrial polymer AM systems. And just like the Envision One HD, it supports high temperature, high viscosity resins to enable a wide variety of industrial commercial applications. Digging into our go-to market on slide 16, we've got a leading global distribution network today with over 200 partners that can sell and service our solutions in over 68 countries around the world. Our partners address a wide variety of markets and include vertically focused players as well as the ones focused on general industrial business. They can support a variety of business models and product offerings, whether it's low-touch high-volume or high-touch high-value. We think this is one of the differentiating assets of DM as a company, and we believe this will be a key factor in accelerating our growth to achieve global scale and launch new products efficiently. Turning to slide 17, we've got a very broad adoption of our AM2.0 technologies across a variety of industries in both polymers and metals. healthcare, automotive, aerospace, oil and gas, and consumer products, diversified manufacturers, and machine shops. We're excited to expand this user base to more blue chip customers and SMEs as we continue to ramp production and distribution of our newer solutions. Turning to slide 18, the unit economics of these products are fantastic. The two examples here are the production system P50 and the Xtreme 8K. The lifetime revenue and gross profit of each system is a multiple of the initial sale, roughly 3x to $6.5 million in the case of a P50, and upwards of 10x to $1.5 million with the Xtreme 8K. Recurrent contribution comes from the sale of high-margin consumables and services, which result in strong gross margin profiles over the life of the system. So they really demonstrate a pretty attractive razor-blade model, where the initial sale generates a profit as well. Turning for a moment to our strategy related to inorganic growth on slide 19. There's an opportunity here as we continue to build out a strong distribution channel to bring new technologies on the printer side that are focused on AM 2.0. There's a lot of innovation in the private sector, and we look forward to adding new print capabilities to our company to enable a wider set of applications and use cases. A second vector for inorganic growth is materials, where we see a huge opportunity to benefit from vertical integration. We've already built vertically integrated structure for materials in the photopolymer side, where we also have an open certified materials business model to work with partners with unique materials outside our moat to offer validated third-party solutions to customers. On the metal side, vertically integrating into advanced materials, difficult for conventional manufacturing, could uplift the lifetime value of a P50 customer by up to 2 to 6x. The third vector for inorganic growth is building a strong parts offering around killer apps for additives. where our focus is to incorporate businesses and segments with high margin, high barriers to entry. And you'll see more about our strategy in this area as the year progresses and we execute some of these transactions. We believe this can be very accretive to the company and provide a strong return on capital, as in the case with AmbitionTech. Now, there are already several markets which have been quick to adopt AM at scale, and we're gonna focus on building go-to-market strategies around each of these segments. Hearing Aid, for example, is an application that has almost fully crossed over into additive. The same goes for jewelry, where AM is used widely for creating lost wax molds for casting, and now is starting to be used for direct metal printing. Turning to slide 20, today we are announcing the creation of a new business called Desktop Health, focused on patient-specific additive manufacturing solutions for the healthcare and dental markets. To help lead this initiative, we're bringing on board Mike Jafar, with a storied career at Evolus and Allergan, launching some of the best-known brands in the healthcare space. We feel there are commercial-ready applications in dental, orthopedics, audiology, and surgical instruments, but there's also a lot of exciting potential in other untapped categories, and we look forward to working with Mike and his team to develop solutions for these applications and bring them to the market using our DLP high-speed metal binder jetting in bioplotter solutions. Our vision here is that today you've got more than $85 billion of medical implants annually, and they're mostly produced in standard manufactured sizes. We think that's going to change over the next decade or two, where most of these parts will become patient-specific, and that's a major opportunity for additive manufacturing across metals, polymers, ceramics, and other materials. On slide 21, dental is one of the killer apps for additive manufacturing. It's a segment that has been patient-specific for some time now, since every part is custom. It's a market that's both growing and adopting additive quite rapidly. However, with more than $30 billion in annual parts spent in dental, only a small percentage of that total is printed. Most dental parts today are still milled or made by hand in the lab. We see an excellent opportunity for additive to reach up to 75% by 2025, and we plan to be a major enabler of AM adoption in the ortho, lab, and chairside dental markets. Materials are key to enabling applications in this market. You can see how many different use cases for AM there are in polymers, metals, and ceramics. We've got several materials that have either received FDA 510 clearance or are in process, including proprietary materials for permanent crowns and full-arch implant dentures with industry-leading performance. Turning on to slide 22, we believe the future is to have processes that take less time where you can remove the temporary setups. An example is full-arch implant dentures, which is a procedure that today takes an average three weeks from beginning to end. Enabled by our breakthrough proprietary materials and combined with our high-speed printers, we developed with our partners a revolutionary same-day digital workflow for full-arch implant dentures. This new 3D-printed smile takes place in a single day under the comfort of IV sedation, and this will be one of several initial solutions that we'll bring to market with desktop health. Our materials and process have been tested in a clinical study conducted in coordination with leading partners in the field and participation from roughly 900 patients since March 2000. Since then, there have been no failures with our printed implant dentures and the results overall have been excellent. This application is part of roughly $4 billion dental implant market where we feel there's potential to completely revolutionize how patients are treated. And this is all enabled by a combination of advanced materials in both metals and polymers with really high quality properties and AM technology suitable for end-use part production. We look forward to building a best-in-class team in healthcare and dental to work with our partners in industry to bring patient-specific solutions to the market at scale, not just in dental, but also across cardiology, orthopedics, ophthalmology, dermatology, and plastic surgery. Now turning to our fourth quarter business highlights on slide 24. As I mentioned earlier, we made several key strides in the fourth quarter towards commercializing our AM 2.0 technology platform. We started global shipments of our shop system, a mass market binder jetting solution for SMEs and machine shops. It's a full turnkey offering designed for flexible mid volume production. Based on published figures in just one quarter in the market, shop system became the number one selling binder jet system in terms of units. In addition, we began global shipments of our production system P1 solution, the entry-level model for our production system platform. It's also a great proof point on our path to commercializing the production system P50 in the second half of 2021, as they share the same technology architecture and corporate modules. We're incredibly proud of our dedicated team of employees that helped us achieve these key product launches in spite of the challenges and disruptions created by COVID-19 during 2020. Among our commercialization products, we gain adoption from key customers such as Milwaukee Tool, Ford, Eaton, Pat & Whitney, and more. We also launched our Sintering Simulation Software Life Center for using our binder jetting solutions and received significant awards from the Department of Defense. We beefed up our board of directors with the addition of Scott Dusseau as veteran CFO and Steve Nigro, who used to be president of HP's printing and imaging business. With that, I'll turn it over to James, who's going to discuss financial highlights. James?