Desktop Metal, Inc. Class A

Good day and welcome to the desktop metal second quarter earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jay Genskow. Please go ahead.

Thank you, and thanks to everyone for joining this afternoon's call. With me today are Rick Fulop, CEO, Chairman, and Founder of Desktop Metal, James Haley, CFO of Desktop Metal, X1 CEO John Hartner, and X1 CFO Doug Zimba. Please note that Desktop Metal's two press releases and two presentations referred to on this call are available under the Events and Presentations section of our Investor Relations website. This call is also being webcast live with a link at the same investor relations website. The 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 cannot be reproduced or transcribed without our prior consent. Before we begin, I would like to refer you to our safe harbor disclaimer on slide two of the Desktop Metal presentation and slide two of the acquisition presentation. Today's call will include forward-looking statements. These forward-looking statements reflect desktop metals and X1's views and expectations only as of today, August 11, 2021, 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 and X1's businesses, financial results, and the proposed acquisition discussed on this call, please refer to the risk factors section of the Form 8Ks filed today with respect to the acquisition, each company's Form 10-Q filed today, and their respective other filings with the SEC. Neither Desktop Metal nor X1 assumes any obligation to update the forward-looking statements. Additionally, during this presentation or the following Q&A session, both Desktop Metal and X1 may refer to non-GAAP measures. These measures are intended to supplement but not substitute for performance measures calculated in accordance with GAAP. Each company's financial results release contains the financial and other quantitative information to be discussed today, as well as a reconciliation of the GAAP to non-GAAP measures. With that, it's my pleasure to turn the call over to Rick Fulop, CEO and founder of Desktop Metal. Thank you, Jay.

Good afternoon, and thank you for joining Desktop Metal's second quarter 2021 financial results call. As you may have seen, we announced a major transaction this afternoon for the added manufacturing industry. And Desktop Metal has entered into a definitive agreement to acquire X1. I'm here with X1 CEO, John Hartner. And before we begin to discuss this transaction and the strategic rationale, we'll each briefly review our independent second quarter results, starting with Desktop Metal. I'm very proud of our team's effort in the quarter. The company is firing on all cylinders. We delivered a strong revenue growth, meaningfully expanded gross margins, and executed a number of exciting developments. We've made rapid progress delivering on our vision to accelerate the adoption of added manufacturing 2.0. I'll start with a quarterly review on slide three of the presentation with a few financial highlights. Revenue growth accelerating the quarter to 19 million, a sequential increase of 68% over the first quarter of 2021, and more than 750% over the second quarter of 2020. We also generated strong gross margin expansion as non-GAAP gross margins increased to 25% in the quarter, up from 5% in Q1, representing a 1950 basis point sequential increase. Moving to this quarter's business highlights, we saw another quarter of acceleration in our customer install base, with new customer additions increasing 44% sequentially from the first quarter of 2021. This included strong growth in our metals business, with solid contributions from the production system P1, shop system, and studio system 2. As a quick update, our team is hard at work putting the final touches on the production system P50, and we continue to track forward towards beginning shipments in the fourth quarter of this year. We also continue to grow our materials library to enable an expanding set of applications for our customers. A few additions to highlight include cobalt chrome, titanium tie 64, 4140 low alloy steels, and 316 stainless steel and metals, and Flexera base and smile for our Envision Tech systems. Our forest offering, which we announced last quarter, has exceeded all expectations and is experiencing overwhelming demand. We continue to develop and scale the solution to meet the opportunity, and we're thrilled by the early response. In July, we acquired two early-stage companies that we're very excited about, Erisent and Beacon Bio. I'll touch on each of these transactions in more detail later in the presentation. The desktop health team continues to see strong momentum with the dental business seeing another quarter of significant growth. And finally, we closed the acquisition of Adaptive 3D this quarter, and we're seeing fantastic demand as we bring Adaptive's best-in-class elastomers to market alongside our envisioned tech platforms like the Xtreme 8K. Moving to slide four, our metals business had a fantastic quarter with new customer additions more than doubling from the first quarter this year. That includes broad acceleration across the production system P1, shop system, and studio system 2 shipments. The P1 in particular was a standout with very strong quarter-over-quarter growth. We have our best people focused on deploying the production system P50, and we're very much on track to begin shipments in the fourth quarter of this year. We look forward to providing more caller and customer response and use cases once we get those systems out in the field. We also continue to grow our metals materials library with multiple additions. We're the first company to commercialize titanium Ti-64 for bound metal, making DM the only company to make Ti-64 available in an accessible turnkey printing form factor with fantastic material mechanical properties, including better than rod elongation. We also are the first company to qualify 4140 low alloy steel for binder jetting. This is a real workhorse material, one of the highest demand alloys with applications across consumer products, automotive, and other mechanical components. We also qualified 316L stainless on our production system in a material that's well-suited for demanding industrial applications. As I mentioned earlier, on the M&A front, we acquired Aerosyn, an early-stage company that is pioneering multi-material printing for added manufacturing. Today, businesses print individual parts or components out of single materials. But in the future, they will increasingly look to print full products that are comprised of multiple materials. Aerosyn's patented powder deposition process selectively deposits two or more powders to form a single thin powder layer containing multiple materials. As the only high throughput multi-material recording system in the market, Aerosyn's technology unlocks an exciting range of new applications for additive manufacturing, including local optimization of mechanical properties, such as wear resistance or vibration dampening, and the improvement of chemical and physical properties such as thermal and electrical conductivity, corrosion resistance, or aesthetics. We look forward to partnering with our new colleagues at Aerosynth to industrialize and mature this technology and integrate it into upcoming desktop metal products over the next several years. We're also excited to support Aerosynth in their ongoing independent efforts with their existing partners and to leverage the scale, distribution, and industry-leading technology portfolio to capture new market opportunities. The future of AM is going to be multi-material printing, and Aerosynth is a great addition in core technology that will allow us to grow capabilities of AM 2.0 solutions over time. Turning to slide five, on the left side of the page, desktop health business continues to build very positive momentum. Mike Jafar is putting together an extensive healthcare team that includes leaders across disciplines to progress a number of compelling products currently under development. We'll continue to experience positive traction in the dental business with another quarter of very rapid growth, giving us confidence this team can deliver additional solutions to supplement our industrial business and accelerate the growth of DM overall. We believe dental is beginning to enter the steep part of the adoption curve, and most parts used in dentistry should be printable this decade. This week, Desktop Health also announced the expansion of the dental technology portfolio with the qualification of Cobalt Chrome on the shop system. The dental community will now be able to leverage the full capabilities of high-speed metal binder jetting, including faster and more cost-effective production of bridges, crowns, partials, and more. Also in the quarter, Desktop Health completed CE certification of our Flexera Base and Smile Resins and received FDA clearance for Class 2 permanent indications for Flexera Base. Together, Flexera Base and Smile enable next-generation digital dentures in same-day full-arch implant procedures. Lexera Solutions sold out within the first four weeks of launch, and we're adding capacity to meet our robust demand. We're highlighting another acquisition that we're very excited about on the right side of the page. This is a small company called Beacon Bio that was spun out of Harvard University. They've developed a promising new material that can be printed on our 3D BioPlotter systems and has potential for use in repairing damaged eardrums. The phonograph device printed using this material is analogous to LASIK vision correction, except it's intended for individuals who have hearing deficiencies and wear hearing aids or who have experienced eardrum perforations, which occur in about 30 million people a year around the world. Phonograph technology promotes eardrum repair while decreasing patient procedure times through a minimally invasive procedure. We expect Phonograph will improve patient hearing outcomes by leveraging the body's natural regenerative processes. as the biodegradable graft material is slowly replaced with native tissue over time. This exciting technology is in the advanced stages of R&D, and the team at Desktop Health intends to conduct additional preclinical studies and pursue FDA review with the goal of delivering a solution to the market within 24 months. We believe phonograph and the associated biodegradable elastomer materials, coupled with our leading biofabrication and 3D printing solutions, is a true platform technology with tremendous potential across a wider range of high-value healthcare applications in soft tissue, from cardiovascular to neuronal grafts to plastic surgery. Consistent with our broader strategy, we're excited to own the full value chain of these devices and bring them to the market. It's still early days for this technology, but the acquisition marks the beginning of our journey to advance patient-specific medicine through added manufacturing. Finally, on slide six, we saw another quarter of increasing customer adoption across materials as new customer additions increased 44% sequentially from the first quarter of 2021. The left side of this slide shows a number of customers that range from large brands to small companies with minimal account concentration. In highlighting two interesting customers on the right side of the slide, Christian Tsai is a well-recognized jewelry designer and manufacturer using the production system P1 to develop several private label products to supply a variety of the leading luxury jewelry brands. Christian has leveraged the P1 to print precious metal rings at rapid rates up to 50 to 70 in under two hours, making it a game changer for his manufacturing strategy. The second customer we're highlighting is Peral, a precision metal parts manufacturer in Europe that utilizes a shop system to produce complex metal parts across a range of applications including automotive, aerospace, and more. The shop system's binder-jetting technology enables Porail to improve design flexibility and mass-produce parts sustainably while eliminating tooling costs. With that, I would like to turn the call over to our CFO, James Haley, for his review of the second quarter financial highlights. James?