Desktop Metal, Inc. Class A

Greetings, and welcome to the Desktop Metal's third quarter 2211 financial results conference call. At this time, all participants are in 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 then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jay Genskow, Vice President of Investor Relations, please go ahead.

Thank you. And thanks to everyone for joining today's call. With me today are Rick Fulop, CEO, Chairman and Founder of Desktop Metal, and James Haley, CFO of Desktop Metal. Please note that our financial results press release and presentation slides referred to on this call are available under the events and presentation 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 company's slides will be available for replay for 12 months following the call. The content of today's call is the property of Desktop Metal. It cannot be reproduced or transcribed without our prior consent. Before we begin, I would like to refer you to our safe harbor disclaimer on slide two of the presentation. Today's call will include forward-looking statements. These forward-looking statements reflect Desktop Metal's views and expectations only as of today, November 15, 2021, and actual results may vary materially based on the 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 of the annual report on Form 10-K as amended, in addition to the company's other filings with the SEC. We assume no obligation to update the forward-looking statements. Additionally, during this presentation and the following Q&A session, we may refer to non-GAAP measures, including EBITDA, adjusted EBITDA, and non-GAAP gross profit. These measures are intended to supplement, but not substitute, for performance measures calculated in accordance with GAAP. Our financial results release contains the financial and other quantitative information to be discussed today, as well as a reconciliation of the GAAP to non-GAAP measures. With that, it's my pleasure to turn the call over to Rick Fulop, CEO and founder of Desktop Metal.

Thank you, Jay, and good afternoon, everyone, and thank you for joining us today. I want to kick off the call by welcoming the talented X1 team to Desktop Metal. As you know, we completed the acquisition of X1 last week, and we're thrilled at the opportunities ahead for the combined company. Today, I will highlight a few financial and business developments for the third quarter and will provide an overall business strategy update. I will then turn the call over to James to walk through the third quarter financial results in more detail in our outlook for the balance of the year. We're opening it up for Q&A. Let's start on slide three. Revenue for the third quarter of 2021 was $25.4 million, representing sequential quarterly growth of 34% and more than 900% growth year over year. Revenue growth was driven by a combination of strong performance in our core metals business, as well as contribution from recent acquisitions. We also saw continued growth margin expansion as non-GAAP growth margins increased 27% in Q3 at more than 180 basis points sequentially. With some great developments in the business this quarter, we're seeing strong momentum in commercial opportunities with a number of Fortune 500 companies across our volume production platforms, including the production system P50. We continue to aggressively develop these opportunities against the backdrop of P50 progressing towards initial commercial shifting. We're completing final procurement and have started production of the initial P50 builds targeted for shipments this quarter. While supply chain challenges are impacting us across the business, we have our best people focused on getting P50 out. And we're confident enough in both our rollout progress and the demand to increase our manufacturing capacity with a new facility dedicated to P50 production. After the significant development cycle of this product, we're excited to begin shipments to customers We look forward to updating you on this milestone, as well as other customer use cases for this game-changing platform. We successfully closed our acquisition of X1, and this landmark transaction cements our leadership in area-wide additive manufacturing technologies for mass production. We also made two smaller acquisitions in meta-additive and hydro that dovetail nicely to our core metals business in the traditional print platforms that X1 brings to the portfolio. We'll speak to each of these in a bit more detail later on the call. We unveiled our strategic relationship with Shapeways last week. We're excited to make our product portfolio and broad range of materials available through their digital manufacturing platform to businesses that may not be ready to purchase full systems or that need overflow manufacturing capacity on demand. And finally, we launched a new initiative under Desktop Health to build out a dental and biofabrication parts platform. It's a key element to our strategy to attack these markets, and I'll go into further detail later in the presentation. Before diving into some of these highlights, I want to address our performance in the third quarter. We encountered some headwinds that prevented us from achieving the results we had targeted when the quarter began. Global supply chain and logistic disruptions did have an effect towards the end of the quarter. Our team has done a great job adapting to the current environment, but these issues did impact our ability to ship some of our products in quantities we expected, especially our photopolymer platforms such as the Xtreme 8K. Ultimately, while we didn't execute to our plan for the quarter, we're in a good position to drive very strong sequential growth in the fourth quarter and in the year strong. And James will speak more to our full year guidance during this section. On slide four, I want to spend a few moments reviewing our acquisition of X1, which strengthens our competitive stance in many areas. Together, we offer an unparalleled product portfolio across speed, cost, resolution, and part size. And we're particularly thrilled with the opportunity to combine X1's sand printing expertise with our low-cost architectures to make digital casting more accessible, and grow that market. Our combined material science efforts will allow us to introduce new materials to our customers at a faster rate. We look forward to leveraging our complementary go-to-market activities to drive outsized growth while seizing on opportunities to flip X1's business to a more turnkey, built-to-forecast model, which we believe will accelerate growth in the conversion of X1's robust backlog, which sat at $57 million at the end of 2003. Next, on slide five, I'd like to review two other tokens that, in conjunction with X1, reflect our strategy around printers, materials, and killer apps. In materials, we're excited to announce the addition of our next-generation binder technology focused on reducing part shrinkage to our acquisition of Meta Additive. Meta has developed non-sacrificial binders that use organometallics and particles of functional build material to bind and infiltrate the powder bed simultaneously during the binder get-across. This binder IP has the potential to revolutionize binder jetting by extending the technology to markets that require larger part sizes and a broader palette of materials. We look forward to developing and qualifying Meta's functional binders on our high-speed binder jetting platforms to enable customers to print larger parts with faster turnaround times, improve tolerances, and even greater productivity. On the right side of the slide, I'd also like to highlight Hydro, a leader in added manufacturing of next-generation manifolds, hydraulics, and fluid power systems. In metals, we view these use cases as killer apps for additives. We have added Hydro to serve as a foundation to deliver customers a differentiated offering in this market, where Hydro was an early adopter of AM with world-class design expertise and know-how. We're excited to work with their talented team to leverage a combination of desktop metals and X1 Sprint platforms to produce fluid power systems and manifolds optimized for AM. Turning to slide six, as a management team, we remain laser-focused on achieving double-digit share We've added it by the end of the decade. This goal guides our strategy across both organic product development and M&A activities. And we're working towards it by expanding the serviceable portion of our addressable market, as well as bringing AM into new applications not accessible to legacy AM processes offered by our peers. AmbitionTech, for example, has opened up the polymer AM market with its pioneering area-wide photopolymer platforms and digital casting solutions, which we have reinforced with our acquisition of X1 and its industry-leading SMAX platform. We've introduced FOROS, a process for 3D printing end-use wood parts in production, extending AM to applications including home furnishings and luxury interiors. We've added biofabrication capabilities through Beacon Bio, which were in advanced stages of R&D and have the potential to enable new killer apps such as eardrum repair and other soft tissue cases. Finally, dental is a $30 billion opportunity that has been largely observed by AM, particularly in non-orthodontic applications. We believe this market can reach over 75% penetration of digital AM workflows, and we have introduced materials and made investments towards a part strategy to address this opportunity. Each of these developments is consistent with the strategic pillars of our business and has unlocked opportunities for our technology that we capitalize on to deliver outsized growth in the long term. Turning on to slide seven, you can see the full portfolio of added manufacturing 2.0 solutions we have built to achieve long-term success. At the top, We're focused on area-wide print platforms that can support a step function improvement in throughput up to 100 times legacy additive manufacturing processes. Our goal here is to help customers use additive manufacturing production volumes cost-effectively versus conventional manufacturing. Critically, desktop metals proprietary printing technologies achieve superior economics and throughput while also enabling surface finish, accuracy, and material properties required for end-use parts. and we provide these platforms alongside proprietary software and centering solutions that make additive easier to adopt for businesses of all sizes. Partnering these advantages with an extensive and growing materials library translates into support for a broad range of production applications across verticals, allowing us to diversify our end markets and customer base. We're super confident in these platforms and believe they can generate significant revenue scale in the near term and will serve as a foundation for us to achieve double-digit share of additive in the long term. Turning to slide eight, I want to set the context for a new initiative we launched in Q3 under Desktop Health. Many of you will recognize our additive manufacturing 2.0 strategy slide, which we've shown on nearly every quarterly update call. We'll focus on three primary areas. First, we want to be a leader in print platforms for mass production that use area-wide technologies that improve in performance over time benefiting from Moore's Law, allowing us to continually increase our competitiveness versus conventional manufacturing. Second, we want to vertically integrate into high-margin, consumable revenue streams by owning a broad materials portfolio with best-in-class properties. Developing printers and materials together allows us to offer integrated solutions that can reliably yield high-performance parts for our customers. And third, we're focused on developing killer apps for additives. For most of these applications, we plan on being a technology provider with a high-margin recurring revenue stream through consumables. But there are some applications where a large portion of the profit pool accrues to the application provider. For these segments, we believe the best way to maximize value of our technology assets is to provide an end-to-end solution that includes printing and providing high-margin end-use parts to customers. Turning to slide 9, we see dental and biofabrication as important emerging killer apps for additive because parts are unique to the patient. These are huge markets with only a few percentage of parts printed today. The traditional production methods include labor and resource intensive conventional manufacturing processes. As a result, this market is poised to tilt rapidly towards additive. We're already well positioned as a technology provider in both dental and biofabrication with a thriving business selling differentiated solutions across printers and materials. Now we're also launching a new parts platform to vertically integrate into design, and parts production capabilities that will allow us to provide a more comprehensive, end-to-end offering that can accelerate adoption of 3D printing in dental and biofabrication. For dental specifically, these efforts are critical to make chairside printing successful at scale and drive value creation for desktop metal. We believe that our strategy as a consolidator can enable an industry-leading, additive-focused business that provides printers, materials, and induced parts for dental and biofabrication customers with added manufacturing at its core. Today, we're seeing real results from the steps we've taken to position the dental business to execute this strategy. And through our acquisition of Beacon Bio, we have biofabrication materials in advanced R&D in a long-term plan to implement biofabrication solutions under this initiative. We've staffed this opportunity with leaders from the industry in an effort led by Lou Azera, former CEO of Dental Solutions Group, Our goal is to form a global platform underneath desktop health, able to accelerate the transition of added manufacturing while maximizing wallet share in this segment. We've acquired our initial targets under this strategy and we'll be rapidly digitizing these properties with our proprietary added manufacturing solutions to increase their profitability and product capabilities. The long-term opportunity for dental and biofabrication is just starting to hit the uptake of the S group, and we believe our strategy to drive adoption through our new platforms positions us to capture a significant share of this massive opportunity. And finally, on slide 10, I'd like to wrap up my section by reiterating that we've built desktop metal with durable competitive advantages in order to accomplish our mission of double-digit share in the additive manufacturing market by the end of this decade. We have the fastest print platforms in the market, supported by proprietary software and centering capabilities that enable adoption for customers of all sizes. Our comprehensive and growing materials portfolio enables a more diverse array of applications for our customer space. We focus on killer apps providing end-to-end solutions, including design and parts production that deliver high-margin use cases for additive. We have a world-class go-to-market organization with complementary indirect and direct channels, as well as robust global service and support capabilities. And finally, our vertical integration in materials not only enables reliable, high-performance parts for customers, but also creates high-margin recurring revenue streams for consumables for our business. This is the blueprint for how we will win in the marketplace, and we look forward to updating you on how this competitive differentiation leads to continued market share gains and consistent financial outperformance for years to come. I will now turn the call over to our CFO, James Haley, to share third quarter financial highlights. James?