Desktop Metal, Inc. Class A

Greetings and welcome to Desktop Metals' fourth quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jay Jenskow, Vice President, Investor Relations. Please go ahead.

Thank you, and thanks to everyone for joining today's call. With me today are Rick Fulop, CEO and co-founder of Desktop Metal, and James Taley, 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 website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of desktop metal. It cannot be reproduced or transcribed without our prior consent. I'd like to start by letting our listeners know that our independent public accountants are in the process of completing our audit for 2021, and the results announced today for fourth quarter and full year 2021 are preliminary, unaudited, and subject to audit adjustment. We have filed a form 12B25 notice with the SEC to extend our deadline for filing our form 10K for 2021 due to the tighter deadlines associated with our recent transition to large accelerated filing status, as well as the inclusion of X1 financial information in our consolidated audited financial statements for the first time since the November call 2021 acquisition. We fully expect to file the 10-K within the 15-day extension period. Now I'd 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 Metals' views and expectations only as of today, March 8, 2022, and actual results may vary materially based on the number of risks and uncertainties. For more information about the risks that may impact Desktop Metals' business and financial results, please refer to the Risk Factors section of the Form 10-Q filed by the company on November 15, 2021, in addition to the company's other files 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 reconciliation of the GAAP and GAAP measures. With that, it's my pleasure to turn the call over to Rick Fultz, CEO and co-founder of Desktop Metal.

Thank you, Jay. Good morning, everyone. I'm excited to host everyone in our Q4 2021 call. Today, I plan to review the results for the fourth quarter and full year 2021, provide our financial outlook, and detail our strategic priorities for 2022. In addition, as we have evolved as a public company and have made a number of important strategic decisions last year, we'd like to highlight a few of those key developments provide an update, and further detail our operating model. Beginning the presentation of slide three, we started Desktop Metal to enable mass production via additive manufacturing in a cost-effective way versus conventional production processes. We call this AM 2.0. Our long-term goal is to use this technology to achieve double-digit share of the $100 billion plus market by the end of the decade. Mass production is the fastest-growing segment in the additive manufacturing space, as businesses around the world seek to overcome supply chain disruptions, decrease production costs, and release breakthrough new products. We make every decision at Desktop Metal through the lens of achieving this goal. Shifting to our financial results on slide four, Desktop Metal concluded 2021 with the best quarter in the company's history. Consolidated revenue for the fourth quarter of 2021 was 56.7 million, representing sequential quarterly growth of 123%, and year-over-year growth of over 570%. We saw broad-based growth across all our AM brands and all our technologies, underpinned by a record quarter of revenue from our metal platforms. Excluding contributions from the X1 acquisition, revenue for the fourth quarter was 41.2 million, representing 62% quarter-over-quarter growth. we saw yet another quarter of gross margin expansion with non-GAAP gross margins increasing to 31% in the fourth quarter at more than 460 basis points sequentially. This was our sixth consecutive quarter of gross margin expansion. Highlighting full year results on the right side of the slide, consolidated revenue was $112.4 million for 2021, excluding contributions from X1 acquisition in the fourth quarter, Full year revenue was 96.9 million, representing more than 480% growth over 2020. Overall revenue growth was driven by very strong performance in our metal offerings, including 163% organic growth year over year. Desktop metal was the fastest growing publicly traded added manufacturing company in 2021. Non-gap margins for the year expanded to 27%, a meaningful increase over 2020. And we ended the year with a strong cash balance of $271.7 million in cash, cash equivalents and short-term investments. Turning to our financial outlook, we continue to see robust growth across our full portfolio and expanding customer base. We expect 2022 to be another record year for Desktop Metal. As a result, we're announcing guidance of approximately $260 million in revenue for 2022. This represents 131% growth over 2021. We also expect adjusted EBITDA to be approximately negative 90 million. We believe now is the time to prioritize investing to capture market share as the added manufacturing market inflects in order to reach the potential of our long-term business model. We do have our eye on long-term profitability, and therefore, we are reaffirming our commitment to exit calendar year 2023 break-even on an adjusted EBITDA basis, as well as exceeding a billion dollars in revenue by 2025. We'll provide more color on our plan to reach these goals in a moment. Turning to slide five, 2021 was a revolutionary year for Desktop Metal, and I could not be prouder of what Team DM has accomplished in our first year as a public company. We made huge progress, both organically and inorganically, towards positioning the company to achieve double-digit share of the additive market by the end of the decade. We now have over 20 print platforms, which allows us to target a large number of applications across volume and performance requirements. We have a highly refreshed product portfolio, including nine product launches in the past five quarters that we expect to contribute meaningfully to this year's results. And I can't understate the team's relentless hard work to launch the production system P50, which just started chipping a few weeks ago. we dramatically expanded the number of materials printable in our systems by 12 times. We now have one of the widest portfolios of end-use materials for mass production with additive for a diverse array of applications in industries ranging from automotive to consumer electronics to oil and gas. Our total installed base across our platforms is now 14 times larger from the beginning of the year, providing us with a large and diverse set of customers through which we can drive both consumables revenue and upsell or cross-sell our platforms as we look for high-performance systems or new material offerings. We executed on the M&A strategy we articulated when we went public. These transactions varied in size and strategic purpose, but all were geared towards increasing our share of the added manufacturing market in the long term and positioning the company for leadership in mass production of end-use parts. Between these acquisitions and internal R&D, We have bolstered our IP portfolio to over 650 patents and patent spending, arming us with a robust, defensible technology platform with a significant competitive moat. Early in the year, we launched desktop health to focus on patient specific additive manufacturing solutions for the healthcare and dental industry. This is a massive market with over 80 billion in healthcare implants that over time will become patient specific. and over $30 billion in annual spend in restorative end-use parts in the dental market. Over the course of the year, Desktop Health became an established brand supporting thousands of dental labs and practices, cemented by the launch of a revolutionary new Einstein photopolymer printer series specifically designed for the healthcare market. We also launched an initiative to build out Desktop Labs, a vertically integrated parts platform that provides digital solutions, design services, and parts production capabilities for healthcare. We view dental and biofabrication as critical killer apps for additives because parts in these market segments are typically unique to the patient, and only a small percentage are printed today. This strategy reinforces our leadership position in dental and is also highly accretive to our overall margin structure, while it accelerates our path to profitability. In 2021, we also introduced FOREST, a new process that leverages our existing binder-jetting platforms to print end-use, wood parts in volume using traditional wood manufacturing waste products. We've seen great success with Forus and have already sold millions of dollars of printers to produce parts through this process. This is a very exciting opportunity and is still in its early stages, but our goal is to flip a portion of the $1.3 trillion a year spent on wood parts into a more sustainable manufacturing process via additive. Team DM grew from 200 to over 1,000 team members as we collectively and passionately work to enable mass production of end-use parts via AM 2.0. Customer adoption continues to be really exciting as more and more companies of all sizes are embracing the benefits of additive, and specifically our high-volume production capabilities. We made significant increases to our customer install base last year. a combination of horizontal and vertical focus areas across a range of industries including automotive healthcare and dental consumer products industrials aerospace defense and machine design among others this is a blue chip customer base that in many cases is just beginning their journey in additive one of the benefits of the strategic moves we've made over the last year is that our wider portfolio of print platforms addresses a more diverse set of applications in end-to-end markets, reducing our exposure to any one industry. We have a fast-growing, robust business with very little account concentration, which we believe provides us with better pricing power in the market. Moving on to slide seven. We made great progress in 2021, but we're also laser-focused on five key strategic priorities for 2022. First, we are dedicated to maintaining our pace of organic revenue growth at scale. Desktop Metal is a growth-focused company, and after achieving triple-digit organic revenue growth last year, we're determined to maintain that momentum, preserving our position at the top of the industry for growth. Second, we're focused on growing our market share across key verticals. What we have been very encouraged is the broad-based industry adoption from customers of all sizes. In 2022, we plan to focus more on sizable market verticals that can deliver outsized growth opportunities. Three in particular, automotive, consumer electronics, and dental and healthcare. Third, we're intensifying our go-to-market efforts on land and expand opportunities with hyperscale customers. More specifically, this means cultivating and maturing applications with major strategic accounts that have hyperscale potential over the next three to five years. These opportunities with brand name Fortune 100 companies have the potential to not only be needle moving financially, but attract awareness to the capabilities of our mass production additive solutions. Our fourth strategic priority for 2022 is to demonstrate our path to profitability to fund continuous strong growth into the future. This includes reaffirming our commitment to exit calendar year 2023, break even on an adjusted EBITDA basis. These steps to achieve this goal include combining top-line growth with controlled expenses and operating leverage to maintain our annual margin expansion. We also plan to drive operational efficiencies and expense reductions throughout the business, including rationalizing the current portfolio, optimizing expense structures, and consolidating our global facilities footprint, just to name a few initiatives. Finally, we're focused on managing the cash on our balance sheet. While our current cash position is strong, we will be disciplined in our capital allocation efforts, focused on investing only in opportunities where we see potential for both outsized growth and operating margin expansion. Additionally, as we mature, we're also targeting opportunities for working capital improvements through increased focus on inventory reduction and supply chain synergies. We will measure our success this coming year, not only based on our financial results, but also on how we execute on these five key strategic priorities. Moving on to slide eight. 2021 was a phenomenal year for our industrial business. We saw strong diversified demand across all of our available print platforms. We made important strides in extending our competitive boat in binder jetting, the fastest growing segment in production parts. In 2021, we grew to become the number one metal binder jet company by unit share in the world. In its first full year, The shop system was the number one selling product in the metal binder jetting market. We're very proud of that. And we expanded our materials portfolio across seven different metal print platforms to offer the industry's largest portfolio of compatible alloys. We're the absolute market share leader in metal binder jet, any way you slice the data. As we ramp V50 in 2022 and beyond, we're poised to extend our lead with this revolutionary system that creates a new category of throughput and cost performance for metal additive manufacturing. Last year, we also entered the industrial photopolymer space through our acquisitions of Envision Tech, now rebranded E-Tech, and Adaptive 3D. These acquisitions opened the aperture of our materials portfolio outside just metals, and now positioned DM to offer a host of exciting new applications. Following these, we launched the Xtreme 8K, the largest production-grade DLP 3D printer in the world, for high volume production. And in conjunction with the 8K launch, we introduced a portfolio of best-in-class elastomers that outperform all major competitors on tear strength and elongation. We're just beginning to scratch the surface of the growth opportunity created by these solutions. And finally, we made a landmark acquisition in the purchase of X1, cementing our leadership in area-wide AM technologies for mass production. We've been hyper-focused executing our integration strategy and we're already creating near-term value where possible and see significant opportunities for value accretion long term some of which james will speak to in this section 2022 is setting up to be another exciting year for our industrial platforms and we have a few strategic priorities that we're specifically targeting within this market segment first we're focused on scaling our metal mass production solutions second We want to maintain the momentum within the SME customer segment by accelerating deployment of the shop system. Third, we're well-positioned to grow market share of our industrial polymer platforms. There's a lot of opportunity for our solutions in this segment. Fourth, this year, we're especially focused on driving broader adoption in digital castings. This is a process where 3D print models used to cast high-volume parts such as vehicle or aerospace components. This is an underrated opportunity in additive. In this market, we plan to leverage our technology to drive mass market adoption by extending high performance capabilities of our S-Max and S-Max Pro platforms. And finally, we plan to strengthen our foothold in strategic industrial verticals by developing hyperscale opportunities that offer powerful long-term growth. Turn to slide nine. We are thrilled to announce that we have started shipping the production system P50. Our initial customer is Stanley Black & Decker, one of the landmark great American manufacturing companies. This is a significant milestone for desktop metal, and while it took a little bit longer to develop than initially anticipated, these careful investments of time and capital will yield a major competitive moat. Groundbreaking products such as the Tesla Model 3, Apple Macintosh, and IBM 360, each required multi-year development efforts. But in each case, these products leapfrogged competitive offerings and ushered in a new era for their respective companies and industries. Like these other products, we believe P50 represents a watershed moment for additive manufacturing. The 3D printing industry has been characterized by continuous incremental efforts, where products offered by legacy players have steadily improved a little bit every year. With four years of development and nearly $100 million in investment and a robust IP portfolio behind it, the P50 is a groundbreaking platform that opens exponential improvements in performance and will create a massive competitive mode for desktop metal. The system prints a layer in roughly three seconds, leading to batches of hundreds of thousands of parts in a matter of a few hours. This feed enables throughput up to 100 times and costs as low as $1.20 as those of legacy laser powder bed fusion systems. And the P50 does all of this without sacrificing part quality or repeatability. The system's unparalleled performance and economics are enhanced by the world's largest library of fully characterized production materials in metal binder deading. We continue to scale our manufacturing ramp to support the growth we see in this offering. We expect the production system P50 platform part by our patented single-pass jetting technology to be one of the major pillars we build our long-term business around. And we're delighted to have Stanley Black & Decker as the first customer of this landmark system. Shifting to our healthcare and dental business. In a little under a year since its launch and leveraging AmbitionTech's leading DLP printer platforms post-acquisition, Desktop Health has made tremendous strides to position us extremely favorably in the healthcare and dental market. In February, Desktop Health introduced the Einstein series of dental 3D printers, including three all-new systems designed for the production of anti-dental parts. Leveraging patented technology, the Einstein series brings exceptional speed, industry-leading accuracy, and innovative features like closed-loop printing and heated chambers to this market. Desktop Health also recently launched several new materials. In particular, Flexera Smile Ultra Plus received FDA clearance for permanent dental indications. When used in tandem with Einstein 3D printers, these new materials allow dental providers to print same-day smiles, including crowns, bridges, veneers, and full and partial dentures. The Einstein and Flexera product launches position us to continue our already strong momentum in dental. And finally, we launched and expanded our Desktop Labs platform, an end-use 3D printed parts offering under Desktop Health that vertically integrates digital solutions design services, and parts production capabilities for the dental market today. This is a huge, rapidly growing market that's an emerging killer app for additives because these parts are patient-specific. Desktop Labs is a strategic priority. First, it immediately accelerates our growth in dental, where we have strong, competitive technology and material advantages. Second, rapidly digitizing Desktop Labs properties enhances their profitability by improving efficiency relative to milling or analog production. Desktop Labs is accretive to our overall margins, and it accelerates our path to profitability. Third, Desktop Labs has unique digital workflows and technology enhanced support that we plan to bundle with our new Einstein printers to deliver seamless chairside printing inside a dental practice. Effective chairside capabilities will unlock unique competitive advantage for desktop health. And finally, these efforts will create a digital-first and single-visit treatment options for dental clinicians to improve patient outcomes and dental practice economics. Over time, we also intend to leverage this platform to provide biofabrication solutions with proprietary materials currently in advanced stages of research and development. It was an exciting year for desktop health. And as we've hit the ground running in 2022 with the Einstein launch, we're also focused on a few key strategic priorities. First, we aim to accelerate the transition of the dental industry to additive through our category-leading hardware and differentiated material capabilities. Second, we plan to focus on growing desktop labs platform for all those reasons just discussed. Third, we intend to launch and scale hit products and killer applications in the dental and healthcare space. Executing to these goals will position us for continued desktop health success in 2022 and the years beyond. And with that, I will now turn it over to our CFO, James Haley, to cover our financials. James.