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spk07: 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.
spk09: 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.
spk10: 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.
spk05: Thanks, Rick. Before I get to our financial results and outlook, I'd like to step back and provide a little more color on our operating model. Our business went through significant evolution and transformation in our first year as a public company. And as a result, I think it is worthwhile to update the investor community on our financial strategy and provide more support on how we intend to close the gap from where we are today to our long-term revenue and margin targets, as well our path to profitability. I'll start on slide 12 with revenue growth. Today, the bulk of our top-line revenue is generated through sales of our additive manufacturing systems, so our primary focus to maximize our growth is driving accelerated adoption of our technology solutions. We have invested aggressively to diversify our print platforms across price points, capabilities, and materials, which we believe best positions us to land customers with an initial application for 3D printing before expanding across materials or into higher volumes with additional systems. These cross-selling and upselling opportunities will be a key revenue accelerator across our wider customer base And we're already seeing early examples of metal customers evaluating photopolymer solutions and vice versa. We sell these solutions through a hybrid distribution approach. We augment our leading global distribution network of resellers with an internal direct sales force. We have crafted this hybrid approach to accommodate our broad product portfolio, which has easy to install, and service platforms ideally suited for resellers as well as higher ASPs and longer sales cycle platforms more suited to direct selling. In 2022, we are placing a heavy emphasis on positioning our channel partners for strong growth by doubling down on channel sales enablement, including more robust inside sales activities, deeper reseller engagements, enhanced training, and additional marketing resources. While ramping the channel on new products takes significant time and effort, we believe that the channel is a critical path to scaling our growth in years to come, especially as our resellers cover more than 65 countries around the world and are within a short drive of a significant portion of the worldwide manufacturing sector location. Our direct sales force complements the channel with a focus on major accounts, expanding our footprint in multinational organizations and sales of our larger, more complex solutions, such as the production system P50, X160 Pro, and S-Max Pro. This team is key to establishing lighthouse customers in key verticals and will work closely with major accounts to cultivate applications that will yield hyperscale opportunities Rick discussed earlier. We also view the supply chain as a lever to accelerate revenue growth. At Desktop Metal, we have concentrated our efforts in technology development, mostly outsourcing manufacturing to third parties through a built-to-forecast model that creates minimal lead times from order to delivery. This has been a competitive advantage for our sales teams and has resulted in shorter sales cycles for our equipment. We believe that by shifting relevant products from our acquired portfolios towards this model, we can capture CapEx budgets at the moment of interest, accelerate sales cycles across the business, and expand the deal capacity of our reseller network and direct sales force. Finally, in 2022, we are focused on driving outsized growth in EMEA and APAC by expanding our go-to-market infrastructure in these regions. While these two regions combined generated roughly 30% of revenue in 2021, we anticipate their contribution will increase as a percentage of overall revenue in 2022 as a result of our efforts. Next, maintaining a focus on long-term gross margin expansion is critical to our path to profitability. Over the past year, scaling out of fixed overhead costs like customer support and manufacturing operations included in COGS through top line growth has been the biggest factor in our six consecutive quarters of gross margin expansion. Additional scale will continue to be the primary factor that drives gross margin improvements into 2022. Now that our business is at a larger scale, we expect seasonality to become a more significant consideration. While we expect gross margins to continue improving on an annual basis, we anticipate quarterly fluctuations as a result of this seasonality. That said, we are also taking proactive steps to realize gross margin improvement. The first is a focus on product mix through product rationalization and consolidation. This is a multi-year effort that we have already started. We are constantly evaluating which platforms we should continue to evolve going forward, and we plan to concentrate our go-to-market efforts around higher margin offerings. Related to product mix, as we grow our installed base of mature up-and-running customers, the high margin consumable stream of powder binder and resins that they generate will be accretive to margins as well. While our growth in system sales will continue to outpace our consumables in 2022, we are already starting to see consumable revenue become more meaningful on an absolute basis, and this razor razor blade strategy is an important element of our long-term operating model. We are also taking steps to reduce product costs through design changes, multi-sourcing, and volume purchasing, and we see great opportunity to improve product margins by optimizing our manufacturing supply chain efforts. We intend to transition manufacturing to either our in-house teams or third parties based on what makes the most sense for each individual product and to improve the cost structure for the overall portfolio. Over time, we anticipate this reallocation and consolidation of our manufacturing footprint will yield significant gross margin accretion for the company and accelerate the path to our long-term gross margin percentage target in the 50s. Moving on to our expense structure, while we continue to invest to prioritize growth, we are placing a greater emphasis on controlling costs in 2022. As a result, we expect expenses to continue to meaningfully decrease as a percentage of revenue this year. That said, we believe additional investments are critical to position ourselves for longer-term growth. In R&D, we anticipate incremental increases in spend as we continue to drive new product development while dedicating meaningful resources to enhancements and cost reductions of our existing platforms. Our business will always be R&D-focused But as we mature, we expect to be able to harvest these early investments in R&D, which will glide down both as a percentage of revenue and of total operating expenses over time. 2022 increases in sales and marketing spend are critical to executing our growth plans, in particular, launching and ramping sales of new products. We also continue to invest in our long-term go-to-market infrastructure. We believe now is the time to invest here so that we are best positioned to capture sales opportunities as we hit inflection points in the adoption of additive across various industries. Finally, while G&A spend jumped in 2021 to support our first full year operating as a public company in the acquisition integration activities, we anticipate that growth in this expense category will be more limited going forward as our existing infrastructure scales nicely with expected top line growth. Turning now to slide 13, I will now discuss our fourth quarter and full year 2021 financial results. Please note we will be referring to several financial metrics on a non-GAAP basis. Reconciliations to GAAP data is included in the filed appendix. Starting with the fourth quarter, we're very pleased with how the team finished off the year. Consolidated revenue was $56.7 million. Excluding X1, revenue was $41.2 million, up 62% sequentially in the third quarter of 2021. Revenue strength was broad-based across all of our offerings and particularly strong in our metal offerings. We also saw our sixth consecutive quarter of gap and non-gap gross margin expansion. Non-gap gross margin increased over 460 basis points sequentially to 31% for the quarter, the highest in the company history. Gross margin expansion was primarily driven by operating leverage as revenue continued to scale across overhead costs as well as favorable product mix from metals platform strength. Going forward, Integration of recent acquisitions and ongoing supply chain challenges may result in quarter-to-quarter fluctuations in gross margins, but we expect overall to trend in a positive direction Adjusted EBITDA for the fourth quarter of 2021 was negative $25.7 million versus negative $18.5 million in the fourth quarter of 2020. The adjusted EBITDA decline was due to investment initiatives I detailed on the previous slide that began in the fourth quarter of 2021, as well as absorbing losses from recent acquisitions as we invest with a long-term growth opportunity for our business. Turning to full year financial results, we hit our marks on all revenue guidance figures we provided on our last earnings call. Consolidated revenue was $112.4 million for the full year 2021, including core revenue from our desktop metal and Envision tax businesses of $76.5 million. Excluding the X1 acquisition, revenue was $96.9 million including year-over-year growth of 163% in our organic metal offerings. Non-GAAP margins jumped to 27% for 2021 compared to being negative for 2020. driven by operating leverage as revenues began to scale out of fixed overhead costs. An adjusted EBITDA for 2021 was negative $96.1 million. And finally, we are well capitalized to end the year with $271.7 million in cash, cash equivalents, and short-term investments as of December 31st, 2021. Managing cash is a key priority for 2022 and beyond, and we will be judicious on program spend and any other activities and evaluate these on a return of invested capital point of view. Turning to this year, we have outlined our 2022 revenue outlook on slide 14. As Rick discussed, we expect to generate total revenue of approximately $260 million for the full year of 2022, representing 131% growth over 2021, and an adjusted EBITDA of approximately negative $90 million. While this adjusted EBITDA outlook does include moderate increases to our operating expense run rate exiting the fourth quarter of 2021, we believe now is the time to maintain investments in the growth opportunity of the business in order to accelerate market share gains and reach the potential of our long-term business model. Long-term, I'd like to reiterate our financial goals as a company. We are committed to achieving $1 billion in revenue by the year 2025. We expect to exit calendar year 2023 on an adjusted EBITDA breakeven basis. And we aspire to reach double-digit share of the additive manufacturing market by the end of the decade. With that, I will turn the call back over to Rick.
spk10: Thank you, James. In summary, our business performed exceptionally well in the fourth quarter and throughout the year, we moved swiftly in 2021 to add core capabilities to desktop metal. We added end-use photopolymer technologies to our portfolio, entering the healthcare and dental space in a major way. We also consolidated our market share in metal binder jets into an undisputed leadership position, adding key technical capabilities to strengthen our competitive mode while delivering industry-leading growth across the business. End-use part production continues to be the fastest growing segment in additive, and we're extremely well positioned to take share of the overall industry and continue growing faster than our competitors. We expect another outstanding year of growth in 2022 with a solid financial position, strong secular tailwinds, and a world-class go-to market in technical talent. We asked a lot of our teams in 2021 as the pandemic led to disruption and uncertainty. As always, Team DM stepped up to these challenges and delivered tremendous results. Thank you everyone at Desktop Metal for your hard work and tremendous contributions to our success. With that, let's open it up for questions. Operator?
spk07: Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Please limit yourself to one question and one follow-up so we may get to everyone's questions and then re-queue for more questions. Our first question comes from the line of Greg Palm with Craig Hallam. Please proceed with your questions.
spk03: Yeah, thanks, and good morning, everyone. Just starting with the quarter, I guess if my math is right, it looks like the majority of upside was maybe driven by better contribution from X1 and maybe a little bit of upside from non-core revenue. Can you confirm that? And anything else that positively or negatively surprised you relative to prior expectations?
spk05: Good morning and thanks for the question. So just for clarity, sort of what we put out for guidance previously on excluding X1 was 92 to 102. So we were right in the middle of that. So I would say we did very well on our metal offerings.
spk04: X1 was definitely a contributor, but that wasn't, you know, within our previous guidance.
spk03: Okay. Fair enough. And can you confirm, number one, if there were any acquisitions that were made in the quarter, and number two, if you had any 10% plus customers in the quarter?
spk05: So in terms of 10% customers, we evaluate that on a full year basis, if you will. We did not have any that exceeded that 10% threshold, if you will. And I'm sorry, the first question was,
spk03: If you made any acquisitions in the quarter?
spk05: So certainly X1 had closed, and we did two dental labs that also closed in the early part of the quarter. But X1 in the middle of November was the last acquisition we did for the year.
spk03: Yeah, I was – sorry, I should clarify. I was thinking more on the dental lab side. Okay, I'll leave it there. Thanks. Great.
spk07: Our next question comes from the line of Josh Sullivan with the Benchmarks Company. Please receive your questions.
spk10: Hey, good morning.
spk08: Morning. Just on the expectation to exit 2023, you know, around break-even, can you just bucket the major drivers there for us, you know, synergies, investments, growth, maybe how many P50 systems you expect to have in the wild by then? Just looking for some metrics going into that assumption.
spk05: So, we don't provide forecasts on unit volumes. I would say we certainly expect a continued growth from 22 to 23. And traditionally, you know, the vast majority of our revenue does come in the fourth quarter of the year. But as Rick and I both highlighted and are prepared for March, the key drivers for us over the next few years, really a margin expansion. We don't expect to, you know, be introducing lots of new products into the market. It's really more focused on the products that we are now have launched and really driving margins. And similarly, on the OpEx side, don't see a lot of additional spending. I think that the rates you're seeing for Q4 here are really where we're going to try to hold firm as a company, but certainly we want to invest in R&D portfolio as well. So really, we're just going to start to get that leverage, if you will, based on a much higher revenue number.
spk08: Got it. And then just as far as, you know, the approach to desktop health and the dental industry, you know, vertical integration, how do you see, you know, what do you see the need for non-editive related kind of infrastructure within that as you grow in early stages? Just trying to understand, you know, what's infrastructure to build out the industry versus direct additive type product sales and your overall strategy.
spk10: I think that in a restorative dental market, most parts, The majority of that $30 billion worth of parts will transition to an additive-type process this decade, almost all of it, from the polymer components that are used in dentures and other types of restorative parts to ceramics and metal components. All of them can be printed more efficiently in a patient-specific environment. So we see huge synergy. And the ability to take a property that would have had, let's say, 11 points EBITDA to something that's double that plus over a full transformation period and the ability to eliminate double marginalization, et cetera. So all of them are accretive.
spk04: It's a highly accretive play. Thank you. And it's highly regional as well. Okay.
spk07: Our next question comes from the line of Martin Yang from Oppenheimer. Please proceed with your question.
spk06: Good morning. Thank you for taking my question. First question, EnvisionTech in 4Q and for the whole year, did EnvisionTech grow year-to-year in 2021, and was it bigger than X1's contribution for the year, for the quarter? It definitely grew.
spk10: EnvisionTech had some sales of COVID-related items in 2020 that didn't happen in 21. So on the actual core business of printers and resins, it was definitely a growing business. And we are positioning it for dramatic growth over the next two years by really shifting the product portfolio significantly. to more productive systems, high-performance systems, and investing in the material set that you can enable through there, particularly the FDA-cleared resins like our permanent Flexera Ultra Smile and products like that. Overall, it was not larger than X1 in Q4, but it's a fantastic business that we're building on the photopolymer space.
spk05: I think it's worth, again, to, you know, as we go forward, I think we truly need to stop thinking about things, you know, company by company, you know, polymer, metal, and so forth. I mean, we are truly integrating the teams across the board. So we have engineering resources that are, you know, shuffled around, the sales people go to market, everything.
spk04: So I think especially as we enter 2022, it's going to be less meaningful than it's ever been.
spk06: Got it. My next question is on your 2022 guidance. Is there any inorganic growth embedded in the assumption? And if so, how much?
spk10: No, the guidance we're giving is for the business as constituted right now. If we acquired a company in 2022, we would change the guidance. But right now, the guidance is for the business as is.
spk00: Thank you, Rick.
spk07: As a reminder, it is Star 1 to ask a question. Our next question comes from the line of Troy Jensen with Lake Street Capital. Please proceed with your question.
spk02: Hey, gentlemen, congrats on the great results in shipping the P50.
spk04: Thank you, Troy.
spk02: Hey, Rick, so how about just focus on the P50? If memory serves me correct, a year and a half ago when you guys first came out, you talked about 84 reservations for the machine or some number like that. I'm just curious, could you give us an update on kind of where you are with backlog and visibility on the 350 and thoughts on how many more machines are going to ship this year?
spk10: Absolutely. So I think your number is in the correct range. We continue to make progress there. We don't actually break down our products on an individual skew basis. but we're making good progress, and we're going to scale production this year. We made a huge investment in a facility to triple our ability to get machines out, and that facility is humming and scaling up very nicely, and we hope to continue our conversions and success in that part. P50 is definitely going to be a big, important pillar of our long-term growth, and we have very high interest from a long customer list, You'll be hearing more about it as the year progresses with major corporations like the example of Stanley Pack & Decker.
spk07: Our next question comes from the line of Martin Yang from Oppenheimer, which is a follow-up. Please proceed with your question.
spk06: Hi, thank you. So can you maybe talk about Stanley Black & Decker? How are they using P50? Do you know if the tool is being implemented for high volume production?
spk10: Yeah, it is for high volume production of actual end-use parts. And you can make components with this technology at a much lower cost than the analog processes that exist today. And this is going to allow you to switch your mode of production. Instead of having one factory does something and then ships it to other parts of the world, you'll be able to have more localized production closer to the customer at a more cost-effective approach with inventory of one and eventually get the ability to mass customize for local markets. So it is a fantastic case study. And we just did this a couple weeks ago, so I'm expecting to do some more exciting projects press with them in the future as they get their things involved in production up and running. So I'll stay tuned.
spk06: Got it. Thank you, Rick. Another follow-up, if I may. So can you maybe provide an overview of your supply chain challenges? Is there any improvement on whether or not the improvement is embedded for the 2022 guidance? Yeah.
spk10: I think that all of our guidance has the current landscape built in. I would say that there isn't a company in the U.S. that hasn't had some level of supply chain challenges. We had some of ours in Q3, but I am proud of the work that our team did in Q4. Despite a challenging environment, they were able to get things done. It did affect our ability to ship P50 before the end of Q4, but A few weeks later, middle of Q1, we were able to get that out. I think we're in a better position today in supply chain than we were in Q3, but it's not an insignificant task, I think, that the whole world is going through. I would have to say one silver lining to this whole thing is This is what drives demand. We get calls from CEOs and senior people at major corporations or SMEs because they can't get parts that they need. They can't make progress in supply chain. And additive is a big part of that potential solution. And it really allows you to modernize the way that you make your products and simplify your the way you make your products, get around tariffs. It's a, it's a very flexible technology that is growing and, you know, we're proud of our growth. It's not, uh, not, uh, a coincidence that we, that we're focused on end use part mass production. And at the same time, we're the fastest growing, uh, company organically and inorganically and additive over the past year. We continue, uh, we'll continue that effort, uh, this year and, uh, We make systems and are designing a product portfolio that is a winning portfolio, which has lowest cost per part per volume production. We have a variety of processes in metals, ceramics, polymers, et cetera. So we're positioning the company for that for this decade. And I think it's exciting to see broad-based demand being driven by supply chain disruption.
spk07: Our next question is a follow-up question from the line of Greg Palm from Craig Hallam. Please proceed with your question.
spk03: Yeah, thanks. If I missed the commentary, apologies. But can you give us a little bit of the underlying assumptions within the guidance for fiscal 22 on the revenue And I'm not sure if the right way to think about it is contribution from X1, contribution from core, and contribution from non-core. But that's essentially what I'm looking for, if you can give us a little bit more color.
spk10: Absolutely. Let me take the first part of the question and hand it off to James. I mean, I think we are taking this product portfolio, which is the original driver of the guidance, and making some moves. We've taken our metal products. that were sold through X1 are now fully integrated into the DM products. They gain new software and functionality that was developed by DM, which makes the products more turnkey, like our live sensor technology. And at the same time, we have one operations team now. We have one customer support team. We have one engineering team that's been fully integrated. We see very strong demand in binder jetting on the products that we've got, both in metal and other components. a huge opportunity to cross sell and upsell across this portfolio of customers. We now have 6,000 customers, uh, that are, uh, you know, part of this, uh, full family of, of, of, uh, products. We, we, we did acquire some, some key assets last year and they're starting to bear fruit. And we, when we do our forecasting in our, in our funnel, we feel very good about the guidance that we're providing. I think it's, uh, possible to, to, uh, continue this level of growth. And we also see very strong demand on the sand side for the applications that we're going after in production of digital castings and other components like that. And the dental market has just a completely new refresh portfolio with Einstein, which is a best-in-class, highest-priced performance with the best materials portfolio for Indy's part dental products. And so that part is also seeing great demand. So all this picture gives us the full view of what we're planning to do this year. Our dental business on the part side is growing organically in addition to what we added to it. That was, I would say, started initially in one initial region of the Midwest. I think our assumptions are proving right that that is a highly accretive play, and we're really happy with the results of it. So that, I mean, maybe James has additional thoughts.
spk05: Yeah, so we're not giving any additional texture on sort of the companies, if you will, as I mentioned earlier. We're really looking at integrating more and more As Rick and I both touched on, one of the key initiatives for 2022 is product rationalization as well. I think what we can comfortably say is metal is going to be a key driver for us for 2022 and will be the biggest sort of pillar, if you will, of our revenues, but we're not in a position to give any more additional texture beyond that.
spk03: Okay, fair enough. I'll add my congratulations on getting the P50 out. I know that's a big event for the company and the industry, so congrats again on that.
spk10: Thank you, Greg, and very grateful for that. Thank you.
spk07: Our next question comes from the line of Noel Dilts with Stifel. Please receive your questions.
spk01: Hi, thanks, and again, congrats on the accomplishments this year. So I know, James, you said you weren't going to add too much additional color on the businesses, but I was hoping that generally you could speak to the trends and how you're thinking about demand for direct and then indirect printers for X1 as you look at 2022, you know, specifically, you know, if there's any sort of goals or programs that you're undertaking on the indirect side as well. Thanks. Absolutely.
spk10: Look, Noel, the indirect side is a really interesting part of our business. We're the leader in that side of the business and there's a large number of programs that have been developing over many years that are now starting to come to fruition. We feel really good about where we're taking the indirect side of the business, have upcoming products and capabilities that will be introduced throughout the year. That is a fantastic part of the business. It has synergies with products like Forest because you'll now be able to do giant parts out of wood and other components, and we have very good business developing there. This is the first quarter that we actually for the whole year we did several million dollars in forest related equipment revenue but you know a lot more than what we paid for the company so we're very happy that we've gotten into that part of the business and on the direct side the applications are broader in terms of there being a more horizontal utilization for the products because the parts can be used for many, many, many more applications than castings or wood parts. So we've got a pool on our SME products like shop that's quite strong, and then we've integrated the X-Line products now with our portfolio, and then we've got P50. We're really excited to start to get units out, and it's been a long time in the making. It's the best-in-class product with much higher-end capabilities than what anybody else has in the market. So I'm very excited to get that in the hands of customers after all this work. And I think 2022 is going to be a fantastic year for this business. I'm really excited about what we're putting together.
spk01: Okay, thanks. And then second, James, you mentioned sort of some seasonality in the first quarter when you were talking about margins. But also, given the X1 transaction, I know sometimes that when you go through something a major transaction like this that can kind of slow demand in the short term and then, you know, things start to accelerate. Does that, is that happening and does that sort of enhance the seasonality further? If you could comment on that, that would be great. Thank you.
spk05: Yeah, no, I think that was a very fair point as well. I mean, as we look at the year in total, I think traditionally in terms of the revenues, For Q1, it tends to be in that 15% of total revenues for the year. I think certainly with these integration efforts, that's where we would likely be, somewhere in that 15% to 20% neighborhood. That said, I think the pipeline is looking incredibly strong, and we do see lots of promising upside in the second half of the year, keeping in mind, too, that X1's you know, business was built around, built to order, if you will. And what we're really focused on is trying to shorten that sort of timeline, if you will.
spk04: So we're expecting, you know, lots of potential in the second half.
spk01: Okay.
spk07: Thank you very much. Our next question is a follow-up question from the line of Troy Jensen with Lake Street Capital. Please proceed with your question.
spk02: Hey, guys. I guess I just want to go back on one question on the P50. I know you guys have capacity to make a lot of machines and get a lot of reservations, but, Rick, can we think of it as a controlled rollout here for the first half, very few machines up front and before kind of a broader adoption? Does that make sense? And then I do have a follow-up for James.
spk10: Absolutely. Look, this is a very good point. I mean, it's a complex system. It's complex. It's bigger than... I mean, it's the size of a bus with lots of ancillary equipment and components, a lot of custom parts. It's the fastest production system ever built to make added parts. So, yeah, like all scale-ups in manufacturing, you scale them up at a particular cadence, and we're not going to have a wipeout. Our goal is to do this in a thoughtful manner and... just like any other product that got scaled, whether it was the Model 3 or other products. You sold less iPhones in the first year than you did on the fifth year of introduction. So I'm very happy with the demand for the product. I'm very happy with the internal plans, but we're going to do it in a judicious way so that we get happy customers on the other side. Now, this is a product that's sold differently than our channel-based approach. It is sold through our production team. We have a go-to-market team now of 70 people at the end. 70 people are in our go-to-market team, which is fantastic. And we've now integrated the leadership of that team. So that's complete by making the right choices between the expertise of the folks that we had across the board. And I'm really excited about the progress that we're seeing there on the production. We have a basically a production sales team that, that, uh, sells systems like P50 or very high volume production applications. We've got a strategic accounts team that looks at upper scale applications and multi-year. They're not quarterly driven. They're like multi-year, uh, very large application driven. And then we have our channel, uh, which we've expanded over the past year. We went from, uh, you know, about 90 partners at the beginning of the year to well over 200. And, uh, it's a refreshed young channel that's very hungry. And, uh, We've got great leadership across the board in these groups, and we're very excited about the forecast and follow-up we're building for this year.
spk02: If I could just get a follow-up for James here. Absolutely. James, I saw a $311 million share count number in your press release. I guess I'm trying to figure, is that fully diluted, gap profitable, kind of the all-in share count number would be helpful? Absolutely.
spk04: Yep, so that is the all-in share count, Troy, as of December 31st. You know, we wouldn't expect much in the way of changes from those numbers except, you know, any sort of option exercises, you know, R&C's investing and so forth. So that's the all-in number.
spk07: If there are no further questions in the queue, I'd like to hand the call back to management for closing remarks.
spk04: Thank you.
spk10: Look, I want to thank everybody for joining the call, as well as everybody that works at VM for their continued dedication, passion, and advancing our vision of AM2.0 for mass production. This is a great mission, and it's an honor to work together with all of you. And we really look forward to speaking again on the next call. Thank you very much.
spk07: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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