Desktop Metal, Inc. Class A

Greetings and welcome to Desk Top Metals second quarter 2022 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 Gentkel, Vice President, Investor Relations, please go ahead.

Hello, everyone, and thank you for joining us this afternoon to discuss Desktop Metals second quarter 2022 financial results. With me today are Rick Fulop, founder and CEO, and James Haley, CFO. 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. Before we begin, 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 Metal's views and expectations only as of today, August 8, 2022, and actual results may vary materially based on a number of risks and uncertainties. For more information about the risks that may impact Desktop Metal's business and financial results, please refer to the Risk Factors section of the Annual Report on Form 10-K and Quarterly Report on Form 10-Q, 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 our results on a non-GAAP basis. Non-GAAP 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 Volk, founder and CEO of Desktop Metal.

Thank you, Jay, and good afternoon to all of you. I appreciate everyone taking time to join our call. I'll begin today with highlights of our second quarter 2022 financials. It was a fantastic quarter for our business. Next, I will detail a few developments of note in the business and spotlight some of the recent customer wins. I will then turn the call over to James to provide further call on our financial results. I will close with our financial outlook and progress on our 2022 strategic priorities. Following our prepared remarks, we'll take questions. Beginning on slide three, I'm very proud of the work from Team DM as we achieved a record quarter. Focused execution combined with a broad and differentiated AM2.0 portfolio resulted in solid financial performance as we now carry some exciting momentum into the second half of the year. We saw another quarter of top-line strength. recording the highest quarterly revenue in the company's history. Consolidated revenue for the second quarter of 2022 was $57.7 million, representing strong year-over-year growth of over 200% and sequential growth of 32% from the first quarter of 2022. Revenue performance was driven by strength in our metal product platforms and contributions from acquisitions. Second quarter 2022 non-GAAP gross margins increased to 26.7%, an improvement of over 170 basis points year over year. We were able to expand gross margins despite a challenging macro environment, including supply chain and inflation impacts, which speaks to both the operating leverage as we grow out of our overhead costs and our efforts to improve operating cost structures. Overall, I'm pleased with this quarter's results. We continue to deliver for our customers, and that is driving excellent financial performance, including revenue growth at scale and margin expansion. Moving down to a few business highlights. Recently, we introduced a preview of a new solution called FreeFoam, a revolutionary expandable 3D printable foam for mass production. We believe this is one of the most exciting new solutions introduced in the industrial 3D printing market. It's also a unique capability for foam manufacturing, which is $120 billion market and expands Desktop Metal's total addressable market opportunity. I'll provide more color in this revolutionary product on the following slides. We continue to see momentum in blue-chip customer adoption of our AM2.0 solutions across industries, and we've included some examples of production end-use cases in the appendix of this presentation. Please check them out. Detailing a few specific customer examples, BMW is using our solutions for critical components in their M-series automotive engines, and it's in process of expanding capacity to support a larger percentage of their vehicles. Tesla suppliers are extensively using our technology to validate designs before cutting tools for their gigacasting process. General Motors prints molds for casting for key vehicle components using our solutions. And Grainger Worrell uses our printers to produce Formula One and MotoGP engine blocks. In aerospace, we have a growing business with leading companies such as Precision Cast Parts, Consolidated Precision Products, Honeywell, Lockheed Martin, Rolls-Royce, Northrop Grumman, all of which are increasingly using our AM2.0 solutions to make end-use parts in series production. Companies like Collins Aerospace are now using our technology for a variety of parts in aircraft interiors. Other major OEMs include Caterpillar, printing molds for valve bodies, cylinder heads, and critical spare parts, Mercury Marine, which uses our technology to manufacture their newest marine engines, and Emerson, which uses our printers to guarantee cross-border quality across plants around the world. Our defense business is also growing rapidly. For example, desktop metal is now a sub under a prime contract awarded by the Defense Logistics Agency, of the Department of Defense worth a potential 15 million to broaden the use of additive manufacturing across the armed services. We've also started an effort to monetize a robust IP portfolio of over 650 patents and pending applications, and we expect this to create new revenue opportunities. In general, we've also seen strong traction across all metal platforms, including production system P50. And finally, I want to provide a little more color in the strategic integration and cost optimization initiative we announced at the end of the second quarter. This initiative was a combination of planned efforts discussed on our two previous earnings calls, and we wanted to outline our plan in more detail to all stakeholders, as well as provide some quantitative targets. In 2021, following going public, we executed a deliberate and strategic plan to broaden our core AM2.0 portfolio beyond metals into key technologies and applications that we identified as having a significant upside in the rapidly growing added manufacturing market. We moved fast and were successful in our inorganic efforts, exiting 2021 with an unparalleled and diversified portfolio of Boeing production-focused solutions, spanning print technologies, advanced materials, and killer applications for AM2.0. During integration of these acquisitions, we focused initially on revenue, product, and go-to-market synergies. As we entered 2022, with a focus on bolstering our path to profitability, we identified a number of opportunities to recognize cost synergies from these deals. In combination with these post-acquisition opportunities, we took a holistic approach to our product portfolio and business operations to identify opportunities to optimize our expense structure in order to position the organization with a more streamlined and effective operational model. This comprehensive review resulted in the Strategic Integration and Cost Optimization Initiative announced in mid-June. That included a workforce reduction, focusing on functions and areas that do not jeopardize long-term growth opportunities. or our ability to service and support our growing customer base. We've also initiated a plan to consolidate our global facilities footprint to increase efficiencies and further reduce our fixed cost base. And as part of a product portfolio evaluation, we're tightening our focus on products and development programs that prioritize scale and margin expansion across high-growth applications. We expect this strategic initiative to drive $40 million of annualized run rate, non-GAAP cost savings, $20 million of which we expect to recognize in the second half of 2022. In addition, we've identified a number of further integration activities that we expect will result in at least $20 million in additional savings, resulting in an anticipated total cost savings of at least $100 million over the next 24 months. As a result of these efforts, Desktop Metal is a more streamlined business today with an improved go-forward expense structure that better position us to reach our financial commitments and support our path to profitability. Furthermore, the convertible notes offering we completed in May strengthens our cash position, reinforcing our ability to weather any uncertain macro environment and reach profitability to fund our long-term growth opportunity in the added manufacturing market. On the following slide, I'd like to highlight an exciting new material we've been working on for a while. FreeFoam is a new family of photopolymer resins that for the first time produces dimensionally accurate closed cell foam parts without tooling. This revolutionary material uses our patent-pending DuraChain photopolymer technology, which delivers industry-leading durability in material properties combined with a proprietary heat-activated foaming agent that is 3D printed. After printing, parts are run through a heating cycle to expand a specific programmable amount between two and seven times their original size. This expansion leads to several benefits. Pre-foam parts can reduce cost versus conventional manufactured foam parts by using less material. This technology also increases manufacturing throughput versus 3D printed elastomers because the parts are smaller during production, enabling more parts to be nested in each print, thus lowering costs. And free foam also enables manufacturers to save on shipping and inventory expenses by shifting expansion to regional or local point of demand. In addition, free foam enables a new design freedom for foam applications and delivers an incredible strength to weight ratio that produces light, high performance parts. The conventional polymer foams market is an over $120 billion total addressable market. And we see many opportunities for this unique material family to disrupt current traditional foam applications, including automotive seating, mattresses, furnishing products, footwear, sporting goods, and healthcare, among others. Free foam resins will initially be 3D printable exclusively on our E-Tech Extreme 8K top-down DLP system. We're actively exploring and developing free foam applications with leaders in the automotive, furnishing, and footwear markets, and expect broad commercial availability in 2023. We think the opportunity for free film is extremely exciting as it has the potential to become another long-term growth driver for our business. Turning to slide five, we continue to be excited about the consistent customer adoption across a range of end markets. We've highlighted a few of those customers from the second quarter on the left side of this page. Importantly, we continue to see successful customers expand their deployments with our solutions with new orders beyond their initial systems. And this represents a meaningful revenue driver, as well as an important barometer of the overall success of our solutions. Repeat growing customers in the second quarter include BWXT, Eaton, Ford, Gulfstream, Honeywell, Canon Metal, the Navy, Nissan, Oak Ridge National Labs, and Sodio Ramco, just to name a few. It's exciting to see leading blue chip companies adopt and expand the use of 3D printing for end-use part mass production. On the right side, I want to highlight two SME customers. The first is UK-based Walk Home Alloy. The company is leveraging our shop systems to 3D print various atomization nozzles to manufacture powders. The flexibility of 3D printing has allowed Walk Home Alloy the freedom to design nozzle parts and print on demand, which has accelerated the productivity improvements and reduced delays and downtime in the production process. And leveraging the speed of binder jetting through the shop system enables quick printing and testing of new iterations. and mass production capabilities once the parts are design locked. Second customer is Aerosport Additive, using our Extreme 8K with ETR70 and ETR90 elastomer materials to produce highly co-ord casting, hydraulic valves, and transmission components. Aerosport is using our photopolymer systems to print hundreds of parts in hours, significantly reducing lead times compared to injection molding or urethane to casting. In combination with the Xtreme 8K, the company is leveraging the superior material capabilities of our patent-pending DuraChain chemistry to produce high-quality elastomer parts. CTR 70 and 90 are the toughest printed elastomers in the market, with elongation up to 400%, allowing for high performance at volume production speeds. We're always happy to celebrate our SME customers as their success with DM Solutions demonstrates the performance and cost efficiency of our volume production capabilities versus the conventional manufacturing process that we're replacing. And with that, now I'll hand the call over to our CFO, James Haley.