Desktop Metal, Inc. Class A

Greetings and welcome to the Desktop Metal Fourth Quarter and Full Year 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 Ginsko, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good day, everyone, and thank you for joining today's call. With me are Rick Full, founder and CEO of Desktop Metal, and Jason Cole, CFO of Desktop Metal. Please note, 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 site. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is property of Desktop Metal. It cannot be reproduced or transcribed without our prior consent. Before we begin, I'll refer you to our safe harbor disclaimer on slide three 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 March 1st, 2023, 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, in addition to the company's other filings with the SEC. We assume no obligation to update or revise the forward-looking statement. 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 the reconciliation of the GAAP to non-GAAP measures. With that, it's my pleasure to turn the call over to Rick Full, founder and CEO of Desktop Metal.

Thanks, Jay, and good afternoon, everyone. Thank you for joining the call. I'll begin today with the highlights of our fourth quarter and full year 2022 financial results, as well as key accomplishments. I'll then provide a business update, strategic overview, and focus areas for 2023. I'll then hand the call to Jason to go into more details on our quarterly and annual results. We'll conclude with our 2023 financial outlook before opening up the call for Q&A. Beginning with our financial results on slide four, we finished the year strong, and I'm proud of the company's efforts to drive performance and adapt to what continues to be an unsteady macro environment. Revenue for the fourth quarter was a record for the company, $60.6 million, coming in towards the top of our revised guidance range, with a fantastic quarter of customer adoption with many new and existing customers contributing to growth, including Bayer, BMW, Carbine Motorsports, Cummins, Dixie Ironworks, Eaton, Fraunhofer, Google, Honeywell, Jacobs Institute, Matthews, and Ontario Power, just to name a few. Non-GAAP gross margins were 24.3% for the fourth quarter of 2022, a 440 basis points sequential improvement from third quarter 2022. We have a variety of gross margin improvements underway, some of which are linked to the $100 million in annualized cost reductions we expanded on a few weeks ago. These actions are a reflection of our commitment on accelerating our path to profitability and reaching adjusted EBITDA breakeven before the end of 2023. Adjusted EBITDA for the fourth quarter 2022 was negative 21.1 million, also coming in towards the top of our revised guidance range. Adjustability improved across 2022 and will markedly improve in 2023 as cost reductions impact financial results. Highlighting full-year 2022 results, on the right side of the slide, revenue was $209 million in 2022, representing growth of 86% over 2021. Non-GAAP gross margins were 22.5% in 2022, lower than our gross margins in 2021, but we expect ongoing efforts to improve our cost structure to drive gross margin expansion in 2023 and beyond. Adjusted EBITDA was negative $118.4 million for the year, in what we expect to be a low watermark for the future of the company as we combine $100 million in annualized cost savings and operating leverage to deliver significant improvements to adjusted EBITDA going forward. Shifting towards a review of what the team accomplished this past year on slide five, I'm confident when we look back at 2022, it will mark a truly foundational period for desktop metal. To start, we gained significant scale in the added manufacturing space, growing 86% year-over-year to $209 million in revenue. We've earned the reputation of being at the forefront of 3D printing innovation, and that's now transitioning into a real tangible result as the third largest added manufacturing company by revenue, but fully focused on mass production, which we believe has the largest addressable market and greatest growth potential. We also surpassed 1,100 metal additive manufacturing system installations as adoption of our differentiated AM solutions continues to expand. We completed the integration of X1 last year, creating a binder jet powerhouse and cementing our leadership in additive manufacturing for mass production. And finally, we announced a strategic partnership with Align Technologies to offer the dental industry the first seamless solution for digital restorations that we expect will be a significant growth driver for both companies. We also launched several new product releases in 2022, which we expect will be incremental growth opportunities for our business as we scale these offerings commercially in 2023 and beyond. After years of development and nearly $100 million in investment, we started shipments in the last year of our production system P50, a truly groundbreaking product that introduces performance and speed characteristics unmatched in the binder jetting market. We continue to see traction with automotive, industrial, and other major end markets. And now we have a master supply agreement with one of the largest consumer electronic companies in the world. We'll continue to scale the solution as the year progresses. We launched the S-Max Flex, a digital casting solution that leverages our single-pass jetting technology in an affordable architecture, offering a larger and more scalable build volume with improved tolerances and higher speeds. We unveiled FreeFoam, a new family of photopolymer resins that for the first time produces dimensionally accurate closed cell foam parts without tooling to reduce cost versus conventional manufactured foam parts. We also launched the Figure G15, the first commercial platform of its kind to fix standard sheet metal on demand directly from a digital design file, producing a fully formed part in less than an hour without major investment in time and money. Lastly, Desktop Health introduced the Einstein series of dental 3D printers designed for the production of end-use dental parts, as well as two industry-leading materials, Flexera and SmileGuard, maintaining a very strong momentum in the dental market. And finally, we took passions in the past year to significantly reduce our expense structure and prioritize our path to profitability. These efforts are ongoing, but we've already successfully completed $50 million in annualized cost savings. And with the recent announcement of an additional $50 million in cost reductions expected for 2023, bring the total annualized cost savings to $100 million. We're in a very strong position to achieve a just A to B debt breakeven by the year end. Just as important, the actions we took in the past year streamlined our operations and insulated our strategic priorities, creating a stronger, more resilient company. Turning to slide six, I'd like to take a step back and revisit the long-term strategy and opportunity for Desktop Metal. As I detailed on the previous slide, it was a successful year on many fronts, but amidst the dynamic backstroke, our long-term mission remains the same. to enable mass production via AM2.0 to cost-effectively compete with conventional manufacturing. Globally, there's more than $16 trillion a year in manufacturing industry spend. With estimates projecting the added manufacturing market to grow to $100 billion by the end of the decade, this still represents less than 1% penetration in overall manufacturing. We believe we're just scratching the surface for the market's potential. And as we disrupt the overall AM market with our unique mass production technologies, expect a large arc of multi-decade growth for desktop metal. Importantly, mass production is the fastest growing segment in the added manufacturing space because it unlocks benefits of lower cost production, on-shoring, and supply chain flexibility, inventory of one, and part design possibilities unavailable through traditional manufacturing, among other benefits. Desktop metal is the pure play on the AM 2.0 mass production opportunity just beginning to inflect. We're in a strong position in this space to drive outsized growth at scale by leveraging our highly differentiated mass production technologies that are unmatched in the industry. Our AM 2.0 portfolio has enabled us to gain rapid scale in the market, and we believe it will propel Desktop Metal towards our goal of double-digit share of the added manufacturing market by the end of the decade. Turning to the following slide, we've made tremendous progress since going public, ascending to become the clear leader in market share in the item manufacturing for mass production technologies, including binder jet and DLP. We've demonstrated the success of our AM 2.0 strategy by growing revenue from $16 million in 2020 to $209 million in 2022 and gaining significant scale. We're beginning to demonstrate the strength in the economics of our business model as high-margin consumables, services, and subscription revenue has grown to 24% of total revenue. We expect these razor blade revenue contributions to expand over time. creating a tailwind for margins and profitability. We also own one of industry's largest libraries of production materials, with over 250 materials across metals, polymers, ceramics, biocompatibles, sand, wood, foams, and elastomers. This portfolio is a key enabler for end-use part mass production and supports a broad range of applications across verticals, allowing us to diversify our end markets and customer base with common platforms. We offer the industry's broadest array of production print platforms focused on high-volume end-use part applications. This is an unparalleled product portfolio across speed, materials, and part size that pushes the boundaries of printing speeds and production volumes compared to legacy 3D printing competitors. The differentiation in our integrated solution has led to rapid customer adoption. Today, our installed base includes over 7,000 customers over a diverse set of end-use markets. with little or no customer concentration risk, providing us an expansive set of customers through which we can drive both consumables revenue, upsell, and cross-sell of our platforms. We're also committed to protecting the competitive differentiation around desktop metal products. We've built a robust and defensible intellectual property portfolio at over 950 issued patents and pending applications, and it's one of the largest and most valuable IP portfolios in additive manufacturing. This is a snapshot of the company we've built today. We believe these early proof points serve as validation of our ability to quickly disrupt the added market again and quickly gain scale. We're building this business with a 20-year horizon. We're just getting started, and our best days are ahead of us. Turning to the following slide, I'd like to outline Desktop Metal's four strategic pillars. We believe these unique differentiators have enabled us to quickly gain leadership and share in the added manufacturing market, and will facilitate expanding that leadership going forward, driving the next stage of our growth. First, our most important competitive advantage is our highly differentiated technology capability. We have the fastest print platforms in the market, focused on mass production, and can support a step function improvement in throughput up to 100x of legacy AM processes, delivering parts up to 120 at the cost of laser-based solutions. We're solely focused on area-wide technologies that improve in performance over time, benefiting from Moore's Law, allowing us to continually increase our competitiveness versus conventional manufacturing. This leadership in production technologies is underpinned by an extensive materials library with best-in-class properties and proprietary software and centering solutions that make our systems easy to use and adopt. Our leadership in mass production has propelled us to rapid scale and will serve as a foundation to achieve our goal of double digit share in the added manufacturing market by the end of the decade. Second, we have a deep customer engagement model, hyper-focused on helping customers solve their manufacturing problems. We've experienced and continue to believe that if you know your customers and tailor solutions to fit their needs, growth will take care of itself. To that end, We've built a leading portfolio of platforms and materials focused on mass production to serve a diverse set of applications. And we also have a robust team of materials development professionals, application engineers, and process developers to support our growing installed base of customers. It is important to emphasize this end-to-end complete customer engagement model cannot be replicated. Taking time, investment, and focus to build out. And we consider it a critical differentiator for our business. Third, innovation is in our DNA. Since inception, our culture has been about reshaping the added manufacturing industry by introducing solutions that push the performance capabilities of 3D printing speeds and throughput in order to compete with conventional manufacturing. We built a team of the smartest people in 3D printing and have the premier destination for talent. As a result, we believe we are the innovation leader in added manufacturing. Talent is a key ingredient to our success, And that's going to help us continue to push the envelope and flywheel of innovation and set the stage for our next step function of growth. In addition, our focus on innovation and engineering excellence has resulted in a robust portfolio of over 950 patents and pending applications that will defend our position in the market going forward. Finally, desktop metal has a massive long-term growth opportunity that we're just beginning to scratch the surface of. Our market is expected to grow at a compounded annual growth rate of over 20% to reach approximately $100 billion by the end of the decade. And the trends supporting broad adoption of additive manufacturing remain solidly intact. Importantly, we believe we are the leaders in the fastest-growing segment of the AM market, mass production. We remain focused on leveraging our differentiated technology for this massive opportunity in order to extend our leadership in this space and maximize our long-term growth. Turning to slide nine, I'd like to outline how we view our business in terms of two core technologies, binding jetting and photopolymer printing, both area-wide technologies that are improving performance over time, benefiting from Moore's Law, and both focused on mass production and use part applications versus prototype and tooling. We've established clear leadership positions in this large end market as a result of competitive advantages and expect these businesses to serve as a foundation for our continued scaling. First, Desktop Metal offers the world's leading portfolio of binder jetting systems, backed by the most experienced binder jet team in the industry with the largest installed base. Binder jetting is one of the fastest growing segments in production applications, in large part because as the highest throughput process in 3D printing, binder jetting unlocks mass production at higher volumes, lower cost, with more material flexibility. Binder jetting is a highly flexible technology It can be used to do castings and direct printed parts in mass production at a fraction of the cost of alternative additive solutions. It is the first additive technology being used at scale in high volume with metal products. For example, binder jetting today is the only technology being used at scale in automotive. We have many vehicle OEMs as customers, an example of which is our large deployments inside BMW, where they produce aluminum parts for hundreds of thousands of vehicles per year with better performance and lower costs than conventional manufacturing. Parts made with this process are also now flying in jet engines like the Rolls-Royce Trent engine, where the dual-stage gear pump housing is made with our binder jet systems. At the high end of automotive, if you order carbon ceramic brakes with a Lamborghini, McLaren, or Porsche, these are now made through binder jetting with our systems. We have countless of customer examples. Please refer to the appendix section of this quarter's earnings slides as well as our investor presentation for more examples. We have a strong competitive mode in the space with number one selling BinderJet products across the board with an array of end-use applications that differentiate us from our competitors. Not only do we have the largest installed base in BinderJet, we believe we have sold more BinderJet systems last year than all of our competitors combined. And with our superior product and materials portfolio, we expect to continue to grow our dominant position in this important segment. Second, photopolymer printing. We view the space in two segments, healthcare and dental, and industrial photopolymers. Led by Desktop Health, we've grown to a leadership position in the dental space, cemented by the launch of the Einstein investing class series of photopolymer printers with exceptional speeds, industry-leading accuracy, and innovative features designed for the production of end-use parts, In addition, Desktop Health owns a catalog of differentiated materials that set it apart in the market, including Class II, FDA-cleared Flexera, and SmileGuard. Furthermore, we recently announced our partnership with Align Technology that will add a new growth vector to this business. Healthcare and dental are massive markets, with over $90 billion in healthcare implants that will, over time, be patient-specific, and over $30 billion of annual current spend in restorative and used parts in the dental market. We believe these markets can reach at least 75% penetration of digital AM workflows by the end of the decade. And Desktop Health owns the leading integrated solutions to support continuous strong momentum in the space as these markets accelerate their transition to additive manufacturing. In the industrial segment, we have the leading photopolymer platforms led by the Xtreme 8K, the largest production grade DLP printer in the world for high-volume production. Our industrial print platforms have significant price performance benefits versus previous generation systems, creating similar differentiation for mass production that we experience on the binogenic side. The industrial polymer market is quite large at a $70 billion market opportunity, and we're well-positioned to grow our market share through a combination of our category-leading photopolymer printers and broad industrial polymers materials portfolio. Turning to the following slide, as I referenced in our strategic pillars, innovation continues to be the core of our business model. Through driving AM 2.0 mass production technology forward and looking for ways to disrupt the added manufacturing industry, we have unlocked three new markets that bring added manufacturing into new applications not traditionally accessible to legacy AM processes offered by our peers. Commercially, these opportunities are still early in their potential. But as a result of these efforts, we've expanded Desktop Metal's total addressable market and added incremental long-term growth drivers to the business. First, we recently introduced what we believe is one of the more exciting new solutions in the industrial 3D printing market. Our free foam technology is an expandable 3D printable foam for mass production that for the first time produces dimensionally accurate closed cell foam parts without tooling. The conventional polymer foam space is a $170 billion total addressable market with very little penetration from traditional 3D printing. We see many exciting opportunities for this unique materials family to disrupt current traditional foam applications, including automotive seating, mattresses, and furnishing products, footwear, sporting goods, and healthcare, among others. As the only company in the world with mass production solutions for printed foams, the long-term potential for this business is very exciting. We aim to make considerable progress scaling this opportunity in 2023. This is a market where we have very strong intellectual property and barriers to entry. Next, we entered the sheet metal forming market with the recently launched FIGURE G15. For the first time in the space, FIGURE offers a digital solution for standard sheet metal forming on demand that we believe will disrupt the $300 billion a year sheet metal forming spend. Using patent-pending technology, manufacturers in automotive, aerospace, and appliances in our industries can now purchase a system that gives them a competitive way to form sheet metal parts and products quickly without the high upfront costs associated with stamping dyes and presses. While early in its commercialization, Figure faces little to no competition for digital solutions in the space, offering a true greenfield opportunity. We're very excited to explore the potential for FIGURE. And finally, the global hydraulics market. The opportunity for printed hydraulics as well as manifolds, heat pumps, and fluid power systems is ideal for additive approaches because of the complex part geometries required that in many cases can only be achieved through 3D printing. We believe we're the best in the world at 3D printed hydraulics and are the first company that has DMV certifications for 3D printed hydraulic parts. We view printed hydraulics as a killer app for metal additive printing and are positioned to lead in this space as we believe a substantial portion of the $50 billion in annual spend will tip towards 3D printing over the next decade. Today, our printed hydraulic parts are already being adopted by major customers like Saudi Aramco, Total Energies, and Schlumberger. Moving to slide 11, 2023 will be a pivotal year for desktop metal. a year requiring a sharp focus on execution. We have several initiatives in place that will drive our success for 2023 and position us for the long term. To start off, organic growth will be the number one focus in 2023. Last year's growth was strong, and regardless of micro-conditions, we think there's a terrific opportunity to maintain our momentum and significantly grow the organic business at scale in 2023. We will be relentless in leveraging our differentiated mass production portfolio to drive adoption in the added manufacturing market and position the business to capitalize on the next stage of this market's secular growth opportunity. Second, as we've communicated since it started last year, we're committed to achieving adjusted EBITDA breakeven before the end of this year. We have a plan to achieve this goal regardless of micro-conditions, primarily through the $100 million in annualized cost savings as a result of these cost reduction plans as well as optimizing inventory levels and overall working capital management, we're focused on dramatically lowering our cash burn this year. Third, amidst an uncertain macro environment and some operational changes, we do not want to lose sight of what drives success in our business, the customer. As we continue combining our differentiated portfolio of integrated solutions with our deep customer engagement model to deliver for our customers, we believe growth will follow. Therefore, we're as focused as ever in growing our total customer count, as well as repeat customer count, by maximizing the ability of our customers to transform their manufacturing settings to the benefits of added manufacturing for mass production. And finally, we're focused on streamlining our operations to position the business for the long term. Many of these initiatives were outlined in our cost reduction plan. but there are many everyday actions that will drive operational efficiencies as we mature as an organization. These improvements will create a stronger, more resilient company for the long term, as well as show up in the financial efficiency of the business. With that, I'll hand over the call to our wonderful CFO, Jason Call, to take a closer look at the numbers, as well as our 2023 financial outlook. Take it away, Jason.