Desktop Metal, Inc. Class A

Greetings and welcome to Desktop Metals third quarter 2023 earnings 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. Michael Jordan, Vice President, Finance and Treasury. Please go ahead.

Good afternoon, and thank you for joining today's call. With me today are Rick Fullop, 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 sections 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 the property of Desktop Metal. It cannot be reproduced or transcribed without prior consent. Before we begin, I'll refer you to our Safe Harbor disclaimer on slide three of the presentation. As a reminder, today's call will include forward-looking statements. These forward-looking statements reflect Desktop Metal's views and expectations only as of today, November 9, 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 factor sections on Form 10-Q in addition to the company's other filings with the SEC. We assume no obligation to update or revise the forward-looking statements. Additionally, during the presentation and 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 gap to non-gap measures. I'll now turn the call over to Rick.

Thank you, Michael. Welcome to our third quarter 2023 financial results call. I'd like to start my remarks today by acknowledging that this was a disappointing quarter for desktop metal and also for the entire additive manufacturing industry. While we're dissatisfied with our top-line revenue performance in the midst of this challenging period, I'm incredibly proud of the progress that Team DM has made in executing our $100 million of annualized cost reductions announced in June of 2022. We're actually ahead of plan with that effort, and I hope you will take note of the meaningful EBITDA progress that we've delivered as we work to ensure a strong foundation for the future. I want to be clear today. Desktop Metal continues to take aggressive steps to ensure we have sufficient capital to navigate this challenging period and there are strong positive currents running through our results today. As you know, our quarter was overshadowed to some extent by our pending merger with Stratasys, which was terminated in late September. Unfortunately, the timing of the announcement around the Stratasys vote created delays in closing several large deals with major customers. Most of these deals are now closed and will be part of Q4, which we expect to be a very strong quarter. While we believe in the merits of that specific combination, we remain highly confident in our position as a standalone business and the strong foundation we're building as we strategically cut costs and continue to intensify our focus on operational excellence. For Q3 2023, we report a total revenue of $42.8 million, which compares to $47.1 million in the prior year period. Softer revenue stems from a de-emphasis of certain less profitable non-core business lines and lower-than-expected system sales as higher interest rates and tighter capital environment delays some customer purchases of equipment. combined with several deals coming out of the third quarter and moving into the fourth quarter of the year. Our adjusted EBITDA was a loss of 20.5 million, an improvement of 27% year-over-year compared to a loss of 28.2 million in the third quarter of 2022, demonstrating the benefits of our strategic efforts despite a tighter demand environment for system sales. This outcome was a direct result of several factors, including production-side consolidations, improved gross margins as a result of federal mix of services, and consumables during the period, along with a reduction in operating expenses year over year. While the cuts we've made have been dramatic, we've also done our best to strategically balance them to protect innovation and growth, an effort that requires constant vigilance. Since we became public, we've greatly expanded our portfolio and diversification. We've subsequently worked to integrate our business units, enhance efficiency, and remove cost across the company. Our path forward is clear. to focus on high-growth product categories in our portfolio to drive incremental top line while continuing to pursue efficiency and profitability. To that end, there are several aspects of our business that will enable success on these major important strategic objectives, including, first, as additive manufacturing continues to transition from prototyping to mass production applications, it's projected to grow to a $100 billion industry by the end of the decade. Second, Desktop metal is uniquely positioned to benefit from this expanding market as it holds the leading proprietary technology focused on mass production solutions. We hold the leading market share position in binder jetting, which customers like BMW are using for mass production of critical components, and a leading position in healthcare applications with our DLP technology across a wide range of materials and end users. Broadly speaking, our expansive and growing library of materials across the categories of metals, polymers, ceramics, and biocompatible materials are enabling desktop metal customers to create value through solutions which address their highest opportunity challenges. And we'll walk through some of those examples today. Third, we're poised to benefit and are already beginning to see the results of an expanded global installed base that is using added manufacturing equipment for real production. Utilization of our products at our customers is increasing as evidenced by the growth of recurring revenue streams despite a challenging market. Our recurring revenue has grown by 34%, from $37 million in the first three quarters of 2022 to $49 million in the first three quarters of 2023. And lastly, we're well underway to right-sizing our cost structure and improving our operational efficiency. We're ahead of plan on executing this $100 million annualized cost reductions announced in 2022, and we continue to identify additional opportunities to refine our portfolio and operations to further enhance our operating leverage. driving towards profitability on an adjusted EBITDA basis in the fourth quarter of 2023. Our goal is to be cash flow positive in 2024 on the cash that we have. We have lowered our operating expenses for six consecutive quarters, a key driver on our path to adjusted EBITDA profitability. Taken together, in the short term, we're laser focused on driving to profitability on the cash that we have, which will place desktop metal on a strong footing to capitalize on this secular opportunity as the market returns to growth. Turning now to our recent business highlights. The third quarter saw continued expansion of major super fleet customers, including Honeywell and Baker Hughes, and major companies like Northrop that have now grown into the global leaders in 3D printed optical components using our machines. Companies like Hamptown now operate one of the largest superfleets of binder jet systems for printed castings in North America, as well as pattern metallurgy superfleet customers like DSB and Freeform, and major automotive customers like BMW, which are now the largest superfleet operator of exterior systems. By the end of the year, they'll have six operational exterior binder jet systems that can continuously print 12 build boxes with a size of 2.2 meters each to mass-produce parts for their six-cylinder engines. We have some great videos from DSP and BBMW that highlight these growing deployments, and I encourage you to watch them. Our sales pipeline in BinderJet continues to grow with a strong pace, which gives us confidence in our growth opportunity over the next year. On the healthcare front, we received European clearance for the market-leading Flexera Smile Ultra Plus materials, which greatly expand our market opportunity for this product line, and we've had a successful launch of our new 3D bioplutter printable technology for biofabrication of grafts and other medical devices. For now, the 3D printing industry isn't doing one of the toughest periods I've seen, but I'm confident we'll see a return to growth because our sales funnel continues to build, so this lengthening of the cycle should have a counter-cyclical effect as customers plan for Q4 and the rest of the upcoming year. I believe desktop metal stands out in a positive way from some of our peers during this uncertain time. For starters, we were extremely proactive in cutting costs when we saw challenges on the horizon. We're also led by a team of seasoned 3D printing leaders brought together from several acquired companies that bring stability and experience to our leadership team. Finally, we're a team of true additive manufacturing believers and we have dedication in driving this industry forward. In conclusion, we finally have clear line of sight to profitability and Desktop Metal is confident in a promising future with clear focus on high growth product categories and operational efficiency. We're well prepared to benefit as the industry returns to growth showcased by a proprietary technology, a diverse materials library, high-speed production solutions, and a growing global installed base. Despite softer revenue in the third quarter, our recurring revenue streams continue to perform very well, contributing to positive shift in adjusted EBITDA, a path towards reaching breakeven in the fourth quarter of 2023. And this sets Desktop Metal on a solid foundation to capitalize on the long-term trend of ad-scale 3D printing in manufacturing. And with that, I'll turn it over to our CFO, Jason Cole. Jason?