Desktop Metal Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 6 speakers on the call.

Operator

And welcome to the Desktop Metals Second Quarter 2023 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. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr.

Operator

Jay Gentzkow, Vice President, Investor Relations. Please go ahead. Good afternoon and thank you for joining today's call.

Speaker 1

With me today are Rick Fulop, 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 Presentations 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 the property of Desktop Metal.

Speaker 1

It cannot be reproduced or transcribed without our prior consent. Before we begin, I'll refer you to our Safe Harbor disclaimer on Slide 3 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, August 3, 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 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.

Speaker 1

Additionally, during this presentation and the following Q and A session, we may refer to our results on a non GAAP basis. Non GAAP measures Our financial results release I'll now turn the call over to Rick.

Speaker 2

Thank you, Jay. Welcome to our Q2 2023 financial results call. It was a really solid quarter of execution for Desktop Metal amidst a very active market, including our announcement to combine with Stratasys to form the largest company in the additive manufacturing business. On today's agenda, I'll begin with highlights of our Q2 financials. I'll detail recent developments as well as highlight specific activity We're excited about in binder jetting.

Speaker 2

There have also been a number of things said about our company in our technologies that we believe are incorrect and misleading, And we'd like to set that record straight. I will then wrap it up with some thoughts on the significance of our future combination with Stratasys and the benefits and opportunities ahead. And then Jason will provide more color on our financial results and outlook before we conclude and open it up for Q and A. I'll start at the top of Slide 4. It was a very good quarter as we combine solid top line performance With continued cost reduction execution to drive meaningful and expected improvements from Q1 numbers, we've been focused on balancing revenue growth with improving margins.

Speaker 2

And I'm proud of what the team has accomplished operationally and I'm very optimistic about the balance of 2023. Revenue for the Q2 of 2023 was 53 point There was a continuation of that softness into the start of the Q2. However, order momentum really began to pick up and we finished the quarter with strength. While there's still some element of caution in the environment, we're very encouraged by the recent customer activity that led to our 2nd quarter results. This momentum gives us confidence in the early signs of our recovery and also validates feedback we've been receiving from customers We would see an uptick in orders as we progress through 2023.

Speaker 2

In combination with this improved customer demand profile In a variety of near term growth opportunities, we feel very good about the second half of twenty twenty three and we're reaffirming our 2023 revenue guidance. Meanwhile, the DM team has been laser focused on something we have full control over, reducing our cost structure. 2nd quarter non GAAP gross margins grew to 31%, expanding 1300 basis points sequentially from the Q1 of 2023 and 4 35 basis points year over year from Q2 2022. From a gross margin standpoint, This was a record for 2nd quarters, in large part due to our efforts in reducing the fixed cost base in our COGS. And importantly, We just completed several actions under the second tranche of our $50,000,000 cost reduction plan towards the end of Q2.

Speaker 2

So those savings won't be fully reflected until we report Q3. As a result, we expect continued gross margin expansion through the balance of the year As we combine the benefits of this additional cost savings with expected higher revenue in the second half, we're very proud of our efforts to get gross margins back on track. We've also driven significant improvements in our expense structure in the past 6 quarters, which has resulted in the best quarter of adjusted EBITDA since going public. Q22223 adjusted EBITDA was negative $15,000,000 an improvement of $9,400,000 sequentially from Q1 2023 in a $12,500,000 improvement year over year. Our adjusted EBITDA and operating cash flow losses are decreasing rapidly and we expect to drive continued significant improvement into the back half of twenty twenty three.

Speaker 2

EBITDA is trending to our internal plans And we remain committed to our 2023 adjusted EBITDA guidance range and achieving adjusted EBITDA profitability by the end of the year. We expect our cash burn to continue to significantly decline in line with our pursuit to adjusted EBITDA breakeven. Moving on to recent business highlights. We had excellent activity in Q2 in binder jetting and metals, which was a key contributor to our solid financial results. We continue to make meaningful advances in our production system platform, including continued commercial progress in consumer electronics.

Speaker 2

And I'm excited to welcome Ryerson, One of the largest global metal suppliers in medical, aerospace and defense to our customer base for production system P50. On the healthcare side, Desktop Health's platform of leading dental solutions continues to capture market share. For the first time, we're making our category leading Flexera materials available to other platforms. We recently signed a commercial supply agreement with our friends at Carbon3d, A company that is very successful at DLP Printing to offer Flexera materials to their large dental customers installed base. This is a testament to Flexera's differentiated material properties and we expect additional partnerships and licensing opportunities as we continue to find ways to monetize our portfolio of close to 1,000 patents.

Speaker 2

Our partnership with Align Technologies This concludes to be another exciting opportunity for our business and Desktop Health also recently launched a new generation bio plotter system with Printroll, The world's most advanced printer for biofabrication. Printroll is an innovative rotating build platform that can produce First of its kind intelligent printed tubular tissue. Printroll is superior to existing manufacturing process Because you can make tissue engineering parts with multiple materials combining polymers like PEEK, resorbable polymers, Combined with living cells, hydrogels and other biomaterials in a single part, this revolutionary capability can be used to manufacture new kinds of stents or graphs for the body's vascular, digestive, respiratory and reproductive organs. Bioplotter is a premier product in the field of bioprinting. Desktop Health's 3 d Bioplotter is the world's most cited and researched bioprinter in peer reviewed scientific and medical journals With more than 2,490 citations in over 600 peer reviewed research papers directly produced with the system.

Speaker 2

While there are competitors that claim leadership in the marketing materials, we believe our Bioplotter is years ahead of competing products. Case in point, the FDA recently granted approval to our customer, Chicago based Dimension Inks, for its CmFlex Hyper Elastic 3 d Printed BAW. This is the first time 3 d printed biofabrication products have been cleared by the FDA. It's exciting The first company with such clearance manufactured products on our 3 d bioplotter. Customers are choosing our desktop health bifurbrication products because we're clearly differentiated and have superior technology.

Speaker 2

This is yet another area where we have At the end of this presentation, we'll include supplementary slides that display our capabilities in these products. Turning to Slide 5. As we've spoken about in the past, We established clear leadership in 2 core print platforms that serve large TAMs as a result of their unique mass production use cases. One of them is finer jetting and the other one is photopolymer printing. As a reminder, unlike competitors, our technologies leverage area wide processes The benefit over time through Moore's Law, giving us long term compounding advantages.

Speaker 2

Desktop Metal has carved out a very strong competitive mode in binder jet Competitors and we've leveraged this leadership to quickly grow our installed base to the largest in the binder jet industry. We've also grown to a leadership position in dental and healthcare led by Desktop Health. We've combined best in class photopolymer printers designed for the production of end use parts with a leading catalog of differentiated materials that sets us apart in the market. These businesses will serve as a foundation for our growth. Turning to the following slide.

Speaker 2

We've continued to innovate and unlock 3 new markets, printing of foams, sheet metal forming and printed hydraulics. These unique technologies bring additive manufacturing into new applications not traditionally accessible to legacy AM processes. Shifting back to BinderJet on Slide 7. Desktop metal printers are the 1st and only metal printing technology currently used at scale in automotive. BinderJet is now being used at scale by OEMs like BMW, where we now have parts in almost every one of their new vehicles.

Speaker 2

We're part of a multi year bake off at BMW comparing all binder jet solutions and we're happy to report that we're the company that won that effort, which resulted in significant follow on orders for their new generation large format exterior binder jet systems in their Landshut plant. These new systems are the fastest binder jet printers ever built with speeds exceeding 350,000 cubic centimeters an hour. And we have many of them installed and in production of BMW today. More will be delivered by the end of the year and we believe desktop metal has more end use parts made of metal in cars today than any other additive manufacturer. In addition to printed sintered parts or printed castings, In the past, I've said you can have several 100 kilograms of additively manufactured parts in a car and we now have some customers that are starting to do this.

Speaker 2

Let me explain. Today's cars are manufactured with a process called body in white. Since the Henry Ford days, most automobiles are made out of Our binder jetting technology is a key enabler Over new way to manufacture cars called Gigacasting, which is led by Tesla. Gigacastings are the consolidation of hundreds of parts combined into a single giant part assembly. This allows OEMs to dramatically reduce cost, assembly time, CapEx and weight.

Speaker 2

Gigacasting also offers potential benefits for logistics and emissions reduction, increasing flexibility in the engineering of the vehicle platform and lowering the CO2 footprint. In this process, bindergeneck systems are used extensively in the front end to enable high complexity geometries with very rapid iteration cycles to improve the economics of vehicle manufacturing. We now have several customers Using our printers, which supply Tesla's vehicles built with gigacasting, as well as other OEMs such as Toyota, Volvo, Mercedes Benz and others who are fast following to launch vehicle platforms to leverage this new process. The use of binder jetting is rapidly increasing as future gigacasting programs look to leverage even higher geometric complexity parts It could mix die casting with internal cores printed with binder jet. Turn to the following Slide 9.

Speaker 2

This is an image of a Tesla employee observing a Giga casting mold It was printed with our binder jet systems by our customer Granger and Worrall. Note that the image on the back of the gentleman's t shirt People don't usually make T shirts for things that aren't important. Again, this process allows Tesla to assemble a vehicle in 1 third of the time versus some of their competitors by eliminating thousands of wells, Hundreds of sheet metal parts and hundreds of tools. Aside from the significant CapEx savings for vehicle OEMs, Another major benefit of binder jetting in this new way to make cars is that during the design cycle, changes to the vehicle can be iterated in as little as one day Turning to the following slide, I'm highlighting some of the strategic growth markets for binder jet that are now in production and starting to scale. We just talked about enabling gigacasting for automotive, Highlighted on the left side of the slide, outside the pioneering work from Tesla, other companies in marine and aerospace markets like Mercury Marine, Airbus, Eaton, Rolls Royce are successfully consolidating assemblies with larger binder jet printed castings to change production economics of their products.

Speaker 2

And on the right side of the slide, here's an example of a multibillion dollar market that has not yet been able to embrace additive manufacturing

Speaker 3

because of

Speaker 2

the limitations of previous laser printing technologies. Through binder jetting, Desktop Metal is able to print silicon carbide at production scale. This is an enabling technology for power electronics for electric vehicles. And we have growing customer relationships with a number of companies, including DENSO and companies like CHANQ, Coherent and Northrop Grumman are adopting this technology to make And like I mentioned on our Q1 call, Another application of our binder jet printers in production are 3 d printing of TRISO high assay low enriched uranium nuclear fuel that couldn't be made any other way. This is a key enabler for 4th generation MMR and SMR nuclear reactors.

Speaker 2

And just last Wednesday, DARPA and Lockheed Martin held a press conference with our customer BWX Technologies to showcase the first of its kind TRISO nuclear thermal propulsion Powered rocket that will be demonstrated by 2027. We're incredibly excited to be in production and fully qualified in these high value applications in semiconductor induced parts The opportunities in binder jet grow with each passing month and Desktop Metal is better positioned than any company in the 3 d As part of our pending merger with Stratasys, a lot of things have been said recently In the public forum about desktop metal and binder jetting that are inaccurate or misleading. The facts are Binder jetting is the fastest process for 3 d printing parts. Binder jetting can make fully dense metal parts. It has more material flexibility than welding processes.

Speaker 2

It can make parts in many materials that will never be available to laser. As a result of binder jetting speed and throughput advantages, it delivers the lowest cost parts and is quickly gaining share in the additive manufacturing market because it enables mass production capabilities in the new high volume use case that you cannot accomplish with other processes. At the end of the day, market share is the best yardstick for measuring success and Desktop Metal has clear leadership demonstrated by revenue share in the binder jet space and in the metal 3 d printing space overall. Shifting the discussion to progress of our cost reduction efforts on Slide 12, We're 100% focused on achieving adjusted EBITDA profitability in 2023. We outlined this call in early 2022 as a top priority for our company.

Speaker 2

And 6 quarters later, you can see that we're executing this plan. Importantly, we've been driving cost reduction actions without sacrificing the superior solutions We provide to our customers in ensuring their success. We're on track to achieve this $100,000,000 in annualized cost savings by the end of the year. In the quarter, we completed 6 facility closures on time and we continue to drive cost synergies from business integrations. Actions reflected in the second $50,000,000 tranche were weighted more towards fixed cost base and COGS, and we saw that in Q2 with significant improvement in gross margins both sequentially and year over year.

Speaker 2

Also, Q3 2023 will be the 1st full quarter realizing the majority of the second So we expect continued improvements in the back half of the year and into 2024. Weak Cost of goods sold absorption had been a drag in our model in the past, impacting our gross margins. We've made durable improvements to address our fixed cost base, and you should expect to see less dramatic variability in gross margins going forward. Finally, the result of this cost reduction actions Supported another quarter of sequential improvement in adjusted EBITDA and operating cash flow. This was the best quarter for adjusted EBITDA since going public And we expect this trend to continue into the back half of this year.

Speaker 2

We're not to our full goal yet, but adjusted EBITDA profitability And then eventually positive cash flow is in sight and I'm very proud of the team's effort to uphold to our commitment. Now please turn to the next slide. I'd like to transition to discuss our pending merger with Stratasys and our excitement about the deal. Through this combination, we're establishing a powerhouse in additive manufacturing. This is not a deal we had to do, but we believe that partnering with Stratasys to create the 1st AM company to achieve comprehensive scale across the entire manufacturing lifecycle From designing and prototyping to full scale mass production is a special opportunity for our combined companies.

Speaker 2

Together, we have incredible potential by combining Desktop Metal's complementary portfolio and track record of innovation and growth with Stratasys' extensive market reach and operational excellence to serve the evolving needs of our customers. The combination We'll also help us drive long term profitable growth, creating an over $1,100,000,000 revenue platform with sufficient scale and profitability to lead the AM industry. In over 50% of our combined revenue, we're from the fastest growing segment in additive manufacturing, As production. Together, we will have a diversified and comprehensive portfolio with virtually no product overlap. We're bringing together complementary products and technologies that cover a wide range of industry verticals and use cases.

Speaker 2

Stratasys brings a leading position in polymer 3 d printing and exceptional strength in aerospace, automotive, consumer products and healthcare verticals. And Desktop Metal brings its leadership in mass production of metals, sand, ceramic and restorative dental printing solutions. Our combined materials library is highly differentiated and software capabilities complementary across print platforms. The combined R and D teams of over 800 scientists and engineers represent the strongest and smartest people in 3 d printing. Combining while also benefiting from TAM expansion.

Speaker 2

Combining with Stratasys will also allow us to leverage 1 of the largest global Go to market networks and 3 d printing. This transaction also creates the opportunity to realize approximately $50,000,000 in annual run rate cost synergies and approximately $50,000,000 in annual run rate revenue synergies across the business by 2025. The combined company will have a very strong financial profile and an expectation to deliver over $300,000,000 of adjusted EBITDA by 2026 And approximately 20% pro form a adjusted EBITDA margin. And this deal accelerates that combined Company's financial flexibility through a well capitalized balance sheet to drive future growth. We're in complete support of this merger, But it's not an acquisition as some have claimed.

Speaker 2

Desktop Metal shareholders are receiving shares representing approximately 41% of the combined company and representation by designating nearly half the Board. We would not do this deal at less favorable terms and we believe our combination with Stratasys is a superior combination and will position us to help shape this additive manufacturing industry for years to come. However, We're a fiduciary to our shareholders. If ultimately they decide this is not the best path for our company, we have not lost any confidence in our long term outlook. Until this deal closes, we're 100% focused on our outstanding standalone prospects that include the growth and innovation that Stratasys is so attractive to.

Speaker 2

We're making steady improvements in our cost structure and are well capitalized with a plan to get to profitability on our existing cash. And most importantly, with an unmatched portfolio of mass production technologies, it is almost impossible to recreate and we're as focused as ever to leveraging that portfolio to make our customers successful. With that, let me turn the call over to our CFO, Jason Call. Jason?

Speaker 4

Thanks, Rick. I'll begin on Slide 15 with highlights of our financial performance for the Q2 of 2023. A reminder that we will be referring to several financial metrics on a non GAAP basis and a reconciliation to GAAP data is included in the filed appendix. In 2Q, we exited the quarter with strong customer demand signals as well as continued momentum on our cost reduction initiatives. Both of these gives us confidence for what's ahead, and I'm excited to walk you through the 2Q 'twenty three results now.

Speaker 4

Consolidated revenue for the Q2 of 2023 was $53,300,000 up 29% sequentially from $41,300,000 in the Q1 of 2020 Importantly, demand for DM products and services accelerated across the quarter, validating the customer signals we consistently hear. Leading revenue drivers in 2Q were metal binder jetting solutions and growth in consumables, services and subscription. Revenue was down year over year, partly due to efforts to deemphasize product lines with lower quality revenue prospects and or lower gross margins. You'll recall, we entered the year with headwinds that carried into the start of 2Q. As we conveyed in the prior quarter, In the face of inconsistent and sometimes unclear demand trends, we stay close to our customers, while focusing and relying on their feedback.

Speaker 4

Ensuring customer success is a key pillar in our strategy. For multiple quarters, our customers have validated the DM products and services Create solutions to real business challenges with potential to drive meaningful and rapid return on investment. Throughout the past year plus, customers across our businesses have validated that while some decisions may be delayed, demand for DM solutions are real, It would pick up as we progress through 2023. We saw this recurring customer sentiment materialize in the close of Q2. We finished the quarter strongly following a slow start, which gives us confidence in the revenue trends for the back half of the year.

Speaker 4

Non GAAP gross margins expanded to 31% for the Q2 of 2023, an improvement of 1300 basis points sequentially over Q1 of 2023 and 4 35 basis points versus the Q2 of 2022. Non GAAP gross margin expansion was driven primarily by continued progress on our multi quarter cost reduction efforts, helping us gain leverage year over year and versus the Q1 of 2023. We have fielded a number of questions on whether we could get this business to above 30% non GAAP gross margins within 2023. And we're pleased to say we were able to hold that commitment ahead of schedule, before the full effect of cost of sales reductions have been realized for a full quarter's impact and before realizing the gross margin tailwinds that will follow with more meaningful top line growth. In 2Q, we completed the closure of 6 production sites, leaving 3Q 'twenty three to be the 1st full quarter where these savings will be realized for a full quarter.

Speaker 4

From a gross margin standpoint, this gives us added confidence about the second half of twenty twenty three and beyond. Turning to the following slide, non GAAP operating expenses were $34,700,000 This represents a reduction of non GAAP operating expenses by a quarterly total of $17,400,000 Since the start of our cost reduction initiatives in Q1 of 2022, including year over year reductions of $11,400,000 from the Q2 of 'twenty 2. Non GAAP operating expenses showed another quarter of improvements despite making some one time investments in sales and marketing opportunities in the quarter, where we opted to make measured investments to secure potentially meaningful returns. Additionally, as we detailed last quarter, Cost reductions in 2Q 'twenty three were weighted more towards structural cost of sales as compared to prior quarter cost reductions where the mix was weighted more heavily towards operating expenses. Importantly, we have more opportunities to improve our expense profile remaining in the year and expect to see continued leverage in the second half.

Speaker 4

Non GAAP operating expenses as a percentage of revenue was 65% in Q2 of 2023, Was one of the lowest quarters since going public and we enter Q3 feeling confident the trends of continued leverage will continue. We are nowhere near the top of the growth curve. So as we combine our more disciplined and efficient approach to spending with top line growth, Our pathway to profitability and positive cash flows becomes clear. Our cost reduction efforts are insulating our business And we believe the graph on the right of this slide will continue to trend favorably over the next year plus. Turning to the next slide, adjusted EBITDA for the Q2 of 2023 was negative $15,000,000 the best quarter for EBITDA since going public.

Speaker 4

Adjusted EBITDA improved by $12,500,000 year over year compared to Q2 2022 $26,500,000 since we initiated our cost reduction plans in the We're proud of the efforts to date, but the bigger takeaway is we are not done. We want to be adjusted EBITDA profitable by the end of the year, We've made that commitment to our stakeholders regardless of the macro conditions and the tailwinds entering the back half of this year of seasonally higher revenue combined with steadily declining spend, support what we've been messaging. With regard to adjusted EBITDA, our brightest days are ahead of us. We remain well funded from a cash position with $127,600,000 in cash, cash equivalents and short term investments To end the Q2 of 2023 compared to $149,800,000 to close Q1 2023 For net cash burn of approximately $22,000,000 in Q2, excluding 2Q 'twenty two when we last raised cash, this is our lowest cash burn since going public. We have reduced our operating cash flow burn from $56,300,000 in the Q1 of 'twenty two to $33,100,000 in the Q2 of 'twenty three, again showing the cash impact for cost reduction efforts completed to date.

Speaker 4

The operating cash number excludes proceeds from the sale of property that favorably impacted cash. Cash is tracking right to our internal forecast and with more significant improvement to come before year end, We are in a solid position from a cash standpoint. Finally, we ended the quarter with $100,300,000 in inventory. Because of some of the strength we've seen from customers, we've made investments in the quarter due to forecasted demand that we want to be prepared for in the second half of the year. However, Even with these investments, we did expect inventory levels to be lower in Q2.

Speaker 4

Completing the closure of 6 production facilities in the quarter impacted inventory levels. We have some lingering stubborn pockets of inventory we're continuing to work through. So there's more work to be done here and we're committed to monetizing inventory in the back half of the year, which will improve working capital and cash flows in 2023 and into 2024. Finally, moving to our 2023 financial outlook on Slide 19. While there is still some element of caution in the environment, We are very encouraged by customer activity to end the Q2.

Speaker 4

With this improved customer demand profile and the near term growth opportunities We see across our portfolio of solutions, we are confident about the second half of the year. As a result, we are reaffirming our revenue expectations of $210,000,000 to $260,000,000 for 2023. In addition, we're reaffirming our adjusted EBITDA expectations of negative $50,000,000 to negative $25,000,000 for the year, as well as achieving adjusted EBITDA profitability by the end of the year. We expect adjusted EBITDA losses rapidly in the second half of the year as we combine positive customer demand signals in what is a seasonally favorable revenue period with continued and ongoing expense leverage. As we sit today, we understand we're trending toward the lower end of the range, but internally we feel very positive about our plan to hit the midpoint.

Speaker 4

Our progress on cost reductions combined with our opportunity pipeline support this thesis. We're pleased to reaffirm guidance and look forward to showcasing our results over the next two quarters. And with that, I will turn it back to Rick for his closing remarks.

Speaker 2

Thank you, Jason. I just want to take a second to thank Jason and the G and A team for their successful efforts to drive operational improvements. Jason, you've had a significant positive impact on the company in your short time here and I'm very grateful for all your efforts and experience. To wrap up, some key takeaways. First, we delivered a solid revenue quarter with a customer activity that was very strong, especially at the end of the quarter.

Speaker 2

The customer demand profile is really shaping up as we enter a seasonally strong back half of 2023. 2nd, we continue to execute on our cost reduction efforts to achieve adjusted EBITDA profitability this year. We have a lot of levers to get there and confidence in our ability to get this company profitable on the cash we have on balance sheet. And finally, we're relentless in delivering for our customers. We continue to be energized by the benefits of mass production technologies that we're bringing to our customers and transforming their manufacturing environment.

Speaker 2

The long term growth opportunity for mass production is still massive and largely unchanged from this $100,000,000,000 addressable market We've consistently pointed out since going public. What has changed is the scale we've built at that time and the amount we've accomplished as a company. Desktop Metal has established a portfolio of mass production solutions unmatched in the industry. We're a category leader in many area wide technologies that benefit from Moore's Law like We've built an installed base to over 7,000 customers and we're in the early innings engagements with multiple Fortune 500 companies on a number of projects that individually could significantly approach or exceed the size of our company today. We have the largest library of production materials.

Speaker 2

We have the most experienced and knowledgeable production team in the additive manufacturing space. And now we're adding business discipline and an improving financial profile that best positions us to capture this opportunity. Mass production is the future of this industry and there is no company better positioned to capitalize on the next phase of the additive manufacturing growth curve. With that, let's take some questions. Operator?

Operator

And our first question comes from Greg Palm from Craig Hallum. Please go ahead, Greg.

Speaker 5

Thanks. Good afternoon, everybody. Just wanted to Maybe start off with a little bit more commentary on kind of the near term visibility, some like the quarter ended on a high note and With some positive outlook commentary, just kind of curious as you think about the and I think Jason you made the comment that You think you can still get to the midpoint, which would represent a pretty big ramp from here, but what gives you that Confidence and I guess just more specifically any end markets, geographic areas, any sort of verticals that You're seeing the most strength and that gives you some of that confidence.

Speaker 4

Yes. Hey, Greg, thanks for the question. This is Jason. I think we have kind of the first half of the year underperformed across From our original expectations are it kind of to be fair, it was in line with what we sort of feared and that's why we gave the really wide guidance range. We see strength across of our businesses, I think binder jetting in particular on the digital casting side feels pretty strong as is the metal.

Speaker 4

But we're also, as I think We've spoken with you about a lot. We're really excited about the growth curve in our dental space in the photopolymer healthcare side. So, it's kind of across an array of opportunities. We're still kind of operating very cautiously, but the signals are there and the close of 2Q gives us some confidence that there's some buoy demand.

Speaker 5

Okay, understood. And the P50, so congrats on the another customer win there, but Can you give us some sense in is that a system, is that for delivery this year? And then just a little bit more commentary on Consumer Electronics, I think there was a bullet in the press release about continued progress, but any more commentary there would be helpful.

Speaker 3

Greg, absolutely. Yes. So that delivery

Speaker 2

is for Ryerson is

Speaker 3

for this year. And then in the consumer electronics side, our customers We'll probably do marketing once those products are shipping to consumers. Other than that, it's hard to comment in more detail.

Speaker 5

Okay. Fair enough. On the profitability side?

Speaker 3

It's going as well as it could be going.

Speaker 5

Okay. Understood. On the profitability side of things, Looking at year to date, so you're already at, I don't know, close to negative $40,000,000 in EBITDA and The range is negative 25% to negative 50%. So it implies a pretty significant improvement here in the back half. Can you tell us how much from Q2 to Q3, what the incremental cost takeouts are?

Speaker 5

And again, kind of going back to the commentary about still feeling confident that you can get to the midpoint, that would suggest Obviously, profitability in the second half, I'm not sure if that comment was meant to be on more of the revenue side or the EBITDA side, but I just wanted Clarify that as well.

Speaker 4

Yes. I think it's a good question and thanks for the opportunity to explain. We don't give quarterly guidance. I want to stop short of saying things here that kind of give you the 3Q or 4Q quarterly guide. But I can direct you to a couple of data points that I think can help you map it out.

Speaker 4

2Q adjusted EBITDA loss was $15,000,000 and it's trending down rapidly. Additionally, in 2Q, we had 6 production site closures, several of which were right at the end of the quarter. So I think the tailwinds we get from things that were executed in 2Q, but that show up in a full quarter of 3Q to kind of give you a sense that even if 3Q were seasonally weak, We expect continued progress on adjusted EBITDA. And then in 4Q, we said we were aiming to be breakeven or better. If it's breakeven, obviously, there's no addition But with a little bit of upside, we can actually neutralize some of that.

Speaker 4

So I think it I'm not going to sit here and claim that we're going to be breakeven or better in both 3Q and 4Q, 3Q is going to be better than 2Q and 4Q is what we said it's going to be all along.

Speaker 5

Okay. That makes sense. I will leave it there. Thanks.

Speaker 3

Thank you, Greg. Thanks, Greg.

Operator

Our next question comes from William Kutch, an investor. Please go ahead, William.

Speaker 5

Hi. I was just wondering if it so happened that the Stratus merger was terminated by Stratus, How much is the termination fee that Stratus has to pay to Desktop Metal?

Speaker 3

It's in excess of $32,000,000

Speaker 5

Okay. All right. Thank you.

Operator

The question is from Harold Weber from Aegis Capital. Please go ahead, Harold.

Speaker 4

Hi, guys. Could you give me a little update on what's happening with the forest line of stuff?

Speaker 3

Yes. We have customers that Continue to use the product. You can buy a shop system to print for us part if you're interested

Speaker 2

and it's a great product.

Speaker 4

What type of uptake are you seeing in the industry?

Speaker 3

But I would say we don't break out our demand by product. We have A whole variety of products. I would say the forest product, we are still working on adapting that to the larger format And I think that which are better suited for higher throughput production. And we think that As we continue that development, we're going to be able to keep growing that particular product line. We've sold 1,000,000 of dollars For the forest related printers, so we're happy with the progress to date, but I think over time it can become a much bigger

Operator

And we have a follow-up question from Greg Palm from Craig Hallum. Please go ahead, Greg.

Speaker 5

Thanks. I thought I'd ask a couple of follow ups, since it doesn't seem like there's many more. And just in terms of kind of debunking some of the thesis out there, I was hoping maybe you could just But can you give us some sense in terms of how many of these you've placed to date either beta or commercially, What we should expect in terms of revenue contribution this year, I think that'd be helpful for all of us. Yes,

Speaker 3

I mean several systems and I think we are going to continue to grow our Our installed base, these are multimillion dollar machines. So they're expensive, but we have Very good progress. The throughput that they produce parts, which is dramatically higher than All the products in the market, the real target market for this type of product is very high volume printing of parts for automotive, consumer Electronics or for larger companies like Ryerson that can support the people that those systems Can deliver.

Speaker 5

Got it. Okay.

Speaker 3

We continue to develop a market for those products in our Very bullish with the promise for that technology.

Speaker 5

And then Jason, just one more follow-up maybe on the cash flow statement. Do you have sort of a goal when you flip to cash flow positive and I guess it's 2 part question. When you achieve EBITDA breakeven or profitability, what's The lag in cash flow to achieving profitability as well. And do you have a sort of a target in mind how much Cash on the balance sheet when you end up flipping the cash flow positive?

Speaker 4

Yes, that's a great question. Thanks for that. I think you're absolutely right. The cash flow does trail the adjusted EBITDA by a little bit. And I think you can Pretty easy correlation between the 2 if you just kind of track it over time.

Speaker 4

So if we're going to be breakeven on an adjusted EBITDA basis, I guess the way I'd say it is I expect the cash burn to be under $10,000,000 a quarter. Our kind of hope here is that we can kind of turn that corner on cash flow on Around $100,000,000 of cash and we think we can close the year above that is kind of our internal thinking. So, it's coming down quickly And you're right that it will lag adjusted EBITDA, but not by much. So I think it's on the heels of that.

Speaker 3

Okay, great. All right, thanks.

Speaker 4

Thank you.

Operator

And at this time, there are no further questions. I would like to turn the call back over to Rick for closing remarks.

Speaker 3

Wonderful. Thank you very much for joining us today and also thank you to the entire Desktop Metal team for all your hard work to build a great quarter And for all the investors' interest in our company, as always, if you have any follow-up questions, please don't hesitate to contact us.

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Earnings Conference Call
Desktop Metal Q2 2023
00:00 / 00:00