Business Overview: A Storied History of Groundbreaking Innovation
Desktop Metal, Inc. (NYSE: DM) is a global leader in Additive Manufacturing 2.0 technologies, revolutionizing the way products are designed, manufactured, and brought to market. Founded in 2015, the company has rapidly emerged as a dominant force in the rapidly evolving 3D printing industry, driven by its innovative solutions and strategic acquisitions.
Desktop Metal’s journey began in 2015 in Burlington, Massachusetts, with the goal of accelerating the transformation of manufacturing through 3D printing solutions for engineers, designers, and manufacturers. From its inception, the company invested significant resources in research and development to build an extensive portfolio of proprietary and differentiated additive manufacturing technologies.
A pivotal moment in Desktop Metal’s history came in 2018 when the company completed a business combination with Trine Acquisition Corp., a special purpose acquisition company. This transaction provided Desktop Metal with additional capital to fund its operations and growth initiatives, allowing the company to access public markets and expand its reach.
Throughout its journey, Desktop Metal has faced and overcome various challenges in its quest to establish itself as a leader in the additive manufacturing industry. The company’s resilience and adaptability have been evident in its response to industry-wide headwinds, such as the impact of the COVID-19 pandemic on supply chains and customer demand.
In response to these challenges and to align its cost structure with macroeconomic realities, Desktop Metal implemented strategic cost-saving initiatives in 2022 and 2023. These efforts included workforce reductions and facility consolidations, aimed at strengthening the company’s financial position and positioning it for long-term success.
Financials: Navigating Challenging Macroeconomic Conditions
Desktop Metal has demonstrated resilience in its financial performance despite broader economic headwinds. In the most recent fiscal year (2023), the company generated revenue of $189.70 million. However, the company reported a net loss of $323.27 million for the same period. Operating cash flow (OCF) was negative $114.99 million, and free cash flow (FCF) stood at negative $117.76 million.
In the latest reported quarter (Q2 2024), Desktop Metal generated revenue of $38.90 million, representing a 26.9% year-over-year decline. The company attributed this decrease primarily to a reduction in units shipped during the quarter, driven by macroeconomic conditions impacting the additive manufacturing industry. The net loss for the quarter was $103.40 million, with OCF at negative $36.37 million and FCF at negative $37.49 million.
Despite the top-line decline, Desktop Metal has remained focused on optimizing its cost structure. The company’s non-GAAP operating expenses decreased by 22.2% year-over-year to $27.0 million, showcasing its commitment to operational efficiency. Moreover, Desktop Metal’s adjusted EBITDA improved to negative $13.2 million, an improvement of $1.8 million compared to Q2 2023.
In terms of geographic performance, Desktop Metal generates revenue across the Americas, EMEA, and APAC regions. In Q2 2024, the Americas accounted for 60% of revenue, EMEA 22%, and APAC 11%. The company has experienced revenue declines across all geographic regions compared to the prior year period.
Looking ahead, Desktop Metal is no longer providing guidance for the remainder of 2024 due to the pending acquisition with Nano Dimension. The company remains committed to driving long-term shareholder value through strategic initiatives and a relentless focus on innovation.
Liquidity: Strengthening Financial Position
Desktop Metal has taken proactive steps to enhance its liquidity position and ensure financial stability. As of the latest reported quarter, the company’s cash and cash equivalents stood at $83.84 million. The company’s debt-to-equity ratio was 0.59, indicating a manageable level of leverage.
Desktop Metal maintains a strong liquidity position with a current ratio of 3.08x and a quick ratio of 1.90x, suggesting the company’s ability to meet its short-term obligations. Additionally, the company has a credit facility with German banks that provides up to €11.3 million for issuing financial guarantees and letters of credit. Up to €3.3 million of this facility does not require cash collateral, providing further financial flexibility.
The company’s cost-saving initiatives, including workforce reductions and facility consolidations, have contributed to improved cash flow management and are expected to have a positive impact on its overall liquidity position in the long term.
Product Segments: Driving Innovation Across Multiple Verticals
Desktop Metal’s business is organized into two main product segments: Products and Services.
The Products segment includes Desktop Metal’s portfolio of additive manufacturing systems for production and manufacturing applications. This encompasses their flagship line of Studio System and Production System printers, which utilize binder jetting and bound metal deposition technologies to enable the cost-effective production of metal, ceramic, and composite parts. These printers are designed for various use cases, from rapid prototyping to low-volume manufacturing. The Products segment also includes Desktop Metal’s Desktop Labs dental and healthcare 3D printing solutions, which leverage their proprietary additive technologies to produce personalized dental and medical devices.
During the three months ended September 30, 2024, the Products segment generated $31.94 million in revenue, representing 88% of Desktop Metal’s total revenue. This reflects a 15% decrease compared to the prior year period, driven by a reduction in units shipped due to macroeconomic headwinds impacting the additive manufacturing industry.
The Services segment encompasses Desktop Metal’s recurring revenue streams, including materials sales, maintenance and support contracts, and software subscriptions. The materials business sells proprietary consumable materials used in Desktop Metal’s additive manufacturing systems, providing a recurring pull-through revenue source. The services and support contracts provide installation, training, and technical support for the installed base of Desktop Metal systems. Additionally, the Services segment includes revenue from the company’s cloud-based software offerings that enable workflow automation and production management for customers’ additive manufacturing operations.
In the third quarter of 2024, the Services segment generated $4.47 million in revenue, representing 12% of total revenue and a 15% decrease year-over-year.
Transformative Acquisitions: Shaping the Future of Additive Manufacturing
Desktop Metal’s growth strategy has been heavily influenced by its strategic acquisitions, which have played a pivotal role in solidifying the company’s position as a leading player in the additive manufacturing industry.
The acquisition of EnvisionTEC in 2021 marked a significant milestone, as it expanded Desktop Metal’s reach into the lucrative dental and healthcare markets. EnvisionTEC’s expertise in photopolymer-based 3D printing technologies has enabled Desktop Metal to offer a comprehensive suite of solutions to its customers, catering to a wider range of applications.
The subsequent acquisition of ExOne in 2022 further strengthened Desktop Metal’s capabilities. ExOne’s pioneering binder jetting technology has been seamlessly integrated into Desktop Metal’s product portfolio, allowing the company to address the growing demand for high-volume, cost-effective additive manufacturing solutions.
These transformative acquisitions have not only broadened Desktop Metal’s product range but also provided the company with a formidable intellectual property portfolio and a talented team of industry veterans. The synergies created by these integrations have positioned Desktop Metal as a true powerhouse in the additive manufacturing space, poised to capitalize on the industry’s rapid growth.
Outlook and Challenges: Navigating the Evolving Landscape
As Desktop Metal looks to the future, the company faces a mix of opportunities and challenges. The additive manufacturing industry as a whole has experienced significant volatility, with the COVID-19 pandemic and macroeconomic uncertainties posing significant headwinds.
However, Desktop Metal’s strategic positioning and its unwavering commitment to innovation position the company well to navigate these challenges. The company’s diversified product portfolio, which spans prototyping, low-volume production, and high-volume manufacturing applications, provides a hedge against market fluctuations.
Furthermore, Desktop Metal’s focus on developing cutting-edge technologies, such as its pioneering Metal Injection Molding and Binder Jetting processes, has allowed the company to maintain a competitive edge. The successful integration of EnvisionTEC and ExOne has further strengthened Desktop Metal’s ability to address the evolving needs of its customers across a wide range of industries.
The additive manufacturing industry is expected to grow at a compound annual growth rate (CAGR) of 19% from 2023 to 2029, reaching $8.1 billion in size by 2029. This growth is expected to be driven by increased adoption in dental and medical applications, as well as broader adoption of additive manufacturing for production across various industries.
Despite these positive industry trends, Desktop Metal has faced some legal challenges. In October 2023, a purported shareholder filed a class action lawsuit alleging breach of fiduciary duty claims related to the ExOne acquisition. The company believes these claims are without merit. Additionally, in December 2022, four shareholders filed securities class action lawsuits alleging false or misleading statements regarding the EnvisionTEC business. In September 2023, the court dismissed this lawsuit with prejudice.
As the additive manufacturing industry continues to evolve, Desktop Metal remains poised to capitalize on the growing demand for advanced manufacturing solutions. The company’s strategic vision, coupled with its proven track record of innovation and execution, make it a compelling investment opportunity for those seeking exposure to the rapidly transforming world of additive manufacturing.
Conclusion: A Promising Future for Desktop Metal
Desktop Metal’s journey has been marked by groundbreaking innovation, strategic acquisitions, and a steadfast commitment to revolutionizing the additive manufacturing industry. Despite the challenging macroeconomic conditions, the company has demonstrated its ability to navigate the evolving landscape, optimizing its cost structure and positioning itself for long-term success.
As Desktop Metal continues to expand its product offerings and integrate its transformative acquisitions, the company is poised to cement its position as a leading player in the additive manufacturing space. With a strong focus on innovation, a diversified portfolio, and a talented team of industry experts, Desktop Metal is well-equipped to capitalize on the growing demand for advanced manufacturing solutions, ultimately driving value for its shareholders.
While the company faces near-term challenges, including revenue declines and ongoing legal matters, its strategic initiatives and the projected growth of the additive manufacturing industry provide a foundation for potential future success. As Desktop Metal navigates the pending acquisition with Nano Dimension and continues to adapt to market conditions, investors and industry observers will be watching closely to see how the company leverages its strengths to overcome challenges and capitalize on opportunities in the dynamic additive manufacturing landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.