Making sense of the markets this earnings season was not easy. Plagued with inflationary pressures, layoffs, and supply chain uncertainties, additive manufacturing companies are trying to make their operations recession-proof. For 3D printing tech company Desktop Metal (NYSE: DM), financial results for the third quarter that ended September 30, 2022, were mixed, with revenue increases year-over-year, net losses, and higher operating expenses.
Desktop Metal published its Q3 earnings report on November 9, 2022, posting revenue of $47.1 million, up 85% from the third quarter of 2021 revenue of $25.4 million. Significantly impacted by customers delaying purchase decisions amid macroeconomic uncertainty, this period saw a quarterly revenue decrease compared to Q2, which had seen close to $58 million in sales. The 3D printer manufacturer also posted a loss of $60.8 million, or 19 cents per share, a 9.1% improvement from last year’s third-quarter loss of $67 million, or 26 cents per share.
Despite meaningful progress in Desktop Metal’s long-term growth strategy, Founder and CEO Ric Fulop said third-quarter results did not meet management expectations. According to the executive, the lower-than-expected sales volume towards the end of the quarter (typically when the 3D printing company sees a sharp acceleration in volume) was a significant contributor, which also weighed on gross margins. In addition, as macroeconomic headwinds accelerated during the quarter, some customers delayed purchase decisions.
However, this divergence in the expected trend was not uniform across all business lines, explained Fulop to analysts during a conference call following the earnings release. For example, the company saw good resilience in its dental and healthcare platforms, offset by softness across other areas.
This is not the first time a recessionary cycle has impacted growth in the additive market, explained Fulop.
“The last time this happened in a meaningful way, pre-Covid, was from 2008 to 2009, when the market contracted 3 percent on an annualized basis, and in the decade that followed, the market rebounded significantly, compounding a 27% growth,” he pointed out.
Confident that the demand for 3D printing will continue past the challenges of the current economic headwinds, Fulop pointed out that in the meantime, Desktop Metal had already taken swift actions to course correct to reduce the expense structure, well beyond what was outlined in June 2022, when the company announced a strategic integration and cost optimization initiative. The CEO revealed that those actions have already achieved $40 million of annualized cost savings. However, as of the closing of the third quarter, it has become clear to management that it needs to intensify further the expense reduction effort in light of the current ongoing environment, which will drive necessary gross margin improvements in the fourth quarter and coming years.
“Getting profitable is our number one priority,” detailed Fulop. “As a result, we are cutting costs even more aggressively and quicker than initially planned.”
Promising new partnerships
As part of an ongoing strategic expansion initiative, Desktop Metal announced a collaboration with Align Technology to accelerate the adoption of digital dentistry in the $30 billion annual dental parts market. Align’s market-leading iTero intraoral scanners will be offered as a seamless managed service to dentists in a subscription model with recurring revenue, enabling a gateway for a connected suite of digital dentistry solutions with a workflow backed by Desktop Labs’ experienced network of dental laboratories and premium Desktop Health 3D printers and materials.
Additionally, it announced a multi-faceted partnership with Siemens to accelerate the adoption of AM 2.0 with large manufacturers for scalable production applications. As well as an extended partnership with Henkel to qualify additional industrial photopolymer resins on Desktop’s Xtreme 8K, a large-volume resin 3D printer produced by Desktop Metal subsidiary EnvisionTEC.
Weaker revenue outlook
Desktop Metal made a slight downward revision to its revenue guidance for its full fiscal year. Revised company revenues are projected to be between $200 to $210 million for the full year 2022, lower than the prior outlook of roughly $260 million from August 8, 2022. However, the revised guidance still implies an improvement of between 78% to 87% from the 2021 figure. On that note, the fourth quarter 2022 revenue expectation is between $51 to $62 million, and adjusted EBITDA could be a loss of at least $20 million.
Fulop concluded that “despite short-term challenges, the long-term trends supporting broad adoption of additive manufacturing and market growth to over $100 billion in the next decade remain intact, particularly for mass production. Supported by an unmatched portfolio of AM 2.0 solutions, Desktop Metal is well-positioned to continue capturing share of this growing market, and take advantage of the next stage of long-term secular growth.”
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