3D Printing Financials: Desktop Metal Navigates Stratasys Deal Aftermath with Hopes for Year-End Rebound

Desktop Metal (NYSE: DM) revealed its financial performance for the third quarter of 2023, summing up the hurdles and headways made during this period. Like many other companies in the manufacturing arena, Desktop Metal faced a challenging economic landscape, with orders and investments generally weakened. However, several moves show signs of resilience and strategic planning.

With a revenue dip of 9.13%, CEO Ric Fulop said top-line performance for the quarter was “disappointing.” However, the executive underscored the team’s progress towards executing the $100 million annualized cost reductions announced in June 2022, ahead of schedule.

“Desktop Metal continues to take aggressive steps to ensure we have sufficient capital to navigate this challenging period,” Fulop said. “There are several strong, positive currents running through our results today, which adds to our confidence in the future of Desktop Metal as a profitable, high-growth leader in additive manufacturing. The entire Desktop Metal team is driving to profitability on the cash we have.”

Challenging recovery

Revenue for the period stood at $42.8 million, a decrease from the $47.1 million reported in the same period last year. Despite the revenue shortfall, the company saw an improvement in its gross margins, which increased to 21.9%, a jump of 190 basis points from the previous year’s quarter, signaling a better profitability potential. However, there was a decrease in the company’s cash and investments. At the end of the quarter, it totaled $108.2 million. This was $19.4 million less than what it had in the previous quarter. It was also the lowest period-over-period cash reduction since the second quarter of 2022

One of the challenges that Desktop Metal faced this quarter was the termination of its agreement with Stratasys. After long-standing back-and-forth M&A discussions, Stratasys and a trio of potential partners ended negotiations in late September. This decision followed Stratasys management’s inability to convince investors that merging the technologies would be profitable. This fallout played a significant role in shaping the company’s performance during the quarter.

During an earnings call with investors, Fulop said the announcement regarding the Stratasys vote led to delays in closing several large deals with key customers, impacting the company’s revenue stream. Despite this setback, most of these deals were finalized soon after and are expected to contribute to a much stronger fourth quarter.

Seeking the turnaround

While acknowledging the hurdles brought about by the Stratasys situation, Fulop remained hopeful about Desktop Metal’s “standalone” strength and strategic direction. He stated that the resilience and adaptability are indicative of Desktop Metal’s commitment to navigating through periods of uncertainty and maintaining a focus on long-term growth, improvements in EBITDA (earnings before interest, taxes, depreciation, and amortization) and profitability, stating that he is confident of the company’s road towards breaking even in the fourth quarter of this year.

Although adjusted EBITDA was a loss of $20.5 million, it is still an improvement of $7.7 million or 27% year-over-year. Fulop says this outcome was a direct result of several factors, including production site consolidations, improved gross margins due to a favorable mix of services and consumables during the period, and a reduction in operating expenses.

“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 good 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 grow. Starting now to our recent business highlights,” pointed out Fulop.

Desktop Metal co-founder and CEO Ric Fulop with the DM Production System. Image courtesy of Desktop Metal.

Despite top-line weakness, progress on cost reductions makes Desktop Metal confident about its upcoming adjusted EBITDA performance. Funding is robust, with $108.2 million in cash, cash equivalents, and short-term investments at the end of the third quarter of 2023 compared to $127.6 million at the close of the previous quarter.

Management pointed out that there is an ongoing improvement in cash spend. Fulop stressed that they have “trimmed” the operating cash flow consumption to $21.4 million, down 46% compared to $39.7 million consumed from operations in the third quarter of 2022. As a point of reference, the company reduced its cash consumption from operations by 62% this quarter, compared to the $56.3 million consumed in the first quarter of 2022. This was the final full quarter before the company began its cost-reduction initiatives. Finally, after investing $15.5 million, Desktop Metal ended the quarter with an inventory of $107.2 million and claims it is “well-positioned to execute on expected fourth quarter demand.”

Strategic rebound

Strategic business moves and product innovations also marked this third quarter. Desktop Metal launched the ETEC Pro XL, a state-of-the-art digital light processing (DLP) polymer printer. It also introduced Live Monitor, a software application that improves efficiency in 3D printing. Additionally, Desktop Metal continued to expand its market reach through agreements and orders, such as a commercial supply agreement for Flexcera dental resins to be offered on Carbon 3D hardware. Likewise, the company’s Desktop Health branch launched the PrintRoll rotating build platform for the 3D-Bioplotter, a first-of-its-kind bioprinting tool to develop and manufacture tubular solutions for vascular, digestive, respiratory, and other channels of the body.

A continued expansion of its customers, particularly major “super fleet” customers, was also relevant. This group includes companies like Honeywell and Baker Hughes. Additionally, Northrop Grumman has emerged as a global leader in producing 3D printed optical components using Desktop Metal’s advanced machines. The 3D brand has also established a strong presence in North America’s binder jet system market for printed castings. This is further complemented by the increasing adoption of its powder metallurgy technology among notable “super fleet” clients such as DSB and FreeFORM. A significant highlight in this expansion is BMW, one of the largest operators of Desktop Metal’s Exerial systems, integrating them extensively into its manufacturing processes.

Nicole Black, VP of Biomaterials and Innovation at Desktop Health, examines two tubular medical devices printed on the new 3D-Bioplotter PrintRoll rotating build platform in medical-grade materials. Image courtesy of Business Wire.

Year-end optimism

In light of the quarter’s outcomes, Desktop Metal adjusted its full-year 2023 revenue guidance to between $187 million and $207 million. The company also revised its EBITDA expectations, projecting a range between negative $70 million to negative $50 million for the year.

According to Fulop, this modified guidance is based on management’s expectation of certain transactions closing during the fourth quarter and the weaker macroeconomic backdrop. “We expect the momentum in the improvement of adjusted EBITDA to continue into the fourth quarter of 2023 and beyond,” concluded the CEO