3D Printing Financials: Desktop Metal Targets Recovery Amid Net Losses and Revenue Downturn

Despite facing a decline in revenue and the persistent challenges of a tight economic climate, Desktop Metal (NYSE: DM) is making strides toward operational efficiency. The first quarter of 2024 has seen the company focus intensively on improving how it manages costs, zeroing in on profitable areas, and making changes for future growth.

Under the leadership of CEO Ric Fulop, Desktop Metal has successfully continued to cut its operating costs for the eighth consecutive quarter. Additionally, the company has seen an improvement in its adjusted gross margins for the ninth quarter in a row. Despite a quarterly revenue dip to $40.6 million from $41.3 million the previous year, Desktop Metal’s focus on high-margin, high-value areas has allowed it to nearly double its adjusted gross margins year over year, rising from roughly 18% to 30.5%.

While these positive developments are great for the company, Desktop Metal also reported net losses of $52.1 million for the first quarter of 2024. This loss was mainly because the company had to write down the value of some of its long-term assets, like equipment and patents, sooner than expected.

During an earnings call with investors, Fulop pointed out that the industry continues to recover slowly and that Desktop Metal’s strategic exits from certain business lines, like Aerosint, have helped stabilize revenue numbers. These moves are part of a plan to improve profitability by focusing on sectors where Desktop Metal has a competitive edge and can leverage its intellectual property. The company dominates in niche markets such as direct printing of materials that cannot be produced by other methods and in printed castings.

Desktop Metal boasts the largest installed base of restorative dental applications and binder jet technology—typically employed in high-demand sectors like automotive, aerospace, and healthcare—both witnessing growth in production uses. The company’s decision to move away from lower-margin products, such as low-cost chairside printers, which face intense competition from Asian manufacturers, means the focus is veering to more profitable ventures. Furthermore, Desktop Metal is exploring options for its industrial polymer segment and expanding access to its top-tier healthcare resins across more platforms.

“Our industry is not fully out of the woods yet, and one data point doesn’t make a trend, but we’re heartened that all the hard work and sacrifices our team has made is paying off,” explained Fulop. “As our funnel grows, we’re confident that the overall demand environment is getting more constructive, and we should begin to see incremental growth in the coming quarters, driven by digital casting, entry-level metal binder jet systems, growing technical ceramics, binder jet applications in a new figure sheet metal platform.”

Due to the shifting dynamics of the additive manufacturing (AM) industry, Desktop Metal is undergoing a restructuring process that includes reducing operational costs and discontinuing less profitable product lines. This overhaul began in 2022 when the company announced a major $100 million cost reduction program. Since then, Desktop Metal has not only met this goal but pushed for more, announcing an additional $50 million in cuts in early 2024, followed by another $20 million last March.

Savings from these cuts have been effective, reducing the company’s adjusted operating expenses by 45%. These efforts resulted in the best first-quarter adjusted EBITDA in the company’s history despite a $13.6 million loss. According to Desktop Metal, this has accelerated its path to profitability. The focus is now also on growth. Desktop Metal plans to add 30 new sales representatives globally over the next few quarters. These new team members are expected to drive double-digit growth in the company’s binder jet business, capitalizing on thriving opportunities in markets like digital casting and high-performance components for industries such as aerospace and automotive.

As part of its strategic realignment, Desktop Metal is refining its current operations and setting the stage for future innovations. The company continues to invest in R&D, particularly in sectors where its technologies can disrupt traditional manufacturing processes.

“No matter how you slice it, we are still in the early innings of additive manufacturing adoption, and we see a long-term bright future where we have a multi-billion-dollar opportunity with a rapidly growing installed base,” Fulop stated. “Today, the technology is proven and is used in products like the F-35, submarines, jet engines, rockets, advanced cars like Tesla’s and BMW’s, but it’s still only being used at the tip of the spear and only in less than 5% of foundries globally.”

Fulop is convinced that every single foundry should have at least one printer. He projects a substantial investment in this sector, estimating a $25 billion capital expenditure (CapEx) cycle spread over the next ten to fifteen years. This investment represents a significant market opportunity, potentially generating over $1 billion in annual revenue for this segment alone.

Looking ahead, Desktop Metal is reaffirming its guidance for the full year of 2024. The company expects its revenue to be between $175 million and $215 million. For comparison, Desktop Metal reported revenue of $190 million in 2023 and $209 million in 2022. For now, the company is committed to its restructuring roadmap and enhancing profitability in a challenging market.