Desktop Metal’s Financial Journey: Overcoming the Stratasys Deal and Aiming for a Year-End Rebound through 3D Printing


Desktop Metal (NYSE: DM) announced their financial performance for the third quarter of 2023, outlining the obstacles and advancements during this time frame. Much like numerous other businesses in the manufacturing sector, Desktop Metal confronted a difficult economic situation, with orders and investments in general weakened. Nevertheless, a number of actions display signs of resilience and strategic planning.

CEO Ric Fulop reported a 9.13% drop in revenue, describing the top-line performance for the quarter as “disappointing.” However, the leader emphasized the team’s advancement towards actualizing the $100 million yearly cost reductions announced in June 2022, ahead of the planned schedule.

“Desktop Metal continues to take assertive measures to ensure we possess adequate capital to navigate this challenging time,” stated Fulop. “Several strong, positive trends are evident in our current results, which boosts our confidence in Desktop Metal’s future as a profitable, high-growth leader in additive manufacturing. The entire Desktop Metal team is propelling towards profitability with the funds we have.”

Challenging recovery

During this period, the company reported a revenue of $42.8 million, indicating a drop from last year’s $47.1 million for the corresponding timeframe. Despite the lower revenue, improvement was observed in gross margins as they rose to 21.9%, which is an increase of 190 basis points from the gross margins of the same quarter in the previous year, thus displaying potential for better profitability. On the contrary, there was a dip in the company’s cash and investments which were valued at $108.2 million at the end of the quarter; a sum that is $19.4 million less than the last quarter. This figure is also the lowest quarterly cash reduction since Q2, 2022.

Desktop Metal encountered a hurdle this quarter due to the dissolution of its alliance with Stratasys. The termination ensued post numerous rounds of M&A talks, when Stratasys, along with a group of potential partners, ceased their negotiations in late September. This incident followed Stratasys management’s failure to convince investors of the profitability stemming from unifying the technologies. The consequences of this fallout significantly influenced the company’s performance during the quarter.

An earnings call with investors resonated the sentiment that the announcement regarding the Stratasys vote led to delays in the finalization of numerous major deals with crucial clients, thereby affecting the revenue stream. Fulop expressed that, despite the aforementioned setback, most of these deals were concluded shortly after and they are projected to fuel a much stronger Q4.

Working towards 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.

Despite initial setbacks, Desktop Metal continues to be optimistic about its upcoming adjusted EBITDA performance thank to cost cutting measures. The company not only reported a strong financial position with a total of $108.2 million in cash, cash equivalents, and short-term investments at the end of third quarter 2023, as compared to $127.6 million at the end of the previous quarter.

The management has highlighted an ongoing trend of improving their cash expense. CEO Ric Fulop emphasized their successful efforts in reducing operating cash flow usage to $21.4 million, a 46% decrease from the $39.7 million used in operations during the third quarter of 2022. By comparison, the company has managed to decrease its cash usage from operations by 62% this quarter when compared to the $56.3 million used in the first quarter of 2022, before the implementation of cost cutting initiatives. Lastly, after making an investment of $15.5 million, Desktop Metal wrapped up the quarter with an inventory valued at $107.2 million, positioning the company well for anticipated fourth quarter demands.

Looking Forward

Desktop Metal recorded marked developments on both strategic business advances, and product innovations during the third quarter. The company unveiled the ETEC Pro XL, an advanced digital light processing (DLP) polymer printer, and launched Live Monitor, a software application designed to improve efficiency in 3D printing. In addition, Desktop Metal has continued to widen its market reach through contracts, and orders. For instance, the company entered into a commercial supply agreement for Flexcera dental resins to be compatible with Carbon 3D’s hardware. Furthermore, Desktop Metal’s Desktop Health division introduced the PrintRoll, a revolutionary rotating build platform for the 3D-Bioplotter, a pioneer bioprinting tool to develop and produce tubular solutions designed for the vascular, digestive, respiratory, and other bodily systems.

The expansion of customers, including major “super fleet” customers, continues to be relevant. This group includes companies such as Honeywell and Baker Hughes. Northrop Grumman has also emerged as a global leader in the production of 3D printed optical components using the advanced machines provided by Desktop Metal. The 3D brand has also established a considerable presence in North America’s binder jet system market for printed castings. This growth has been further complemented by the increasing adoption of its powder metallurgy technology among significant “super fleet” clients like DSB and FreeFORM. One highlight of this expansion is BMW, which is one of the largest operators of Desktop Metal’s Exerial systems, incorporating them largely into its manufacturing processes.

Year-end optimism

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

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