Greetings and welcome to the Desktop Metal Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jay Gentzkow, Vice President of Investor Relations. Please go ahead..

Thank you. And thanks everyone for joining today's call. With me today are Ric Fulop, CEO, Chairman and Founder of Desktop Metal, and James Haley, CFO of Desktop Metal.

Please note that our financial results press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website. This call is also being webcast live with a link at the Investor Relations website.

The webcast and the accompanying slides will be available for replay for 12 months following the call. The content of today's call is the property of Desktop Metal. It cannot be reproduced or transcribed without our prior consent. Before we begin, I would like to refer you to our Safe Harbor disclaimer on Slide 2 of the presentation.

Today's call will include forward-looking statements. These forward-looking statements reflect Desktop Metal's views and expectations only as of today, November 15th,2021, and actual results may vary materially based on a number of risks and uncertainties.

For more information about the risks that may impact Desktop Metal's business and financial results, please refer to the Risk Factors section of the annual report on Form 10-K, as amended, in addition to the Company's other filings with the SEC. We assume no obligation to update the forward-looking statements.

Additionally, during this presentation and the following Q&A session, we may refer to non-GAAP measures, including EBITDA, adjusted EBITDA, and non-GAAP gross profit. These measures are intended to supplement but not substitute for performance measures calculated in accordance with GAAP.

Our financial results release contains the financial and other quantitative information to be discussed today, as well as a reconciliation of the GAAP to non-GAAP measures. With that, it's my pleasure to turn the call over to Ric Fulop, CEO and Founder of Desktop Metal..

Thank you, Jay, and good afternoon, everyone, and thank you for joining us today. I want to kick off the call by welcoming the talented ExOne team to Desktop Metal. As you know, we completed the acquisition of ExOne last week and we're thrilled at the opportunities ahead for the combined Company.

Today, I will highlight a few financial and business development for the third quarter and we'll provide an overall business strategy update. I will then turn the call over to James to walk through the third quarter financial results in more detail. And our outlook for the balance of the year, we're opening it up for Q&A. Let's start on Slide 3.

Revenue for the third quarter of 2021 was $25.4 million, representing sequential quarterly growth of 34% in more than 900% growth year-over-year. Revenue growth was driven by a combination of strong performance in our core metals business, as well as contribution from recent acquisitions.

We also saw continued growth margin expansion as non-GAAP gross margins increased 27% in Q3, up more than a 180 basis points sequentially.

With some great developments in the business this quarter, we're seeing strong momentum in commercial opportunities with a number of Fortune 500 companies across our volume production platforms, including the production system P-50.

We continue to aggressively develop these opportunities against the backdrop of P-50 progressing towards the initial commercial shipments. We're completing final procurement and have started production of initial P-50 builds targeted for shipments this quarter.

While supply chain challenges are impacting us across the business, we have our best people focused on getting P-50 out. And we're confident enough in both our roll-out progress in the demand to increase our manufacturing capacity within new facility dedicated to P-50 production.

After the significant development cycle of this product, we're excited to begin shipments to customers. We'll look forward to updating you on this milestone, as well as order customer-use cases for this game-changing platform. We successfully closed our acquisition of ExOne.

In this line of transaction cements our leadership in area-wide additive manufacturing technologies for mass production. We also made 2 smaller acquisitions in Mehta additive and Aidro. The dovetail nicely to our core metals business in the traditional print platforms that ExOne brings to the portfolio.

We'll speak to each of these in a bit more detail later on the call. We unveiled our strategic relationship with Shapeways last week.

We're excited to make our product portfolio and broad range of materials available through their digital manufacturing platform to businesses that may not be ready to purchase full systems where that need overflow manufacturing capacity on demand.

And finally, we launched a new initiative under Desktop Health to build out our dental and biofabrication parts platform. It's a key element to our strategy to attack these markets and I'll go into further detail in later in the presentation.

Before diving into some of these highlights, I want to address our performance in the third quarter, but we encounter some headwinds that prevented us from achieving the results we have targeted when the quarter began.

Global supply chain and logistic disruptions did have an effect towards the end of the quarter, our team has done a great job adapting to the current environment, but these issues did impact our ability to shift some of our products in quantities we expected. Especially our printing platforms such as the Xtreme 8K.

Ultimately, what we didn't execute to the last third quarter, we're in a good position to drive very strong sequential growth in the fourth quarter and end the year strong. And James will speak more to our full-year guidance during this section.

On slide 4, I want to spend a few moments review in our acquisition of ExOne, which strengthens our competitive sense with many areas. Together, we offer them unparalleled product portfolio across speed, costs, resolution, and part size.

And we're particularly thrilled with the opportunity to combine ExOne sand printing expertise with our low-cost architectures to make digital casting more accessible, and grow that market. Our combined material size efforts will allow us to introduce new materials to our customers at a faster rate.

We look forward to leveraging our complementary go-to-market activities to drive outsized growth while seizing on opportunities to flip ExOne's business to a more turnkey built to forecast model which we believe will accelerate growth in the conversion of ExOne robust backlog, which set at $57 million at the end of Q3.

Next on Slide 5, I'd like to review 2 other tuck-ins, that in conjunction with ExOne, reflect our strategy around printers, materials, and killer apps. In materials, we're excited to announce the addition of our next-generation binder technology focused on reducing part shrinkage through our acquisition of Mehta additive.

Mehta has developed non-sacrificial binders that use organometallics and particles of functional build material to bind and infiltrate the powder bed simultaneously during the binder jetting process.

This binder IP has the potential to revolutionize binder jetting by extending the technology to markets that require larger part sizes in a broader palette of materials.

We'll look forward to developing and qualifying Mehta's functional binders on our high-speed binder jetting platforms to enable customers to print larger parts with faster turnaround times. Improved tolerance as an even greater productivity.

On the right side of the slide, I'd also like to highlight Aidro, a leader in added manufacturing of next-generation manifolds, hydraulics, and fluid power systems. In Metals, we view this use cases as killer apps for additives. And we've added Aidro, the service foundation to deliver customers a differentiated offering in this market.

For Aidro was an early adopter over AM with world class design expertise and know-how. We're excited to work with their talented team to leverage a combination of Desktop Metal's and ExOne script platforms to produce Fluid Power Systems and manifolds optimize for AM.

Turning to slide 6, as a management team, we remain laser-focused on achieving double-digit share of additive by the end of the decade. This goal guides our strategy across both organic product development and M&A activities.

And we're working towards it by expanding the serviceable portion of our addressable market, as well as bringing AM into new applications not accessible to Legacy AM processes offered by our peers.

EnvisionTEC for example, has opened up the polymer AM market with its pioneering area wide photopolymers platforms in digital casting solutions, which we have reinforced with our acquisition of ExOne and its industry-leading S-Max platform. Who've introduced for us the process for 3D printing indious wood parts in production.

Extending AM applications, including home furnishings and luxury interiors. We've added by fabrication capabilities through Beacon Bio, which were in advance stages of R&D and have the potential to enable new killer apps such as eardrum repair and other soft tissue cases.

Finally, dental is a $30 billion opportunity has been largely observed by AM, particularly in non-orthodontic applications. We believe this market can reach over 75% penetration of digital AMR flows. And we have introduced materials, we've made investments towards a part strategy to address these opportunities.

We took this development, it's consistent with the strategic pillars of our business and has unlocked opportunities for our technology that would capitalize on -- to deliver outsized growth in the long term. Turning on to Slide 7, you can see the portfolio of added manufacturing 2.0 solutions we have built to achieve long-term success.

At the top, we're focused on area-wide print platforms that can support a step function improvement in throughput after 100 times legacy additive manufacturing processes.

Our goal here is to help customers' added manufacturing production volumes cost-effectively versus conventional Critically, Desktop Metal's proprietary printing technologies achieved superior economics and throughput, also enabling surface finish, accuracy, and material properties required for end-use parts and we provide these platforms alongside proprietary software and sintering solutions that make additive easier to adopt for businesses of all sizes.

Partnering these advantages with an extensive and growing materials library translates into support for a broad range of production applications across verticals, allowing us to diversify our end markets and customer base.

We're super confident in these platforms and believe they can generate significant revenue scale in the near term and will serve as a foundation for us to achieve double-digit share of additive in the long term. Turning to slide 8, I want to set the context for our new initiative we launched in Q3 under Desktop Health.

Many of you will recognize our added manufacturing -- strategy slide, which we've shown for nearly every quarterly update call. We're focused on 3 primary areas.

First, we want to be a leader in print platforms or mass production that use area-wide technologies that improve in performance over time, benefiting from Moore's law, allowing us to continually increase our competitiveness versus conventional manufacturing.

Second, we want to vertically integrate into high margin consumable revenue streams by owning a broad materials portfolio with best-in-class properties. Developing printers and materials together allows us to offer integrated solutions that can reliably yield high-performance parts for our customers.

And third, we're focused on developing killer apps for additive. For most of these applications, we plan on being a technology provider with a high-margin recurring revenue stream through consumables, but there are some applications where a large portion of the profit pool accrues to the application provider.

For these segments, we believe the best way to maximize value of our technology assets is to provide an end-to-end solution that includes printing and providing high-margin end-use parts to customers. Turning to slide 9, we see dental and biofabrication as important emerging killer apps for additive because parts are unique to the patients.

These are huge markets with only a few percentages of parts printed today. The traditional production methods include labor and research-intensive conventional manufacturing processes. As a result, this market is poised to rapidly towards additive.

We're already well-positioned as a technology provider in both dental and Bio-fabrication with a thriving business on differentiated solutions across printers and materials.

Now we're also launching a new parts platform to vertically integrating to design and parts production capabilities that will allow us to provide a more comprehensive, end-to-end offering that can accelerate adoption of 3D printing and dental and Biofabrication.

For dental specifically, these efforts are critical to make chairside printing successful at scale and drive value creation for Desktop Metal.

We believe that our strategy as a consolidator can enable an industry-leading, additive focused business that provides printers, materials, and end-use parts for dental and Biofabrication customers with additive manufacturing at its core.

Today, we're seeing real results from the steps we've taken to position the dental business to execute this strategy. And through our acquisition of Beacon Bio, we have 5 Biofabrication materials in advanced R&D in the long-term plans to implement Biofabrication solutions under this initiative.

With staff is opportunity with leaders from the industry in an effort led by Lou Zara (ph), overseer of dental solutions group.

Our goal is to form a global platform underneath Desktop Health, able to accelerate the precision of additive manufacturing while maximizing wallet share in this segment, we've acquired our initial targets under the strategy and we will be rapidly digitizing these properties with our proprietary added manufacturing solutions to increase their profitability and product capabilities.

The long-term opportunity for dental and Biofabrication is just starting to hit the uptake of the growth. And we believe our strategy to drive adoption through our new platform, positions us to capture a significant share of this massive opportunity.

And finally on Slide 10, I'd like to wrap up my section by reiterating that we've built Desktop Metal with durable competitive advantages in order to accomplish our mission of double-digit share in the added manufacturing market by the end of this decade.

We have the fastest print platforms in the market, supported by proprietary software and sintering capabilities that enable adoption for customers of all sizes. Our comprehensive and growing materials portfolio enables a more diverse array of applications for our customer’s base.

We focus on killer apps providing end-to-end solutions, including designs and parts production to deliver high-margin [Indiscernible]. We have a world-class go-to-market organization with complementary, indirect and direct channels as well as robust global service and support capabilities.

And finally, our vertical integration and materials not only enables reliable, high-performance parts for customers, but also creates high-margin recurring revenue stream for consumables for our business.

This is the blueprint for how we will win in the marketplace and we look forward to updating you on how this competitive differentiation is to continued market share gains and consistent financial outperformance for years to come. I will now turn the call over to our CFO James Haley to share third quarter financial highlights.

James?.

Thanks, Ric. Beginning on Slide 12, you will see a summary of our financial performance for the third quarter of 2021. Please note, we will be referring to several financial metrics on a non-GAAP basis. Reconciliation to GAAP data is included in the filed appendix.

Consolidated revenues for the quarter were $25.4 million up 34% sequentially from the second quarter of 2021. Revenue strength was driven by our core metals business and contributions from acquisitions were partially offset by weakness in the polymers business.

Like many other companies, the global supply chain and logistics network presented challenges, specifically in the Envision TEC business, which impacted our quarterly results.

While third quarter revenue growth was less robust than previous quarters, we are poised to right-size performance and return to growth expectations we have set for the business in the fourth quarter. We delivered another quarter of non-GAAP gross margin expansion.

Non-GAAP gross margin increased over 180 basis points sequentially to 27% for the quarter. Gross margin strength was primarily driven by operating leverage as revenue continued to scale across overhead costs, as well as product mix to entire ASP sales, such as our Metal Systems.

Adjusted EBITDA for the third quarter of 2021 was negative $26 million versus negative $15.5 million in the third quarter of 2020. The year-over-year adjusted EBITDA decline was primarily due to increased expenses related to operating as a public Company. Investments in our core business and loss contributions from acquisitions.

We ended the quarter with $423.9 million in cash, cash equivalents, and short-term investments as of September 30th, 2021. Note, this excludes the impact of the acquisition of ExOne, which includes the deal consideration in cash of approximately $67 million excluding transaction fees.

And finally, moving to our guidance on slide 13, we are revising our full year 2021 revenue and adjusted EBITDA outlook to take into account our third quarter performance, current expectations for the fourth quarter, and anticipating contributions from recent acquisitions.

Note, the full-year 2021 outlook excludes any impacts from the ExOne acquisition. We now expect to generate total revenue in the range of $92 to $102 million for the full-year 2021, representing 459% to 519% growth over full-year 2020.

This updated revenue range includes between $36 to $46 million in expected fourth quarter 2021 revenue, which implies 43% to 82% sequential growth over the third quarter 2021.

For the full year 2021 for our core Desktop Metal and Envision TEC businesses, excluding contributions from recent acquisitions, we expect to generate revenue in the range of $75 to $85 million. Also, please note this updated guidance does not rely on meaningful revenue from the P-50 system.

We also updated our adjusted EBITDA outlook, now in the range of negative $80 to $90 billion, again excluding the effects of acquiring ExOne. This updated figure takes into account third quarter 2021 performance and increased operating losses from recent acquisitions completed since our second quarter 2021 financial results call on August 11th, 2021.

With that, I will turn the call back over to Ric..

Thank you, James. To conclude, I'd like to reiterate our vision of accelerating adoption of Additive Manufacturing 2.0 on our way to achieving double-digit share of the additive market by the end of this decade.

As we near the end of 2021, which we're probably better positioned with the right portfolio of differentiated additive manufacturing solutions to drive consistent growth through 2022 and over the long term. I remain as excited as ever about the momentum of our business and our opportunity to deliver value to all of our stakeholders.

With that, I will now open up the call for questions.

Operator?.

We will now begin the question-and-answer session. [Operator Instructions]. If you're using a speakerphone, please pick up your handset before pressing the keys. [Operator Instructions] Please limit yourself to 1 question and 1 follow-up. At this time, we will pause momentarily to assemble roster.

Our first question comes from Greg Palm with Craig Hallum Capital Group. You may go ahead..

Yes, thanks for taking the questions here.

I guess just starting off on the shortfall in the quarter, any way to quantify the revenue impact from whether it was supply chain or some of these logistical challenges that you ran into?.

Greg, thanks for the question. Definitely -- Q3 will definitely -- fell short of a little bit. Really, we had some supply chain issues, we had some logistics issues as well. I would say the encouraging item for us is that on the metals side we did see sequential growth from Q2 to Q3. However, on the polymer, it was much weaker than we expected.

And that -- that is really where we had more of the supply chain issues with specifically on the polymer side..

And -- I guess I'm specifically trying to figure out if it was material as in 10% of revenue that couldn't get shipped or something more of that. Can you --.

Yes, Greg. We had some parts that we're expecting towards the end of the quarter that we didn't end up receiving and weren't able to ship -- some of our products, for example Xtreme 8K.

We just had a lot of them waiting for components that should have been in-house on time, but we have made drives in receiving those and hopefully we will continue to catch up on that throughout this quarter..

So, the other thing that we would certainly say -- this revenue growth is the journey for us and we continue to project a strong Q4 to end the year. And we really expect that -- have great sequential growth between Q3 and Q4 here. But certainly, in Q3 was in -- less than our expectations but we do believe this long-term growth thesis is in that..

Okay, fair enough. And my follow-up specifically on the implied guide for Q4.

Is there any P-50 contribution that's baked into the guide? It's excluding ExOne, but how much ExOne contribution do you expect in Q4?.

So first, on the ExOne side, to that transaction just closed Friday as you know. One of the challenges we are evaluating are any of the purchase accounting implications. If you just looked at their prior guidance and what they've actually delivered Q3 that would yield Q4 results somewhere in the 20 - ish neighborhood.

And then we still have to determine how much of it would be post acquisition and any implications for the purchase gone I mentioned. And then in terms of your question about P-50, at this point, there is no P-50 in our revenue forecasts. We still plan to ship by the end of this year. But any associated revenues it will be deferred until next year.

So, we won't start to see the benefits P-50 until Q1..

Got it. Okay. All right. I'll leave it there. Thanks..

Our next question comes from Ashley Ellis with Cross Research. You may go ahead..

[Indiscernible] supply chain, I'm wondering what are your expectations for fourth quarter? It seems like you lowered full year. So, while the parks came in, I guess after the quarter closed, you still -- it doesn't seem like you're necessarily recouping that revenue in fourth quarter.

So, do you expect to still struggle with the supply and then what are you doing to ensure that you do have enough supply for P-50? And then I've a follow-up. Thank you..

For Q4, certainly, we're still expecting pretty substantial growth. The challenge for us is we're starting with a lower base from Q3 in terms of the specific supply chain. One of the challenges we have had is on the logistics side of things.

So, there are -- I think we're very encouraged that margin have continued to expand despite the fact that we have had to expedite some freight along the way. But Q4 's steep growth there and we believe that we are on track for that margin their barrels and Q4 here.

But there's no there's -- as Ric alluded to on the Xtreme 8K, we had some specific product challenges there, which honestly delayed the launch of the products into Q4, but it's not as you just get the product in. And now, we've got the parts. We're assembling them.

We're going through all of the various testing and validation and hope to ship that product in the fourth quarter here..

Okay, that makes sense.

And then for the P-50 with your new site, that triples capacity, I'm wondering, do you expect to be at full capacity sometime during 2022 or will it be a slower ramp for the P-50 and maybe more in 2023?.

Any product that you start to ramp gradually, although we have plans to grow to significant capacity as the year progresses.

The first couple are in production right now and as we start to ramp and get systems in the field, that number will continue to increase on a monthly basis and we'll be delivering more and more product as the year progresses next year..

Okay.

And are you feeling okay with components or could that also be a challenge?.

That is a significant product with lots of parts. We've got a lot of good people on supply chain working on it and we are putting our best people on it.

So, we've got parts in-house, but beyond the first few systems, we could run into trouble when we fortunately, a lot of those parts that are mechanical, I think you could fab in short run capabilities, but there are components that you could get surprised by. So, we're trying to do our best and be creative as we try to resolve these challenges.

But so far, I don't see it as an impediment from shipping, it's just as a lot more work to our teams to work around some of these logistics issues..

Right. Understood. Good luck. Thank you..

Thanks..

Our next question comes from Noelle Dilts with Stifel. You may go ahead..

Hi. Good afternoon. I was hoping that you could just provide us with a bit of an update on the pipeline for P-50 in terms of orders which you've talked about in the past. And basically, I think could you also touch on what give you the confidence to extend the manufacturing capacity there that would be great. Thank you..

We have a significant pipeline for P-50. It keeps developing is with several large Fortune 500 companies for large applications. And that -- it's moving at a pretty good clip. We're putting capacity hopefully when we need it. We feel very good about it.

We've had applications with OEMs that could [Indiscernible] significant number of units and that's what we're doing..

Okay. And then given the ExOne deal and we've been pretty active on the acquisition front. Could you speak to how you're thinking about M&A heading into 2022 and what the pipeline looks like at this point in terms of companies that you're engaging with? Thanks..

So, I think we have an M&A strategy that continues to really hasn't changed. It's really centered our 3 areas. Print platforms that are area-wide that provide improvements over time. As -- it basically dependent -- benefit from Moore's Law, vertical integration into the consumables that our Systems utilized.

And then finally, the ability to have impact on killer apps. And we look at the profit pool on these applications and really focus on what is the maximum way to get share and maximize value and leverage long run.

So, we've had a consistent strategy that companies that we've been going after are the same companies that we had on our target list since before we were public Company. and we've had segmented the market.

Basically, at that time it was $12 billion size market with segmented it in the -- there's $2 billion worth of businesses that are very attractive and another $10 billion that are not -- you wouldn't want to own.

And so, we're focusing on that $2 billion and which is going to grow faster than the market and have strategic leverage point for us to gain share at long run..

Okay. Thank you..

[Operator Instructions]. Our next question comes from Martin Yang with Oppenheimer. You may go ahead..

Hi. Good afternoon. Thank you for taking my question.

Now that you have made a more detailed announcement regarding your partnership with Shapeways, can you maybe talk about what the nature and structure of your commercial deal and where should we expect the commercial agreement of $20 million to fall on your Income statement?.

Yes. We started with some amount of revenue that hit in Q3, our balance may hit in Q4. And I would say it's still too early to tell where the bulk of it is going to be. What quarter -- we have a lot of work to do for point-of-view of a -- first, there's some strategic things that we're doing between the 2 companies.

I think 1 of the great things about this deal is that it's going to provide AM with a capability to have all of our technologies and materials available in solution that's easily accessible for people who aren't ready to buy equipment. And then in the long run we have a lot of work to do to fully execute it.

You have to deliver and still procure, launch -- in their process, a lot of this material.

I think this is going to continue for some time, but it is a strategic partnership for us and there are some things that we haven't fully announced yet that we're doing with them, that we think are very exciting and that will be very well received by the market.

You should note that Shapeways has been a long-time customer of the Company through the Envision TEC side and also not through ExOne as well. There's quite a bit of business between the companies. And -- it has been for the years..

That's great. Got it..

We do not expect to receive the full $20 million in calendar year 2021 from a rev rec stand-point. To Ric's point, we will see how that split pans out, but it's meant to be a long-term relationship..

Got it. Thanks for the clarification.

And looking in maybe at your pipeline, are there any other similar commercial agreements like the one you have which Shapeways which you already secured, but have not announced?.

Well, if we haven't announced it, we usually let our customers do the announcements. In this case, it was -- you had to put something on a filing, but a lot of the deals in large systems are large number deals. So, if somebody is taking up product to volume production with technology like ours, that would certainly be the case.

And we let our -- in those cases, particular customers are sensitive to that getting out before they announce the product, or before something is shipping or has started production. If we can talk about it or they're okay with us talking about it, we would talk about it, but we let our customers do the PR in those cases..

I mean, the one thing where you had got lucky, we have numerous strategic relationships with --.

Yeah, there’s service bureaus that our customers are not just Shapeways, but I would say we would -- we have a strategic partnership with Shapeways. It doesn't preclude us from working with people as well..

Got it. Thanks for the clarification..

[Operator Instructions] There are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Ric Fulop for any closing remarks..

Alright. I want to thank everybody for joining the call today as always. I especially want to thank all of our employees, including the new ExOne team, for their continued dedication to advancing our vision of added manufacturing for mass production. We look forward to speaking with you again at the year-end call. Thank you..

Thank you very much..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..