Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Desktop Metal Inc (DM, Financial) has reduced non-GAAP operating expenses by 48% since Q1 2022.
- The company has delivered nine consecutive quarters of operating expense reduction.
- Non-GAAP gross margins have been meaningfully strengthened.
- The proposed merger with Nano Dimension offers a 27% premium and is expected to create a leader in the Additive Manufacturing space.
- The merger is anticipated to accelerate the industry's transition into mass production and create a well-capitalized company with a stronger financial profile.
Negative Points
- Desktop Metal Inc (DM) faced a challenging business environment due to rising interest rates and slowing CapEx budgets.
- The company's balance sheet has been under pressure, limiting its ability to invest in growth and innovation.
- Customers have become hesitant to engage in closing deals due to the company's weakening financial outlook.
- Consolidated revenue for Q2 2024 was $38.9 million, a significant decline from $53.3 million in Q2 2023.
- Non-GAAP gross margins fell to 29.2% in Q2 2024 from 31% in the prior year period, driven by weaker cost absorption on lower revenue.
Q & A Highlights
Q: You mentioned challenges closing deals at the end of the quarter. Can you break down how much of this was due to customer hesitancy based on your financial position versus macroeconomic softening?
A: Ric Fulop, CEO: The type of products we sell, particularly in the bandage side, are often over $1 million, leading large companies to scrutinize these investments. We felt a significant impact from both customer hesitancy due to our financial position and the broader macroeconomic conditions.
Q: With another $20 million cash burn this quarter, how should we think about cash burn in the next few quarters, especially if the deal gets pushed to 2025?
A: Jason Cole, CFO: The elevated cash burn in Q2 was partly due to deal-related outflows and fees from conversations with multiple parties. Additionally, we had interest payments in Q2 and Q4. We are focused on managing cash burn carefully moving forward.
Q: Can you elaborate on the benefits you expect from the proposed merger with Nano Dimension?
A: Ric Fulop, CEO: The merger will create a leader in the Additive Manufacturing space with enhanced scale and a stronger balance sheet. It will accelerate the industry's transition into mass production and create a well-capitalized company with a stronger financial profile to support our customers and drive innovation.
Q: How did the broader macro environment impact your financial performance in Q2 2024?
A: Jason Cole, CFO: The macro environment heavily penalized growth companies like ours. We saw a year-on-year decline in revenue, driven by weaker hardware sales due to these conditions. Non-GAAP gross margins also fell due to weaker cost absorption on lower revenue.
Q: What were the key reasons for choosing an all-cash transaction for the merger?
A: Ric Fulop, CEO: Given our past experience with a failed vote from Stratasys, an all-cash transaction presented the highest certainty. It allows Desktop Metal shareholders to make their own investment decisions regarding future growth opportunities without the risk of further equity dilution.
Q: How did customer feedback influence your decision to pursue the merger?
A: Jason Cole, CFO: During Q2, customers indicated they would not continue doing business with us until we addressed our balance sheet. This feedback was a significant factor in our decision to pursue the merger to ensure we could maintain customer relationships and achieve profitability.
Q: What strategic moves have you made to align your cost structure with macroeconomic realities?
A: Ric Fulop, CEO: Since early 2022, we have reduced non-GAAP operating expenses by 48% and strengthened our non-GAAP gross margins. We have delivered nine quarters of OpEx reduction and significantly reduced our cash burn.
Q: What are the expected operational efficiencies from the merger with Nano Dimension?
A: Ric Fulop, CEO: The merger will create operational efficiencies through enhanced scale and a stronger balance sheet. This will put us on a clear path to profitability and provide the resources needed to fuel growth and innovation.
Q: How has the additive manufacturing industry performed recently, and what challenges have you faced?
A: Ric Fulop, CEO: The industry has faced significant challenges, with profitability being elusive across public companies. Several companies have failed or been delisted recently. We believe the merger with Nano Dimension is the best path forward to navigate these challenges and maximize shareholder value.
Q: What are your thoughts on the future of additive manufacturing and Desktop Metal's role in it?
A: Ric Fulop, CEO: We believe additive manufacturing has incredible potential and will continue to grow over the next decade. The merger with Nano Dimension will position us to drive innovation, develop products for production applications, and build a profitable company at scale.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
