Desktop Metal, Inc. (NYSE:DM) Oppenheimer 25th Annual Technology, Internet & Communications Conference August 10, 2022 3:45 PM ET
Company Participants
Ric Fulop – CEO and Founder
Conference Call Participants
Martin Yang – Oppenheimer
Martin Yang
Good afternoon, everyone. Welcome to the 25th Oppenheimer Annual Technology Conference. This afternoon, we have the pleasure to host, the CEO of Desktop Metal, Ric Fulop. And in the next 40 to 50 minutes, he will walk through the business overview as well as market conditions. Rick, the floor is yours.
Ric Fulop
Wonderful. Martin, it’s a real pleasure to meet you and meet everybody else from Oppenheimer, and tell you more about Desktop Metal, which is changing the way that you make products with mass production via 3D printing.
The company is about 6.5 years old, founded out of MIT. We have four MIT professors as co-founders. And we’ve developed our new way to mass produce parts with additive and are focused on area-wide processes that benefit over time from Moore’s Law. So, these are printing processes that every three years we’re essentially increasing the throughput of the products. And so, you can expect a doubling of performance every three years, and every decade, you get a 10x. And that’s a significant difference from the other processes that exist to do production, with printing or tooling or prototyping. So, our technology has dramatic differences that way.
We believe we can get to double-digit share of this industry, which is going to be $100 billion by the end of the decade. We are really well positioned and are growing faster than our competitors in this space. This market, depending on who you ask, is projected to be over $100 billion by 2030. And we have very strong secular tailwinds that we expect will continue that are helping us with bring onshoring and supply chain flexibility to all of our customers. Our systems are dramatically higher throughput than legacy technologies like laser, or other approaches. So, they are over 100 times faster than then the technology that came before. We have a very broad library of materials, over 200 materials in a really defensible IP portfolio with over 650 patents pending and applied for across the board for different processes. So, a very strong moat and differentiated technology. That’s complemented by a prolific global network of over 250 partners in 65 countries and 100-plus internal go-to-market team.
We’ve got a very good installed base of over 6,000 customers across the globe with no account concentration, and a very, very good blue chip list of customers. The combination of focus is helping us penetrate very important verticals like automotive, consumer electronics, healthcare. And one of the great things about our products is that they have — they all come with their recurring revenue streams. So, you install these systems, and over the life of the product, they generate a lot more revenue than the initial sale. And that consumable that’s a recurring revenue stream is a proprietary component.
We have continued gross margin expansion. We expect in the long run to be in the 50% gross margin range and have very strong consumable and — consumable revenue, and I think, continue to make very good progress there. And I focus very much on the on the killer apps for our process. Last 12 months, we did about $183 million. Last year, we did $112 million. The year before we did $16.5 million. So, it’s a very high growth company. Organic growth last year was about 163%. We have the broadest palette of materials to print with our technology and a very strong IP portfolio.
Let me show you a little bit about our customer base. This is a select group of customers from our last quarter. You have companies like Gulfstream and Honeywell and Eaton and Ford, Nissan, the last four of these, as well as Kennametal, Saudi Aramco and Kimura are repeat customers that are buying and growing their fleet of systems that are using our technology. So they’re in production. These are — when you go to a store or buy products from these companies, there are components in them that were made with our technology, which is really fantastic.
As opposed to the prior generation of printing, where you would have used the product in the engineering phase for prototyping or for other applications. In our process, our products are used to make the end use parts.
Another very nice list of — broader list of customers as a whole. We have parts flying on the Leonardo Helicopters, we’ve got a great group of automotive companies like BMW with a huge deployment ongoing at BMW. If you buy an M series, it probably has our parts in it. And that’s expanding to the rest of the list, as well as some of the most exciting companies, like Caterpillar and Tesla and Lockheed Martin and all folks that are using our technology at different levels.
I talked about our technology having a recurring revenue stream. And that’s something that we think is very important and part of our long-term strategies to increase that recurring revenue stream that we have a larger percentage of the revenue of the business, and considering it’s a very high margin percentage. This is a compounding opportunity.
This market has been compounding roughly 25% for the past decade. And we see a huge opportunity for that to continue, and not just for a decade, but for several decades. Manufacturing of parts is about a $12 trillion opportunity, and less than 0.1% is produced with additive today. McKinsey considers that we’re going to go to several percent. And that would make the industry several hundred billion dollars. We think it’s going to be roughly 1% by the end of the decade. It would make this industry about $100 billion. And that’s in line with many forecasts. So, it’s a secular growth story. And we have really positioned our company to be a leader in this segment, and in particular, in the forms of printing that can compete with conventional manufacturing, which is binder jetting and area wide photopolymer printing.
And in those systems, you’ve got a combination of surface finish, throughput, material properties and speed that makes it competitive. Why would you want to print a part? The first thing our customers do is they will do the same part that they’re doing with analog production. But as soon as they get good at that, they start to design products in a way that take advantage of printing and doing more complex designs or doing assembly consolidation where you take hundreds of parts and print it as a single part, like you see in the case of this antenna, or they start to do supply chain engineering with some large Fortune 500 companies that print locally instead of print in the Far East and bring their products. And that — by making some of the product in Asia, some of it in the U.S. somewhere in Mexico, this way they can harmonize the quality and they can get around tariffs and VAT and other things like that and have a more dynamic, more just in time supply chain, free-up a lot of cash by doing that and do that cost effectively versus the analog ways of producing products. So, it’s very much a technology that allows you to become more efficient, save costs, and get control of your supply chain and your destiny.
As a result, this is a pure-play on supply chain disruption. We’re really helping our customers deal with the things that they’re going through. One very exciting program that we’re working on is with the Department of Defense. And as part of that — an agency they have in the Department of Defense called the Defense Logistics Agency, which is helping with security supply. If you look at castings, there’s very few suppliers that are certified, for example, for submarines. And when you qualify a part, you end up having to essentially lock in your certification to that particular supplier. And when you use printing, if you certify the parts to the printer, you now can put printers of different suppliers and very much free the supply chain in a such — reduce the complexity and introduce quite a bit of efficiency for the customers.
So, that’s just an example where now the printer’s part of the drawing and the print when a part is designed, and it was certified to be made on that printer that that allows you to really free up that supply chain.
Okay. Many other examples of supply chain disruption where our technologies helping. We’ve got very high margin product platforms with recurring revenue streams. The product on the right, Xtreme 8K, $100,000, $200,000 sale will generate $1.6 million of revenue over the life of the product. And almost half of that is gross profit. So, it is a very good product, very high margins. Same thing goes for our P-50 system, which is the fastest metal printer in the world and makes parts 1/20th the cost of competitive alternative systems. That’s what you see here. Over $100 million went to design. This technology, it makes parts at a totally different level of throughput than what came before it.
This is an example of one of our other areas in our business. Also using binder jetting. So, the same type of process instead of making direct metal parts, this is used in a process called digital casting, where you take the process and you make the patterns and the cores that are used for making parts. One of the really exciting parts about that process is you can make giant parts that are quite complex. And so, here’s an example of a part that one of our really great customers has developed. And where there used to be hundreds of components, now you see three parts and all the hydraulic and oil lines are going through the part. So, it’s quite an efficient — a much more efficient process.
The other part of our business is on the photopolymer side. That includes our work in healthcare. And here we have our process being used to do dental components. We are the best in the world in terms of properties for this area, we make products that have three times the fracture strength, and half of the abrasion resistance of prior generation products. And they are taking this industry — this is a $30 billion opportunity that is familiar with printing and is seeing great adoption, and we see very, very strong growth in this segment as a whole. And we’re taking — or growing market share very aggressively in this segment.
So, we’re very excited about this process and are very much best in the world that it have — the systems with the highest accuracy, the highest throughput and the best material properties. And that’s showing up in market share. And another example on the photopolymer space is our FreeFoam technology, which allows you for the first time to print foam. You may not think this is a big deal, but it’s a huge deal. It’s $220 billion market. And for the first time you have foams that have a flat delta tan, which means that they actually will operate well all the way from very, very low temperature as low as minus 70 degrees and as high as 140 degrees with flat elastomeric profile. That’s a result of developing a product that has a very advanced, multi-PROGRAM — multi-glass transition phase structure, which is something that hadn’t been done before. And it uses a process that’s pretty novel. It was funded — all the work was funded by DARPA, with over $20 million of R&D funding from the U.S. government. And this technology essentially allows you to print a part tiny, and then you expand it and form it into its natural side. And it doesn’t without affecting tolerances. So, it’s extremely accurate. You take adjustable — the glass transition temperature and it stops expanding. So, you get really accurate parts with one-seventh the amount of material, which means you can make less expensive parts than the foam in your car today or in your bed or in your shoes.
And in this area, we have a very, very good progress with large companies Serta in the mattress side, or really exciting work going on in the footwear space and with several leading carmakers, leading EV makers, and we have great traction here. So, this is going to allow you to light weight vehicles and improve the performance of sporting goods and the mattresses that you sleep in. So, that is a pretty cool technology we’re developing.
Here are some examples of where people are actually using this technology today. Ventana is one of our customers in France, they make parts for Airbus and many other airframe makers. They have been using our technology to really increase the complexity in lightweight parts. An example is this hinge, where they’re able to save a significant amount of weight of the hinge that opens the door in a Airbus plane. And you can see the complex geometry here is something that would be difficult to make with conventional manufacturing.
You’ve got an example here with BMW. This is in the M series vehicles. And we have had great success here. And they’re now expanding this in broadening the applicability. We have a huge expansion ongoing at the moment at BMW. This will be available in many more vehicles. And it’s an exciting part of our business where we’re showing the world that you can put printed parts and do things better and less expensive and greener than the way that they were being done before with analog manufacturing.
So, another example of a fantastic customer of ours, Caterpillar, who is really, really doing awesome stuff. They make products for oil and gas, like this engine. You see here the valve bodies or engine bodies, and they are done with our printed cast technology. This is an application where there’s huge demand and there’s a lot of growth and additional capacities going into the market. Collins Aerospace is also a leader in aircraft interiors. They use our systems to create those very large shapes that you see here. And this is very much mass production. So, it’s in series production in aircraft and other applications.
If you like Formula One, most of them MotoGP and Formula One engines are made with our process and now and that’s expanding to other areas like marine and motorsport. I just — I don’t know if you’re, if you like boats but the Mercury Verado V12, just one of the most badass engines you can get on a boat is a V12 600 horsepower engine, it can only be made with printing. And they use our machines exclusively to produce all the courseware, the super complex castings, and they’re all assembly consolidated, which is really exciting to see that type of product now in mass production.
A lot of military stuff that we can’t talk about, but it’s in serious production. So, if you look at some of the planes, like this picture, they’re things that are made with our stuff, or the CH-53, which is one of the most advanced helicopters, Sikorsky makes, all the composite ducting is made with our technology, as well as many other components. And that’s very, very large parts.
And now, we go to the micro world. This is a robotic surgery device that folds like a spider into a tiny, tiny setup that can fit through a very small trocar. And then, inside the body, it unfolds and can do surgery. And all that complex geometry and micro machinery is 3D printed, which is absolutely awesome. And from a fantastic company called Vicarious Surgical.
And then again, I mentioned already our great work in the healthcare space where we are by far the market share, and the leader in Class 2 FDA materials for permanent restorative indications. We’ve had hundreds of thousands of people do dentures with this material, we’ve had thousands of people had full arch implants. And we — these are parts that stay permanently in your mouth. They’re certified to stay a decade in your mouth. So, it’s not like what came before it, which was aligners and other components that are mostly throw away after a little bit of time. So, these are very high performance parts. And we’re very excited to be part of this process in this $30 billion segment that’s going to fully transition.
So, today, I’m very proud of the work that our team has done. Our company’s dramatically better positioned today than at the time we went public. We’re number one market share in binder jetting, over 90% in the metal side. We’re the dominant number one share player in digital casting. We are by far number one share in printed hydraulics. And then, we’re the only company in the world that has mass production with printing for foams. And we’ve got great traction there. And we lead the world also in Class 2 permanent solutions for restorative healthcare applications.
So, with that, I think this is similar to same slide I talked about before, but I’d love to get into questions and talk to Martin and discuss in more detail the future of this industry.
Question-and-Answer Session
Q – Martin Yang
Sure. Thanks for the very comprehensive outlook. So, we have a few questions fielded from the audience already. Let’s address those before getting to other questions. So, one of the first questions from the audience is regarding P-50, which is your high throughput production tool. And the question is, if P-50 was ordered today, how long until your customer can get their hands on one? In other words, do you have a lot of backlogs to go through, what’s the lead time for the order?
Ric Fulop
We do have backlog to go through. We have several dozen customers at the time of — in the range of 90-plus customers that have given us money to do — to basically put down money on one of the systems. We are trying to bring up production and it’s coming along in — obviously, it’s a first come, first serve. We have some very, very large engagements with some world class companies, for example, in consumer electronics. And obviously, those are somewhat all consuming and are very, very large opportunities for our company.
So, we have prioritized some of those areas, but our company, you expect — I will have a great update on P-50 later this year when I can talk about not just one company, but I can actually do a broader update on how that’s progressing.
One of the challenges when you work with — when your customers are all the super Tier 1 OEMs is that they — they’re putting this level of investment, they’re working properly on the most advanced programs, and those tend to be confidential. So, you can’t share what parts they’re looking at, or what they’re trying to do with the technology till the products are in the field or commercially available. But, as we continue to make progress on this program, we will be able to talk about it in much greater detail. And if anybody wants to come to Boston and see it running, we can definitely do that as well and print your parts on it. And you can see it printing that at three seconds a layer for — or a bill box every three hours. So, that’s something that we’d be happy to entertain for any investors that ever want to learn more about our process.
Martin Yang
Got it. Thank you. And the next question from the audience is about your more specific production process. And he’s asking, is there a way to safely automate the depottering process and how likely are we going to get a completely automated production process from printing to sintering?
Ric Fulop
The answer is absolutely, yes. We’re absolutely working on it. We’ve got great progress on it and we’ll be showing stuff in the future and automated depottering and full workflow. The call I was on right before I got on to this was just reviewing our progress. We have actually customers in beta in this area. So, some customers have equipment in Germany that are using some of these automated processes and have great success with it.
So, as we — it is not a bottleneck that you should be worried as like, is this going to prevent the industry from getting broad adoption? The right level of engineering is going here, so that you can actually have a very highly scalable process.
Martin Yang
And the next question also from the audience is about your go-to-market strategy. And is there need to — for additional investments into your go-to-market, and if so, can you maybe quantify it?
Ric Fulop
I don’t think so. I think we’ve got now an incredible go-to-market platform. We’ve got 250 partners in 65 countries. They are the best in the production level. So, you have to think about how this industry got formed. In the first phase of the industry was about prototyping and the second phase was about tooling and the channels that get formed around those areas were — had a focus on either prototyping or tooling. And we’ve built the first real channel focused on production. And on top of that, we’ve got augmented production team effort that covers products that are between $0.5 million and $2.5 million, so like the more premium products, and then we have a strategic account group that looks at accounts that can be more than $50 million individually. So, there’s — we’ve got a pretty sophisticated team now that is delivering on the numbers as you saw on this quarter and has an incredible funnel. And then below that we have the conventional channel built into the industrial and then in healthcare.
The healthcare team is individual and it’s split into two parts, it’s sort of a lab or chair side. And teams are executed, and they’re doing great. I mean, nobody’s perfect. But we have a pretty good team. And I think we’re better than our competitors in this area. And you’ll see us continue to take market share. We’re growing faster than the other companies in additive. And we’re excited about — I think we very quickly have become number three, after Stratasys and 3D Systems. I think 3D Systems is very good at prototyping, that’s really still the core of the company. Stratasys’ products are very good for tooling. And then, we’re very good for production and production is growing much faster than these other two segments. And, when you grow at our rate, it doesn’t take too long to eventually — we’re sort of half their size now, by the end of this year. So, we’re approaching half their size. So eventually, we will get to — we’ll continue to grow. And I think we have a shot at being number one here within a couple of years.
Martin Yang
And the next question is on your revenue composition. So, can you maybe provide more color on how much of the revenue is coming from recurring — is recurring in nature, and how much is from equipment sales? And how do you expect that to evolve over the next couple of years?
Ric Fulop
Recurring will continue to grow but one challenge when you’re growing triple digit as a company is that you — if you put — if you sort of double the amount of hardware or grow very quickly amount of hardware, it takes you a little bit of time a year till that hardware is not producing at 100% throughput. And then you’re never catching up on the recurring. Eventually your platform is large enough that it will. But I think for the next couple of years, if we continue to grow at this rate, it’ll — now, everybody asks the question so much that we are going to probably break it out, just so that — literally every investor call people ask me what is the recurring versus this, we’re just going to probably break it out and make it really easy. And then, it’ll be easier for everybody to track it. And you’ll see that it will continue to grow.
It is a higher margin component our business. And we are — look, we could make this company profitable very quickly if we needed to, but it would sacrifice long-term growth. And I am interested in continually innovating and making the Company more competitive, eventually getting it to cash flow breakeven and then maintaining that and then reinvesting the rest in growth. So, my point here is we will do that breakout. And we are going to also do the right balance between growth and getting profitable faster. We just cut costs significantly towards the end of Q2, you’ll see the benefit of that in Q3 and Q4 and through rest of this year.
Martin Yang
We’ll definitely look forward to it. And final question from the audience is regarding the technology progression. You mentioned in the past pretty often that you benefit from the Moore’s Law in 3D printing. And can you maybe elaborate on that and then maybe illustrate to us what have you gained in the past two years on your product development as a result of that Moore’s Law?
Ric Fulop
So, I’m going to describe how it works for the metal side and how it works for the photopolymer side. So, first of all, we are doing area-wide printing, which means you are exposed to layer all at once. Whereas other folks in the industry, let’s say Markforged or let’s say the FDM products, like Markforged or Stratasys there are vector based that you’re sort of drawing with a pencil, or with laser, you’re doing the same, you’re drawing with a pencil. Even if your pencil is moving very fast, it will never be as fast as exposing the layer all at once. And that’s where our IP and our technology lies in the DLP space, with area-wide printing, or in the binder jet side, which is also a single pass technology that gives you the whole layer at once. So, we’re able to print at very, very high speed.
The way that it — that the speed is determined for the binder jet products and is a function of the lay down of your inkjet system and the recording speeds. Right now we’ve got recording technology as proprietary that can move at much higher throughput than any of our competitors. So that’s not a speed limit. The speed limit is really how much lay down you can do in inkjet. And in inkjet the throughput doubles every 18 to 24 months and it has for the past two decades as a result of that of being able to increase the firing frequency and increase the nozzle density in an inkjet system. So, you basically are able to improve every two to three years, new heads come out, and then you’re able to array them and create a giant print bar that will have higher throughput.
In our production system, we are now doing a migration from G3X to G5X and that’ll improve performance as a result by a certain factor. We are working on our next generation system that will go across the board on all our printers. And as that gets introduced, they will all eventually get a performance boost.
So, we see ourselves as having a three-year window through product cycle in where the products get refreshed and gain higher throughput and high resolution, better performance and our customers are going to enjoy that continued benefit. And that’s happening without increasing the cost of the product.
When you take a laser system, let’s say a VAL [ph] system, or SLM, were it take an SLS system from EOS, those systems are vector based. And if you want to double throughput, you have to double the number of lasers and you’re increasing cost dramatically.
So, the big benefit to our area-wide process is not only the speed, but the fact that you can expect performance improvement over time.
I would say legacy companies that have done during the past did not have that product refresh cycle to take advantage of the latest print head technology. We actually — we acquired ExOne, which had a very, very good customer base, a lot of materials qualified and they had very large platforms that you could put this technology on. But they didn’t have the print engine technology. And that is quite a bit of investment to develop all that effort, and the chemistries that are able to work with that print engine technology at that throughput. We have very different chemistry and binders than what other people use. And so, now we’re able to put that over our Single Pass Jetting technology over a broader set of platforms. And you’ll see continuous improvement and performance on our products and that refresh rate that I was describing where the products will get better every couple of years. And we’re really excited about that — bringing that to the market.
I would say, on the photopolymer side, Moore’s law works a little bit different. Photopolymer side, it is a function of solid state diodes. Those are on a curve where diodes get higher power every certain amount of time. And that gets multiplied by the resolution improvement on a DLP chip, which happens also on — that’s a MEMS based process, which is semiconductor process. So, as you can go from one type of wafer system to the other, and you basically can get more definition, you can pack more DMD mirrors on a chip. If you can do that, then you now have for the same price a broader area. So, if you went from XGA to, let’s say 4K, now you’ve got more area for the same amount of space. And then combination of the power which — from the diodes, which sets the polymerization rate and a larger area, that gives you higher throughput.
Now, the next step that most people don’t account for is that as these get very inexpensive, which they have, because LED lighting has gotten very — this diodes diverse very inexpensive, the projection diodes in the DMD mirrors, go into very high volume markets like automotive, they get very inexpensive. We have a third thing you multiply it with, which is the ability to multiplex them. So, you’re able to use them the way you use a printhead in an array in a single pass bar. So some of our more important IP is how you multiplex that into a very large area. And that allows you to decouple the area of polarization from the resolution of an individual chip. And it also allows you to print with new chemistries that have better material properties, because you have much higher intensity, because you’re basically — you’re able to shrink the projection area and multiplex them into a bar that you then scan on an area-wide basis over the full bed.
So, those curves mean we’re going to see continued improvement for the next decade or two, in this two processes, which is the reason we picked these two processes and looked up a lot of the IP and technology around it. And I couldn’t be more excited to be in this business today, so if it doesn’t show over the screen.
Martin Yang
Got it. And our next question is also about the support for a wider variety of materials, the principle — the consumables. Many of the 3D printing companies, they highlighted their ability to support the number of materials as one of the key strengths. So, where are you in that? And do you think — is all the materials your support readily available?
Ric Fulop
So, we have the largest library in the market with 250 materials available for our systems across different platforms. We can print wood, something nobody does; we print foam, which nobody else does; we can print LOCTITE materials from Henkel. We have photo induced phase separating chemistry for polymerization, which allows you to use a two-part system and without having a limit on curing time. And that allows you to make a very large project — very large printer that — like our Xtreme 8K, where the resin is not going to freeze or go bad over time, which is an issue for other solutions where you have two parts systems. Our two-part system is stable. And that is unique patented technology from Adaptive3D company we bought.
So, most other folks use acrylic or acrylic based photopolymerization, which is a photo initiation process. We use something different called photoinduced phase separation, where you take a two-part system — if you remember when you were a kid and you played with epoxy and you mixed a and b, it starts to react that sets, ours does not. It only — when it’s mixed, it stays miscible, but it’s unreactive. And only when you hit it with light, does it phase separate and in that pixel, it will turn into a solid piece of polymer. And because it’s coming out of a two-part — 2 TG mix, it will give you much better material properties than our competitors. And so, we have core technology and chemistry that is superior from other folks in the printing business.
And so, we have a lot of chemists that work at DM and a lot of material scientists. And while we do allow folks to use metal materials like LOCTITE from Henkel, we do have materials that nobody else has, and it’s part of the reason why people use our printers. We have the world’s best and toughest printable rubbers. We have the best elastomers. We’ve got the best foams. We have the best rigid materials, as evidenced by having the leading properties in terms of FDA Class 2 permanent indications. Our dental, teeth materials have 3 times the fracture strength of the nearest competitor, have half of the moisture absorption. And they wear a half of what the closest competitor wears after 402 [ph] cycles.
So, I think that’s the reason why our company is successful. We have a huge investment in material science. And one of the things I love about printing is that it’s an awesome industry where it’s really like the Olympics of technology. You’ve got material science, chemistry, firmware, software, hardware, process development. The systems have to be reliable. You have networking, because they have to talk to the factory systems. They have — do have a huge uptime and OEE. And they have to be easy to use. So, it’s an awesome, awesome industry where the physical science excels.
Martin Yang
We are about to run out of time and at this point there is no more questions from the audience. Ric, would you like to make any closing remarks?
Ric Fulop
No, Martin, I’m very grateful for the time, very grateful and also very grateful for our investors that have supported us on this journey. I think our company today is extremely well positioned compared to, I would say, when we went public. We have a company that will do $260 million in revenue this year that is number one share in binder jetting, in printed castings and printed hydraulics. It is really the only company in the world doing mass production with printed foams and has a leading position in FDA Class 2 solutions, which is going to be all major markets. So, very — expect very good growth for the business. And we’re looking forward to our long-term targets of getting to $1 billion in revenue mid-decade, and then from there on getting to a double digit share of this $100 billion industry by the end of the decade. So, I’m very grateful for everyone’s support and excited to be here. So, thank you.
Martin Yang
Thank you. And thanks again everyone for coming. And that’s the wrap. Hope you have a good rest of the conference. Bye, bye.
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