Desktop Metal revenue hit by customer orders deferred in Q3 2022

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Desktop Metal, a manufacturer of industrial 3D printers, reported an 85.4% increase in revenue in its Q3 2022 financial reports. 

Desktop Metal’s quarter ended with $47.1 million. This was a $21.7million increase on the $25.4million it generated in Q3 20201, but an 18.4% drop when measured on a quarterly basis. On the firm’s earnings call, its new CFO Jason Cole explained that it had missed internal revenue expectations in Q3 2022, due to “customers delaying purchases” amid an “uncertain macroeconomic backdrop.”

“The challenging macroeconomic environment created great headwinds for our business,” added Desktop Metal CEO, Ric Fulop. “We exited the first half of the year tracking towards our financial targets, with a robust pipeline of healthy customer momentum. As the third quarter progressed in some cases, we saw delays in closing orders that we had hoped to close. We believe this is a result of customers pausing on CapEx spend as they become cautious about the macro landscape.”

“On larger deals requiring more significant CapEx outlays, we saw customers make purchase decisions on economic concerns, which was not the case at the start of the quarter.”

Desktop Metal’s Q3 2022 financials 

Despite missing its own internal forecasts, Desktop Metal’s revenue actually grew across both its core divisions in Q3 2022. The company’s Products revenue increased by 79.5% to $42.9 million from $23.9 million in Q3 2021. Meanwhile, its Services revenue grew 173.3% to $1.5 million from $4.1 million. Both figures include income from acquisitions. 

On the flipside, Desktop Metal’s cost of sales also jumped 120.5% over the same period, and it stood at $47.4 million by the end of the quarter. On the company’s earnings call, Fulop said it has “taken swift action to course correct and reduce its expense structure,” resulting in annualized cost savings of $40 million, but it has become clear that it needs to “intensify its expense reduction efforts.”

Desktop Metal’s CEO added that “reducing its cost structure improves its path to profitability,” a road it aims to have walked down by the end of 2023. With this goal in mind, Desktop Metal laid off 12% of its staff earlier this year, but while Fulop said it’s “ahead of plan” in making these efficiency savings, he also admitted that his firm could have been quicker to identify cross-over with acquisitions. 

“We’ve got plenty of cost synergies from the M&A that we did,” explained Fulop. “If I can look backwards, it was a mistake [to not cut quickly]. I felt like I didn’t want to break anything apart by going too quickly as we were acquiring. I believe we should have been focused 100% on it. When we first got our arms around them, we weren’t focused on that.”

“We are not satisfied with our execution or performance in Q3, but we’re focusing on how we navigate our current set of circumstances.”

Despite headwinds, adoption is growing 

Desktop Metal sold to clients in a variety of sectors in Q3, including Ford, Cummins, and Optisys. However, some customers had to delay purchasing decisions due to macro concerns. Building on these deals, Fulop said the firm has now partnered with Align Technology, to “bring digital dentistry and workloads for printing to the mass market,” and gain access to a $30 billion market. 

Desktop Metal also announced a multifaceted collaboration with Siemens, through which its users will be able to take advantage of Siemens’ simulation and factory planning tools, as well as an extension of its existing collaboration with Henkel.

Unveiled during Q3, this wider partnership has seen Loctite 3D IND405 Black and Loctite 3D 3843 qualified for the Xtreme 8K, a machine marketed as the world’s largest Digital Light Processing (DLP) 3D printer. Featuring a high level of stiffness, strength and durability, the materials are said to be ideal for manufacturing end-use parts and consumer goods, in a way that could boost the system’s appeal. 

Keep positive, but lower the guidance 

Desktop Metal has decreased its FY 2022 guidance by around $260 million to $200 million and $210 millions. Q4 revenue is forecast to be $51-62 million, which is 78-87% annual increase. 

However, despite the challenges posed by macroeconomic uncertainty, Fulop was buoyant on the firm’s earnings call about the 3D printing industry’s growth potential. Over the next decade, Desktop Metal’s CEO predicted that the sector can still become worth over $100 billion, due to an upcoming market rebound, as well as the cost efficiencies unlocked by part digitization and design freedom in 3D printing. 

“The durability of these benefits remains incredibly strong,” said Fulop. “We’ve also had three similar periods where the market has stalled, coinciding with recessions. Pre-COVID, the last time this happened was in 2008 to 2009, when the market contracted by 3% annually. In the decade that followed, the market rebounded significantly compounding 27% growth.”

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Featured image shows Desktop Metal’s ExOne S-Max Flex 3D printer. Photo by Desktop Metal.