Desktop Metal - Q1 2021

Transcript

Speaker 0

Greetings, and welcome to Desktop Metals First 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. 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, Investor Relations. Please go ahead.

Speaker 1

Thank you, and thanks everyone for joining this afternoon's call. With me today are Rick Fullop, CEO, Chairman and Founder of Desktop Metal and James Haley, CFO of Desktop Metal. Please note that our earnings 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 at the same Investor Relations website. The webcast and accompanying slides will be available for replay for 12 months following this 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'd like to refer you to Slide 2 of the presentation, which contains our Safe Harbor disclaimer. Today's call will include forward looking statements. These forward looking statements reflect Desktop Metal's and uncertainties.

For more information about the risk factors that may impact Desktop Metals' business and financial results, please refer to the Risk Factors section of the annual report on Form 10 ks 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 or the following Q and 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 or performance measures calculated in accordance with GAAP. Our earnings 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 Rick Folt, CEO and Founder of Desktop Metal. Thank you, Jay. Good afternoon and thank you for joining Desktop Metal's Q1 2021 earnings call. I'm very pleased with our progress since we last spoke with you, including the results we delivered in our Q1 of 2021. We're building Desktop Metal for the long term and some of the investments we have made over the past several months into the coming public reflect that thinking.

As we presented previously, analysts estimate the additive manufacturing market will scale from $12,000,000,000 at the end of 2019 to $146,000,000,000 by 2,030. We have focused our business to capture what we believe is the biggest opportunity driving the growth of this market. The volume production of end used parts, or what we've defined as additive manufacturing 2.0 or AM2.0 for short. We're well positioned to execute on our strategic vision in AM 2.0, and we expect to be a major player in this space. We define success by achieving a double digit share of the added market by the end of the second, and every strategic investment we're making today has that goal in mind.

I'd like to start today by reviewing our key accomplishments from the Q1 before highlighting how our product portfolio and technology differentiates itself in the additive market and then go into details about some of the exciting recent developments of the business. After my remarks, James is going to cover financial results for the Q1. I'll start on Slide 3 with a quick review of our financial highlights. We're very proud of the execution of the Q1, delivering revenue of $11,300,000 and a Additionally, our margins continue to strengthen with Q1 2021 adjusted gross profit of $3,300,000 from prior year and significantly up for the Q4 of 2020 as well. We expect continued margin expansion and plan to exit the year with greatly improved margins as we gain leverage over fixed Now let's move into the business highlights for the quarter.

In Q1, we saw accelerated market adoption of our metals business with a variety of major customer additions. We announced a key partnership to introduce 6,061 aluminum into binder jetting with better than broad properties, a major milestone for opens up some exciting use cases in industries such as automotive and consumer electronics. Since we last spoke, we expanded our materials library from 190 to 225 materials today. Materials are a key enabler for Endy's part mass production, and we have one of the broadest libraries of materials cutting across metals, Polymers, continuous fiber composites, ceramics and now wood and elastomers as well. This growing materials portfolio is 100% focused on end use smart production.

Customer adoption also accelerated this quarter across various AM 2.0 platforms. We added more customers this quarter than all of last year We also closed the EnvisionTek acquisition, which we remain very excited about. EnvisionTek launched 2 new products in the quarter, the Extreme 8 ks and the Envision 1HD, both of which are high temperature printing systems that represent significant growth opportunities for the industrial mass production of polymer parts. The Extreme 8 ks is the world's largest production grade DLP system. The combination of high speed printing And vertical integration into materials enables superior price performance on both of the systems with compelling product economics for our customers.

Both the Extreme 8 ks and the Envision 1 HD are shipping and the early reception has been spectacular. Another exciting development in the company is our launch of a process to mass produce wood parts via added manufacturing. Forrest is a new way to make high volumes of end use printed wood parts that leverages our existing binder jetting platforms. No new investments in hardware were required. Essentially, this is development of a new and unique material set.

This capability was developed from a small acquisition we made last year. Forrest Sustainably Prints real wood parts and products that can be used in a variety of industries from consumer goods, furniture, luxury interiors, architecture and more. We also saw strong continued momentum in the dental business, which grew 64% year over year. We continue to believe this is one of the killer apps for AM 2.0. Last week, we launched a new brand, Lexera from Desktop Health, targeted at dentalprosthetic applications.

We're going to continue making significant investments in the Health and Dental segment, which is growing at a rapid clip Across not only polymers and ceramics, but also metals, where we are putting resources behind accelerating the qualification of materials, which can be used for abutments, crowns, partials among other dental applications. We're also announcing today the acquisition of Adaptive3d, which I will speak to in more detail later in the presentation. This is a fantastic acquisition giving us proprietary access to the world's best printed elastomers. We believe printed elastomers are another killer app for additive manufacturing. The technology started out as a military funded DARPA program.

That innovation has produced a new class of polymers that are printable and give you market leading elastomeric properties, enabling applications such as digital foams through micro architected design. We're super Finally, we continue to build Desktop Metal's team to best position the company with talent to execute our vision. We have grown to over 470 employees today, up from 180 this time last year. Now let's take a step back for a refresh of our strategy for Dustpot Metal. Turning to Slide 4.

Today, only a small percentage of the spend in a program goes to design prototypes, Tooling and Jigs and Fixers. The vast majority of the spending in a program goes to end use part production, most of which is done with conventional manufacturing today, globally more than $12,000,000,000,000 a year in spend. The core focus of Desktop Metal is to develop systems and processes that enable a cost effective volume production of end use parts with additive. This is AM 2.0. A number of companies have taken up this moniker, which we first introduced to the market last year.

But AM 2.0 is not just about new printing companies. It's not about tooling or prototyping. It's about competing with traditional manufacturing on cost and quality And surface finish for volume production and use cases. This is the fastest growing segment of additive manufacturing And what we believe is the biggest opportunity to capture the share in an industry that is expected to grow at a compounding growth rate exceeding 25% annually We reached $146,000,000,000 by 2,030. We have the right team, technology, IP, resources and product portfolio to deliver on that vision.

We will continue to target investment in our core business as well as inorganic opportunities to accelerate our ability to Now let's turn to Slide 5. To drive adoption of AM 2.0, We're investing across 3 primary focus areas. 1st, we want to be the leader in print platforms and technology. Today, we make the world's fastest metal printers. They're up to 100 times faster than legacy systems in the market.

We also have the largest and fastest areawide polymer printers that allow you to produce parts at a fraction of the cost of 5 generation technologies. Across materials, our print platforms are designed to compete cost effectively with conventional manufacturing, And we believe these platforms are well positioned to capture an outsized share of this decade's investment in additive. We also want to vertically integrate into the materials that these printers consume. For example, all of the resin used while operating a photopolymer printer for the powders and binders consumed by our metal printers. We believe there's a huge opportunity here, not just to expand a set of applications our printers can address, Also to create more compelling cost equations for our customers through vertical integration.

And finally on the parts side, We will look to build a strong offering where we see killer apps emerging for additive manufacturing 2.0 or opportunities that enable materials that previously had high barriers to We will be selective where we participate and we require a high return on investment. Our Forest acquisition in the sustainable printing of wood parts and products is an example of an end use part market where we see tremendous opportunity in. Reviewing the product portfolio as a whole on Slide 6, we believe this represents the most compelling and diverse set of solutions in the additive manufacturing Today, it includes not only solutions focused on AM 2.0 for metal and polymers, but also across biocompatible materials and digital casting applications. And we continue to make investments to grow our library of materials and expand into additional high volume applications to best serve our customers, including elastomers in wood. This is an unmatched product lineup with significant commercialization runway to gain share in the large and rapidly growing added market.

Every one of these systems are being shipped today with the P50 expected to ship in the back half of this year and that project is on schedule. Turning to Slide 7. On the binary genning side, specifically, we make the world's fastest metal printers. Our Production System P50, which is our flagship system, is a high speed mass production tool that leverages our proprietary single pass ginning technology, Printing layers in less than 3 seconds without sacrificing quality or consistency. And we have a series of other products that are being upgraded to single fast gen technology, including our large format ramp platforms, which will result in incredible productivity.

So that's an ongoing effort in the company and it gives us a broad set of platforms To really disrupt the industry with mass production capabilities, the systems that we have on the single pass jetting side bring up to 100 times the speed that you can achieve with legacy laser pilot fusion systems and are also dramatically faster and offer improved performance versus legacy biogenic systems. And the part quality is fantastic. Fully dense metal parts with excellent surface finish and mechanical properties meeting or exceeding metal industry standards. Moving on to Slide 8, this helps illustrate the economics of various technologies in the market. While a technology like laser pilot fusion is great for larger parts such as in aerospace, its applications for end use parts are more limited Due to higher CapEx and parts cost, binder jetting with single pass jetting technology is the lowest cost AM process available and it makes very large volumes, 100 of 1,000 or 1,000,000 of parts more accessible to industries such as automotive, consumer electronics and industrial markets.

Moving to Slide 9. Customer adoption continues to gain momentum as we're seeing solid traction across a number of segments. We added more customers in Q1 than all of last year combined, and this is going to pay dividends in terms of recurring revenue from consumables in the future. The left side of the slide shows a number of our customers across different sizes of industries. In highlighting 2 particular customers on the right side, PGV Industries is a designer and manufacturer of oilfield equipment in Texas using the SHOP system to produce very complex metal parts.

The SHOP Systems additive benefit has enabled PGB to deliver parts for applications such as downhole tool components with up to 80% reduction in lead times and inventory, while eliminating fixture and tooling costs. Another great customer is 3 d Composites, An additive manufacturing company based in Washington State with over 30 years of experience in the aerospace industry. In a matter of months from getting started, 3 d Composites has used our photopolymer systems to bring thousands of fly worthy parts, with many being used by Boeing commercial aircrafts in the sky today. So these are end use parts that are high volume. We love highlighting SMEs here because they are the engine of the manufacturing world, And their adoption of our technology speaks to the fact that additive manufacturing is not just a tool for enterprise centers of excellence or division set up to evaluate 3 d printing.

SME adoption is a real barometer for the economics and performance viability, particularly As it indicates, the ROI and cost efficiency of our high throughput production technology relative to competitive or conventional solutions. Turning to Slide 10, we have an exciting new offering that's the result of a small acquisition we made at the end of last year. Forrest was a 3 person company started by the Chair of the Architecture Department at UC Berkeley, a professor at San Jose State University And an entrepreneur named Andy Jeffrey, who has been a long time leader in the 3 d printing world. Morris has developed a new process to print wood out of waste. The world makes $1,300,000,000,000 every year of finished wood parts.

It's a big business and it comes with complex logistics If you think of a tree, it's essentially made of 2 components, lignin and cellulose. When you make paper, you take the lignin away from the cellulose. Lignin is one of the most abundant waste streams in the world. The same goes for sawdust, which is mostly cellulose. With the forest process, we're putting the lignin and the cellulose waste back together inside our printers to make beautiful End use wood parts.

You can make products that look absolutely indistinguishable from conventional wood parts, But they're very cost effective because it's essentially made out of waste. This is a true cradle to cradle circular manufacturing story, And we're able to use the same printers we have designed to print metal and sand like our SHAW system In our RAM solution, we have adapted them for these new materials. And with Borrst, our goal is to flip the annual wood spend into sustainable manufacturing via additive. This is a very exciting opportunity for us and the reception has been overwhelming And surpassed every initial expectation. We expect to hear great things in the future from this effort.

As highlighted on Slide 11, Desktop Health continues to gain significant traction. Dental shipments grew 64% year over year from the Q1 of 2020. We consider dental one of the early killer apps for AM 2.0 in metals, polymers and ceramics because almost every dental part is unique. It's a market that's both growing and adopting additive very quickly. More than $30,000,000,000 Dental parts are sold every year by labs to dentists, not only a small percentage are printed today.

We expect that this number is going to grow considerably Slide 2025 was much as 75% of the overall market. We have disruptive programs in all three segments of the market such as ortho, removals and restoration. As we're positioning desktop health to best capture this in other healthcare markets, last week we launched our first major product line, which we call Flexera. Flexera is used to create 3 d printed dental prosthetics and dentures with unparalleled performance. Our Flexera smile is a Class 1 medical device enslexeravase is a Class II device recently cleared by the FDA.

We're now starting to commercialize this product, which come in a variety of colors. This is a very fast growing exciting business. Dental is truly a killer app for additive because every part is different. So it's really well suited for this type of production and we're investing in the business to be a major player in this market. On Slide 12, in order to take additive manufacturing There are 4 key hurdles we highlighted on the last quarter's call.

Each is a high bar to compete with conventional manufacturing. One of the hurdles that has kept additive from being adopted for a very long time is material properties, where the technology has to at least match the properties of conventional manufacturing processes. We're super excited about some of the developments in the material segment of the additive market because they enable an expanding set of applications at scale And we're investing organically and inorganically, where there are clear opportunities to build out our library of best in class materials performance. One exciting example is elastomers. Turning to Slide 13, today we're thrilled to announce the acquisition of Adaptive3d.

Adaptive 3d creates the best photoelastomer resins in the world, outperforming all major competitors in the space, Adding their patented resins to our materials portfolio opens access to the larger elastomer market, which is posed for disruption with AM 2.0 capabilities. Adaptive 3 d Technology was developed out of a DARPA program and has been backed by leaders in the materials industry, including Covestro, Arkema, West, Applied Materials and DSM. This acquisition is really just a natural Next step in a collaboration that has already been developing between Adaptive3D and EnvisionTek, which together announced a distribution partnership not too long ago. We're incredibly excited to combine Adaptive 3D's elastomer capabilities with our category leading AM 2.0 photopolymer systems, such as the Extreme 8 ks, and capitalize on what we view as a huge opportunity to accelerate high volume endospark production for this market. Turning to Slide 14.

This market opportunity is quite large at 129,000,000 Of that amount, only a little over $150,000,000 a year is being printed today, mainly due to cost and speed. And we believe Adaptive 3 d's materials will help accelerate the penetration of AM in the overall market as we enable these materials to be printed in our print engines that offer a new level of price performance. For an early stage company, they have built a fantastic customer base We expect to build into mass production and we look forward to leveraging our vertically integrated resin manufacturing operations within EnvisionTek to commercially produce adaptive 3 d elastomers for customers at scale. Best in class elastomer solutions enable a wide range of applications across A wide variety of industries, including consumer, medical, industrial, automotive and oil and gas, These materials really open up the possibilities for our solutions. Turning to Slide 15.

When you benchmark material performance Relative to all other players in the field, Adaptive 3 d materials are in a completely different class. When combined with platforms like Extreme 8 ks, which lead the industry in throughput, affordability and quality offers a tremendous growth opportunity. Finally, on Slide 16, we wanted to highlight an Adaptive 3 d customer, Dustless Technology. The mass produced parts collection systems that you can buy at Home Depot today. So the economics here work for end use mass production applications.

This is yet another example of an SME with a great ROI, mass producing end use parts with additive manufacturing. Syskos was able to transition over 15,000 previously injection molded assemblies to adaptive 3 d top product elastomer solutions that are fully 3 d printed, Reducing reliance on expensive tooling and delivering improved lead times, while performing in line with conventionally manufactured alternatives It's a perfect example of the opportunity we see to bring high volume end use parts to the elastomer market in our partnership with Adaptive 3 d. And we're super excited about adding their proprietary Pantet materials to our expanding portfolio. With that, I'd like to turn the call over to our CFO, James Haley for his review of the Q1 financial highlights. James?

Speaker 2

Thanks, Rick. I will provide a summary of our financial performance For the Q1 of 2021, discuss the impact of the recent accounting change to our private warrants and end with our updated guidance for 2021. On Slide 18, you will see a summary of our financial performance For the Q1 of 2021, please note we will be referring to the financial metrics on a non GAAP basis. Reconciliation to GAAP data is included in the filed appendix. We are pleased to report revenue of $11,300,000 in the first Quarter of 2021, up 35% sequentially from $8,400,000 in the Q4 of 2020 and also up 2 34% from the Q1 of 2020.

The acceleration was due to the acquisition of EnvisionTek as well as an increase in our metal product shipments. Non GAAP gross profit in the Q1 was a positive $600,000 which represents a sharp $3,300,000 improvement from negative $2,700,000 In the Q1 of 2020, the improvement was driven by the EnvisionTek acquisition, mix shifting toward higher margin products, as well as our revenue beginning to scale out over the overhead costs associated with our manufacturing operations and customer support organizations. Adjusted EBITDA for the Q1 of 2021 Was negative $19,400,000 versus negative $18,600,000 in the Q1 of 2020. The increased loss in adjusted EBITDA was primarily due to increased G and A expenses related to operating as a public company and investments in our core business. We grew the Desktop Metal team to over 470 employees today, up from 180 at this time last year as we position the company with the right talent for the exciting opportunity ahead.

We ended the quarter with a well capitalized balance sheet, including cash, cash equivalents and short term investments of $572,000,000 as of March 31, 2021. This includes completing the redemption of all outstanding Moving to the change in warrant accounting. Pursuant to new guidance released by the SEC on April 12, 2021, We changed the historical accounting for the private placement warrants assumed in the business combination to record a liability for the fair value of these warrants With any subsequent change in fair value, adjusting the liability in recording a non cash non operating gain or loss in the statement of operations. As a result of this change, we filed an amended 10 ks for 2020 this morning, reflecting these changes. Since all outstanding private placement warrants were exercised by March 2, 2021, impact is only historical in nature.

The change is also strictly accounting related and does not impact our business market opportunity, investment prospects or future valuation. Finally, moving on to our guidance. We are reiterating our expectation to generate revenue in excess About $100,000,000 in the full year 2021. We continue to plan to exit the year with an annualized run rate of $160,000,000 and expect to see sequential quarterly growth throughout 2021. We are updating our adjusted EBITDA outlook to be in the range of negative $60,000,000 to $70,000,000 This updated guidance reflects increased investments in areas of our business where we see outsized growth opportunities, including Desktop Health, Adaptive 3 d, EnvisionText and our organic business.

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

Speaker 1

Thank you, James. I'm pleased with a strong start to the year. We're well positioned to fast track growth with momentum in our core business and exciting inorganic opportunities. We remain very optimistic about sequential acceleration during the second half of the year as we launch additional products and start shipping our P50 systems, integrate our recent acquisitions and capitalize on our expanded portfolio of material capabilities. And we're focused on building the company and making decisions to achieve long term value creation.

I'm confident we have the portfolio of solutions The strategic positioning and other resources to best capture share in added manufacturing by delivering AM 2.0 solutions for high volume engines parts. With that, I will now open the call for questions. Operator?

Speaker 0

Thank you. We will now begin the question and answer

Speaker 3

Our first question comes from Noelle Dilts from Stifel. Please go ahead.

Speaker 4

Hi, guys. Good afternoon.

Speaker 1

Hello. Hi, Noel. How are you?

Speaker 4

Hi, great. Just was hoping that you could comment on sort of what you're seeing in terms of the supply chain and also run logistics. There's been a lot of talk in the industry about some challenges there, and what you're seeing today and if you're taking any actions to kind of avoid potential issues down the line. Thank you.

Speaker 1

Absolutely. It's something we monitor very closely and we are being proactive about it and try and ensure that we don't have components that we won't be able to source at the scales that we want. We have made some quick changes in some of our products in anticipation of shortages, But it has not been an issue and we don't actually expect it to be an issue or affect our numbers in the future given the planning that we're Putting in place. I guess maybe DOT chips could be the one area that we monitor pretty closely, but we are Ahead of the curve on that one and doing our best to ensure that it's not going to be an issue on future quarters. So far, we feel pretty good that It's not going to impact us.

Speaker 4

Okay, great. And then obviously, nice sorry, go ahead.

Speaker 1

By the way, this is one reason to adopt additive manufacturing for mass production is a lot of these impairments in supply chain and Inflation coming in the horizon and things like that are difficult just with Flexibility of that supply chain are the types of things that come up when we talk to large customers. They are excited about solutions that Given flexibility and freedom from some of the approaches that for example, COVID in India has been a huge issue for Many of our customers, I was just with a CEO of a major company the other day who is very excited about using our technology He's got suppliers in India that have had issues delivering things given the critical Situation that they're facing there. So I would say, this is a technology that puts a lot of redundancy on supply and enables you to react quicker. And so it's we see it as tailwinds. On the chip side is the only On the horizon, but our products are such that we don't expect this to be an impairment on our ability to deliver Our numbers this year.

Speaker 4

Okay, great. And then one housekeeping question for me. I was wondering, sorry if I missed this somewhere in the materials, but Do you have the mix of organic revenue in the quarter versus contributions from EnvisionTek?

Speaker 2

So that is not something we're disclosing today. On our last call, we did indicate that we expected roughly 60% of our revenues to come from DM organic and 40% From inorganic, and I would say we're still trending in that direction. I think what we'll see quarter to quarter, there'll be some variances. But really our full year view has not changed at this point.

Speaker 4

Okay. And then last, just As you've expanded the portfolio through acquisitions, Rick, could you just touch momentarily on what you're seeing or The success you're having so far in terms of cross selling and how you're kind of thinking about really leveraging this more expanded portfolio, as you look forward? Thanks.

Speaker 1

Absolutely. I think we see great success there on the ability to cross sell as well as Bring more solutions to customers globally on both, bringing things like Our direct print solutions to jewelry and dental were EnvisionTek had a long vertically integrated presence in a direct And I would say a channel that was targeted towards those industries and We're also seeing very good success with industrial customers that are adopting Our metal printing solutions at scale where we can help bring those types of products in. I'm super excited about The work that we're doing on elastomers with the Extreme 8 ks and that's a new market for us, But we have the highest performance printable customers in the world now, and we have the largest And high throughput, PLP print solutions now as well. So combining those and it's the same type of Customers that buy metal printing systems for mass production. So I think it's a winning combination and you're going to see these types of products all throughout.

You could imagine this elastomers being used in furniture related products That would then go together with a forest printed wood part. You could see them in an automotive component that would go together In the same type of customer that's adopting a metal printed component. So there's definitely the ability to provide more comprehensive solutions and I think customers appreciate The fact that they now have a really good portfolio and our channel benefits from these as well. So it's Synergistical throughout.

Speaker 2

I think though one thing I would add to beyond sort of some of the cross selling you referenced, I think one of The things we're really starting to get momentum on is with some of that those core EnvisionTek product lines where now they have The full balance sheet of Desktop Metal, so Rick has been on a number of calls with sort of your true marquee Fortune 500 Customers where that really wasn't as easier to sell for the legacy EnvisionTek, But now with all our marketing firepower as well as our capital, I think we're going to continue to see lots of growth opportunities there.

Speaker 4

Great. Thanks so much.

Speaker 0

The next question comes from Shannon Cross from Cross Research. Please go ahead.

Speaker 5

Hi. Thank you very much for taking my question. Rick, can you talk a bit about, what you're hearing from customers who are Purchasing the P1 and their interest level in that, is that something that they're buying in the pre buying the P50? And then also, what does the pipeline look like for the P50? Has it increased since, maybe you last put numbers out?

And how solid does that pipeline feel? Thank you.

Speaker 1

Thank you, Shannon. Great to hear from you. P1 interest is At an all time high, that product is doing extremely well. We are making as many It's a very good product. It is not used in lieu of a P50.

While it can be used for mass production of parts, you primarily use that technology to qualify components And all of the settings translate perfectly to a P50. One of the benefits of that system is that you can get a really quick Buildbox in under an hour. It's very, very high throughput, 3 seconds under 3 seconds a layer and then You've got a solution to grow into higher volume production. Most of the I would say many of the customers that are buying P1 have ordered a P50 as well. But it is in some markets like jewelry, you could do very well just with a P1, for example, for particular Types of materials that would be particular shade of gold or things like that.

I would say it is The P50 demand is very strong. It continues the let's say our We don't see any slowdown in demand for that product and we're really excited that program is on schedule. We're really excited to Get that out of the second half of the year like we've discussed in previous calls and we have a lot of our best people Working to execute that and I continually talk to large customers who visit plants with and they see You look at the number of SKUs that would be breakthrough with that type of product and it's a large number in plants. Just talking to a Fortune 500 company earlier this week where it's It could be very, very large business. So I see that product as still a foundation A lot of our future growth and we're really excited about getting that to the market later this year.

Speaker 5

And the increase in EBITDA loss, and the increased investment, how are you determining Where you're going to put your investment dollars? I mean, what kind of ROI metrics are you looking at? What's the process, I guess? I'm just trying to Stan, if this is going to be something where every quarter we see increased EBITDA or losses. So if that's the case, like how do we determine The success of your investments.

Speaker 1

Absolutely. I mean, we have a hurdle rate, and I think we do look At these investments are strategic. We look at our everything we're doing at the company has a long term view And Ed, in terms of getting large share in end use part mass production in the long run. We if you buy a company, I would say the things that are going to fluctuate the EBITDA A little bit, maybe some of the M and A transactions that we would pursue if there's a technology that we think is strategic and we want to have in our fold And it's a company that is not hasn't sort of made the transition to being profitable yet that would have an impact. At the same time, there are some businesses that we may acquire that are profitable and that We're doing it also for strategic reasons and when we put them in our network, we would make them either more profitable or we'd be able to grow faster.

So I would say we expect to be within the guidance we just gave you for this year. And we expect to what we're trying to do is accelerate our timeline that we put out last year when we initially went public And try to get to $1,000,000,000 in a faster time frame than our initial Target, and so everything we're doing is with a view of having a double digit Share of that $146,000,000,000 market by the end of the decade. So Whether it's transactions that we will pursue on the print engine side, on the vertical integration into material side or into a particular advanced parts technology or business that we may acquire. So these are all Things that we look at with for sure with a hurdle rate and the team here has a background investing and getting returns out. So we do look at it As a financial exercise and we are excited About the different activities that we've got going on?

Speaker 2

Yes. The one thing I would add though too is we sort of you hit on Shannon, increasing That range by $10,000,000 A portion of that was for organic investments as well. We continue to qualify new materials. We continue to focus on Driving down margins, one of the things you saw for the first time here is that on an non GAAP basis, When you back out the amortization for the EnvisionTek transaction, I mean, we're a positive margin. We're doing everything we can to accelerate that.

So if there are outsized returns we can have, we're going to go for it. I mean, when we're looking at these Investments, be it organic or organic, a lot of times, it's really a 2 to 3 year Sort of payback before you really start to see the dividends. On the M and A side, large accretive transactions, They're going to be very costly. I mean, I think there is some on the horizon, but really what we're trying to do, to Rick's point, is capture market share And do everything we can to increase the revenues and improve the margins.

Speaker 3

The next question comes from Craig Palm from Craig Hallum Capital Group. Please go ahead. Hey guys, this is actually Danny Eggerich on for Greg today. Thanks for taking the questions.

Speaker 1

My pleasure.

Speaker 3

Appreciate the color on kind of the expansion of the customer base in the quarter, Accelerating in Q1. I guess from like an end market standpoint, anything you can give there? Any strength or weakness and maybe where those customers are coming from?

Speaker 1

I mean, I think it's if you look at it from a killer apps point of view, Some of the markets that are growing very fast and where we think there's a huge long term opportunity is dental. There's Over $30,000,000,000 worth of parts sold every year by labs to dentists. And We are a lot of that is analog today, but it's writings on the wall that most of it is going to be printed. And I think that's one of the markets that's tipping very quickly Hey, where we've got best in class materials, significant share and we're growing way faster in the market. But you can go across segment by segment by segment.

The truth is, this is a market that as a whole is growing at The added market is growing at about 25% and we're growing way faster than the market. So I'd say we see the same thing happening And in the adoption of our metal products where we've got great reception, these are horizontal technologies that can be used that can be used for everything from machine design to automotive to Oil and gas, variety of other applications. So it's a general purpose tool and It has all sorts of benefits as we've talked over the years in terms of the flexibility that additive gives you. But now we Are able to do it cost effectively and compete with conventional manufacturing and do it at the throughput that you can go to market with 3 d printing.

Speaker 3

Got it. That's helpful. And then maybe just switching over to, from a on a geographic basis, looks like Just looking at the filing here, it looks like Americas are pretty good. And maybe, you may not didn't see the same kind Of growth as somewhere like the Americas and I think you're seeing that across a lot of the market that they might be lagging behind in COVID recovery. Anything that you can give there on what you're seeing there right now?

Speaker 1

Yes. I think that's accurate. I think that we saw Q4 Europe was stronger than Q1, but that I think was primarily a reflection of And some of the closings that happened last minute, but we are I mean, from a pipeline point of view, you see pipeline growing on all continents and we have product in we have product demand globally for our products. Yes. It's pretty good.

Speaker 2

It definitely feels like many of these variances, though, are just short term in nature. Definitely, Q2 pipeline is looking very strong in EMEA. I think it's just again as you highlighted Some of the challenges with COVID and whatnot, there's just there's a lot of movement right now, More so than that, you can see them as longer term trends.

Speaker 1

You could estimate, I mean, even though Asia is a major manufacturing hub, right now We see our near term baseline as forty-forty-twenty, forty Asia I'm sorry, 40% U. S, 40% Europe, 20% Asia. Over time, I think it's leaving itself out as this technology gets more broadly adopted in Asia.

Speaker 3

Okay, got it. That's helpful. Then maybe if I could sneak one more in here on the SHOP system. I think last quarter you mentioned that, That was also kind of being impacted by COVID still and the recovery there. Any update on traction you're seeing for that one?

Speaker 1

I think the traction is very strong for it. We see a series of new applications for that product now that we've started to Get it out there in higher volume and we don't see COVID as a major impairment for demand of Any other products now? I think we're kind of at least in Boston, we're working out of the office, and it feels very much like business as usual That this is things are back to a more normal state?

Speaker 2

Yes. Definitely earlier in the Q1, Things were still a little more challenging. I would say we all feel pretty good where we sit today, wrapping up Q1 and halfway through Q2, I definitely to Rick's point, we're feeling back to normal and not Really seeing any sort of COVID overhang at this point.

Speaker 3

Okay. Thanks for taking the questions.

Speaker 1

Thank you.

Speaker 0

This concludes our question and answer session. I'd like to turn the conference back over to Rick Fulop, CEO, Chairman and Founder of Desktop Metals for closing remarks.

Speaker 1

Thank you. Again, very excited with All the progress that we have going on and I want to thank everybody for joining the call today as well as All of your interest in Desktop Metal and as always, I especially want to thank the more than 470 Desktop Metal employees for their continued passion and dedication. And we look forward to updating you in the Q2 in 2021 in a few months.

Speaker 0

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