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DM

Desktop Metal, Inc. (DM)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 revenue was $52.3M, down 13.7% YoY but up 22% QoQ; non-GAAP gross margin improved to 34%, while GAAP gross margin was -32% due to one-time restructuring charges .
  • Adjusted EBITDA improved to $(9.2)M, the strongest quarterly performance to date, and non-GAAP operating expenses fell to $31.6M; management targets adjusted EBITDA breakeven in H2 2024 .
  • Full-year 2024 guidance: revenue $175–$215M and adjusted EBITDA $(30)M to $(10)M; DM also initiated a strategic alternatives review to de-emphasize select photopolymer businesses to accelerate profitability .
  • Recurring revenue hit an all-time high of $65M (34% of total) in 2023, evidencing increased utilization and value realization; core demand highlighted in defense, aerospace, automotive gigacasting, and healthcare .

What Went Well and What Went Wrong

What Went Well

  • Sequential rebound and margin improvement: Q4 revenue +22% QoQ to $52.3M and non-GAAP gross margin reached 34% (+970 bps YoY); adjusted EBITDA losses improved materially .
  • Sustained cost discipline: non-GAAP OpEx dropped to $31.6M and has declined for seven consecutive quarters; cumulative $150M+ annualized cost reductions underway with further measures announced .
  • Strong end-market traction: recurring revenue reached a record $65M (34% of revenue) with production programs across defense/aerospace (e.g., F-35, Rolls-Royce, Pratt & Whitney), auto gigacasting, and dental; “We’re now very, very close” to adjusted EBITDA positivity at the new cost structure .

What Went Wrong

  • Top-line and GAAP margin pressure: Q4 revenue fell 13.7% YoY; GAAP gross margin was -32% on restructuring charges; GAAP net loss in Q4 was $(174.5)M including $110.5M goodwill impairment .
  • Channel and product challenges: loss of Stratasys channel weighed on sub-$0.5M direct metal systems; consumer electronics ramp slower than hoped; P-50 single-pass jetting revenue not yet significant .
  • Macro headwinds: elevated interest rates extended sales cycles and delayed CapEx decisions; guidance range remains wide, with management planning conservatively .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenue ($USD Millions)$53.3 $42.8 $52.3
GAAP Gross Margin (%)11.4% 4.5% -32%
Non-GAAP Gross Margin (%)31.0% 21.9% 34.0%
GAAP Net Loss ($USD Millions)$(49.7) $(46.4) $(174.5)
Non-GAAP Net Loss ($USD Millions)$(19.3) $(24.0) $(10.9)
Adjusted EBITDA ($USD Millions)$(15.0) $(20.5) $(9.2)
EPS (Basic & Diluted, $USD)$(0.15) $(0.14) — (not disclosed for Q4)

Segment/Product Mix and KPIs

MetricQ2 2023Q3 2023Q4 2023
Product Revenue ($USD Millions)$47.4 $37.5 — (not disclosed)
Services Revenue ($USD Millions)$5.9 $5.2 — (not disclosed)
Cash, Cash Equivalents & ST Investments ($USD Millions)$127.6 $108.2 $84.5
Non-GAAP Operating Expenses ($USD Millions)$34.678 $33.183 $31.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2023$210–$260 $187–$207 Lowered
Adjusted EBITDA ($USD Millions)FY 2023$(50) to $(25) $(70) to $(50) Lowered
Revenue ($USD Millions)FY 2024—$175–$215 Initiated
Adjusted EBITDA ($USD Millions)FY 2024—$(30) to $(10) Initiated

Additional guidance commentary: Management expects adjusted EBITDA breakeven in H2 2024; 2024 guidance excludes any businesses that may roll off following the photopolymer strategic review .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2023)Previous Mentions (Q3 2023)Current Period (Q4 2023)Trend
Cost reductions & OpEx disciplineBest adjusted EBITDA since going public; reaffirmed 2023 guidance Completed $100M cost-out; breakeven targeted Q4; revised 2023 guides $150M+ cumulative reductions; de-emphasize photopolymers; non-GAAP OpEx $31.6M Improving
Macro/CapEx environmentReaffirmed outlook despite macro Industry-wide softness; guidance cut Elevated rates elongate cycles; plan conservatively Mixed/Challenged
Defense & aerospace adoptionExOne (casting) showcased; production traction Program wins; utilization rising Parts in F-35, Rolls-Royce, Pratt & Whitney; space programs; DoD backlog Strengthening
Automotive gigacastingHighlighted S-Max leadership Continued adoption signals Multiple OEMs adopting; Tesla success Strengthening
Dental & healthcare (DLP)Flexcera agreements; Carbon 3D supply Flexcera supply agreement to Carbon 3D Flexcera Ultra+ launch; ~70% GM; >20 metric tons sold Strengthening
Consumer electronics & P-50P-50 progress in CE Softer product sales; CE less visible CE remains opportunity but slower; P-50 not yet significant Softer

Management Commentary

  • “Despite a challenging capital investment environment led by elevated interest rates and slower sales cycles, I’m proud that Team DM buckled down and delivered a much improved operating performance including reduced net loss and a record adjusted EBITDA performance… We now enter the year with a lower cost structure that makes us resilient for the long term.” — Ric Fulop, CEO .
  • “We announced $100 million in annualized cost reductions in 1Q ’23 followed by an additional $50 million… Today, we are also announcing additional cost reduction measures… principally within our photopolymer businesses.” — Jason Cole, CFO .
  • “Recurring revenue is at a record all-time high… $65 million in 2023… 34% of revenue, up from 24% in 2022.” — Ric Fulop .
  • “We do expect in the second half of 2024 that we will begin recognizing positive adjusted EBITDA.” — Jason Cole .

Q&A Highlights

  • Guidance cadence and seasonality: Management expects typical seasonality (soft Q1/Q3, stronger Q2/Q4) and aims to perform in the top half of the FY24 revenue range; profitability should improve across the year with H2 adjusted EBITDA turning positive .
  • Consumer electronics and P-50: CE remains a large opportunity but timing is customer-dependent; P-50 single pass jetting is high-performance but not yet a significant revenue contributor given deliberate spend prioritization .
  • Photopolymer strategy: DM is exploring alternatives (including possible divestiture/partnerships) to get better distribution and profitability for selected photopolymer assets; materials quality remains a differentiator (Flexcera) .
  • Foundry/casting opportunity: Binder jet printed casting penetration <5% with ~25,000 global foundries; management views a $20B CapEx cycle over 10–15 years, supporting multi-year growth .
  • Regional expansion: Building GTM resources for Latin America and other emerging markets to drive adoption (S-Max Flex, etc.) .

Estimates Context

  • S&P Global consensus estimates for Q4 2023 (revenue, EPS, EBITDA) were unavailable via our SPGI mapping for DM at the time of this analysis. As a result, we cannot provide a direct actual-versus-consensus comparison for Q4 2023 and FY 2024. We will update when S&P Global mapping is available.
  • Despite the lack of consensus data, DM’s Q4 showed sequential revenue improvement and substantial non-GAAP margin expansion; FY24 guidance implies a path to adjusted EBITDA breakeven in H2 2024 .

Key Takeaways for Investors

  • Margin trajectory and cost discipline are the focal drivers: non-GAAP GM reached 34% and non-GAAP OpEx declined to $31.6M; H2 2024 adjusted EBITDA breakeven is the near-term catalyst .
  • Portfolio focus should improve cash efficiency: DM is de-emphasizing select photopolymer businesses and prioritizing binder jet production and healthcare assets with stronger unit economics .
  • End-market momentum is real: Defense/aerospace (F‑35, major jet engines, space), auto gigacasting, and dental (Flexcera ~70% GM) are scaling, supporting medium-term growth resilience .
  • Watch liquidity and cash burn: cash/short-term investments declined from $127.6M (Q2) to $84.5M (Q4); management cites improving cash consumption rates, but working capital execution remains critical .
  • Top-line volatility risk persists: macro rate-driven CapEx delays and channel transitions (loss of Stratasys partners) create forecast risk, reflected in a wide FY24 revenue range .
  • Strategic review outcomes could be a stock-moving event: any divestiture/partnership in photopolymers may further reduce losses and sharpen focus, potentially accelerating adjusted EBITDA breakeven .
  • Longer-term optionality: printed castings and AI-linked applications (e.g., robotics) represent sizable TAM expansion narratives; execution and adoption curves will determine value realization .