Slide into $DM
Desktop Metal, Inc. (NYSE:DM)
Industry: Computer Hardware
Market cap: 2.4B
Desktop Metal is an additive manufacturing technologies company focused on producing end-use parts. It offers solutions in hardware, software, and materials and services with support for:
- Biocompatible materials
Solutions also range from product development to mass production and aftermarket operations and serve some of the following industries:
- Healthcare and dental
- Consumer products
- Heavy industry
- Machine design and research and development
What is additive manufacturing?
In other words, it is 3D printing. A predetermined shape is either created from scratch in a software program or downloaded from a 3D library. The said software is ‘sliced’ with another software program before being used to print as the object will be created layer by layer. This allows manufacturers to produce complex shapes using less material than traditional manufacturing methods. Desktop Metal offers two 3D printer models as well as a long line of parts.
There are many different types of 3D printing techniques, but Desktop Metals specifically uses binder jetting to print objects. Binder jetting utilizes two materials: powder base material and a liquid binder. In the build chamber, powder is spread in equal layers and binder is applied through jet nozzles that “glue” the powder particles into the required shape. After the print is finished, any remaining powder is cleaned off and can be reused for future print jobs.
There was a decrease of $9.9M, or 38%, in revenue which was primarily due to a decrease from both products and services. There were fewer products sold, approximately 40%, due to decrease in demand and longer sales cycles from COVID-19. Customer facility closures associated with the pandemic also resulted in delays in shipments and installation. Additionally, there was a decrease in utilization of the previously installed products which lead to a decrease in sales of consumable materials. Total cost of sales decreased $19.3M, or 38%, primarily due to a decrease in product cost of sales. In 2020, there was a $2.9 obsolescence inventory charge related to product redesigns implemented to reduce costs and enhance performance and functionality.
According to a report from Acument Research and Consulting in 2019, the 3D printing market is forecasted to reach $41B by 2026 which represents a CAGR of 20%. In 2020, the 3D printing market was valued at $13.78B and is expected to expand at a CAGR of 21% by 2028. Globally, 2.1M units of 3D printers were shipped in 2020 and the shipments are expected to reach 15.3M units by 2028. Aerospace companies are exploring 3D printing for manufacturing various parts of their products. Additionally, the automotive industry is expected to show a large adoption of this technology. In 2018, the United States Department of Defense included 3D printing as an important capability of the budget.
As of December 31, 2020, Desktop Metals has $595.4M in cash, cash equivalents, and short-term investments. It has enough cash on hand to support operations for another 3 years. To help with the cash position, it also completed redemption of all outstanding public warrants which contributed to $170.7M. In the first quarter of 2021, Desktop Metal expanded the portfolio to over 225 materials. To help with the growth, it acquired Adaptive3D which is a leader in elastomers and rubber materials. It also grew the employee team to over 470 from 180 in May 2020. Desktop Metal also closed its previous EnvisionTEC acquisition and began shipping two new area-wide photopolymer printers. Flexcera was also launched as the first major product line for dental applications which received FDA clearance.
Although there were revenue losses from 2019 to 2020, revenue is up 35% from fourth quarter of 2020 and up 234% from the first quarter of 2020. The outlook for the rest of 2021 is expecting over $100M in revenue for the year and exiting with an annualized revenue run rate of $160M. In other words, the outlook is bullish for Desktop Metal.
Desktop Metals is not, and has not been profitable since inception. The losses are also expected to continue as there will be continued investment into commercialization and new product development. It has attracted employees, but the ability to train and retain an effective team will be in question. As the market grows so will the demand for upgrading and maintaining information technology and the portfolio. Timeliness is important in this aspect and there may be delays in the design, production, and launch of solutions. This is due to several plans still being under development. Although there is enough cash on hand to support operating costs for the next 3 years, it will require additional capital to support business growth.
I am bullish on Desktop Metal and will hold this position as the 3D printing market grows. Although it has not been profitable since inception, I believe the upside for it is massive relative to the risk. I will plan to accumulate shares overtime especially since the price is near its 52-week low.
Positions or ban
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July 20, 2021 at 09:09PM