Desktop Metal, Inc. (DM) on Q3 2022 Results - Earnings Call Transcript
Operator: Greetings and welcome to Desktop Metals Third Quarter 2022 Financial Results Conference Call. . I would now like to turn the conference over to your host, Mr. Jay Gentzkow, Vice President, Investor Relations. Please go ahead.
Jay Gentzkow: Good afternoon, everyone, and thank you for joining us to discuss Desktop Metal's financial results for third quarter 2022. Please note, our financial results, press release and presentation slides referred to on this call are available under the Events & Presentations section of our Investor Relations website. This call is also being webcast live with a link at the same site. 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'll refer you to our safe harbor disclaimer on Slide 2 of the presentation. I would also like to remind you that today's call will include forward-looking statements. These forward-looking statements reflect Desktop Metal's views and expectations only as of today, November 9, 2022, and actual results may vary materially based on a number of risks and uncertainties. For more information about the risks that may impact Desktop Metals business and financial results, please refer to the Risk Factors section of the annual report on Form 10-K and quarterly report on Form 10-Q in addition to the company's other filings with the SEC. Management has no obligation to update or revise the forward-looking statements. Additionally, during this presentation and the following Q&A session, we may refer to our results on a non-GAAP basis. Non-GAAP measures are intended to supplement, but not substitute for performance measures calculated in accordance with GAAP. Our financial results 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 Ric Fulop, Founder and CEO of Desktop Metal.
Ric Fulop: Thank you, Jay, and good afternoon. I want to thank you all for taking the time to join today's discussion for our third quarter 2022 results. Before we begin, it's my pleasure to welcome to the call Desktop Metal's new CFO, Jason Cole. I'm very excited to have him join in DM. Jason is a highly accomplished finance executive, who is joining us from an 18-year career at Analog Devices, most recently as Division CFO of a $10 billion business overseeing 12, 000 and 15 internal sites. Jason brings more than 20 years of experience in global finance operations, supply chain management, M&A integration and FP&A. We're thrilled to have them on board. James Haley is also on the call today and will transition into an advisory role beginning tomorrow to ensure a seamless transition. I'd like to thank my friend, James, for all his contributions to our collective efforts and wish him the best of luck in his future. Turning to the quarterly update. We will start with a review of third quarter 2022 financial results, including detailing a few recent actions in response to our results in the current business environment. I'll follow with a number of recent business developments of note, including a promising new strategic partnership with Align Technology. Jason will then provide further color to our financial results. I will close to our financial outlook and then transition to Q&A. I'll start by addressing the results for the quarter on Slide 3. Consolidated revenue for the third quarter was $47.1 million, representing a year-over-year growth of 85%, including contributions from acquisitions. Third quarter 2022 non-GAAP gross margins were 19.9% and adjusted EBITDA was negative $28 million. Simply put, performance did not meet our expectations for the quarter. I'd like to unpack what happened in our response. Relative to internal forecasts reflected in our public guidance, we saw lower than expected sales volume towards the end of the quarter, which is typically when we see a sharp acceleration in volume as Europe and to a certain extent the U.S. to matter their slower summer months. This divergence from the expected trend was not uniform across all business lines. Our printed casting business continues to perform well, and we saw very good resilience in our dental and healthcare platforms, but these strengths were offset by softness across the balance of our portfolio. The challenging macroeconomic environment created headwinds for our business. We exited the first half of this year tracking towards our financial targets with a robust pipeline of healthy customer momentum. As the third quarter progressed, in some cases, orders we expected to close shifted into later quarters. We believe this is a result of customers pausing on CapEx spend as they become cautious about the macro landscape. In particular, on larger deals require more significant CapEx outlays. We saw customers delayed purchase decisions amid economic concerns, which was not the case at the start of the quarter. In addition, we experienced currency headwinds in international markets, which compounded to the lengthening of sales cycles towards the end of the quarter. At the gross margin level, underperformance was primarily a function of lower than expected sales volumes and the associated overhead absorption impacts. While our product gross margins continue to improve and are well ahead of overall gross margins, there's a sizable overhead in our COGS that has a major impact on lower revenues. To a lesser degree, margins were also impacted by product mix and a challenging transportation and freight backdrop. Our cost reduction initiatives announced in June significantly reduced our expenses on a dollar basis, the adjusted EBITDA trailed our internal forecast as a result of decreased sales volumes relative to expectations. This is not the first time, a recessionary cycle has impacted growth in the additive market. The compounded annual growth rate of 18% experienced in the prior 22 years did not occur in a straight line. We've had 3 similar periods where the market has stalled between 1 or 2 years consulting with recessions. The last time this happened in a meaningful way, pre-COVID was 2008 to 2009 when the market contracted 3% on an annualized basis. And in the decade that followed the market rebounded significantly, compounding at 27% growth. The long-term trends supporting broad adoption of additive manufacturing and growth to over $100 billion in the next decade remain intact, particularly for mass production. Additive solutions unlock benefits of lower cost, on-shoring, digital inventories, assembly consolidation and design freedom among others that are enabling businesses to remain resilient and react more quickly to external circumstances in both supply and demand. As I've said in the past, production-based 3D printing is less affected than prototyping in challenging environments, and I still believe that is the case. However, projects that are still not fully greenlighted on the production side can be delayed as companies across the economy face tighter CapEx budgets. The durability of these benefits remains incredibly strong, and the trends driving more and more customers to embrace 3D printing will last well past the current short-term macro challenges. I'm equally confident Desktop Metals' portfolio of production-focused AM 2.0 solutions is very well positioned to continue to capture share of this growing market and take advantage of the next stage of long-term secular growth. Notwithstanding current macroeconomic impacts on the business, we are not satisfied with our execution or performance in Q3. But we're focusing on how we navigate our current set of circumstances and respond as a company. We have already taken swift actions to course correct in order to reduce our expense structure, well beyond what we outlined in June, getting profitable is our number one priority. In June, we announced a strategic integration and cost optimization initiatives. The actions we took have achieved $40 million of annualized cost savings. Since the closing of Q3, it has become clear we need to further intensify our expense reduction efforts in light of the current environment. As a result, we're tuning even more aggressively and quicker than initially planned, producing our cost structure improves our path to profitability time frame and enable us to reach our adjusted EBITDA breakeven by the end of 2023, even a lower revenue threshold if macroeconomic headwinds persist. We will continue to monitor the macro environment and make adjustments to expenses as needed to ensure this company turns profitable under the current capital structure, in line with our commitments. Now let's shift gears and discuss a number of very positive recent developments for the business, with significant revenue potential for 2023 and beyond. AM 2.0 continues to offer advantages versus traditional manufacturing for a host of applications, and we're seeing continued traction from both customers and major strategic partners in the added manufacturing ecosystem that are embracing these benefits. Last week, we announced a new strategic partnership with Align Technology to bring digital dentistry and workflows for printing to the mass market. We're very excited about the opportunity in this partnership, and I'll go into further detail on the following slides. We expect tangible financial benefits to this partnership to be reflected beginning in 2023. We also announced a multifaceted partnership with Siemens to advance added manufacturing with a focus on large manufacturers that among other efforts, will integrate Desktop Metal's AM 2.0 solutions into Siemens simulation and planning tools, enabling production scale, factory planning and automation. In addition, we expanded our partnership with Henkel to qualify additional industrial photopolymer materials for the Xtreme 8K, the world's largest DLP printer for high-volume production of end-use parts. We're delighted to work with a strong partner like Henkel to expand our differentiated material applications we can offer to our customers in the photopolymer AM 2.0 space. We're actively engaged with some of the largest companies in the world on the Production System in P-50 in particular, and we remain steadfast in our plan to build major business for hyperscalers on this platform, which provides the highest throughput and lowest cost part production of any metal printer in the market. Starting in December, we're planning to begin hosting quarterly open-house meetings to focus our progress on P-50 to the industry and potential customers. We also expanded our lineup for shop system and will set selling metal binder jet system with Shop System+ and Shop System Pro. The Shop System has become a global success, and we've already taken sensor-based production processes that used to take required specialized knowledge and made it turnkey, easy to use and accessible to all manufacturers. These new options add more versatility, functionality and value to our already strong Shop System platform. And finally, at IMTS in September, we launched the Figur G15, the first commercial platform of its kind to shape standard sheet metal on demand directly from a digital design file. Using patent pending technology, manufacturers now have a new competitive way to form sheet metal parts and products quickly, but the high upfront costs associated with stamping prices in dies, which typically have a long lead time and are expensive to produce. The sheet metal forming with a Figur G15 is accessible, flexible and cost-effective even at low and medium volumes. Manufacturers in the automotive, aerospace, appliance and other industries can now produce a fully formed part in less than an hour without major investment in time and money. While this product is still in its early commercialization, Figur is a one of a kind turnkey solution for the more than $300 billion sheet metal forming and fabrication industry that we're very excited about. Turning to Slide 5, I'd like to provide more color on the recently announced partnership with Align Technology, the undisputed category leader in clear aligners, intraoral scanners and dental CAD software. We're really thrilled to partner with Align to bring a first of its kind solution. We believe what we're building together will be a significant growth driver for Align Desktop Labs and Desktop Health. More and more dentists are looking for an integrated digital dentistry platform that encompasses scanning and printing hardware, dental parts made with best-in-class materials and design and production services. Through this partnership, Align's market-leading iTero intraoral scanners will be offered as a seamless managed service to dentists in a subscription model with recurring revenue. Dentist can then order aligners or exclusively drive 3D printed restorations to desktop labs. Our goal is to develop a very sticky service to delight customers. This is a gateway for our connected suite of digital dentistry solutions with seamless workflows backed by Desktop Labs, experienced network of dental laboratories and premium Desktop Health printers and materials. This integrated solution will allow dentists to capture patient data with iTero scanners, create print-ready digital files using Desktop Labs' design capabilities and 3D print custom parts either in their office or using Desktop Health Einstein printers for using Desktop Labs outsourced manufacturing services. It's a fully integrated care side workflow, providing real-time technical communication, workflow management, digital design and case support. We expect most, if not all of the $30 billion in annual dental parts market spend to move to 3D printed manufacturing this decade, the technology that's traded for prime time. We expect new CTC classification of materials used for dental insurance codes to be published in December this year to cover our Class II printed restorations in the U.S. With that backdrop, we aim to reach thousands of general practices over the next 12 months with this integrated workflow and potentially tens of thousands over the coming years. The addressable market for this opportunity with Align is over 2 million general practitioners globally. We're thrilled to commence this partnership with Align to offer the dental industry a seamless solution for digital restorations and are super excited about the additional potential opportunities to accelerate adoption of digital dentistry with Align. Moving on to Slide 6, we continue to grow the moat around desktop metal products. Since we entered the public market in 2020, our portfolio of patent and patents applications has grown from approximately 120 to over 950. This is one of the largest and most valuable intellectual property portfolios in the added manufacturing market and is primarily focused around mass production and technologies like binder jet and DLP, which benefit from Moore's Law and become more cost effective over time. We've already demonstrated the blocking potential of this portfolio with a recent successful injunctive action against a key competitor. We successfully implemented a royalty-bearing licensing structure to begin monetizing this portfolio and intend to expand our efforts over the coming years. Margins and additional IP monetization activities should be a tailwind to the product mix. Turning to the following slide, we really had some great customers that adopted or continue to adopt our technology in the third quarter. We've highlighted a few here on the left side of the slide, Precision Castparts, Schlumberger, Ford, First Solar, Cummins, Ultra Safe Nuclear Corporation and SolidCAM to name a few. Many of these customers have multiple systems and continue to expand their partnership with Desktop Metal to change the way they make their products. On the right side, I'd like to highlight one of our customers' demonstrated repeat success with our products on both metals and polymers. So Gullmolar is a growing parts manufacturer based in Iceland. In the span of a year, Gullmolar purchased 8 systems including 4 studio systems for metal part production, two Envision Ones for polymer printing and 2 DM print and furnace systems. Desktop Metal solutions are enabling Gullmolar to produce end-use parts for both metal and polymers. This significantly reduces lead times and speeds up time to market. This is a game changer for ROI-driven SME companies that can't afford the delays associated with legacy conventional manufacturing. And Gullmolar is just one example of the cross-platform success we're seeing from many customers. With that, let's take a closer look at the numbers. Over to you, Jason.
Jason Cole: Thanks, Ric. Beginning on Slide 9, you will see highlights of our financial performance for the third quarter of 2022. Please note, we will be referring to several financial metrics on a non-GAAP basis. Reconciliation to GAAP data is included in the filed appendix. As Ric detailed to start the call, this was a challenging quarter. Consolidated revenue for the third quarter '22 was $47.1 million, including contributions from acquisitions, up 85.1% year-over-year from $25.4 million in the third quarter of 2021. As previously detailed, compared to our internal plan, revenue was significantly impacted by customers delaying purchase decisions amidst an uncertain macroeconomic backdrop. Non-GAAP gross margin was 19.9% for the third quarter '22 as lower-than-expected sales volumes and the associated overhead absorption impacts weighed on gross margins. We expect ongoing cost reduction actions detailed earlier in the call will improve our high absorption burden and drive important gross margin improvements in the fourth quarter and in the coming years. On the next slide, non-GAAP operating expenses were $41.5 million for the third quarter '22. Through initial actions under our cost optimization initiative, we reduced non-GAAP operating expenses sequentially by $4.5 million versus the second quarter of 2022 and $10.5 million versus the first quarter of 2022. Third quarter '22 non-GAAP operating expenses as a percentage of revenue were 88%, which is an improvement versus 138% in the third quarter of '21. Adjusted EBITDA for third quarter 2022 was negative $28.2 million. Revenue contribution weighed on our adjusted EBITDA despite considerable improvement in our expense structure. Nevertheless, we're committed to improving adjusted EBITDA going forward as we prioritize our path to profitability. We ended the third quarter 2022 with $217.3 million in cash, cash equivalents and short-term investments. We are well funded from a cash position even in a challenging macro environment, with our increased efforts to reduce our expense structure, expected to drive meaningful cash flow improvements. We ended third quarter 2022 with $91.2 million in inventory. Inventory reflects our multi-quarter focus on supply chain resiliency, and we're now in a position to release that inventory over the next several quarters. With that, I'll turn the call back over to Ric.
Ric Fulop: Thank you, Jason. Moving to our financial guidance, we're revising our revenue and adjusted EBITDA outlook to take into account our third quarter financial performance in a challenging environment, affecting CapEx spending due to recessionary concerns. As a result, for fourth quarter 2022, we expect to generate revenue in the range of $51 million to $62 million, implying a full year 2022 revenue of $200 million to $210 million or 78% to 87% growth over 2021. While customer traction is still very strong, we're taking a very conservative approach to revenue expectations. We're working very hard to improve visibility given the macroeconomic environment. Additionally, for fourth quarter 2022, we expect adjusted EBITDA to be negative $20 million to $26 million, implying a full revised 2022 adjusted EBITDA of negative $117 million to $123 million. In closing, while the third quarter presented greater than expected challenges, I can assure you we are working with urgency to execute on what I've outlined today. While macroeconomic factors are impacting our industry at present, the benefits of mass production added manufacturing are only increasing. We're working very hard to mitigate some of the external factors, and I remain extremely confident in the value of our AM 2.0 mass production solutions that we bring to our customers and the massive long-term opportunity in added manufacturing. With that, I'll open it up for your questions.
Operator: . And our first question comes from Noelle Dilts from Stifel.
Noelle Dilts: I was hoping you could just dig into the cost reduction initiatives a little bit more. Could you kind of go into a little bit more detail on sort of where you stand in terms of the previously announced initiatives? And then any more quantification you can give us around this kind of expansion of those initiatives would be helpful.
Ric Fulop: Absolutely. Thanks and great to hear from you. So we outlined in June of earlier this year that we would cut approximately $40 million on a run rate basis for the year. We're ahead of that plan right now. At this moment, we've continued to move beyond it, and we have quite a bit of levers to go above our initial plan, and we're going to essentially trim as needed until we get to cash flow breakeven. The good news is at the company, we've got, you would look at Horizon 1, Horizon 2, Horizon 3 in terms of the way we look at our products, the things that are shipping today, things that are going to ship next year '23, et cetera. And then things that are quite futuristic '24, '25 and onwards, and we have a multi-generational road map. And we have quite a bit of leverage to adjust spending on things that are not going to have an impact next year. So we're not cutting things that are revenue generating next year, but we are trimming expenses in all these other areas. We've got quite a number of facilities that we're consolidating and have lots of levers. So we're going to go beyond what we initially outlined in June, and we're already beyond that right now.
Noelle Dilts: Okay. And then in terms of, I guess, you obviously commented on the P-50 and also just this extended decision-making. I guess you've talked before about this idea of these hyperscale customers, larger customers. Do you think that, that's really pushed out until we start to see some economic recovery? I guess my question is really just how are you thinking about the time line or the time horizon for -- in terms of how long it's been -- how extended these decisions have become? And if you think we could see some larger programs or orders in the near term or if you think that's pushed out over a year?
Ric Fulop: Noelle, we've seen an acceleration in some of these programs as there's needs to diversify supply chain outside of China for some of those consumer electronic companies and we have multiple customers that we're engaged in and continue to make very good progress in this area. And I think it's going to -- for us, we have a lot of people working in this area, and we continue to believe it's going to be a meaningful part of our business in the long run, and there's an area that can become a significant business probably most produced type of parts in the AM world. So I'm very bullish on all the activities we've got going on in that area.
Operator: And our next question comes from Shannon Cross from Credit Suisse.
Shannon Cross: I'm so sorry. I had it on mute. Can you talk a bit, Ric, about how you're thinking about approaching the cost reductions? And what I'm wondering is, will this be -- are you cutting, I don't know, products? Are you -- just how to go about it? Because obviously, the top line is not coming through as expected, you do have some cash, which gives you a bit of a cushion. But I'm just wondering what your approach is and maybe how things have changed in your thinking relative to, say, 3 months ago?
Ric Fulop: Absolutely. So first of all, we remain super bullish in the long-term prospects of additive. We believe this is going to be $100 billion industry still by the end of the decade. We do think, like I said earlier, and if you look at Slide 3 of our presentation, there's just periods of time in additive when you enter a recession and you have essentially a slowdown of growth in '01, '02, it was flat or slightly negative, same in '08, '09, and then there was only 5% growth in 2020. So I would say, what we saw in September was a very quick pullback to decisions and things moving to the right on programs that we really had enough deals in play towards the end of the quarter or the last 3 weeks that we thought we can meet our numbers. And it was -- as we approached the end of the quarter that we realized that things were going to slide, you have the pound at 100. The deals in the U.K. got halted. You had the energy issues that were going on in Europe with people thinking about CapEx spending. And so I would say, we do have a bullish view on the future of expenses to get to your question and how -- where are the things that you cut. We're not cutting anything that's revenue-generating next year or this year. So Horizon 1, Horizon 2 projects have continued to be fully funded. We're adjusting our spending on things that are nice to have no need to have, in particular, longer-term, more futuristic projects. We do have a benefit at DM that we've got R&D horsepower that I would say can be at the limit of anybody else in this industry and doing very innovative work. And we have some things that are more futuristic that weren't going to generate revenue next year. So we're trimming expenses in those areas. We've got quite a bit of cost synergies from the M&A that we did. If I can look backwards a mistake, I felt like I didn't want to break any of the things required by going too quickly as we were acquiring. I think we would have -- maybe we should have been totally on it the last assumable closed the deal as opposed to wait until we get our arms around them and we weren't as focused in that area. However, we are laser focused on it now. We have already cut more than what we outlined in June, and we continue to have a plan to trim a lot of levers so that we get to our breakeven targets at the time that we've told the market or faster even if conditions persist in a challenging environment.
Shannon Cross: And I guess, how are you thinking about the -- how do you think about the stock price given where it's at now? I mean, is this something where you would pursue maybe a reverse stock split? Have you guys gotten any indications from any of the exchanges that there's concerns about delisting. I'm just trying to get ahead of this because a lot of the companies that were specked or obviously trading at very low levels?
Ric Fulop: Well, I would say -- I mean, we're monitoring our stock price. We haven't received any indications that would force us to do anything at the moment. we look at all of these things. We've got plenty of cash with good liquidity position. We have quite a bit of inventory that we will -- we built in advance to essentially have a buffer with supply chain issues, and we'll be clearing that over the course of the next year and releasing quite a bit of cash flow. From a balance sheet point of view, I don't feel like we have any liquidity issues. But I think your question on the stock market, we don't have an issue at the moment. I think the listing rules are being below bucked we would do whatever was required by the stock market. But as a business, I do feel very bullish that we're going to have continued growth in growth faster than the market as we are positioned in a production area that is growing mass and prototyping and tooling. And I think that next year, we've been working on a lot -- you work on these projects. The projects have to mature eventually, they pick up. We have a lot of irons in the fire that should lead to growth next year that would be faster than the market, and we feel good about it. We will provide guidance in Q4. But I would say this readjustment to a more conservative stance is based on what we saw at the end of September.
Operator: Our next question comes from Troy Jensen from Lake Street Capital.
Troy Jensen: A question for you, Ric, I get growth has slowed in the industry, it's fairly obvious, but do you still think the growth rate in additive is going to be a positive number this year, flat or negative?
Ric Fulop: I think that the first half of the year was definitely a good growth rate. I think that there are a lot of CapEx decisions are going to get routinized more heavily in the second half of the year. I think if you asked anybody in the beginning of the year, they never expected us to -- when people gave their projections for the year, and we don't do quarterly guidance at the moment, maybe we should, but we do yearly guidance. Nobody expected there to be a war. Nobody expected there to have business and supply chain side for the currency issues that occurred in Europe. The -- in some of these other challenges with the fact continue to -- so that macro backdrop, I think, is definitely part of what's affected our industry. And we've seen it before. I mean, you've been a one or more experienced stewards of the industry. And I would say, it's probably similar to '08, '09 or similar to '01, '02 and this is people sort of delaying decisions versus canceling adoption of technology. And when you come out of this recession, you come out with extremely strong tailwinds. And I think we're well capitalized to get through this and then benefit from it on the other side. So we've got a great portfolio. We are market leadership in metal binder jetting that's dominant at a very, very good place with dominant market leadership in printed castings with dominant market leadership in Class II medical parts in dental. So 3 segments are going to be $1 billion plus. And then we have some growth segments and new things like what we're doing in sheet metal. It can be a multi-billion dollar business, but we're doing homes, where we're the only company with industrial high throughput foam printing. They can also be $1 billion business and we're the market leader today in print and hydraulics. So we have big ways to win here in areas that individually could be $1 billion businesses. So I feel very bullish about the long-term prospects of our company. I think we're highly undervalued today at this price. And I think we will see how the next year progress as I feel bullish about our prospects. I think our bad news are all priced in.
Troy Jensen: So I'd agree with you, Ric, I think I came into the year thinking this industry is going to grow 18% to 20%. And I guess I still feel like there's positive growth for additives. But I mean if you look at your 10-K filing from the beginning of the year, you guys said that if you owned all of your acquired businesses as of January 1, you had done like $208 million in revenue. And the midpoint of the guidance right now is $205 million. So you're really kind of implying flat year-over-year organically. So I guess I'm curious to know what's growing, what segments are growing for you guys? And which ones are shrinking, if you're expecting a relatively flat year on an organic basis?
Ric Fulop: That's a great question. I think we're confident in the guidance we just provided now for fourth quarter. Beginning we're already in the middle of it, and we are trying to put a number that would feel like having gone through this now, we want to make sure that we hit this number, but we feel confident on it. So I would say -- what's your question, the dental market for us, given that we have the best performing materials in the market with best properties, we're going to have insurance coverage next year for our products are -- is very strong, and we have this partnership with a line that's going to deliver very good growth next year, so that -- we're really well positioned in that segment. I think that one of the things that differentiate us in the printed casting side is that we have not been a service pier. We've actually been primarily a technology provider with large companies. And those large companies are now going from their first or second or fifth or tenth system now to mega deployments and that step change in deployment, particularly as people look at that re-shoring is going extremely well. So we have a lot of tailwinds for next year in that segment of the market for us as well. I would say, we have growth on the industrial plastics, industrial metal parts on the regular biogenic side. I think what we've seen in this past quarter is, we saw a delay of decision-making and it is driven in our opinion, by macroeconomic uncertainty, things like the bonding at 100 at the end of the quarter, things like that. So we will see how that -- how much that persists. Eventually in an inflationary environment, if people want to deploy CapEx and so -- because they know that they won't be able to afford in the future to do some of these things, and it's a way to like improve profitability. So if you look back at the '70s or other periods of high persistent inflation, eventually, there was a CapEx boom not at the beginning. So I don't know where how long we're going to be in a recessionary period, but I think nobody expected last December, they would still be raising rates at this time. I think people thought that right now, things would have abated and inflation would have come down. Maybe we're back like in the 1982 environment where it just things just took an extra year spinout and the Fed is going to keep going at it. We will see. But I do see the foundation of our business is strong. I like the product portfolio that we've got. We've got -- we're not like the #3 or #5 market share in a bunch of things. We're the #1 player in the things that we play in. And we have a portfolio set up to have superior growth to our competitors. We've got some opportunities like this hyperscale opportunities that are going to be fantastic. And I feel really, really good about where we are going with our customers in this area and it's multiple customers. So I feel like we -- look, we took our lumps earlier in the year and raised cash probably, people looked at us like we were from outer space because we did that. But I wish we did it before, but we did it when we did it. And I think we're glad that we did it now in this environment.
Operator: . We have a question from Greg Palm from Craig Hallum Capital Group.
Danny Eggerichs: This is Danny Eggerichs for Greg today. I was hoping to maybe dig into the Align partnership a little bit more. Obviously, this initial partnership is kind of on the scanner side, a lot of language in some of the releases, suggest some potential expansion of that partnership. So maybe just some thoughts on the growth opportunity there and what other -- I guess, what other applications you could possibly strengthen that relationship in?
Ric Fulop: Absolutely. I mean, we have a very good business that we're setting up with our partners at Align is profitable out of the gate. We expect this subscription recurring revenue managed service business is going to provide a significant growth opportunity for our company. I'd be happy to walk you through the economics. But as you know, we provide managed design and printed parts through our Desktop Labs partnership services a bundling of the scanner parts in a managed service to the dental market, and it is really very much the future of how these products are going to be consumed. Align is the #1 market share player in the capture side. And this is going to allow us to essentially convert our business today, people selling printers and materials, and we may have doctors that don't have the full capability to do the design themselves. We have very much a very small group of early adopters, but the vast majority of doctors aren't set up to use it just in the current offering. And with this service, we have a wide glove offering that goes from just printers to a much more holistic solution. It's recurring revenue. It's a subscription and it's very sticky, and it provides a significant amount of value to the practitioner. Now the goal is to capture a larger percentage of the total spend that they spend every month. So look that value up over multiple years and provide additional superior solutions over time. We have really a great long-term potential relationship with our partners at Align. We work with them in many things. This is -- obviously, we cannot preannounce things did our call be on what we've currently talked about. And we hope to have a site marriage of iTero with Desktop Labs in Desktop Health products provide a new level of capabilities to dentists and bring them from the world of milling to the world or printing much faster.
Danny Eggerichs: Okay. That's good. Wondering, if I can get your thoughts on --
Ric Fulop: Yes, go ahead.
Danny Eggerichs: It's a $30 billion addressable spend a year is going to move this decade 100% to printing?
Ric Fulop: $30 billion of opportunity, we get insurance reimbursement starting in January. So it's a really exciting opportunity. I don't want to understate how big of a deal it can be for our company.
Danny Eggerichs: Yes. Understood. Wondering if I could get maybe your thoughts on the comfort level in your inventory levels? And any thoughts on working capital requirements in Q4 up here?
Ric Fulop: Absolutely, I think -- I feel really great about where we are from inventory position now, we're going to start to bleed that off to free up cash. And there is some benefit from an inflationary point of view that we acquired this inventory earlier when it was less expensive. And it is what it is, but I feel like we're going to get to a very good place over the next 12 months. And we have a big focus on the supply chain to become a more mature company. Hopefully, that answers it.
Operator: And we have no further questions in queue.
Ric Fulop: Okay, wonderful. Well, thank you very, very much. Once again, I'd like to thank everybody for taking the time to join the call and all your interest in Desktop Metal. As always, I want to extend my appreciation to all the members of team DM for their continued work and dedication in advancing our vision of Additive Manufacturing 2.0 for mass production. If you have any questions, please don't hesitate to reach out. We look forward to speaking to you again either at Formnext or future upcoming investor events, in our fourth quarter financial results call. Thank you very much again.
Operator: That concludes today's conference call. Thank you for joining, and have a pleasant day.
