Desktop Metal(US:DM)2024-05-09 10:02Part I. Financial Information This section provides an overview of the company's financial performance, condition, and related disclosures for the period Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Q1 2024, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with accompanying notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $65,559 | $83,845 | | Total current assets | $197,323 | $216,137 | | Total Assets | $412,030 | $458,001 | | Total current liabilities | $69,787 | $70,104 | | Total Liabilities | $214,692 | $216,349 | | Total Stockholders' Equity | $197,338 | $241,652 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Account | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total revenues | $40,600 | $41,316 | | Gross loss | $(2,206) | $(1,364) | | Loss from operations | $(49,389) | $(52,317) | | Net loss | $(52,098) | $(52,642) | | Net loss per share | $(0.16) | $(0.16) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Account | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,409) | $(37,346) | | Net cash (used in) provided by investing activities | $(93) | $61,427 | | Net cash (used in) provided by financing activities | $(407) | $248 | | Cash, cash equivalents, and restricted cash at end of period | $66,387 | $106,459 | Notes to Condensed Consolidated Financial Statements The notes detail critical accounting policies and events, including liquidity, goodwill impairment, convertible notes, and significant restructuring initiatives like the '2024 Initiative' and 'Photopolymer Initiative' - Management believes that existing cash and short-term investments as of March 31, 2024, will be sufficient to fund operating and capital expenditure requirements for at least the next twelve months18 - Goodwill was fully impaired as of December 31, 2023, with a balance of $0 at March 31, 2024, and no additional goodwill impairment was recorded in Q1 20244748 - The company has $115.0 million in principal amount of 6.0% Convertible Senior Notes due 2027, with a net carrying value of $112.7 million as of March 31, 20245563 - On January 22, 2024, the company initiated the '2024 Initiative,' including a ~20% workforce reduction, expecting at least $50 million in aggregate cost savings, with $1.7 million in restructuring charges recorded in Q1 2024112114 - On March 14, 2024, the company approved the 'Photopolymer Initiative' to review strategic alternatives for its photopolymer business, resulting in a $12.0 million charge for incremental depreciation and amortization in Q1 2024115 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's Q1 2024 performance, highlighting a 2% revenue decrease, significant cost reduction efforts, and improved Non-GAAP Adjusted EBITDA loss, while affirming sufficient liquidity for the next 12 months Results of Operations Q1 2024 total revenue decreased by 2% YoY to $40.6 million, driven by product sales decline and a widened gross loss, despite some operating expense reductions Revenue by Type (in thousands) | Revenue Type | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Products Revenue | $35,631 | $36,697 | $(1,066) | (3)% | | Services Revenue | $4,969 | $4,619 | $350 | 8% | | Total Revenue | $40,600 | $41,316 | $(716) | (2)% | Revenue by Geographic Region (in thousands) | Region | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Americas | $28,585 | $27,041 | $1,544 | 6% | | EMEA | $9,447 | $10,259 | $(812) | (8)% | | APAC | $2,568 | $4,016 | $(1,448) | (36)% | | Total Revenue | $40,600 | $41,316 | $(716) | (2)% | - Gross loss increased by 62% to ($2.2) million in Q1 2024 from ($1.4) million in Q1 2023, with total gross margin decreasing from (3)% to (5)% YoY153155 - Operating expenses decreased overall, with R&D expenses falling 14% to $19.8 million and General & Administrative expenses falling 11% to $16.2 million due to cost-saving initiatives, while Sales and Marketing expenses increased 17% to $11.2 million157158159 Non-GAAP Financial Information Non-GAAP results show improved gross margin and narrowed operating and Adjusted EBITDA losses for Q1 2024, reflecting the positive impact of cost-saving measures Reconciliation of GAAP to Non-GAAP Gross Margin (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | GAAP gross margin | $(2,206) | $(1,364) | | Stock-based compensation | $568 | $680 | | Amortization of acquired intangible assets | $14,340 | $6,927 | | Restructuring expense | $(309) | $717 | | Acquisition-related and integration costs | $— | $479 | | Non-GAAP gross margin | $12,393 | $7,439 | Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(52,098) | $(52,642) | | Interest expense | $1,491 | $811 | | Income tax benefit | $(198) | $(557) | | Depreciation and amortization | $24,185 | $13,433 | | EBITDA | $(26,620) | $(38,955) | | Change in fair value of investments | $1,317 | $179 | | Stock-based compensation expense | $7,838 | $9,313 | | Restructuring expense | $2,592 | $3,618 | | Acquisition-related and integration costs | $1,255 | $1,406 | | Adjusted EBITDA | $(13,618) | $(24,439) | Liquidity and Capital Resources The company ended Q1 2024 with $66.1 million in cash, believing it sufficient for the next 12 months, with net cash used in operating activities significantly improving due to cost-saving initiatives - As of March 31, 2024, the company had $66.1 million in cash, cash equivalents, and short-term investments and an accumulated deficit of $1,684.3 million183 - The company anticipates at least $50 million of aggregate cost savings from its 2024 Initiative, with sequential cost reductions across the first half of 2024191 - Net cash used in operating activities was $17.4 million for Q1 2024, a significant improvement from the $37.3 million used in Q1 2023196197198 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations on investments and foreign currency exchange rates, which are currently not hedged due to immaterial exposure - The company's exposure to interest rate risk is primarily from its $66.1 million portfolio of cash, cash equivalents, and short-term investments, with a 10% change in interest rates expected to have an immaterial impact208 - Foreign currency risk exists due to operations in Europe and Asia, but the company does not currently use foreign currency forward contracts to manage this risk209 Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to identified material weaknesses, though financial statements are deemed fairly presented - As a result of previously identified material weaknesses, the CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2024210 - Notwithstanding the material weaknesses, management concluded that the financial statements in the 10-Q are fairly presented in all material respects211 Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures relevant to the company's operations Legal Proceedings The company is defending against two class action lawsuits related to the ExOne Merger and EnvisionTEC's manufacturing practices, both believed to be without merit - The company is a defendant in a class action lawsuit (Campanella v. Rockwell) related to the ExOne Merger, alleging inadequate disclosure about a whistleblower investigation at EnvisionTEC216217 - The company is also defending a securities class action lawsuit alleging false or misleading statements about EnvisionTEC's practices, where a motion to dismiss was granted but the lead plaintiff has appealed the decision218 Risk Factors This section outlines significant risks including commercialization delays, market adoption, competition, integration challenges, financial losses, potential delisting, and internal control weaknesses - The company may experience significant delays in the design, production, and launch of its additive manufacturing solutions and may be unable to successfully commercialize them on planned timelines221223 - The company has a history of losses and may not achieve or maintain profitability in the future, having incurred a net loss of $323.3 million in 2023293 - On November 22, 2023, the company was notified by the NYSE of non-compliance with the minimum $1.00 average closing price requirement, posing a risk of delisting if not cured370 - Material weaknesses in internal control over financial reporting existed as of December 31, 2023, due to incomplete integration of acquired subsidiaries and limited accounting personnel387392 Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms prior reporting of unregistered security sales and details the company's repurchase of 535,893 shares for tax withholding purposes related to employee stock awards Issuer Purchases of Equity Securities (Q1 2024) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | January 2024 | 5,995 | $0.73 | | February 2024 | 115,366 | $0.59 | | March 2024 | 414,532 | $0.61 | | Total | 535,893 | | - All shares purchased by the issuer were withheld from employees to satisfy minimum tax withholding obligations related to the issuance of Class A common stock397 Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None398 Mine Safety Disclosures This item is not applicable to the company - Not applicable399 Other Information The company reports no other material information not previously disclosed, confirming no director or officer trading arrangement adoptions or terminations - During the three months ended March 31, 2024, no directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement'403 Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, which include officer certifications and Inline XBRL data files