Desktop Metal
Desktop Metal is not for sale and will remain an independent company after its proposed merger with Stratasys was terminated, CEO Ric Fulop [RF] tells TCT.
Speaking to TCT just minutes after Stratasys announced the proposed deal did not get enough votes from shareholders to move forward, Fulop said he was grateful for the support from Desktop Metal shareholders and disappointed not to get the approval of Stratasys shareholders.
Though the Stratasys shareholder vote did not go the way Fulop and the majority of Desktop Metal shareholders wanted, he remains bullish about the future of Desktop Metal as an independent company, suggesting that it will soon reach profitability.
Below is a transcript of our conversation with Fulop on September 28, 2023 that has been edited for clarity and brevity.
TCT: Ric, can I get your immediate reaction to the news that Stratasys has not got the required votes from its shareholders to move forward with the proposed merger with Desktop Metal?
RF: For us, we’re very grateful for our shareholders’ support. They supported and approved our side. Obviously, we’re disappointed that the Stratasys folks weren’t successful in keeping the support of their shareholders. But we negotiated protective provisions into the agreement, that protect our company.
There’s a reason that Stratasys wanted to do a deal with us. We have capabilities on the mass production side, we’re a leader on binder jet and in healthcare photopolymer printing. We’re focused on growing our business. They have hostile offers and they have a fiduciary duty, they’re a public company, they have to consider what’s best for their stockholder value. There are offers that are outstanding that aren’t going to go away if they don’t do something.
I like the management team at Stratasys, they’re good people, they’re going to probably make the right decision as they pick a dance partner for the next stage of their business.
For us at DM, we have 127 million dollars in cash at the end of Q2 and we have told the market that we're going to have our first quarter of profitability, on an adjusted EBITDA basis, in Q4. We’re entering Q4 next week. And we feel confident that we’re going to be able to achieve that. We’re driving towards that long-term goal. We’ve been working towards that for a long time. If you look back, we’ve reduced our expenses considerably, that’s almost 100 million dollars. The growth of the business is good and we’re looking forward to profitable growth next year.
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The best days of DM are ahead of us. We’ve a committed group of customers. We’re the only company in mass production in lots of cars with real volume, everything from BMW to Tesla, lots of folks use our technology. You’ve probably read about what we’re doing in consumer electronics and what we’re doing there, which is very high growth. We have our systems overseas in Asia, which we’re looking forward to continuing to scale that business. We’re excitted about 2024.
TCT: What did you see as the pros of the proposed merger with Stratasys?
RF: Today, we’re the third largest company in the additive space [that is a] publicly traded company in terms of our revenue and our metrics. However, we’re number one in mass production. That’s all we do. We don’t do prototyping and we don’t do tooling. We just do mass production, and that’s a much larger addressable market than prototyping and tooling which are more mature [for additive].
The way we sold the combination was that combined we would have been the first billion dollar company in our market and combined it would get to scale faster. The impetus is getting to a broader reach. But to be honest, I’m also excited by our standalone prospects as well. We have the goods. There’s a reason they were approaching us to do this one, not the other way around. They saw the merits of this combination, and we saw it too, but shareholders have a vote, they have a voice, and unfortunately Stratasys have gone through a long road. They were three years without a CEO pre-Yoav, who’s done a very good job, but they’ve got shareholders who have been in there for a very long time and when you have people offering much higher prices they have to listen.
They're trying to stay entrenched because they knew in their heart they had a better path to growth [with Desktop Metal] but the shareholders own the company not management. That’s the reality of being a public company. I think the Board of Stratasys and the management own 2-3% of the company, it’s really a public company. So, you have to listen to the shareholders and act in the best interests of the shareholders. I like this management team, it’s avery good management team at Stratasys. [It's] unfortunate that they didn’t get the support of their shareholders.
We got our vote. We care about our shareholders, our shareholders voted for the deal. They thought it was a good deal for DM. They understand the reason that we did it because Stratasys has a very good distribution, we could grow the business faster. We were getting 40% of the company and half the board and we were going to continue to build a great franchise together.
But we have a great franchise on the DM side by ourselves. We're a leader in ceramics, leader in binder jet, we're a leader in healthcare, and dental. Those businesses are doing quite well. We've got a significant improvement in gross margins, almost doubled from 18 to 31% between Q1 and Q2 and we'll continue to increase as the year progresses. We've gone on record, for first quarter, that we feel like we'll be profitable. For us, it's been a long road to get here. We're excited about our prospects of the future. A lot of the growth in the future is in mass production where we're leading. The stuff we showed with BMW a week ago, that's the type of stuff we're doing. Really high volume production additive manufacturing.
TCT: So, can you explain the strategy for Desktop Metal moving forward?
RF: We have a pretty solid strategy to continue to grow and focus on key areas. Consumer electronics, advanced ceramics, automotive, where we're leaders primarily through binder jet. And then also, we're very strong in consumer medical. We're a company that is focused on showing that we can do high volume mass production with 3D printing. What we're doing with AM 2.0 no one else is doing.
TCT: But does the future need to include a merger or significant acquisition?
RF: We’re going to stay independent. We weren’t being acquired by Stratasys - people in the press spun it that way - we were doing a merger of equals. It wasn't exactly 50/50 but we were 41/59, and we were gonna get half the board. So, we were going into a [deal] where they were obviously larger in revenue than we are, but we were going into a [deal] where we felt like we're getting our fair share. We wouldn't have sold the company and just walked away, we were going to continue to work on this together. So, that's something that people don't understand. However, it's okay. I think we're going to be very successful building our own business. We've got a great future ahead of us.
TCT: And is that set in stone, that you aren't looking for another merger?
RF: We're 100% independent. Our company is not for sale. Contrary to what people make up, if you look at our cash position and our our expenses, going into our first profitable quarter with around 100 million bucks. We don't need to sell our company, we like our company. And we weren't selling our company, we were merging our company, we were going to remain working at the company. So, I would say our goal going forward is to grow Desktop Metal independently and make it the best company in mass production in additive.
We're focused on getting to profitability. And building a fantastic platform and company to lead additive manufacturing. We have the fastest systems for mass production in both metal and polymer. We have great technologies like our FreeFoam process, our Figur sheet metal process that I think that no one else in the world has. We are by far the leader in binder jet with over 1200 systems in the field. Our competitors aren't even close or even in the same league. We're over 90% market share and in the dental space we're very strong, we're almost five times larger than Stratasys in dental. We have a very, very strong business and we have an expanding business there.
Read more: A complete timeline of the Stratasys + Nano Dimension + Desktop Metal + 3D Systems story (so far)
