Desktop Metal Stock: Why the mad rush after the publication of the first quarter results?
Office metal (NYSE: DM) stock saw a wild ride on Tuesday after the 3D printing company released its first quarter 2021 results the day before the market closed.
The shares (which began trading in December 2020 following the company’s reverse merger with a special purpose acquisition company, or SPAC) opened nearly 11% lower on Tuesday. But they made up much of their lost ground at the end of the regular trading session, closing at just 1.4%.
We can only speculate on the “why”. But it seems likely that the fairly negative initial reaction from the market is likely attributable to some market players not celebrating two main things: profits and management not providing organic revenue. The latter adds to the uncertainty – and the market hates uncertainty.
So why did stocks rebound throughout the day on Tuesday? It seems likely that there were two main reasons. First, some market participants likely viewed the initial sale as overkill, especially as revenue exceeded the Wall Street consensus estimate and viewed the decline as a buying opportunity. Second, the actions of Desktop Metal were probably improved by the actions of 3d systems up 10% on Tuesday, as 3D Systems is often seen as an indicator of the 3D printing space. Actions of Stratasys jumped over 4%, confirming this theory.
Now let’s take a look at Desktop Metal’s second quarterly report as a public company.
Desktop Metal key figures
|Metric||Q1 2021||Q1 2020||
|Returned||$ 11.3 million||$ 3.4 million||234%|
|GAAP operating profit||($ 30.7 million)||($ 22.3 million)||N / A. Loss widened by 38%.|
|GAAP net income||($ 59.1 million)||($ 21.8 million)||N / A. Loss widened 171%.|
|Adjusted net profit||$ 7.0 million||($ 20.4 million)||N / A. The result changed from negative to positive.|
|GAAP earnings per share (EPS)||(0.25 USD)||(0.14 USD)||N / A. Loss widened by 79%.|
|Adjusted EPS||$ 0.03||(0.13 USD)||N / A. The result changed from negative to positive.|
Q1 revenue (which increased 35% from the previous quarter) was boosted by the February acquisition of EnvisionTEC by the company, which is involved in the polymer 3D printing business. The magnitude of this increase is not known because the company did not provide organic revenue. (Organic revenue does not include the impact of acquisitions made during the last year.) We therefore cannot assess the performance of Desktop Metal’s 3D metal printing business during the quarter. .
The GAAP net loss includes a negative non-monetary change in the fair value of the warrant liability of $ 56.6 million and a tax benefit of $ 27.9 million.
Non-GAAP (adjusted) figures exclude the impact of changes in the fair value of the liability for warrants and certain other smaller one-time items. The adjusted figures do not exclude the tax benefit.
Wall Street was looking for a loss per share of $ 0.12 on revenue of $ 9.4 million. So Desktop clearly broke the top line. The picture of the result is cloudy, because it is not clear whether this expectation of the result refers to an adjusted result, as is usually the case, or to the GAAP result. The data are contradictory on this point.
However, don’t get hung up on the “beat or non-beat” question. The big advantage here is that there are only a few Wall Street analysts who provide quarterly estimates for the company, which means you should pay even less attention to those estimates than usual. Another point to remember is that even though it is considered an income beat, this beat is largely due to the tax benefit.
In the first quarter, the company used $ 41.1 million of cash for its operations, compared to $ 22.4 million of cash during the same period of the previous year. Nevertheless, its liquidity position remains strong. He ended the period with $ 572.2 million in cash, cash equivalents and short-term investments. He has a negligible amount of long term debt.
For context, for the full year of 2020, Desktop Metal’s revenue fell 38% year-over-year to $ 16.5 million. Management attributed last year’s drop in revenue primarily to the pandemic, which caused some customers and potential customers to suspend their orders. In 2020, the net loss declined 13% to $ 90.4 million, or $ 0.57 per share.
What management had to say
Here’s what CEO Ric Fulop said in the results release:
We are satisfied with the good start to the year. Revenue growth accelerated as we captured strong organic and inorganic momentum [acquisition] Opportunities. Continuous innovation in our core business, coupled with our inorganic strategy, strengthens our ability to grow our product portfolio, expand the high volume applications we can offer our customers and increase our leadership in our category. We are well positioned to execute our long term growth strategy focused on additive manufacturing 2.0 for high volume end parts.
Here’s what CFO James Haley said on the earnings call, when asked by an organic revenue analyst:
So it’s not something we’re disclosing today. On our last call, we indicated that we expected around 60% of our [full-year] income must come from organic DM and 40% from inorganic [acquisitions], and I would say we’re still moving in that direction. I think what we will see quarter after quarter, there will be variances. But really, our vision for the year hasn’t changed at this point.
Orientation for the whole year 2021
The company reiterated the outlook it issued last quarter. For 2021, he expects a turnover of “more than $ 100 million”. Plus, he plans to exit the year with an annualized revenue rate of $ 160 million. In other words, he probably expects revenue of around $ 40 million in the fourth quarter of 2021.
It is considered good form at The Motley Fool to end our results articles with a brief conclusion. However, it is not possible to say here that the company performed “poor” or “it seems to be on the right track” or the like because it did not break the organic performance.
So I’ll end on a similar note to what I said last quarter: Metal 3D printing technology and Desktop Metal’s overall strategy look promising. But at this early stage in its marketing journey, its stock is speculative.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.