Desktop Metal Stock Craters 61% – Revenue was not the primary cause
Metal desk (DM -61.11%) Shares closed 61.1% on Tuesday after the 3D printing company reported its first quarter results before the market opened. The stock was already in the risky “penny stock” category – that is, priced below $5 per share – before the earnings release. It is now even deeper in penny stock territory, as it closed at $1.33 per share on Tuesday.
It’s probably safe to assume that neither revenue nor earnings in the quarter were among the main reasons for investors’ anger. Revenue beat Wall Street’s consensus estimate and earnings were only slightly below analysts’ expectations.
There are two main reasons, in my opinion, why investors have been furiously dumping the stock. First, the company has continued to burn cash at a rapid and unsustainable rate, causing investors to worry about its liquidity. Second, investors are increasingly concerned about how the flagship P-50 production system is being received in the market.
Desktop Metal key figures
|Metric||Q1 2022||Q1 2021||Switch|
|Revenue||$43.7 million||$11.3 million||286%|
|GAAP operating profit||($69.5 million)||($30.7 million)||The loss increased by 126%|
|Adjusted operating income||($44.6 million)||($21.2 million)||Loss increased by 110%|
|GAAP net income||($69.9 million)||($59.1 million)||The loss increased by 18%|
|Adjusted net income||($43.4 million)||$7.0 million||Result reversed to negative from positive|
|Earnings per share (EPS) GAAP||($0.22)||($0.25)||Loss reduced by 12%|
|Adjusted earnings per share (EPS)||($0.14)||$0.03||Result reversed to negative from positive|
Product revenue increased 283% year-over-year to $39.5 million, and service revenue increased 322% to $4.2 million . Revenues likely benefited from a significant increase in acquisitions made over the past year, particularly ExOne, which was acquired in November. However, Desktop Metal does not provide organic revenue results on a quarterly basis, so investors cannot know the extent of the benefits of acquisitions.
Wall Street was looking for an adjusted loss per share of $0.13 on revenue of $41.6 million. Desktop was therefore slightly below the results, but exceeded expectations.
Cash burn remains a concern, as I wrote after last quarter’s earnings release. Indeed, Desktop Metal continued to burn cash at a rapid pace in the first quarter.
The company used $56.3 million to run its operations in the first quarter, compared to $41.1 million to run its operations in the year-ago period. It ended the first quarter with $206.5 million in cash, cash equivalents and short-term investments.
It is clear from these figures that the company needs a cash injection quite quickly. It shouldn’t have come as a surprise to investors that he announced he was raising funds, as shown below.
Convertible Senior Notes Offering
Before the market opens on Tuesday, Desktop announced plans to offer $150 million in convertible senior notes due 2027 in a private offering to institutional buyers. It also plans to grant initial purchasers an option to purchase an additional $22.5 million in principal amount of notes.
The notes “will accrue interest payable semi-annually in arrears and will mature on May 15, 2027, unless redeemed, redeemed or converted earlier,” the company said in the press release. “The interest rate, initial conversion rate and other terms of the Notes will be determined at the Offer Price.”
Undoubtedly, investors were disappointed that Desktop Metal’s earnings release made no mention of the P-50, other than to say that shipments began during the quarter. Investors were surely hoping to learn from additional sales of the P-50, the company’s flagship 3D printing system for mass production of end-use metal parts.
Many investors already knew that the P-50 began shipping in the first quarter, as Desktop issued a press release in February stating that the first system had shipped and the recipient was Stanley Black & Decker. Additionally, the company included this information in its Q4 2021 earnings release in early March.
Guidance 2022 reaffirmed
Management reaffirmed the full-year 2022 guidance it issued last quarter. These perspectives were about the business as it stood at the time. For 2022, management plans:
- Revenues of approximately $260 million, representing annual growth of 131%.
- Earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately negative $90 million. In 2021, Adjusted EBITDA was negative $96.1 million, so management expects this loss to narrow by approximately 6%.
Penny stocks are for short-term traders
With a stock price below $5 a share even before Tuesday’s bombing, Desktop Metal was already unsuitable for the majority of long-term investors, who should steer clear of so-called penny stocks. because they are very risky.
With the stock price now below $2 per share, short-term traders will likely have even more control over this stock. Extreme volatility is possible.