Ric Fulop’s AM 2.0 dream lives on

Ever since Stratasys and Desktop Metal signed their merger agreement last May, a lot of press releases and statements about the deal have populated our daily industry insights content. Many had things to say about the merger but one company remained surprisingly quiet: Desktop Metal. So, when Ric Fulop, the company’s Co-founder and CEO, said he wanted to speak with VoxelMatters about the implications of the merger not going through, we welcomed the opportunity to finally understand his point of view.

We found that, while many considered the merger as a last resort to realize Desktop Metal’s vision of bringing metal AM into mass production, in reality, the company’s management has been working quietly to cut costs and grow the adoption of its technologies. Many forget that these are not just any technology but some of the most market-ready systems and materials for photopolymer 3D printing, metal 3D printing, technical ceramic 3D printing and sand 3D printing of molds for metal casting. Ric is convinced that Desktop Metal will achieve profitability by next year, with cash still in the bank, and that additive mass production in automotive, aerospace, medical, dental and consumer products is within reach. He also provided data to support these claims.

We have more parts in cars than any company in AM, we’re going to be in consumer electronic products and we have final parts flying as well as in dentistry.Ric Fulop, Desktop Metal Co-founder and CEO

Shortcut to a billion

The first and main question on everyone’s mind is: ‘If Desktop Metal can achieve profitability and even scalability, why did the company want to merge with Stratasys?’

One way is to look at it as a shortcut to build a one-billion-dollar company. “Stratasys has a great management team,” Fulop says. “CEO Yoav Zeif came in and turned the company around. They figured that by merging with us they’d be in the ideal position to continue bridging the gap from prototyping and tooling to mass production. Because that is what we do. We have more parts in cars than any company in AM [more about this claim later in the article], we’re going to be in consumer electronic products and we have final parts flying as well as in dentistry. Our dental materials are in such high demand that even Carbon is using them now.

“On the other hand – Fulop continues – Stratasys is also our industry’s only major profitable company. We expect that we will be the next one but the industry needs consolidation and companies that can generate more than a billion in yearly revenues. If we merged – because the deal was intended as a merger, not an acquisition – we’d have built a billion-dollar business by combining growth-based synergies in very different areas.”

The point Fulop is making here is that the merger between Desktop Metal and Stratasys would have increased the overall revenues that the combined companies could generate by growing into new markets. On the other hand, the merger with 3D Systems would be focused on reducing costs by leveraging synergies in the commercialization of many very similar technologies across many existing markets. In other words, the 3D Systems deal, which clearly penalizes Stratasys’ current management, represents a more conservative approach while the Desktop Metal deal, which Stratasys’ current management welcomed, may have been riskier but it also might have brought bigger returns.

Everyone going their own way

After Stratasys shareholders turned down the Desktop Metal merger option by a large majority, the two companies are now going to go their separate ways, with Stratasys left to evaluate the outstanding offers from 3D Systems and Nano Dimension. “We knew this was a possibility because some of the shareholders had a personal interest in blocking the merger,” Fulop says.

For example, Nano Dimension, which is the largest single Stratasys shareholder, would have seen its stake (and voting rights) in the new company significantly diluted.

“Stratasys has suitors, and they will evaluate their offers in order to maximize shareholder value,” Fulop says making the point that this is no longer Desktop Metal’s concern. “I’m just disappointed – he adds – that the management from the other companies looking to merge with Stratasys felt the need to put Desktop Metal in a such negative light. We stand on our own two feet and we are the third largest company in the global AM market – he stresses”.

This is an important aspect that we’ve highlighted before. Many people – even in the AM industry – tend to forget that when Desktop Metal went on a shopping spree, after going public (via the SPAC merger), the company didn’t just buy high-potential startups like Aerosint, Forust, and Meta Additive but also two of the most established companies in the global AM industry: EnvisionTEC (now ETEC) and ExOne, not to forget Aidro, one of the leaders in additive production of hydraulic parts. Fulop argues that, beyond leveraging key synergies on the binder jetting front, organic growth of Desktop Metal’s own systems and technologies is the main driver of the Group’s development.

“We took technology from ExOne and put it on the DM systems and vice versa. We launched powerful technologies for ceramic part production, we introduced FreeFoam technology for our photopolymer business and continued to build the hydraulics business with Aidro,” Fulop says. He also asserts, with justified pride, that he and Desktop Metal Co-founder Jonah Myer have filed dozens of patents in AM (which he demonstrates with a rapid search on Google Patents): “We are not financial engineers, as some have said, we are technology entrepreneurs, and we are technologists at heart.”

Targeting mass adoption

Fulop argues that his goal is to add value and keep building the AM industry. “That’s what I liked about the deal we had with Stratasys: we could keep building. We were going to own 41 percent of the company, and we were committed to focusing on products. Now we are going to have to do that independently, but I still think we are going to be larger than Stratasys in the future, as we scale in consumer electronics, automotive, and some of the largest markets that are finally starting to adopt additive.”

This brings us to the claim that Desktop Metal has more parts in cars than any other company. And it’s a fair claim, especially if we consider the latest developments in giga casting. Fulop showed a chart, which was presented to Wall Street, that shows the 18 largest “powder-based metal AM companies”. The chart shows EOS as the largest company, with an estimated 160 million in revenues from metal AM, and Desktop Metal as the second largest, with nearly 130 million. SLM Solutions and Velo3D followed before a group with several Chinese companies and GE Additive. In this table 3D Systems is 13th.

That’s what I liked about the deal we had with Stratasys: we could keep building. We were going to own 41 percent of the company, and we were committed to focusing on products. Now we are going to have to do that independently, but I still think we are going to be larger than Stratasys in the futureRic Fulop

This may seem confusing if you consider that ExOne’s direct metal business, even if combined with Desktop Metal’s, can hardly top 100 million. But the fact that voxeljet is also present in the list, as the 12th largest company, helps clarify. Ric considers metal parts built via sand casting as part of the metal AM business. This is a fair argument, one that has been often brought forth by voxeljet people as well, and that is now becoming very actual. As we highlighted in VoxelMatter’s recently released market study on the Traditional Ceramic and Sand 3D Printing market, the adoption of sand 3D printing in giga casting by leading automakers and aerospace (and maritime) companies (such as Tesla, Rolls Royce, BMW, Mercury and Airbus), is bringing about a paradigm shift for sand 3D printing and casting companies like HumTown or Grainger & Worrall, among others.

Today the ability to prototype molds via sand binder jetting is taking off, along with the ability to produce the giga casts using large binder jetted molds. The metal parts cast with 3D printed molds can leverage many benefits of AM in terms of geometry without having to sacrifice material selection (they can be used to make aluminum as well as ultra-light and affordable magnesium parts).

Fulop also remains confident about Desktop Metal’s direct metal and ceramic binder jetting capabilities for mass production (with a $70+ billion TAM), as well as other key market segments such as photopolymers ($200+ billion TAM), foams ($170+ billion TAM) and printed hydraulics ($50+ billion TAM). In terms of the highly strategic metal binder jetting segment (which, we have argued, was the main reason for Stratasys identifying Desktop Metal as a growth partner), Desktop Metal is the dominating player in a market that is now seeing several new competitors.

Fulop is not worried. “We have hundreds of systems already in the market – he says, referring primarily to the X-Series systems that Desktop Metal inherited from ExOne – while GE and HP still only have a handful”. He agrees that new competing technologies from Tritone, Mantle and others are interesting but also points out that the companies behind them are still in a very early stage of their market-building efforts. He also argues that Desktop Metal is investing significantly in R&D, pointing to, among other things, advancements in reaction-bonded silicon carbide 3D printing (something we’ve also highlighted in VoxelMatters’ recent Technical Ceramic AM market report). Finally, he points out that if you combine sand and technical ceramics, Desktop Metal has more ceramic 3D printers in the market than any other company, working with partners such as Schunk Lockheed, Northrop, Raytheon and SGL (which is also confirmed by VoxelMatters’ market studies).

Achieving profitability in 2024

More down to Earth, before achieving mass adoption, Dekstop Metal needs to achieve profitability. The deal with Stratasys would have given more stability but now it has to stand on its own two feet and Fulop is confident this is going to happen by 2024. After several quarters of cost cuts and loss reduction, the company is on target to achieve adjusted EBITDA breakeven by year-end 2023 (according to its Q2 financial report), gradually moving from losses of $41.6 million in Q1 2022 to just negative $15 million in Q2 2023 (with $53 million in revenues). Q2 2023 was its best quarter since going public.

This is, in fact, a better financial statement than most hardware companies in AM, which, in many cases are still investing large amounts of money by leveraging the strength of a larger group behind them. Making money with additive manufacturing is still very difficult today but Fulop argues that it will become a lot easier in the near future, as large companies and industries increasingly adopt these technologies for part production. He also argues that AM will eventually become a very profitable industry and that a lot more consolidation will take place.

As for the now, “we don’t need to raise more capital – Fulop confirms. We can totally run a business on the cash we have and we’re getting close to profitability. That’s why we did all the cuts a year ago. We’ve consolidated facilities and had continual improvement in our financials.”

“Our story is not finished.”