Desktop Metal announced another massive series of layoffs and facility closures.
In an official press release the company stated:
“[Desktop Metal] announced an additional $50 million cost-reduction plan for 2023 that will prioritize investments and operations in line with near-term revenue generation, positioning the company to achieve its long-term financial goals.
A key part of the cost reduction plan is a sweeping effort to streamline and consolidate several locations in the United States and Canada into four hubs in Massachusetts, Pennsylvania, Texas, and the Midwest. Today’s announced cost reduction plan also includes a workforce reduction of approximately 15%.”
This is a significant move, and follows a similar move last summer, when the company performed actions that resulted in approximately US$50M in annualized savings. Combined, that’s over US$100M in savings each year going forward.
The company said these moves will “improve margins, reduce COGS, and operating expenses.”
Desktop Metal CEO and founder Rip Fulop explained:
“These cost reductions will help us improve margins and reduce costs to accelerate our path to profitability. The Additive Manufacturing industry continues to mature and expand even in a challenging macroeconomic environment. Our talent is the critical success factor that helps us drive the industry forward. These actions reinforce our highest priorities and create a flatter, more agile organization. I value the contributions of everyone who has served and continues to serve Desktop Metal. We are committed to managing this transition with care and respect.”
This is obviously bad news for those affected in the move, but perhaps it is a critical move for Desktop Metal itself.
It’s not actually that surprising if you look at the company’s most recently released financial statements, which describe the state of affairs up to the end of the third quarter of 2022. During those three quarters — which are likely representative of the full year 2022 — the company made sales of US$148M, but had expenses far in excess of that, leaving a net loss of US$428M. That is a very large number, almost half a billion dollars, and it’s only for nine months of 2022.
Why so much expense? I suspect a lot of it has to do with the company’s acquisition. Over the past couple of years, Desktop Metal acquired a number of related companies in an effort to diversify their offering.
But acquiring companies doesn’t mean you just run them exactly the same way they have been running. The acquirer must optimize their operations, typically by eliminating redundant work. That’s one of the major reasons for combining companies.
The two reduction moves by Desktop Metal may be part of that consolidation, pushed by not only general acquisition steps, but also by looming losses that have to be rectified.
It will be interesting to see how this move affects the company’s stock price. It could fall if investors see this move as insufficient and signs of trouble, or it could cause a rise if investors see this as a move in the right direction.
The savings of US$100M per year will certainly contribute, but it would only dent the current loss of US$428M and not eliminate it.
Clearly there are more things to be done. Whether that will be additional cuts, or increased revenue streams, we don’t yet know. My bet is on both.
Via Desktop Metal