In this episode of Industry Focus: Energy, Desktop Metal (DM +0.00%) chief product officer Arjun Aggarwal joins the show to discuss 3D printing and Desktop Metal's aim to help it cross the chasm from prototyping parts to full-scale mass production.
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This video was recorded on September 2, 2021.
Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. This week we're taking a look at additive manufacturing, perhaps more commonly known as 3D printing. My guest this week is Arjun Aggarwal, chief product officer of Desktop Metal. Desktop Metal is the most recent entry to the public markets in the additive manufacturing industry, coming public by back transaction late last year. Arjun, thank you so much for joining me.
Arjun Aggarwal: Yeah, of course, happy to be here.
Sciple: Great to have you here excited to talk about Desktop Metal, the stuff that you're doing in the industry. But first, just set the stage for our listeners. Folks who have probably heard of 3D printing know what the word means, and are probably aren't super familiar with the process. For someone who is a total amateur, maybe explain what 3D printing is and really what entails making something via this process.
Aggarwal: Yeah, it's actually a much broader phrase or industry than I think people give it credit for. I'll try to break it down at a really high level. The idea is to basically take a 3D object and to slice it up into hundreds, sometimes even thousands of layers, and then to create the object layer by layer so that at the end of this process you have a 3D shape, instead for example a stack of pieces of paper for a 2D printer. The nuance is all in how you create those individual layers. There's several different technologies throughout, there's actually seven different high-level technologies that can be used. The one that people are probably most familiar with is where you take a nozzle and you extrude a material through that nozzle, and it basically layer-by-layer extruding a little bit of material and then you move up and you do another little bit of layer material, and so you can create a shape that way. But there's really a whole bunch of different technologies and I actually think that that's a lot of where the exciting developments are in the industry it is different ways to 3D print that allow you to do it faster, more cost effectively, and with higher part qualities of resolution, accuracy that will allow us to finally take 3D printing from what's mostly been like a prototyping application into more of a high volume, true production manufacturing environment.
Sciple: Yes, I'm glad you mentioned where 3D printing places today as much more in this niche products, prototyping side of the industry and what your company's goal is to transition more from being that of these more small run products toward full mass manufacturing. Why has the market so far today been stuck in this prototyping phase and what are the barriers to really jumping through its larger mass scale manufacturing?
Aggarwal: Yes, absolutely. First of all, conventional manufacturing, it's a massive industry. There's around $12 trillion worth of spend globally on manufacturing, and that's all primarily using conventional manufacturing technology, so think casting or forging or stamping or injection molding or CNC machining. These are all conventional manufacturing techniques and they dominate that $12 trillion. 3D printing or additive manufacturing is roughly $12 billion market, so it's like 0.1% of that broader pie, and the reason I think that it hasn't gotten to much broader penetration, there's really a few key barriers that need to overcome because manufacturers are looking at like, "Well I can make this via conventional manufacturing, and I can make via additive," and there's got to be some level of comparison where you can say, "From a material properties perspective, I'm getting a product that's going to perform just as well as if I've made it conventionally from an accuracy and part quality perspective, it's going to be just what I can get from a resolution or service finished perspective, it's going to feel like what I can get out of a convention manufacturing.
I think the additive industry has done a really good job of evolving over the past few decades to meet the bars on many of those different aspects. The one that's been really lagging is on cost and throughput. Throughput, meaning how many of a given part can I produce. That is what I think is really holding the industry and the technology back, and I think a big part of it comes from on the spectrum. Manufacturing is a decade, even centuries-old in pretty printing relative to that is still a new industry, and I think a lot of the technologies are still at the point where they're not super time-effective, meaning in that example that I talked about earlier where you're extruding material little filament through a nozzle, it takes a really long time to trace out every layer, and then think if you have hundreds of layers and each layer takes 30 seconds to a minute, even building a simple park and take a really long time. A lot of the existing, what we call legacy technologies out there are pretty speed limited, and that prevents you from being able to make a lot of parts and being able to make them cost effectively. I think that's where our focus as a company that does some metal has been, whatever the material is, whether it's metal or polymer or now we do wood. It's all about getting to cost-effective high throughput production techniques and materials that enable us.
Sciple: You talked about the speed of production, obviously super important. One other thing I wanted to talk about too is just precision, accuracy. When you're talking about broad scale manufacturing, there are sometimes very narrow allowances when it comes to these particular parts endemic to the process of 3D printing is you have to shrink the materials that you may get. The censoring process where there's a big change in size. How do you think about allowances and the manufacturing business, not only solving the speed problem, but also just the accuracy problem at scale.
Aggarwal: Yes, I think it's a great question. I think a lot of 3D printing technologies are actually very accurate, it's always a challenge. You're always going to have customers that say, "I need this part, tighter tolerances, I need that part or that specific feature," really tight, and I think generally speaking, the industries are improving gradually on that scale, there are a couple of ways to do that. You can do it in the hardware and in the process, which is certainly something that we're focused on and many other companies and the industry are focused on or you can do it in the software as well, where as you mentioned, not all three printing processes have this, but our process on the metal side binder jetting, that's technology that we use to achieve really high speeds, and we have our own proprietary technology there, we call it single pass jetting. That technology, once you print a part, you have to actually put it into a furnace in order for that part to really turn into dense hard metal. During that process, there's a little bit of shrinkage, and so as you said, I think customers can worry as it's going to actually be the size of the part in shape apart that I wanted. To some extent that process has been around for decades, so there are established techniques for helping to get over the hump. But one of the things that we're doing that I think is really exciting is we've got a tool called live center. That's a software simulation tool that actually simulates the entire Black Box process that takes place in the furnace where you have all kinds of different forces at play. You have friction, you have drag, you have gravity, you have thermal considerations, the parts are getting heated up to 1,000 degrees C or higher, and so our software in a matter of minutes simulates what happens in that furnace, and it actually then takes that simulation and it runs through iterative loops to compensate for any shrinkage, any warping, any off tolerance that you might get, and it creates a print ready geometry.
Our goal is to really improve the hardware and the materials and the process, but then to leverage software to get you that final fit on the part, so you don't have to got out and print 20 different times and do a bunch of guess and check and have a guy or girl sitting there doing the CAD and trying to manually adjust things. We really try to leverage artificial intelligence and software to do all that work and make it a much more automated, simplified process.
Sciple: Yeah, that makes sense and obviously an important consideration for anybody in the production industry. When you think about the applications, as you mentioned earlier, manufacturing is a 100-year-old industry. You've got companies with very developed supply chains. This is something that's going to probably gradually change overtime as far as the applications that are really perfect fit for your offering today. Where are you seeing the adoption really pick up the most quickly? What industries?
Aggarwal: Yeah, it's funny you ask, I think 3D printing has a legacy of serving aerospace and medical applications, and I think a large part of that is because the technology was a little bit slower, so it couldn't produce as much volume, but also it was more expensive, so you're really relegated to higher-value, high-cost parts that are in low quantity. Medical and aerospace, fit really well there. What we're excited about is making 3D printing and additive manufacturing more cost-effective and higher throughput, so we see a lot of interest from applications in industries like automotive, consumer products, consumer electronics is specifically something we're really excited about, but even things like fashion and accessories. We've talked about players in the jewelry industry or making handbag accessories. Those are interesting. Oil and gas, where you're doing maybe not tens or hundreds of millions of parts, but you're doing thousands, tens of thousands, hundreds of thousands of parts, real volume manufacturing. I think we see a lot of great applications there and then just general precision machine components, where you have these precision component manufacturers all around the world, machine shops, job shops. There are hundreds of thousands, if not millions of these around the world, whether they're for profit or internal organizations and they aren't making just any one thing, they're just making a whole wide variety of different components. On any given day, they may be doing five, 10, 20 different jobs, all different geometries and that is a really great use case for 3D printing because the technology is so flexible.
You don't need tools, you don't need a CNC machine program or sitting around and spending half an hour or an hour more programming the machine for each specific geometry. You just use the software. You upload your digital part file and then you set it to print. There are industry-specific applications and then there's also use cases. One other one I'll just speak to you on the industry-specific, I think I mentioned healthcare, medical a little bit. I think there's a huge opportunity there that we're really excited about, particularly on the dental side, I think we see a large opportunity for, not just things like aligners, but for permanent dental implants, dentures for crowns, restorative. Dental is a really interesting area that's cresting. There's a lot of stuff in the biocompatible area that we're excited about that's a little further out, but all of these are great applications in industries that are now being enabled because we can make the technology and the parts cost-effective.
Sciple: You can actually get your perfect custom-made denture at a price that it's something that is affordable to an average person, or for instance a company.
Aggarwal: Yeah, that's right. Not just affordable, but in a timeline that makes sense, as opposed to having to sit for weeks. You go to the dentist's office, you get the mold done, and then they send you away and three, four weeks later, you get your dentures. Now you can go in, you can digitally scan. They can put you under anesthesia or they can have you in the chair. While you're getting all this done, they can print out the part in the backroom, install it there in that same visit and you walk out the door with a brand new smile. The ability to, especially in the healthcare area, have patient-specific solutions and do it with really short lead times, I think is very powerful.
Sciple: Yes. You talk about a lot of these different industries, whether it's aerospace, or healthcare, or any manner of others. How do you go about selling your solution? It sounds like each one of these, particularly customers, would have a very narrow set of needs. How do you go about making your case to this wide variety of customers?
Aggarwal: Yeah. We've got a really great go-to-market for Desktop Metal, and I think our focus is a lot on education internally. A lot of what our sales and marketing team and our engineers are focused on is defining really great lighthouse case studies for particular industries and application examples. For something like automotive or for something like oil and gas, what we'll do is we will actually go in and we'll canvas from our existing customer base, we'll talk to prospects and we'll come up with some really great key examples. We'll have our engineer design them up in CAD, consult with those other parties, and say, "Look, here is the part that you can make. It's representative geometry or it's real customer geometry if they're letting us speak to it. Here's how much time it would take to manufacture one part. Here's how many you can manufacture in a week. Here's how many you can manufacture in a year. Here's how much it would cost to manufacture one of them." It's educating them on the economics of the solution. Then you could have a discussion about all the materials that you can manufacture with, whether it's stainless steels or low-alloy steels, or cobalt chromes. We spend a lot of time and resources internally developing these lighthouse examples, application examples, and case studies.
The way that we distribute those to the market, we have a unique distribution strategy through a network of partners. That allows us to have great reach geographically because manufacturing and manufacturers are distributed. It's a lot of small and medium businesses. They want to see touch, feel, see the parts, and so we make it a big part of our education initiatives. Not only distributing great content and doing webinars and helping people understand "here is what you can make and here's the art of the possible," but also actually trying to get them to see and feel and touch the process themselves.
Sciple: Yeah, that makes sense. I think from there I want to talk about your product portfolio. You've rolled out a number of new products this year. Later this year, are scheduled to roll out your PFFD production system, which ties into all that what we've been talking about as far as speed and building into new supply chains. Can you put product offerings in context for folks, you have a number of different offerings? You've also acquired a couple of companies over the course of this year. From a 10,000-foot view, explain your product portfolio to folks who haven't studied your business.
Aggarwal: We now have added manufacturing solutions across a variety of different materials. Those range from metals to composites to polymers, elastomers, woods 3D printing, sand 3D printing. I'll first say if you have any use cases or any interest in the manufacturing and you make one of those materials or bio-compatibles, the last one I would add to that list, we've got solutions. What the solutions do, we have a range of different price points ranging from just a few thousand dollars to our larger, more industrial systems. All of these systems are focused on enabling end-use-parts production. The form factors and the price points of these different solutions basically vary based on what kind of throughput and what kind of economics you are looking for. With everything from low medium volumes solutions for end-use manufacturing to mid-volume on the metal side of our shop system is great for that mid-volume, hundreds of batches of hundreds of parts or thousands of parts and on the polymer side we've got the Envision one and Envision one HT and standard and XL format.
Then, we've got our super high volume industrial manufacturing platform. That's our P50 on the metal side, our P1 on the metal side, it's interesting, great for development for that industrial-scale manufacturing, and then on the polymer side, we've got our Xtreme 8-K solution as well. I would say our portfolio is broadly focused at enabling end-use parts manufacturing. Not just in low medium volumes or traditional 3D printers developers, but now for medium, super-high volume 3D printing as well. That makes the technology cost-effective and easy to use. The big thing for us is how do we lower barriers? We've got all of the stuff you need to get started, software, the systems, materials. Many of our solutions are turnkey and we do this across a wide swath of materials.
Sciple: When you talk about the P50 system coming later this year, it's going to be a high-end production system. What's the price point for the system? If somebody wants to go buy this and put this into their factory, how much are they showing out for it and how do you end up making money on that as a business?
Aggarwal: We don't typically talk too much publicly about our ASPs, but I'll say the printer alone is going to run you, call it high six digits on that one and we've got a whole bunch of different configurations as well. Depending on if you're going to run it at once a day, once a week, or 24/7 lights out, the price ranges. There's no one specific price for the system. It all depends on how you're going to use it. I think with respect to how someone is going to get this and install it and use it, there's a big part of it that's facilities. If you're buying an industrial manufacturing piece of equipment, you need to invest in the right facilities. There's some ancillary equipment that may be required, but then it's a process of installing, getting up and running. I don't think someone should expect to install the system one day and the next day being able to turn out parts 24/7. But transparently, that's a big part of what we're trying to enable, and that's where our software comes in. It's learning the process.
If you've never done 3D printing or never done binder jetting before, learning how to design parts that work well with that process. Conventional manufacturing has all kinds of limitations on geometries, whether it's undercuts or if you think about CNC machines, it's what you want. It's 2D projections. Otherwise, you need all kinds of fixturing, but 3D printing and lots of complex geometries, but at the same time, to take advantage of the benefits, you may want to tinker with your designs a little bit to both get performance benefits and to reduce material usage and to increase yields. There's an element of, how can I best use the technology to actually enhance my performance? There's a little bit of that and I think that with the facilities, with the system, with some design expertise, customers should be up and running hopefully pretty quickly with their new industrial manufacturing processes.
Sciple: I mentioned those acquisitions that you made earlier this year, such as EnvisionTEC at a $300 million acquisition, ExOne just earlier this month. We're looking at a $600 million acquisition there. What's been the motivation behind these acquisitions, especially coming so quickly after your IPO? Was that contemplated as far as coming public, I think, to get access to capital to gobble up some of these companies?
Aggarwal: I think that was always a part of the story as we saw coming to the public markets as an avenue to increase our capital base, to go out, and affect some acquisitions that I think we thought were additive. Broadly speaking, we're looking at a growth strategy focused around a couple of different key pillars of the business. That's great, high-volume focused 3D printing platforms that create unique and differentiated materials, so we can vertically integrate into the full customer supply chains, make it more cost effective and more tightly couple the hardware to the materials. Because that's the way that you're going to get the best results.
Then the third key pillar is around killer applications and where we see really killer apps for additive manufacturing, where I think the technology allows for a much higher degrees of performance and allow you to allow the parts manufacturer to capture more economics to then leverage a fully vertically integrated supply chain across systems, materials, and parts. These are really the three key pillars that we think about growing and advancing at the company. I think each of the acquisitions that we made have played into that, whether it's EnvisionTEC, ExOne, and Arison, these are really expanding our print platform technology. EnvisionTEC brought us into polymers and they've got to focus on volume production in polymers. ExOne, we love, it's very complementary. I think they've got great technology, really highly flexible on the bioenergetics side. It's a great complement to our very high throughput systems, and on the same 3D printing side as well. They've got very high-performance, high-quality systems that are a nice complement to our low-cost architecture, robotics, and 3D printing systems. I think there's a lot of complementary nature there. Arison, multi-material. We see Arison as potentially a really great future of 3D printing where people are not only going to need to print parts, but also print full products, and that might be multi-material. It's a lot of looking at different print technologies, that's one area where we play.
Another area is around materials. Adaptive is a great example of that where we acquired our best-in-class elastomers to help funnel those through our 3D printing platform. In fact, we're really excited about bringing adaptive elastomers market, right in concert with our new EnvisionTEC platforms, the extreme 8K in particular. It's a strategy we continue to evolve. I think we've been pretty strategic about where to deploy our capital, but I think in every case, we're trying to make decisions that over a 10-year timeframe are going to allow us to capture double-digit share and an added market which is projected to be at that point in the 2030 timeframe. Well in excess of $100 billion, estimates range from $100 billion-$150 billion. Our goal and all the decisions that we make today and how we deploy capital is let's make sure that we have a double-digit share in that 10-year timeframe.
Sciple: Let's talk about the five to 10 years down the line that the future of the industry, you see some consolidation happening here. Lots of excitement returning to 3D printing. There was some excitement earlier in the last decade that didn't necessarily materialize. When you look forward to the next five years or so, why is now different from what we saw last decade, and what are you most excited about going forward?
Aggarwal: I think 3D printing has definitely gone through a hype cycle. There's no doubt about that. I think the big thing today that's different from back then is the thesis on what's going to take 3D printing to the next level. A lot of what we're focused on, we call it additive manufacturing 2.0. It's a term that we coined as we came to market. It's really all about volume production of end-use parts. I think and we think that there's some metal, that's what's going to take additive manufacturing from 0.1% to 1% of the overall manufacturing, with still a lot of whitespace. By the way, that's 99% that we still haven't captured. But even a 10X increase in the size of the market is massive for us from $12 billion today to more than $100 billion. I think that's all around technologies and solutions that allow businesses and manufacturers to use 3D printing for volume production of end-use parts. I think that's where it's really different from prior iterations of 3D printing and earlier on in the hype cycles where it was companies that were focused on solutions and technologies that I think were better suited to prototyping or tooling preproduction use cases. That's great, there's great technology there, and there's still a lot of opportunity in that market. But if you think about businesses bringing products to market, the vast majority of spend that businesses have is on when their products are actually in production, not on when the products are in pre-production and prototyping phase.
That correlates in terms of how they spend on equipment and how they spend on materials. I think there was we call additive 1.0, a set of technologies that were just better suited to low volumes and prototyping. They were never going to be able to make that leap to volume production because the throughput wasn't there and the economics weren't there. I think people got really excited about this idea of everyone's going to have a 3D printer in their home. My TV breaks, and I'm going to print the new part or my swing set breaks, and I'm going to print a new part. Sure, maybe there's a little bit of that out there. But I think we really believe that what's going to take this technology to the next 10X level of growth is enabling it for mass production or volume production use cases of the actual parts that consumers are going to use.
Sciple: This isn't something that you're going to have at your house, prints of the add to fix your TV, but it is something that Ford is going to have to produce a product to make their truck compliant in another jurisdiction, or get to that next level of performance on their new vehicle, or something like they're on an F1 team.
Aggarwal: I won't say no one's going to have a 3D printer because I've a 3D printer at home that I used to fix when I do that. But I think there is a limit to the market growth when that's the case. I think where we see the biggest economic opportunity is in real manufacturers, like you said, the automotive of Tier 1 OEMS, or your consumer electronics manufacturers, or your consumer fashion and accessory manufacturers, or your oil and gas companies. When these people start to use the technology to actually make parts that they are then providing to their end-users, that is I think what's going to create the next explosive level of growth. We see it in all areas when we talk to customers and all the third-party data will say, "Hey, X% of people use 3D printing for volume production of end-use-parts today." That's like in the single-digits or in the low teens and 50% want to do that over the next five to 10 years. That is a huge Delta and that's what's going to drive a lot of the growth of the adoption of additive manufacturing.
Sciple: You tell the story of really reaching a more mature industry compared to the overall manufacturing industry, still a small contributor, but with lots more opportunity to grow. As you see the overall industry maturing, I think what we'll see Desktop Metal's business mature in some way, still not profitable today as you look out toward the continuing evolution of the business, what do you think about the path to maturity from a cash flow profitability point of view for the business?
Aggarwal: I think today, we're focused on really capturing the massive opportunity that we see ahead from a growth perspective. As I mentioned earlier, but all the decisions that we make and as we think about cash flow profitability, we're going to make sure that the capital investments and the decisions that we're making are what we need to ensure the long-term health and success of the company, and grabbing that double-digit share over the next 10 years. That may mean that we'll continue to invest. That may mean at some time that we anticipate becoming profitable. We haven't really commented publicly on those timelines. But I think this is a growth story. We see a huge opportunity here that we want to capture, and all of the decisions and investments that we're making are with that in mind that across many applications, we are really seeing industries just at the beginning of the S-curve where the adoption is. It's been slow and it's just starting to stick up. We're trying to position ourselves to best capture that acceleration in those S-curves as the technology gets adopted more widely.
Sciple: Makes sense. Arjun, thank you so much for spending this time with us. Maybe one last question before I let you go. We've talked a lot about Desktop Metal, different aspects of the business, and the industry. If you wanted to leave potential investors or folks who are interested in the industry with one or two final thoughts, things that they should definitely take away from this conversation, what would those things be for you?
Aggarwal: I would say additive manufacturing is going to be big. I think there's a big difference from the last go around. It's all about what we call additive manufacturing 2.0, volume production and used parts. It's all about going to market with cost-effective solutions across a wide swath of materials. I think that that's what our goal is and I think that that's what's going to grow the market. We're really excited to be solely focused on achieving this goal and bringing the technology to much broader adoption.
Sciple: Arjun, thank you so much for spending this time with us. I'm excited to watch what Desktop Metal does here in the future and I hope we can stay in touch.
Aggarwal: Sounds good. Thanks so much, Nick, great talking to you.
Sciple: Awesome. As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for mixing the show, for Arjun Aggarwal, I'm Nick Sciple. Thanks for listening and Fool on!
