Desktop Metal, Inc. (NYSE:DM) Q4 2022 Earnings Call Transcript

Desktop Metal, Inc. (NYSE:DM) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Greetings and welcome to the Desktop Metal Fourth Quarter and Full Year 2022 Financial Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jay Gentzkow, Vice President, Investor Relations. Please go ahead.

Jay Gentzkow: Thank you, operator. Good day, everyone and thank you for joining today’s call. With me are Ric Fulop, Founder and CEO of Desktop Metal; and Jason Cole, CFO of Desktop Metal. Please note, our financial results, press release and presentation slides referred to on this call are available under the Events & Presentations section of our Investor Relations website. This call is also being webcast live with a link at the same site. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today’s call is property of Desktop Metal. It cannot be reproduced or transcribed without our prior consent. Before we begin, I’ll refer you to our Safe Harbor disclaimer on Slide 3 of the presentation.

Today’s call will include forward-looking statements. These forward-looking statements reflect Desktop Metal’s views and expectations only as of today, March 1, 2023 and actual results may vary materially based on a number of risks and uncertainties. For more information about the risks that may impact Desktop Metal’s business and financial results, please refer to the Risk Factors section of the annual report on Form 10-K, in addition to the company’s other filings with the SEC. We assume no obligation to update or revise the forward-looking statements. Additionally, during this presentation and the following Q&A session, we may refer to our results on a non-GAAP basis. Non-GAAP measures are intended to supplement but not substitute for performance measures calculated in accordance with GAAP.

Our financial results release contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. With that, it’s my pleasure to turn the call over to Ric Fulop, Founder and CEO of Desktop Metal.

Ric Fulop: Thanks, Jay and good afternoon everyone. Thank you for joining the call. I will begin today with the highlights of our fourth quarter and full year 2022 financial results as well as key accomplishments. I will then provide a business update, strategic overview and focus areas for 2023. I will then hand the call to Jason to go into more details on our quarterly and annual results. We will conclude with our 2023 financial outlook, before opening up the call for Q&A. Beginning with our financial results on Slide 4, we finished the year strong and I am proud of the company’s efforts to drive performance and adapt to what continues to be on a steady macro environment. Revenue for the fourth quarter was a record for the company, $60.6 million, coming in towards the top of our revised guidance range, with a fantastic quarter of customer adoption with many new and existing customers contributing to growth, including Bayer, BMW, Carbon Motorsports, Cummins, Dixie Iron Works, Eaton, Fraunhofer, Google, Honeywell, Jacobs Institute, Matthews and Entire Power, just to name a few.

Non-GAAP gross margins were 24.3% for the fourth quarter 2022, a 440 basis point sequential improvement from third quarter 2022. We have a variety of gross margin improvements underway, some of which are linked to the $100 million in annualized cost reductions we expanded on a few weeks ago. These actions are a reflection of our commitment on accelerating our path to profitability and reaching adjusted EBITDA breakeven before the end of 2023. Adjusted EBITDA for the fourth quarter 2022 was negative $21.1 million, also coming in towards the top of our revised guidance range. Adjusted EBITDA improved across 2022 and will markedly improve in 2023 as cost reductions impact financial results. Highlighting full year 2022 results, on the right side of the slide, revenue was $209 million in 2022, representing growth of 86% over 2021.

Non-GAAP gross margins were 22.5% in 2022, lower than our gross margins in 2021, but we expect ongoing efforts to improve our cost structure to drive gross margin expansion in 2023 and beyond. Adjusted EBITDA was negative $118.4 million for the year in what we expect to be a low watermark for the future of the company as we combine $100 million in annualized cost savings and operating leverage to deliver significant improvements to adjusted EBITDA going forward. Shifting towards a review of what the team accomplished this past year on Slide 5, I am confident when we look back at 2022, it will mark a truly foundational period for Desktop Metal. To start, we gained significant scale in the additive manufacturing space, growing 86% year-over-year to $209 million in revenue.

We have earned the reputation of being at the forefront of 3D printing innovation, and that’s now transitioning into a real tangible result as the third largest additive manufacturing company by revenue, but fully focused on mass production, which we believe has the largest addressable market and greatest growth potential. We also surpassed the 1,100 metal additive manufacturing system installations as adoption of our differentiated AM solutions continues to expand. We completed the integration of X1 last year, creating a binder jet powerhouse in cementing our leadership in additive manufacturing for mass production. And finally, we announced a strategic partnership with Align Technologies to offer the dental industry the first seamless solution for digital restorations that we expect will be a significant growth driver for both companies.

We also launched several new product releases in 2022, which we expect will be incremental growth opportunities for our business as we scale these offerings commercially in 2023 and beyond. After years of development and nearly $100 million in investment, we started shipments in last year of our Production System P-50, a truly groundbreaking product that introduces performance and speed characteristics unmatched in the binder jetting market. We continue to see traction with automotive, industrial and other major end markets. And now we have a master supply agreement with one of the largest consumer electronic companies in the world. We will continue to scale the solution as the year progresses. We launched the S-Max Flex, a digital casting solution that leverages our single-pass jetting technology in an affordable architecture, offering a larger and more scalable build volume with improved tolerances and higher speeds.

We unveiled FreeFoam, a new family of photopolymer residents that, for the first time, produces dimensionally accurate closed-cell foam parts without tooling to reduce cost versus conventional manufactured foam parts. We also launched the Figur G15, a first commercial platform of its kind to fix standard sheet metal on demand directly from a digital design file, producing a fully formed part in less than an hour without major investment in time and money. Lastly, Desktop Health introduced the Einstein Series of dental 3D printers designed for the production of end-use dental parts as well as two industry-leading materials, Flexcera and SmileGuard, maintaining our very strong momentum in the dental market. And finally, we took passions in this past year to significantly reduce our expense structure and prioritize our path to profitability.

These efforts are ongoing, but we have already successfully completed $50 million in annualized cost savings, and with the recent announcement of an additional $50 million in cost reductions expected for 2023, bringing the total annualized cost savings to $100 million. We are in a very strong position to achieve adjusted EBITDA breakeven by the year end. Just as important, the actions we took in the past year streamlined our operations and insulated our strategic priorities, creating a stronger, more resilient company. Turning to Slide 6, I’d like to take a step back and revisit the long-term strategy and opportunity for Desktop Metal. As I detailed on the previous slide, it was a successful year in many fronts. But amidst a dynamic backdrop, our long-term mission remains the same to enable mass production via AM 2.0 to cost effectively compete with conventional manufacturing.

Globally, there is more than $16 trillion a year in manufacturing industry spend. With estimates projected in the additive manufacturing market to grow to $100 billion by the end of the decade, this still represents less than 1% penetration in overall manufacturing. We believe we are just scratching the surface for the market potential. And as we disrupt the overall AM market with our unique mass production technologies, expect a large arc of multi-decade growth for Desktop Metal. Importantly, mass production is the fastest growing segment in the additive manufacturing space, because it unlocks benefits of lower cost production, onshoring and supply chain flexibility, inventory of one and part design possibilities unavailable through traditional manufacturing, among other benefits.

Desktop Metal is the pure-play on the AM 2.0 mass production opportunity, just beginning to inflect. We are in a strong position in this space to drive outsized growth at scale by leveraging our highly differentiated mass production technologies that are unmatched in the industry. Our AM 2.0 portfolio has enabled us to gain rapid scale in the market. And we believe it will propel Desktop Metal towards our goal of double-digit share of the additive manufacturing market by the end of the decade. Turning to the following slide, we have made tremendous progress since going public, ascending to become the clear leader in market share in the additive manufacturing for mass production technologies, including binder jet and DLP. We have demonstrated the success of our AM 2.0 strategy by growing revenue from $16 million in 2020 to $209 million in 2022 and gaining significant scale.

We are beginning to demonstrate the strength in the economics of our business model as high-margin consumables, services and subscription revenue has grown to 24% of total revenue. We expect these razor-blade revenue contributions to expand over time, creating a tailwind for margins and profitability. We also own one of industry’s largest libraries of production materials with over 250 materials across metals, polymers, ceramics, biocompatibles, band, wood, foams and elastomers. This portfolio is a key enabler for end use part mass production and supports a broad range of applications across verticals, allowing us to diversify our end markets and customer base with common platforms. We offer the industry’s broadest array of production print platforms focused on high-volume end use part applications.

This is an unparalleled product portfolio across speed, materials and parts size that pushes the boundaries of printing speeds and production volumes compared to legacy 3D printing competitors. The differentiation in our integrated solution has led to rapid customer adoption. Today, our installed base includes over 7,000 customers over a diverse set of end-use markets with little or no customer concentration risk, providing us an expansive set of customers through which we can drive both consumables’ revenue, up-sell and cross-sell of our platforms. We are also committed to protecting the competitive differentiation around Desktop Metal products. We have built a robust and defensible intellectual property portfolio at over 950 issued patents and pending applications and it’s one of the largest and most valuable IP portfolios in additive manufacturing.

This is a snapshot of the company we have built today. We believe these proof points serve as validation of our ability to quickly disrupt the additive market again and quickly gain scale. We are building this business with a 20-year horizon. We are just getting started and our best days are ahead of us. Turning to the following slide, I’d like to outline Desktop Metal’s four strategic pillars. We believe these unique differentiators have enabled us to quickly gain leadership and share in the additive manufacturing market and will facilitate expanding that leadership going forward, driving the next stage of our growth. First, our most important competitive advantage is our highly differentiated technology capability. We have the fastest print platforms in the market, focused on mass production and can support a step function improvement in throughput up to 100x of legacy AM processes, delivering parts up to 120 at the cost of laser-based solutions.

We are solely focused on area-wide technologies that improving performance over time, benefiting from Moore’s Law, allowing us to continually increase our competitiveness versus conventional manufacturing. This leadership in production technologies is underpinned by an extensive materials library with best-in-class properties and proprietary software and sintering solutions that make our systems easy to use and adopt. Our leadership in mass production has propelled us to rapid scale and will serve as the foundation to achieve our goal of double-digit share in the additive manufacturing market by the end of the decade. Second, we have a deep customer engagement model, hyper-focused on helping customers solve their manufacturing problems. We have experienced and continue to believe that if you know your customers and tailor solutions to fit their needs, growth will take care of itself.

To that end, we have built a leading portfolio of platforms and materials focused on mass production to serve a diverse set of applications. And we also have a robust team of materials development professionals, application engineers and process developers to support our growing installed base of customers. It is important to emphasize this end-to-end complete customer engagement model cannot be replicated taking time, investment and focus to build out and we consider it a critical differentiator for our business. Third, innovation is in our DNA. Since inception, our culture has been about reshaping the additive manufacturing industry by introducing solutions that push the performance capabilities of 3D printing speeds and throughput in order to compete with conventional manufacturing.

We have built a team of the smartest people in 3D printing and have the premier destination for talent. As a result, we believe we are the innovation leader in additive manufacturing. Talent is a key ingredient to our success and that’s going to help us continue to push the envelope and flywheel of innovation to set the stage for our next step function of growth. In addition, our focus on innovation and engineering excellence has resulted in a robust portfolio of over 950 patents and pending applications that will defend our position in the market going forward. Finally, Desktop Metal has a massive long-term growth opportunity that we are just beginning to scratch the surface of. Our market is expected to grow at a compounded annual growth rate of over 20% to reach approximately $100 billion by the end of the decade and the trends supporting broad adoption of additive manufacturing remains solidly intact.

Importantly, we believe we are the leaders in the fastest growing segment of the AM market, mass production. We remain focused on leveraging our differentiated technology for this massive opportunity in order to extend our leadership in the space and maximize our long-term growth. Turning to Slide 9, I’d like to outline how we view our business in terms of two core technologies, binder jetting and photopolymer printing, both area-wide technologies that improving performance over time, benefiting from Moore’s Law, and both focused on mass production end-use part applications versus prototype and tooling. We have established clear leadership positions in these large end markets as a result of competitive advantages and expect these businesses to serve as the foundation for our continued scaling.

First, Desktop Metal offers the world’s leading portfolio of binder jetting systems, backed by the most experienced binder jet team in the industry with the largest installed base. Binder jetting is one of the fastest growing segments in production applications, in large part because as the highest throughput process in 3D printing, binder jetting unlocks mass production at higher volumes, lower cost with more material flexibility. Binder jetting is a highly flexible technology that can be used to do castings and direct-printed parts in mass production at a fraction of the cost of alternative additive solutions. It is the first additive technology being used at scale in high volume with metal products. For example, binder jetting today is the only technology being used at scale in automotive.

We have many vehicle OEMs as customers, an example of which is our large deployments inside BMW, where they produce aluminum parts for hundreds of thousands of vehicles per year with better performance and lower cost than conventional manufacturing. Parts made with this process are also now flying in jet engines like the Rolls-Royce Trent Engine with a dual-stage gear pump housing is made with our binder jet systems. At the high end of automotive, if you order carbon ceramic brakes with a Lamborghini, McLaren or Porsche, these are now made through binder jetting with our systems. We have countless of customer examples. Please refer to the appendix section of this quarter’s earnings slides as well as our investor presentation for more examples.

We have a strong competitive moat in the space with number one selling binder-jet products across the board with an array of end-use applications that differentiate us from our competitors. Not only do we have the largest installed base in binder jet, we believe we have sold more binder jetting systems last year than all of our competitors combined. And with our superior product and materials portfolio, we expect to continue to grow our dominant position in this important segment. Second, photopolymer printing. We view the space in two segments, healthcare and dental and industrial photopolymers. Led by Desktop Health, we have grown to a leadership position in the dental space, cemented by the launch of the Einstein, a best-in-class series of photopolymer printers with exceptional speeds, industry-leading accuracy and the innovative features designed for the production of end-use parts.

In addition, Desktop Health owns a catalog of differentiated materials that set it apart in the market, including Class 2 FDA-cleared Flexcera and SmileGuard. Furthermore, we recently announced our partnership with Align Technology that will add a new growth vector to this business. Healthcare and dental are massive markets with over $90 billion in healthcare implants that will over time be patient-specific and over $30 billion of annual current spend in restorative end-use parts in the dental market. We believe these markets can reach at least 75% penetration of digital AM workflows by the end of the decade. And Desktop Health owns the leading integrated solutions to support continued strong momentum in the space as these markets accelerate their transition to additive manufacturing.

In the Industrial segment, we have the leading photopolymer platforms, led by the Xtreme 8K, the largest production-grade DLP printer in the world for high-volume production. Our industrial print platforms have significant price performance benefits versus previous generation systems, creating similar differentiation for mass production that we experienced in the binder jetting side. The industrial polymer market is quite large at a $70 billion market opportunity and we are well-positioned to grow our market share through a combination of our category-leading photopolymer printers and broad industrial polymers materials portfolio. Turning to the following slide. As I referenced in our strategic pillars, innovation continues to be the core of our business model.

Through driving AM 2.0 mass production technology forward and looking for a way to disrupt the additive manufacturing industry, we have unlocked three new markets that bring additive manufacturing into new applications, not traditionally accessible to legacy AM processes offered by our peers. Commercially, these opportunities are still early in their potential. But as a result of these efforts, we’ve expanded Desktop Metal’s total addressable market and added incremental long-term growth drivers to the business. First, we recently introduced what we believe is one of the more exciting new solutions in the industrial 3D printing market. Our FreeFoam technology is an expandable 3D printable foam for mass production that, for the first time, produces dimensionally accurate flow cell foam parts without tooling.

The conventional polymer foam space is a $170 billion total addressable market with very little penetration from traditional 3D printing. We see many exciting opportunities for this unique materials family to disrupt current traditional form applications, including automotive seating, mattresses and furnishing products, footwear, sporting goods and healthcare, among others. As the only company in the world with mass production solutions for printed foams, the long-term potential for this business is very exciting. We aim to make considerable progress scaling those opportunities in 2023. This is a market where we have very strong intellectual property and barriers to entry. Next, we entered the sheet metal-forming market with the recently launched Figur G15.

For the first time in this space, Figur offers a digital solution for standard sheet metal forming on demand that we believe will disrupt the $300 billion a year sheet metal forming spend. Using patent pending technology, manufacturers in automotive, aerospace and appliances, in other industries can now purchase a system that gives them a competitive way to form sheet metal parts and products quickly without the high upfront costs associated with stamping dyes and presses. While early in its commercialization, Figur faces little to no competition for digital solutions in this space, offering a true greenfield opportunity. We’re very excited to explore the potential for Figur. And finally, the global hydraulics market. The opportunity for printed hydraulics as well as manifolds, heat pumps and fluid power systems is ideal for additive approaches because of the complex part geometries required that, in many cases, can only be achieved through 3D printing.

We believe we’re the best in the world at 3D printing hydraulics and are the first company that has DMB certifications for 3D-printed hydraulic parts. We view printed hydraulics as a killer app for metal advice printing and are positioned to lead in this space as we believe a substantial portion of the $50 billion in annual spend will tip towards 3D printing over the next decade. Today, our print and hydraulic parts are already being adopted by major customers like Saudi Aramco, Total Energies and Schlumberger. Moving to Slide 11. 2023 will be a pivotal year for Desktop Metal, a year requiring a sharp focus on execution. We have several initiatives in place that will drive our success for 2023 and position us for the long-term. To start off, organic growth will be the number one focus in 2023.

Last year’s growth was strong, and regardless of macro conditions, we think there is a terrific opportunity to maintain our momentum and significantly grow the organic business at scale in 2023. We will be relentless in leveraging our differentiated mass-production portfolio to drive adoption in the additive manufacturing market and position the business to capitalize on the next stage of this market’s secular growth opportunity. Second, as we’ve communicated since the start of last year, we’re committed to achieving adjusted EBITDA breakeven before the end of this year. We have a plan to achieve this goal regardless of macro conditions, primarily through the $100 million in annualized cost savings. As a result of these cost reduction plans as well as optimizing inventory levels and overall working capital management, we’re focused on dramatically lowering our cash burn this year.

Third, amidst an uncertain macro environment and some operational changes, we do not want to lose sight of what drives success in our business, the customer. As we continue combining our differentiated portfolio of integrated solutions with our deep customer engagement model to deliver for our customers, we believe growth will follow. Therefore, we’re as focused as ever in growing our total customer count as well as repeat customer count while maximizing the ability of our customers to transform their manufacturing settings through the benefits of additive manufacturing for mass production. And finally, we’re focused on streamlining our operations to position the business for the long-term. Many of these initiatives were outlined in our cost-reduction plans.

But there are many everyday actions that will drive operational efficiencies as we mature as an organization. These improvements will create a stronger, more resilient company for the long-term as well as show up in the financial efficiency of the business. With that, I’ll hand over the call to our wonderful CFO, Jason Cole, to take a closer look at the numbers as well as our 2023 financial outlook. Take it away, Jason.

Jason Cole: Thanks, Ric. Beginning on Slide 13, you will see highlights of our financial performance for the fourth quarter and full year 2022. Please note, we will be referring to several financial metrics on a non-GAAP basis. Reconciliation to GAAP data is included in the filed appendix. Consolidated revenue for the fourth quarter 2022 was a record for the company at $60.6 million, up 6.8% year-over-year from $56.7 million in the fourth quarter of 2021. Leading revenue drivers were industrial photopolymers, digital casting solutions and growth in consumables, services and subscription. On the right side of the slide, consolidated revenue was $209 million for the full year 2022, representing 86% year-over-year growth over $112.4 million in 2021.

Revenue growth was driven by broad-based strength across all our offerings and contributions from acquisitions. Non-GAAP gross margins were 24.3% for the fourth quarter 2022. Gross margins improved 440 basis points sequentially versus third quarter 2022, driven by higher sales volumes, which drove improved absorption of fixed costs. Gross margins declined 710 basis points versus fourth quarter of 2021, impacted by weaker cost absorption and product mix. On the right side of the slide, full year 2022 non-GAAP gross margins were 22.5%, representing a decline of 410 basis points from 2021, again impacted by weaker cost absorption across 2022. Third quarter demand volatility revealed areas where we could make meaningful improvement to our fixed cost challenges.

While gross margins made a nice recovery in fourth quarter of 2022, you may recall we recently announced additional cost reductions rolling out over 2023, reflecting our commitment to continued gross margin improvements. On the next slide, non-GAAP operating expenses were $37.9 million for the fourth quarter 2022. Through actions under our initial 2022 cost optimization initiative, we reduced non-GAAP operating expenses sequentially by $3.6 million versus the third quarter of 2022 and a total of $14.2 million since first quarter of 2022. Fourth quarter 2022 non-GAAP operating expenses as a percentage of revenue were 63%, which is a sequential improvement versus 88% in the third quarter of 2022 and year-over-year improvement versus 81% in the fourth quarter of 2021.

We’re showing good progress on improving our expense structure and expect the recent additional $50 million in cost savings announced last month to continue the trend of reducing operating expenses on a sequential basis. Adjusted EBITDA for fourth quarter of 2022 was negative $21.1 million, improving sequentially by $7.1 million compared to third quarter of 2022 and improving year-over-year by $4.7 million versus fourth quarter of 2021. Adjusted EBITDA is trending in the right direction as the $50 million in cost-reduction actions undertaken last year begin to positively impact adjusted EBITDA, and we expect to realize continued improvements from these cuts in the coming quarters. In addition, the incremental $50 million in cost savings announced last month will create a further tailwind for adjusted EBITDA, as results from those cuts contribute to financial results in the first half of 2023 and then more meaningfully in the back half of 2023.

The combined $100 million in annualized cost-reduction initiatives will put us in a strong position to fulfill our commitment to achieve adjusted EBITDA breakeven before year-end, regardless of the macro environment. We remain well funded, ending the year with $184.5 million in cash, cash equivalents and short-term investments and have adequate financial flexibility based on our internal forecast. Managing cash is a top priority in 2023, and we expect ongoing expense reduction efforts and prudence in our internal investment spend will drive significant cash flow improvements, even if the current challenging macro environment persists. We also ended the quarter with $91.7 million in inventory that we intend to monetize over the next several quarters, freeing up working capital and providing further improvements to our cash position.

Shifting to our 2023 financial outlook on Slide 18. A quick note on our current approach to financial expectations. As a management team, we are committed to creating a more predictable business model at Desktop Metal, and we expect to demonstrate that in 2023. However, we continue to operate in a challenging macro environment where our visibility is weaker than usual. With that said, we expect to generate revenue in the range of $210 million to $260 million for 2023. We have intentionally crafted a wider range to accommodate for unknowns related to the depths and breadths of the recessionary environment we currently find ourselves in. Our customer engagement validates our growth thesis in 2023, and we are scaling several new revenue streams this year.

Also, revenue guidance reflects the historical seasonality we see in the first quarter, typically the lowest quarter of annual revenue contribution, and we expect that to be the case again in 2023. Next, we expect adjusted EBITDA in the range of negative $50 million to negative $25 million in 2023. In addition to year-over-year EBITDA improvements, in any revenue scenario, second half of 2023 adjusted EBITDA will significantly outstrip the first half. As we’ve reiterated, we are focused on driving significant continued improvements to our expense structure, on our way to reaching adjusted EBITDA breakeven before the end of 2023. And with that, I’ll turn the call back over to Ric for his closing remarks.

Ric Fulop: Thanks, Jason. In summary, it’s been a challenging macro environment in the second half of the year. Our business performed well to the end of 2022, which is a testament to the team’s consistent execution in a dynamic operating environment. We’re well positioned for another year of growth as we leverage our superior portfolio of AM 2.0 mass production solutions to continue taking share in the large and growing additive manufacturing market. And we’ve taken swift actions at the organization, given the current set of circumstances, in order to reach profitability on our committed time frame and be in a position to take advantage of the next stage of growth and deliver value to all stakeholders. While 2022 underperformed our original expectations, we seize the opportunity to make the company stronger and more resilient.

As a result, Desktop Metal is in a solid position to get profitable and grow faster than our competitors. We look forward to updating you on our progress throughout this year. With that, let’s open it up for questions. Operator?

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Q&A Session

Operator: Thank you. Our first question comes from the line of Paul with JPMorgan. Please proceed with your question.

Unidentified Analyst: Hi, thanks for taking my questions. So can you talk about some of the momentum you’re seeing in the P-50? How many shipments have been made year-to-date? And what your expectations for shipments this year kind of based on the order interest you’re getting and how is the pricing also trended as of late? And can this product become more meaningful impact on margins and top line throughout the year? And I have a follow-up.

Ric Fulop: Thank you, Paul. We continue to see great interest in the product. We just had a fantastic open house with customers, they have got to see the machine systems running, and you’re going to get further options in the year as we continue to ship machines. This is a very high-end system that, fully configured, is a couple of million dollars. So the type of companies that acquired it are larger companies. We’ve got many programs with vehicle OEMs, industrial customers, consumer electronic companies, several. I think we highlighted that we have a large consumer electronic company that we have a master agreement with and it’s a significant opportunity for that business. I think it’s €“ the opportunity for that product is just as big now as it always has been. And you’re going to see us talk more about it with actual customer names as the year progresses. So we remain very bullish on it.

Unidentified Analyst: Great. And then just on gross margins, can you expand on some of the restructuring benefits you’ll see on gross margins? And then any kind of potential scale benefits you get throughout the year, maybe some benefits from lower component inflation? And how do we think about gross margin levels as we exit fourth quarter? And can we start to see more material contribution from the materials and services side as well? Thank you.

Jason Cole: Yes. Thanks Paul. This is Jason. I will take that one. Both the first $50 million announced in €˜22 and the $50 million we announced last month, both have an element that touch on cost of sales. The second tranche is a little bit more biased towards cost of sales, and that’s a reflection of what we saw in 3Q when we saw a little bit of a revenue dip and we saw our gross margins lower. We put a lot of focus into the fixed cost base. And those €“ we are going to be rolling out pretty quickly across the first part of 2023. So, you should expect to see gross margins model higher in 2Q over 1Q and certainly in the back half of 2023, which is consistent with the remarks that were made in the call. I think we will probably stop sort of giving you and explain on what portion of the $50 million, but you should certainly expect to see north of 30% gross margins as the year progresses.

Ric Fulop: Yes. And we will be growing consistently. And all of that is accretive to margins as well, like the relationship we have with Align. That should have a positive impact on margins.

Unidentified Analyst: Okay, great. Thank you.

Operator: Our next question comes from the line of Troy Jensen with Lake Street Capital Markets. Please proceed with your question.

Troy Jensen: Hey gentlemen. Thanks for the time. Congrats on the quarter. Maybe first for you, Ric, given kind of one of your peers reported this morning and talked about weakness in dental. I mean obviously, you guys aren’t seeing it. So, can you expand a little bit on Einstein? And then specific to Align, can you just help us out with the application you are doing with those guys?