Q4 earnings season is finally over, and even though it’s been overshadowed (along with everything else) by the recent bank failures, I still want to round off the Q4 report for my 21 Disruptors Index. Today, we’ll go through the earnings reports for Desktop Metal (DM), Plug Power (PLUG), Energy Fuels (UUUU), and DocuSign (DOCU).
Desktop Metal (DM):
Desktop Metals had a solid 2022, bringing in $209m in revenue which was up 86% from 2021. However, most of that growth was due to the first half of 2021 having very little revenue; their Q4 revenue of $60.6m was only up 6.8% over Q4 2021.
Personally, I think the fact that their reduction in expenses is more noteworthy than their revenue growth. In 2021, DM’s operating expenses were 152% of their total revenue, but that dropped all the way to 112% in 2022. It’s still high, but it’s trending quickly in the right direction; it’s also top-of-mind for DM’s management heading into 2023.
During their earnings call, 4 initiatives for 2023 were laid out by the CEO:
Organic growth (their top focus)
This is crucial because their revenue has been relatively stagnant since Q4 2021. They have some of the highest quality 3D printing technology in the market, and they recently launched their X1 printer, which is the new leader in mass production 3D printing. With the amount of uses out there for this tech, organic growth is definitely possible in 2023, but the macro environment will be a challenge.
Have $100m in annualized cost savings
Again, considering the macro, even the most promising growth companies have to focus on cutting costs and emerging stronger. Manufacturing is extremely cyclical, and as a result, the demand for even the most cutting-edge tech can slow considerably. So, it’s great to see DM aware of this and adjusting. They’ve already had success with this strategy since it became a priority in mid-2022; for the second half of the year, they had revenue growth of 31% YoY while operating costs only increased by 2%.
Grow the customer base
This will be tricky considering the state of manufacturing, but Desktop Metal has proven that their products can cut costs and increase efficiency for other companies. As a result, they’ve formed partnerships with industry leaders like BMW, Rolls-Royce, Saudi Aramco, Align Technologies, and many more.
Have strict cash management
The last thing any company (especially a growth company working towards profitability) wants to do right now is take on debt. At the end of 2022, DM had $184.5m in cash/equivalents and $112.1m in long-term debt (only $0.6m due in 2023). They’re also not cash flow positive, as their free cash flow in 2022 was $92.7m ($30.5m in Q3 + Q4). Clearly, reducing their expenses will help alleviate their cash burn, as we saw in the second half of 2022. At this point, they have at least a couple years of cash to go assuming they don’t have any large purchases anytime soon.
Plug Power (PLUG):
As I hinted in last week’s newsletter, PLUG’s future is starting to look sort of uncertain to me, and 2023 will be the ultimate make-or-break year for them.
Their 2022 revenue growth of 39% looks good on paper, but the final sum of $698.6m pales in comparison to the $900-925m that they expected in Q2.
Granted, there were some issues that came up, primarily the fact that their construction has taken a lot longer than expected, which in many cases is due to external forces like regulators/suppliers. For example, in Q2, they expected to start production at their Louisiana plant by the end of 2022, however that’s since been pushed back to Q1 2023. They also expected to begin production at their New York plant by the end of 2022, but that’s been pushed all the way back to 2023.
Their Q3 earnings call was particularly exciting because management was talking about how once these plants are commissioned, it’s going to get rid of a lot of their reliance on natural gas, which means costs would go way down. However, now that these plans have been pushed back, it’s hard to say when these cost savings will take effect.
In addition, margins actually got worse in 2022; cost of goods sold plus operating expenses were 194% of revenue vs 183% in 2021. They also burned through a lot of cash, going from $3.87b in cash/equivalents at the end of 2021 to $2.16b at the end of 2022.
Despite all of that, management still maintains the same expectation of $1.4b of revenue in 2023, with a gross margin of 10% (it was -24% in 2022). Their capital expenditures budget is also $500m, which means they’re probably going to burn a lot of cash again.
Overall, this has been their forecast for over a year despite numerous large projects getting delayed, so it’ll be interesting to see if they can follow through. Their guidance for Q1 is that gross margin will get considerably better due to production at the Georgia plant, so that will be the first step towards their lofty 2023 goals.
Energy Fuels (UUUU):
Energy Fuels continues to be an important player in the revival of nuclear energy in the US. After a prolonged bear market in which United States uranium production essentially came to a multi-year halt, Energy Fuels is once again making consistent revenue and is poised to benefit from a much more uranium-friendly marketplace.
Currently, their White Mesa Mill in Utah is the only operational uranium and vanadium mine in the US, and demand is projected to go parabolic in the coming years. They have three other facilities in the US as well, and plan on bringing at least one of them back online by the end of 2024.
For now, White Mesa should be able to provide them with more than enough supply, as it’s licensed to produce up to 8 million lbs. of uranium per year. To put that in perspective, Energy Fuels expects to sell about 560k lbs. of uranium in 2023 for $32.5m in revenue.
That would be 160% revenue growth from 2022, adding to their exponential growth; 2022’s $12.5m in sales was already a 291% jump from 2021. It’s also worth pointing out that expenses in 2022 only grew 49% YoY. Of course, it’s easy to post massive growth numbers when you’re coming off of essentially zero, but that shouldn’t take away from the fact that Energy Fuels has a very exciting few years ahead of it as it ramps activity back up.
On top of that, it’s important to remember that Energy Fuels also has a rebounding business in vanadium, which is also produced at White Mesa. They stopped production back in 2019 due to bad market conditions, but that year they produced about 1.9m lbs. They still have a robust inventory as well, so they’re prepared as demand comes back; in 2022, they sold about 642,000 lbs. for about $8.8m, and they still have an inventory of 1 million lbs.
In the world of batteries, vanadium is becoming increasingly important as a key ingredient in vanadium redox flow batteries, which last decades with no wear and can scale easily at low cost. In fact, Energy Fuels’ CEO even said there’s “substantial interest” in grid-scale vanadium flow batteries.
Finally, Energy Fuels has a solid balance sheet to support their business, which includes $62.8m in cash, $38m in inventory. The balance sheet will soon be getting even stronger, as they’ll receive another $120m (half in cash, half convertible notes) from their sale of the Alta Mesa uranium project in Texas back in November. And to top it off, they have no debt and just $29.5m in liabilities!
DocuSign (DOCU):
As the CEO put it, 2022 was a year of transition for Docusign, and 2023 will be a year of creating a foundation for future growth. In other words, don’t expect a ton of growth out of DOCU this year, but as the year progresses, it should become clearer how they’ll once again growth their sales and earnings.
2022 was a solid year for Docusign; they grew their revenue by 19% from 2021, and their operating cash flow was $507m for the year.
It was very clear from their earnings call that management is focused on increasing efficiency for themselves as well as their customers. This is a necessary move as their total operating and cost of goods sold (COGS) expenses barely budged in 2022 (102.7% of revenue in 2021, 102% in 2022).
Increasing efficiency for themselves means a couple things. First, it means cutting costs, which is why they’ve had a couple rounds of layoffs. Second, they’re going to put more effort into implementing AI into their products. They didn’t give too much detail about the AI on their call, but hopefully we’ll know more details soon.
As for their customers, there was massive inefficiency in Docusign’s sales process over the past few years. Moving forward, they want to make it easier for customers (especially small businesses) to buy their products online rather than having to go through an entire process with a sales rep. In addition, they’re working to target high-dollar deals with enterprise clients who can make use of more of their products.
Speaking of their products, another cost-cutting focus is to narrow their product line and only focus on the products that customers use the most (this is something they stressed last quarter as well).
As a result of cutting back in some areas, growth in 2023 is expected to subside quite a bit. Revenue is expected to grow by about 7% for the year, and customer billings are only expected to increase about 2%, after going up by 13% in 2022.
Another reason for the slower growth is the macro landscape. They’re closely tied to the real estate sector, which obviously has had a major slowdown in activity during the past year. However, they’re increasing their presence in other areas like healthcare, which could balance that out.
Overall, I’m thinking DocuSign will be able to have better growth than they expect, but the most important thing will be cutting their costs. We’ll eventually have another bull market in real estate, so to me, it’s more important to sacrifice revenue growth for the time being in order to get expenses prioritized and improve relationships with current customers as well as provide a better experience for new ones. Despite the low growth forecast, I still think DOCU will do well from here and will keep everyone updated.
Actually PATH's earnings is tinight!
Re DocuSign, as a former Realtor of 20 years, I paid a huge price in early use of electronic signatures for DocuSign in comparison to the number of times it was used. It was also not user friendly. In the past 5-10 years, electronic signatures are offered as a perk to getting real estate file management systems offered by companies like Zipform and Dotloop. I dropped DocuSign immediately and saved a hefty subscription fee. I own rentals, and have occasion to need leases signed electronically 2 or 3 times a year. You can now get e-signatures using Adobe with no added cost. Unless DocuSign becomes cost effective for small business or has a per use rate, I don’t see the real estate market being a factor.