3D Systems Corporation

Good afternoon and welcome to 3D Systems conference call and audio webcast to discuss the results of the first quarter 2020. My name is Jessie and I will facilitate the audio portion of today's interactive broadcast. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. At this time, I would like to turn the call over to Melanie Solomon, Investor Relations.

Good afternoon and welcome to 3D Systems conference call. With me on the call are VMS Joshi, our President and Chief Executive Officer, Todd Booth, Executive Vice President and Chief Financial Officer, and Andrew Johnson, Executive Vice President and Chief Legal Officer. Please note that given the current situation with the COVID-19 pandemic, we are all participating from different locations. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the investor relations section of our website. Participants who would like to ask questions at the end of the session related to matters discussed in this conference call should call in using the phone number provided on this slide and in the press release that we issued today. For those who have access to the streaming portion of the webcast, please be aware that there may be a few-second delay and that you will not be able to pose questions via the web. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on the slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2019. Now I'm pleased to turn the call over to VMS Joshi, our CEO. Vijay?

Thanks, Melanie. Good afternoon, everyone. First, I hope everyone is staying safe and healthy. Our thoughts are with those people affected by the COVID-19 virus and those on the front lines, doctors, nurses, other healthcare professionals, and all of the other essential workers who are providing needed services for the rest of us. At 3D Systems, we have taken balanced measures to protect our employees and their families while maintaining our operations, including hosting this call remotely. We formed a crisis response committee that has shaped everything from employee health and safety to following government mandates applicable to our business and facilities worldwide. Our close partnership with our local site leaders around the globe has been critical in understanding and addressing challenges at the local site level. Our team has stepped up and is doing our part to connect people in need with those who can help using digital manufacturing solutions. The rapid spread of COVID-19 has put many healthcare workers under great strain as they provide treatment and care to affected patients. Our company has a unique ability to architect solutions specific to customers' needs through a combination of breakthrough materials, hardware platforms, software, and professional services, creating a path forward to integrating additive into traditional production environments. As a result, manufacturers are able to achieve design freedom, increase agility, scale production, and improve overall total cost of operations. One of the greatest benefits of additive manufacturing is that it allows companies to reduce dependency on the supply chain, manufacture parts internally, or make them on demand. This has proven to be extremely important in the current COVID-19 pandemic, as healthcare environments have been lacking basic supplies due to the need for protective measures for both healthcare professionals and patients, and backlogs from bottlenecks and shortages in worldwide supply. We asked our network of partners, customers, and others within the additive manufacturing community to circumvent the supply chain and help produce these parts as quickly as possible to meet the urgent needs of the healthcare sector as they care for patients and contain the spread of the virus. We received offers from the community for everything from printer materials, usage of facilities for printing, engineers' time and expertise, and even offers to fund efforts. I truly believe that collaboration like this will be key to saving lives. Over the last several weeks, we have seen applications of our technology and software being used to assist COVID-19 efforts. Due to the shortage of personal protection equipment, our employees wanted to focus on a high-impact area where we could really help healthcare workers on the front lines. We identified face shields as being something additive manufacturing could quickly support. What we brought to the table for emergency face shields was massive capacity. We designed and developed our own high-efficiency face shields frame over the course of two days and our printers can output 100 face shields every 24 hours. We also gave away the data file to the community to enable others who have an SLS printer to go from CAD file to production in minutes. We logged 300 downloads in the first 24 hours. The face shield frame is printed in medical grade nylon 12. One of our first customer response was from Lonati SPA, a manufacturing company based in Brescia, Italy, who deployed a 3D Systems Pro-X SLS6100 3D printer with DuraForm materials to 3D print more than 100 Venturi ventilator valves for respiratory machines, which are facing a critical shortage throughout the world because of severe cases of COVID-19 require intensive care and oxygenation. 100 valves were designed, developed, produced, and delivered in only three days, showing the key capability of our technology and the value proposition of fast response time. We now have a ventilator project going on all over the world and in hospitals, and we are working with the NHS in the United Kingdom on Venturi valves that can be deployed quickly and close to the point of care. In March, we released a new ultrasound module to train physicians on COVID-19 diagnosis through lung ultrasound. Using ultrasound, physicians can immediately diagnose and monitor patients of the point of care. The module has already been deployed globally and was received enthusiastically. We went as far as mobilizing an ultrasound simulator that rotated between all Israeli hospitals to train doctors fighting COVID-19. As the situation continues to develop, we have been able to apply our solutions to changing treatment paradigms. With the very recent trend of moving from ventilators to CPAP masks, which need adapter components, we have another example of how additive manufacturing can address problems quickly, turning what would have been a one to two month project into a solution on day one, with unit build time of just over one hour and finished product in one day. Finally, As widespread diagnostic testing of COVID-19 begins to ramp, there are known shortages of diagnostic tools such as nasal swabs. Our customers have been looking at repurposing dental and industrial figure four printers to 3D print nasal swabs using dental and industrial grade resins, as well as medical grade nylon 12. A single figure four engine for example, has demonstrated the ability to produce over 18,000 swabs per week. We have received interest from both hospitals and OEMs and are currently engaged in clinical validations with several teams. These activities show our thought leadership in additive manufacturing and a balanced approach to how the industry can quickly address supply and demand needs amid challenges COVID-19. However, despite these important activities and our contribution to the fight, COVID-19 has been a negative impact on our overall business, with significant impact on printers and on-demand manufacturing for a few reasons. The first is end-user demand. Overall CapEx spend is down across the industries we serve, including aerospace, automotive, and healthcare. where elective surgeries have been canceled or delayed. This has affected demand for new hardware and associated software licenses. Second is the overall dental market, where demand has slowed as material consumption has slowed. With the majority of dental and orthodontic procedures considered elective, consumers aren't going to the dentist or starting new treatments. Within our own facilities, there has been a supply chain disruption as we are a global company. Facilities in China couldn't operate for a period of time, and in Europe, some capacity was limited. Finally, we couldn't extend service technicians for installations because of our customer sites being closed. This provides some context to the first quarter results. Total revenue in the first quarter was $134.7 million, reflecting a decrease of 11.4% over 2019. Gap gross profit margin was 42.4%, and non-gap gross profit margin was 43.1%. While overall margins were slightly down comparatively, materials margins have held at 69%. We reported gap loss of 17 cents per share and non-gap loss of 4 cents per share. Our overall operating expenses were down 13% year over year and we shut down our on-demand operations in Brazil. We continue to work on optimizing our cost structure and taking costs out. And as we start seeing COVID impact, we focused even more on cost structure. I mean, the pandemic, our executives and board members took a 10% pay cut, and the majority of the employees are taking limited furloughs. We pushed out some R&D programs and have reduced hiring significantly. We believe these actions strike the right balance between near-term cost savings and also being prepared when the market comes back. Our overall capex is down, and we are focused on generating revenue, reducing operating expenses, and preserving cash. Todd will now provide more details on our results for the first quarter of 2020. Todd?