3D Systems Corporation

Greetings and welcome to the 3D Systems Q2 2020 conference call and webcast. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Jessica Stancil of Investor Relations. Thank you. You may begin.

Good afternoon and welcome to 3D Systems Conference Call. With me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer, Wayne Pesky, Interim Chief Financial Officer, and Andrew Johnson, Executive Vice President and Chief Legal Officer. Please note that given the current situation with COVID-19, we are not all at the same location. 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. For those who have accessed 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 post 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 this 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 am pleased to turn the call over to Jeff Graves, our CEO. Jeff?

Thanks, Jessica, and good afternoon, everyone. I hope that all that have joined us today on our call are staying safe and healthy through these unprecedented times. Let me start by reminding everyone that our top priority is the well-being of our employees and their families, our communities, and our customers. We've incorporated measures to safeguard all of these groups to the best of our ability in response to the COVID-19 pandemic. with clear protocols being implemented across the company. I'm very proud of the stamina and teamwork shown by our employees in helping one another while meeting our customer commitments to the maximum extent possible over this difficult period. While there have been many challenges, we've maintained all of our key operations worldwide and expect to do so moving forward. Over the last two months since joining 3D Systems as CEO, I've talked extensively with our employees, our customers, and our business partners as well as several of our analysts and long-term shareholders. In short, through these discussions, you've reaffirmed for me why I joined 3D Systems, namely that we have a tremendous and somewhat unique opportunity as a leader in this industry. And I'm tremendously excited by the passion of our employees and the breadth of our technology and capabilities within our company. We have incredible strengths upon which to build our future. I've also learned that there's a wide consensus that we need to change if we're going to be successful. To be blunt, while we've made significant progress in key technology areas and today can boast of one of the strongest portfolios of 3D printing hardware, software, and materials in the industry, in recent years we've not translated these elements into consistent growth and profitability. My singular goal is to make this happen. In short, we need to focus, to prioritize, and to streamline our efforts in order to reinforce our leadership in this exciting industry. Success starts in any company with a clear statement of purpose, one that describes the sustainable value that a company brings to the world and that will serve as a central focus going forward. It needs to resonate with our employees, our customers, and our shareholders alike, allowing us to set clear, unwavering priorities that focus everyone's efforts on the same goals each day. With that intent, over the last two months, I've held many business reviews and individual discussions to learn about the value we deliver and the markets and customers we serve. From these discussions, much has become clear about what's working and what's been holding us back. Most importantly, it's allowed a clear purpose statement to be developed, which builds on the unique history and strengths of our company and that will guide us to an exciting future ahead. Our purpose statement is as follows. We are the leaders in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products. As this statement implies, using a strong application focus will target our efforts on growth markets that place a premium on performance and reliability. Engineering and technology cultures that seek innovation as a way to deliver value to their customers and often involving processes that tend to be highly controlled due to their criticality. Using this purpose statement as our guidepost, we're simplifying and focusing our organization by realigning the company's breadth of capabilities to serve applications in two key market verticals, healthcare and industrial. Moving forward, we will no longer emphasize the individual software, hardware, and materials elements of additive manufacturing separately, but rather the combination of these elements into specific application solutions within our targeted markets. In other words, we'll be laser focused on overall growth and profitability in these market verticals rather than measuring our success in any single technology element we provide. Within healthcare, we'll focus on dental, medical devices, surgical planning, and simulation. Industrial will encompass aerospace, defense, automotive, and durable goods. Within these targeted markets, we'll focus heavily on specific applications that benefit the most from the use of additive manufacturing. For example, in healthcare, this could be orthopedic implants, while in industrial, it could be the manufacture of highly complex heat exchangers. I want to spend a few minutes on why we think this approach will be successful. In 1986, when Chuck Hall founded our company based on his invention of 3D printing, he brought together in the laboratory for the first time hardware, software, and material science in a unique way to create solid objects from computer models. This approach embodied a strong application focus, requiring all three elements to be combined in a highly controlled manner to create the desired object. What became clear over time was that this approach, when applied on an industrial scale with appropriate materials, would dramatically expand the flexibility engineers have to design and build unique components for improved functionality at commercially viable costs. Since that time, we've taken delight often to the point of distraction in advancing the individual elements of the process, and along the way forgotten that the true value is in the unique combination of them that can add tremendous value to the customer. This restatement of our company purpose and the reorganization of our entire business is designed to return us to the strong application focus that enabled us to not simply invent a machine, but instead invent an entire industry. that could transform the way components can be designed and manufactured for critical applications. This is the heritage of our company, and it's the cultural foundation that we build upon moving forward. With this foundation, there are four distinct advantages that we will leverage to deliver value in an increasingly competitive market. First, with a complete breadth of technologies and services, we're uniquely poised to ramp customers from inception through full-scale additive manufacturing adoption. Starting with the exceptional application expertise within our customer innovation centers, we can bring together our market-leading hardware, software, and materials technologies into a defined process and workflow to translate a customer's product design into real hardware. Once defined, we have the capability to then scale the process through our advanced manufacturing centers to production quantities. in order to complete the required quality and process certifications. Once accomplished, our customers can then expand the process further in whatever manner they wish to meet their customer demand requirements. Second, we are the only organization that can provide a complete range of custom wax, plastic, and metal additive manufacturing application solutions to match customer needs. Our five printing platforms, SLA, SLS, Figure 4, MJP, and DMP are able to meet an exceptional range of customer application needs using well over 100 unique materials, the broadest range in the industry. And with our ongoing investments, that capability continues to expand each day. Third, our organization has the most extensive additive manufacturing service coverage across the globe. We have experts located across five continents, and are local to more than 80% of our customer base to provide ongoing production support, training, and periodic upgrades to our products in the field. To support new applications, we have customer innovation centers in the U.S. and in Europe, as well as eight on-demand manufacturing sites across four continents. And fourth, we have the deepest experience in actual production parts among all additive manufacturing OEMs. Our customers print up to 500,000 production parts every day over a range of applications within the dental, medical device, aerospace, automotive, and jewelry markets worldwide, a remarkable number. While other companies may claim leadership using narrow measures, when it comes to real production experience, no one can claim the history of success that 3D Systems has delivered. No one. I'll now provide two recent examples of how our expertise and product suite has enabled us to win, and I'll ask your forgiveness at the outset for my having to avoid certain customer sensitive details. The first example is a healthcare case study with a medical device OEM for a knee replacement solution. The challenge here was to develop and commercialize a state-of-the-art orthopedic joint with an optimized surface structure and superior performance. Traditional machining and coating processes provide a pathway to produce such a component, but there was a high degree of variability in the product, which led to low yields, increased quality risk, significantly higher material costs, and extended manufacturing cycle times. 3D Systems utilized its holistic solutions portfolio to partner with the medical device OEM to produce not only a superior product, but one that can be manufactured at much lower cost and at reduced cycle times. In this case, we brought together our advanced metal printing system combined with our 3DXpert software to produce the joint implant in both titanium and stainless steel. We then delivered these components from both our Littleton, Colorado and Leuven, Belgium facilities to simplify customer logistics. Central to this success was not only the individual technology elements, which were all excellent in their own right, but the manner in which they were integrated by our application engineers, who partnered with engineers from the medical device OEM to optimize the design of the implant while creating a robust, highly efficient manufacturing workflow. These workflows were then demonstrated at scale in our advanced manufacturing operations. When demand outgrew our internal production capacity, we facilitated the transfer of the process to third-party factories selected by the OEM for strategic diversification of its supply chain and our service team developed a customer-centric plan to support large-scale production and worldwide product launch. It was a great success story from inception to full commercialization. Similar examples are found on the industrial side of our business. For example, recently a private aerospace company with an in-house superalloy foundry used to produce critical propulsion components invested in a complete 3D system solution to enable accurate, consistent, and cost-effective production of high-performance components. This system combined our industry-leading stereolithography printers with castable resins and a software package that was optimized for investment casting pattern manufacture. Central to success were application experts that integrated the technology elements into a seamless workflow that ensured that these novel rocket components would perform as needed in this highly demanding application environment. This process is now fully integrated into our customer's production process and they're using the results to push the frontier of flight to an entirely new level. These types of projects reinforce my excitement in this role and hopefully bring to life the examples of why I joined 3D Systems. I look forward to sharing our progress as we now refocus our organization and build upon the strong culture and foundation of this remarkable company. In connection with the organizational realignment announced today, we have an opportunity to maximize efficiencies and align our operating costs with current revenue levels. Through this restructuring effort, we expect to reduce annualized costs by approximately $100 million by the end of next year. This should enable the company to be profitable at current revenue levels and be well positioned to leverage our sales growth as it's realized. Through this restructuring, we'll reduce our workforce by nearly 20%, with the majority being completed by year end. This reduction in force is a difficult but essential step in our ongoing strategic actions designed to better position the company for sustainable and profitable growth. I'd like to express my appreciation to each of the employees impacted by this decision for their dedicated service. Other cost reduction efforts will include reducing the number of facilities and examining every aspect of the company's manufacturing and operating expenses. The reduction in our footprint is primarily in office space, in part enabled by our learnings from the COVID actions, which have accelerated our efforts to work remotely. Reduction in our physical sites is a real cost opportunity for us, given the volume of acquisitions the company completed several years ago. The company will incur a cash charge in the range of $25 to $30 million in severance, facility closing, and other costs, primarily in the second half of this year. We may incur additional charges in 2021 as we finalize the actions to be taken. We're also evaluating divestiture of parts of the business that do not align with our strategic focus. With that, let me turn the call over to Wayne, who will now provide our results for the second quarter of 2020. Wayne? Thanks, Jeff. Good afternoon, everyone.