3D Systems Corporation

Good afternoon, and welcome to 3D Systems Conference Call and Audio Webcast to discuss the preliminary results of the fourth quarter and full year 2020. My name is Brock, and I will facilitate the audio portion of today's interactive broadcast. At this time, all participants are in a listen-only mode. A 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. As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Melanie Solomon, Investor Relations.

Thank you, Brock. Good morning, and welcome to 3D Systems Conference Call. With me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer, Jack Tarnarula, Chief Financial Officer, Andrew Johnson, Executive Vice President and Chief Legal Officer, and John Nypaver, Vice President and Treasurer. 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 access to the streaming portion of the webcast, please be aware that there may be a few seconds 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 last night'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 Jeff Graves, our CEO. Jeff?

Thanks, Melanie, and thank you all for joining our call this morning. Before we begin, let me wish all of you a healthy and happy new year ahead. 2020 was an unprecedented year for everyone dealing with the COVID virus, but I'm happy to see improvements around the world as the new vaccines are being distributed in increasing numbers. I trust that 2021 will be a much better environment as we emerge from this crisis period. Before discussing our progress in 2020, let me comment on the postponement of our 10-K filing. As you know, one of our key actions last year was to begin divesting assets that were not core to our additive manufacturing business. We quickly prioritized the sale of our two software businesses, GibbsCam and Symmetron, that were focused on subtractive or machining technology. This divestiture, while complex to execute, went very well, and we closed at the end of the year, which allowed us to eliminate our debt and have cash on the balance sheet for future investment. While this was a great outcome, auditing of the presentation of our cash flow statement proved more challenging than expected. driven in part by the geographic diversity of the divested assets. Our auditors have asked for a little more time to bring their work to a close, and we've therefore filed for an extension of our 10K. With that said, we were very pleased to be able to release our Q4 and full-year operational results last evening, which we have labeled as unaudited for clarity, and to discuss them with you today. With that, let me now recap the progress we've made in our business and our view of the future. For 3D Systems, 2020 presented both significant challenges and along with them clear opportunities for us to focus our company on what we believe will be an accelerating need for additive manufacturing across many industries moving forward. Many of you may recall that one of my first actions upon joining the company last May was to clearly define our purpose statement. That is to be the leader in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products. Using this as our guidepost, we then developed a four-stage plan to deliver increased value to both our customers and our shareholders. Our four-part plan was simple. Reorganize into two business units, healthcare and industrial solutions, restructure our operations to gain efficiencies, divest non-core assets, and invest for accelerated, profitable organic growth. We set aggressive, measurable goals and timelines and focused intensely on execution. These efforts began bearing fruit quickly with a return to growth in Q3 and rapidly building momentum on both our top and bottom line in Q4. I'm proud to review a few of the high points from our Q4 with you this morning, with Jagtar providing greater detail to you in a few moments. From a top line perspective, the results really speak for themselves. Both our healthcare and industrial businesses delivered exceptional double-digit revenue growth on a consecutive quarter basis, with our healthcare business even surpassing last year's pre-COVID performance by a significant margin. From a bottom-line perspective, the combination of volume growth and the increasing benefit from our restructuring efforts improved operating margins significantly, returning the company to profitability and positive operating cash performance. This was our first quarter of year-over-year revenue growth since 2018, and we delivered it while still battling the worst global pandemic in modern history and while executing a massive top-to-bottom reorganization and restructuring of the company. I could not be prouder of our leadership team and our tremendous employees worldwide who never took their eye off meeting our customer commitments through all of this change. This success has left us in a terrific position moving forward as the virus subsides and and the world begins recovering in earnest later this year. With that quick summary, let me share a few highlights from each phase of our plan. Let's begin with reorganization. As a reminder, our company is focused on application-specific solutions for our core vertical markets, healthcare and industrial. Over the second half of 2020, we reorganized our sales and marketing activities, combining our hardware, materials, software, and services resources into a unified application-oriented, customer-focused organization, rather than having multiple independent teams as in the past. This reorganization not only improved our sales efficiencies, it also allowed us to work much more effectively with our customers on specific application solutions, which is a cornerstone of our strategy moving forward. Within each of our two business units, we have market-specific vertical leaders focused on key growth markets, such as dentistry, personalized health services and medical devices within our healthcare business, and aerospace, automotive, electronics, and consumer products for our industrial business unit. These business and market leaders determine both our go-to-market strategies and our development priorities for new products and services, ensuring that specific customer application needs are kept at the forefront of our resource allocation process. In addition to these changes in our sales structure, we also created a new group we call our Customer Success Team. This group ensures that our customer needs continue to be met after their initial purchase over the life of the system. It includes servicing and upgrades of the equipment, providing our customers immediate access to our rapidly expanding materials portfolio, and delivering software upgrades that drive improved efficiencies in their manufacturing environment. These benefits ensure that the value our customers receive from their 3D Systems solution grows substantially over the life of their ownership, which can often exceed 15 years from the initial purchase. A testament to our success in delivering this value is seen in our customers' operations around the world each day. Our 3D Systems technology provides over a half million production parts every 24 hours, 365 days a year. which is more than the rest of the industry combined. And with the breadth of our additive technologies now spanning an enormous range of plastic and metal application solutions, we're well positioned to build upon this foundation at an even faster pace moving forward. So with an understanding of how we're organized, let me comment briefly on our sales performance in the fourth quarter and the current market dynamics. For our healthcare business, we delivered exceptional growth in Q4, and notably, this growth was seen broadly in both dental and medical applications, the latter of which includes medical devices, personalized healthcare, simulation systems, and moving forward, regenerative medicine, or bioprinting for short. I'll comment further on this new area of the business in a few moments, but for now, suffice it to say that our healthcare business exited the year firing on all cylinders, and we're very excited about the short and long-term outlook for this business. For our industrial business, while we are still in a recovery phase from the extreme softness we experienced in the middle of 2020, in Q4 we were pleased to build upon the positive momentum we had established in Q3. Our industrial business growth reflected increased demand in markets like aerospace, automotive, and consumer applications as the industrial economy continued to slowly recover. We expect this momentum to continue in 2021. However, the risks of COVID headwinds still linger until the vaccines are more widely distributed later this year. Once these pressures fully subside, we're very bullish on the outlook for this business. Next, I'll spend a few minutes summarizing our restructuring efforts. Last summer, we announced a restructuring program that was designed to ultimately yield $100 million of run rate cost savings, with $60 million to be achieved by the end of 2020. I'm pleased to say that we achieved our $60 million savings target by year end and that our efforts are continuing unabated. Looking ahead, we have detailed plans within our core additive business to deliver an additional $20 million in savings this year, with the balance of the $100 million linked to our analysis of future divestitures. As these efficiencies are realized, we'll make prudent investment decisions to support the increasing opportunities for growth and profitability that we see ahead for our company. and for the additive manufacturing industry in total. Jagtar will talk more about this in a few minutes. Moving next to our divestiture efforts, having defined our company focus last summer, we progressively evaluated all of our assets using this lens. It quickly became clear last year that certain of our businesses, while good performers in their own right, clearly did not fit well within our focus on additive manufacturing. As such, we began discussions with interested parties in several areas, and successfully completed the sale of Symmetron and Gibbs Cam at the year end. These two businesses were focused on digital machining technologies and as such were outside of our core. Completion of this sale brought us increased organizational focus while enabling us to eliminate our debt and add cash to our balance sheet for future investment. We will continue to evaluate assets for divestment consistent with our core strategy in the quarters ahead. The fourth phase of our transformation process corresponds to investment for growth. As we move into 2021, we see two significant drivers of accelerated demand. One is the technical maturity of additive solutions on an industrial scale, which has now become increasingly clear to OEMs worldwide. The second is an accelerating cultural change in our customer base associated with the rise of a new generation of engineering design leadership that was exposed from a young age to additive manufacturing. These engineers, which began entering the workforce in large numbers over the last decade, are embracing the benefits and design paradigms associated with additive manufacturing, which essentially decouples component complexity from manufacturing cost. This allows our customers to design products that have greatly enhanced performance and reliability while avoiding cost penalties that would occur using traditional machining, molding, or casting methods. When combined with the new materials that are now available for printing, The result is a dramatic increase in demand for additive manufacturing solutions. To be a leader in this exciting market, we believe that a company must have expertise in hardware and software with a strong portfolio of advanced materials to enable application solutions that are critical to our customers' product performance and cost objectives. Solving for specific applications often requires a unique combination of these elements, which we bring together through our application engineering experts. Moreover, many customers have a strong need for both polymer and metal solutions, which is why we continue to invest systematically in both technology areas and leverage them as required to meet these rapidly evolving needs. Looking ahead, we see significant growth opportunities in each of our core markets. Within healthcare, this includes dental applications, as well as a rapidly growing range of medical device applications and the emerging field of personalized health services. These services encompass both surgical aids that are custom created to match a patient's specific procedure, as well as implanted devices that aids in a patient's recovery or quality of life. We anticipate all of these applications for which performance and quality are of paramount importance to be both the near-term and long-term drivers of the business. Adding additional exciting momentum to our healthcare business over the long term, meaning 2022 and beyond, will be our newest area of development, regenerative medicine. As we announced in mid-January, over the last three years, our chief technology officer and the inventor of the entire additive manufacturing industry, Chuck Hall, and his team have been working very closely with our partner, United Therapeutics, to demonstrate the capability to actually print human organs in order to address the enormous need of transplant patients. The first application selected for development was a fully functioning, biocompatible human lung. In December, we reached a critical milestone in these efforts. In short, we demonstrated the capability to reproducibly print extremely complex, ultra-thin-walled structures using collagen-based and other biocompatible materials. These structures, which have the required balance of properties needed for organ application, enable vascularization to support blood flow, and thus the ability to sustain human life. The printed structures are perfused with human cells, which can thrive and multiply, which is why the team has named the process Print to Perfusion. While there's more work to do, including completion of the required regulatory approvals, the printing technology that has now been demonstrated for the lung application can be taken in many additional directions. Nearer term applications are numerous, such as the creation of customized soft tissue implants for trauma patients or for use in breast reconstruction following a mastectomy. In the laboratory, the creation of test modules termed tissue on a chip could be used to better simulate human response to new drug therapies, shortening the development time and reducing or even eliminating the need for animal testing. All of these applications and a host of others are now within reach, which is why we've made the decision to increase our internal investments and to expand our application partnerships in regenerative medicine in 2021. So in short, looking ahead for our healthcare business, we see an exciting year ahead as momentum continues to build with expanding applications and an even more exciting long-term outlook as regenerative medicine opens entirely new and potentially significant markets for the company. Turning to our industrial business, we see a continuation of recovery as the impact of COVID on the global industrial economies recedes. We are particularly excited about our near-term efforts in space systems, where additive manufacturing of large, complex metal components for rocket propulsion is helping build a foundation of experience for our newest generation of metal printers, which are particularly well-suited to high-temperature, lightweight materials. Automotive and semiconductor equipment applications are also offering near-term growth potential, as is electrical componentry applications where customization is beneficial to performance. Based upon our development pipeline, we also expect 2021 to be an exciting year for expansion of our materials portfolio, which is central to the benefits that our customers derive from the use of additive manufacturing. The availability of these new materials in concert with our customer success team organizational change is intended to maximize the benefits we bring to our customers over the lifetime of their investment in our printing technology. To end on an exciting note with regard to our industrial business, we were very pleased to announce last week a brand-new industrial product platform for 3D systems, which we refer to as high-speed fusion, or our HSF technology. This filament fusion process, developed in conjunction with Jabil, is specifically targeted at aerospace and automotive applications. Growing out of a project we referred to as Roadrunner, the printer itself is three times faster and more precise than competing systems in the market today. It also has a significantly larger working volume and very high temperature printing capability that is essential to next-generation polymer systems for the demanding aerospace and automotive applications, with size, speed, and precision that exceeds any of the current market offerings. Equally important, we will be offering a broad range of materials for this new platform, which should further accelerate its adoption in the market. Based upon our initial analysis, these new markets that Roadrunner will open for us are in excess of $400 million and will expand from there as the full capabilities of the new platform are adopted. This development effort has been underway for over a year, and we expect the platform to be fully available to the market in 2022. This adds one more exciting dimension to our industrial business. So let me conclude my introductory comments by saying simply that we're very pleased with our progress over the last six months. We look forward to building upon this momentum with a strong focus on growth and gross profit margin expansion in our core additive manufacturing business moving forward. With a strong balance sheet, improving margins, and exciting growth opportunities opening ahead of us, we look forward to a terrific future for all of our stakeholders. So with that, let me turn the call over to Jagtar, who will now describe our results in more detail. Jagtar? Thanks, Jeff.