3D Systems Corporation

Hello, and welcome to the 3D Systems first quarter 2021 conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to John Neupauer. Please go ahead.

Thank you, Kevin. Good morning, and welcome to 3D Systems conference call. With me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer, Jagtar Narula, Chief Financial Officer, and Andrew Johnson, Executive Vice President and Chief Legal Officer. 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 seconds 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 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 2020. Now, I am pleased to turn the call over to Jeff Graves, our CEO. Jeff?

Good morning, everyone, and thank you for joining our call today. Nearly one year ago today, I joined 3D Systems as Chief Executive Officer. My reasons for joining were very simple. First, I believed that this industry was beginning to enter an exciting growth phase driven by both maturing of the technologies as well as receptivity of the customer base to industrial scale additive manufacturing. Second, I saw the potential for 3D Systems to be a leader in the industry, one that could not only be at the forefront of this industrial renaissance, but instrumental in making it happen. As excited as I was a year ago when I arrived, those feelings are dwarfed by the enthusiasm I feel today. Rather than opening the call with a recap of our financial performance as I usually do, Today, I'm simply going to let our Q1 results speak for themselves, with Jagtar providing more color for you in a few moments. Instead, for today's call, I want to start by offering a sincere thanks to our fantastic employees and our leadership team for their outstanding execution over the last year since my arrival. I particularly want to acknowledge the leaders of our two business units, Reggie Puthanvedil, who leads our industrial business and has been the chief architect of our sales transformation, and Mino Ellis, who leads our healthcare business and has done an exceptional job of creating a true integrated approach to the medical market. Having taken on these responsibilities last summer, they have performed magnificently, making significant changes in the organization and in the underlying processes that we follow in delivering for our customers each day, and doing so while facing unprecedented headwinds from the ongoing COVID crisis, the impact of which is still being felt today. So given that this is my one year anniversary, I think it's an appropriate time to ask, how did we get here? And much more importantly, how will we sustain this momentum going forward? Our journey started last summer by first establishing a clear strategic purpose for the company, which is to be leaders in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products. We then laid out a simple four stage plan, which would allow us to live into this purpose. It began with reorganization of the company into two business units, healthcare and industrial solutions. We then restructured operations to gain efficiencies and began the process of divesting non-core assets. Then as these elements gained momentum, we systematically increased our focus on investing for accelerated growth and profitability. By focusing intensely on execution of our plan, by the time we entered the new year, we had returned to growth, we were profitable, We were generating cash from operations and were in a net cash position on the balance sheet. And then the real fun began as we began moving through Q1. The U.S. economy began to reopen, our new products and applications gained momentum, and our organic growth accelerated markedly. Our profitability and cash from operations increased dramatically as we leveraged our streamlined operations. Based upon this progress and our long-term outlook, We've set a goal of sustained double-digit organic revenue growth, 50% gross margins, and 20% adjusted EBITDA margins, all of which we think are attainable in the years ahead. But in an increasingly competitive industry, why should you believe in our future success? Well, in addition to delivering on our commitments, which I think we demonstrated again this quarter, what I can tell you is that there are three things that inspire my confidence in our future. and I believe they should inspire yours as well. First, we clearly by far have the broadest technology portfolio in the industry. It includes a full range of metal and polymer printing systems, industry-leading software platforms, and an outstanding portfolio of materials for both human and industrial system applications. These capabilities, which are so vital to our customer success, distinguish us from virtually all of our competitors. And with our ongoing R&D investments, they're stronger and better than ever. Second, I'm convinced that we have the brightest and most creative application engineers in the industry. This group of very talented people provide exceptional value to our customers as they work hand-in-hand to introduce advanced systems and components that capitalize on additive manufacturing. These applications range from unique medical devices and personalized implants that are so vital to improving patient outcomes in healthcare, to unique components that enable the newest generation of commercial rockets for space travel, or revolutionary equipment for the manufacture of semiconductor chips, just to name a few. And that list of new applications is growing rapidly every day. Third, as one of the largest and most experienced companies in the industry, we have the scale and the infrastructure to not only support our customers' needs when they initially implement additive manufacturing, but to also sustain them over the lifetime of their equipment by providing key services and consumables that are vital to their ongoing business success. How do we know this formula works? Well, as always, the proof's in the numbers. Today, our technologies are used to print approximately three-quarters of a million production components per day, 365 days a year. That equates to over 250 million components per year and climbing. This experience is invaluable as we invest more than ever into our core technologies and drive relentlessly to enable our customer success. In short, at 3D Systems, our goal is to inspire your confidence in us each day, first by delivering on our near-term commitments on growth and profitability, as demonstrated in our numbers today, while setting aggressive but realistic targets for the future. As an investor, you need not invest based solely on promises about next year's growth or the one thereafter. The market for industrial-scale additive manufacturing is here today. It's real, and it's growing at an exciting rate, particularly as the headwinds from COVID recede. So as I said at the outset of the call, I have never been more excited about our future than I am today. Now, before I hand off to Jagtar to talk about the quarter, let me spend just a few minutes talking about the investments we're making for growth, some of which were described in our announcements last week. First, as you can see in our numbers for Q1, we're seeing rising demand for new applications, particularly in our healthcare business. To meet this demand forecast, we are expanding our Denver, Colorado location by roughly 50%. For more than a decade, this operation has supported a range of customers from large industry-leading to innovative startups in delivering a diverse portfolio of groundbreaking precision healthcare applications and medical technologies. From this location, we have supported more than 100 CE-marked and FDA-cleared products. We've collaborated with surgeons to plan and guide more than 140,000 patient-specific procedures. And we've manufactured over 2 million medical device implants in our advanced manufacturing group. Through this next phase of investment, which includes putting in place some of our most advanced metal and polymer printing systems and software tools, we'll be able to reduce time to market for new medical applications, continue expanding our product offerings, and better support the holistic needs of our growing healthcare customer base. The scale we have now attained in our healthcare business in Denver provides a marvelous platform for growth, allowing us to maintain our industry-leading solution offerings that target patient-specific applications, in growing markets like cranio-maxiofacial surgical solutions and an expanding range of orthopedic surgical aids and implants. In addition to supporting healthcare-specific growth, our Denver investment will expand the overall capabilities and capacity of our application innovation group. As I discussed earlier, this group of application engineers is an essential element of our solutions-oriented approach to customers. With deep expertise in hardware, software, and materials, This team of engineers helps customers not only demonstrate feasibility of new high-value component solutions, but also design the overall workflows necessary to validate the economics of the process, gain regulatory approvals, and then move into full-scale production. With expanded customer-facing engineering resources armed with a broad array of technologies and supporting infrastructure, we are well-positioned to continue the strong momentum and expanded application development and early-stage manufacturing that our customers are seeking. In addition to our Colorado investment plans, last week we also announced the acquisition of two technology companies, Alevi and Additive Works. These acquisitions have an important role to play in meeting our current and future growth objectives. Let me start with the Additive Works acquisition. They are a small but extremely talented group of German software engineers and physicists that have developed unique software that simulates the key steps of the additive manufacturing workflow from setup during the component design phase through post-print processing. Their sophisticated physics-based algorithms are extremely fast and effective in optimizing the part orientation, the support structure, and thermal conditions during printing. The result has dramatically reduced setup times and post-processing requirements in conjunction with improved product performance, yield, and yield. Historically, much of this optimization work was done empirically, requiring highly skilled process engineers and operators to optimize the process for each new component. The additive work simulation software reduces or even eliminates the need for this intensive effort, allowing for a much more rapid introduction of new components and improved economics, performance and reliability of the resulting product. The AdditiveWorks software, sold under the name Amphion, interfaces seamlessly with leading CAD systems, as well as our 3DXpert software platform and other major print platforms, which we will continue to support. Integrating AdditiveWorks products and expertise into 3D systems will further enhance our software portfolio and innovation capacity, driving accelerated adoption of additive manufacturing across the industrial and healthcare markets that we serve. We expect the deal to close by the third quarter, paced by normal German regulatory requirements. Moving then to one of the areas that I'm increasingly excited about, the emerging field of regenerative medicine. I'll conclude my opening remarks today with a few comments on our acquisition of a levy. You may remember on our last earnings call, we talked about the incredible progress our development team under Chuck Hall, working in close partnership with the wonderful folks at United Therapeutics, has made toward the printing of solid human organs. While not yet a reality, the promise of this technology is truly extraordinary, offering the hope of meeting the needs for thousands of patients who are desperately waiting on the availability of new lungs, kidneys, livers, hearts, and other organs. Our commitment to this effort with United Therapeutics continues unabated. As an outgrowth of this program, we also announced last quarter that given our strong technology foundation in this emerging field, we would expand our efforts pursuing additional applications for the human body. such as the printing of bones, arteries, and soft tissue, just to name a few. We've increased application support this year to pursue these partnerships and hope in the intermediate term to bring these extraordinary products to market. In addition to these direct human applications, I'm very excited to announce a further expansion of our focus to include the rapidly emerging market for laboratory applications of bioprinting technology. These laboratory applications are being driven by two major objectives. One is the study of regenerative medicine itself in a lab setting, which is increasingly of interest to researchers at major universities and renowned medical institutions around the world. The other driver, and one that we believe brings substantial growth opportunities for us, is with pharmaceutical laboratories who wish to utilize the unique three-dimensional cellular structures produced by bioprinting to accelerate the development of new drugs and drug therapies. some of which may eventually be optimized to accommodate an individual's unique genetic framework. In addition to drug development, bioprinting offers unique advantages in the development of cosmetics and other skin care treatments in that human interactions can be directly assessed using three-dimensional bioprinted human tissue constructs instead of relying upon simulations or animal studies, which are often less effective and bring with them difficult social issues. In short, bioprinting for laboratory studies offers the potential for better, faster, and safer, and more humane development paths for a wide range of human applications. For all of these reasons, we are excited to expand our efforts to include these rapidly emerging laboratory applications, which we believe potentially represent a multi-billion dollar market opportunity that will become available to us over the next several years. In support of this effort to expand our regenerative medicine focus into the lab, We were very pleased last week to announce our acquisition of Alevi, a Philadelphia-based developer of bioprinting solutions comprising bioprinters, biomaterials, also known as bioinks, and specialized laboratory software. Alevi has established a strong technology base, brand, and distribution network for this rapidly emerging market, with a presence today in over 380 medical and pharmaceutical laboratories in over 40 countries. As a complete solutions provider, Alevi's business model aligns well with 3D Systems and positions us to leverage the technology we've developed for in vivo applications, as well as leveraging the overall scale of our healthcare business to meet these emerging laboratory application needs. When viewed in totality, with the Alevi acquisition completed last week, we're now well positioned across a broad market spectrum, ranging from near-term laboratory applications, medium-term human applications, and longer-term human solid organ applications in the exciting emerging field of regenerative medicine. So to bring this full circle, let me end by saying how very proud I am of our team's performance in the first quarter of the year as we've continued to execute on our four-phase plan that we launched last summer. More than ever, I believe that additive manufacturing will play a key role in transforming the way components can be designed and manufactured for critical applications ranging from complex space systems to the human body. With our extensive portfolio of additive manufacturing systems, material science, software, and domain expertise, 3D Systems is uniquely positioned to help our customers benefit from this transformation. With that, let me turn the call over to Jagtar, who will now describe our first quarter results in more detail. Jagtar. Thanks, Jeff.