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.

Good morning, everyone. For the first quarter, we reported a revenue of $146.1 million. an increase of 7.7% compared to the first quarter of 2020. Our organic revenue growth, which excludes businesses divested in 2020 and 2021, was 16.6% in Q1 2021 versus Q1 2020. We experienced strong product revenues across the portfolio, including printers, both plastics and metals, materials and software. We believe this growth Growth emphasizes the strategic nature of our portfolio breadth and validates our solution strategy. We reported a gap income of $0.36 per share in the first quarter of 2021 compared to a gap loss of $0.17 in the first quarter of 2020. Driving this improvement was a $32.9 million gain from the sale of the Simitron and Gibbs Chem software business, as well as a tax benefit of $8.9 million as a result of a favorable ruling from the IRS regarding a FIN 48 reserve. Turning to non-GAAP results, we reported non-GAAP income of $0.17 per share in the first quarter of 2021 compared to a non-GAAP loss of $0.04 per share in the first quarter of 2020. The exceptional non-GAAP result reflects our strong revenue growth combined with the restructuring and cost optimization activities that we have previously announced. Now we will discuss revenue by market. Our healthcare business had a strong quarter with revenue growing 38.7% year over year. This growth was fueled by an increase in hardware and material sales in our dental business. The large hardware volume, like we saw in Q1, may fluctuate on a quarterly basis, but drives the recurring higher margin material and services revenue, which is a focus of our long-term financial goals. Excluding dental applications, revenue from medical applications grew by 9% as we continue to see increased demand for personalized health services and advanced manufacturing of medical devices. We recently announced a planned expansion in Denver, Colorado that is intended, in part, to support the future growth of this business. Revenue in our industrial segment when we exclude the businesses divested in 2020 and 2021, was up approximately 1% year-over-year as compared to year-over-year declines in prior periods. The revenue trend turnaround in our industrial segment was across our subsegments, such as jewelry and automotive, with no single segment driving the results. This is a reflection of global economies continuing to recover, albeit at an inconsistent pace, from the pandemic-related shutdowns. We expect this inconsistency to continue in 2021, so while we see a path to full-year double-digit organic revenue growth in our core business, excluding businesses divested in 2020 and 2021, macroeconomic risks such as further COVID-19 impacts, inflation concerns, and supply chain shortages in certain critical components like semiconductor chips continue to create uncertainty. Now we turn to gross margin. Let me start my commentary on gross margin with a statement on our presentation. During the first quarter of 2021, we identified certain costs that have historically been shown as cost of products that actually related to cost of services. Our reported gross profit margins reflect an update to properly present these costs. While this resulted in a small movement of costs between products and services, The change did not affect our gross profit, bottom line results, consolidated balance sheets, or statement of cash flow. For Q1 2021, we reported gross profit margin of 44% in the first quarter of 2021 compared to 42.1% in the first quarter of 2020. Non-GAAP gross profit margin was 44% compared to 42.7% in the same period last year. Gross profit increased year over year as a result of higher sales volume, mix, including software sales, and the impact of our cost reduction activities. We are quite pleased with our improved margin performance in Q1, especially when you consider that we divested a relatively high gross margin software business at the beginning of the year. In our last earnings call, we said we expect non-GAAP gross profit margins in the range of 40% to 44% for 2021. We continue to expect to be in that range on a full year basis. Operating expenses for the quarter were 66.2% on a GAAP basis, a decrease of 12.1% compared to the first quarter of 2020, including an 11.6% decrease in SG&A expenses and a 13.7% decrease in R&D expenses. Our non-GAAP operating expenses in the first quarter were $51.2 million, an 18.7% decrease from the first quarter of the prior year as we saw the benefits from our restructuring efforts as well as the impact of divested businesses. The primary differences between GAAP and non-GAAP operating expenses are $13.4 million in amortization of intangibles and stock-based compensation. Continuing the theme of year-over-year improvement, adjusted EBITDA, defined as non-GAAP operating profit plus depreciation, was $19.8 million or 13.6% of revenue compared to $2.2 million or 1.6% of revenue in the first quarter of 2020. The improvement is due to stronger gross margins as well as the results from our restructuring efforts. We are very pleased with the trend of our EBITDA margins over the past several quarters. Driving improvements to margins, adjusted EBITDA, and revenue growth is the impetus behind targeted acquisitions like Additive Works and Alevi. While they will not be material to 2021 results, these and future acquisitions will be a key component of our long-term strategy to reach double-digit revenue growth, gross profit margins of 50% and adjusted EBITDA margins of 20%. Now, let's turn to the cash flow statement and balance sheet. Cash on hand increased $48.2 million during the first quarter. This increase was primarily driven by the net proceeds from divestitures of $54.7 million and cash generated from operations of $28.5 million offset by a debt repayment of $21.4 million and other financing and investing uses of cash, including capital expenditures. Note that our cash from operations of $28.5 million included the use of approximately $6.6 million of cash for withholding taxes related to the Simitron sale. When factored together, it is of note that we have substantially improved cash from operations compared to the $2.3 million of cash used in operations in Q1 2020. We ended the quarter with a strengthened balance sheet with $133 million of cash and cash equivalents, no debt, and nearly full capacity on our $100 million undrawn revolving credit facility. As I end my prepared remarks, I would like to make a final comment about the quarter. We have made a very strong turnaround from this time last year. 3D Systems is now growing profitably, generating cash, and maintaining available liquidity. Our combination of growth and profitability is unique to our industry and positions us well to continue to invest in high growth areas that will support our long-term financial goals. Our solid financial profile makes us the partner of choice for customers that are considering a solutions provider for their most critical manufacturing processes. We are excited about the opportunity for our business and our plans to deliver against our long-term objectives. To continue to provide more detail to the investment community on our strategy, we plan to hold an investor day in the Denver, Colorado area on September 9th. We will provide more details as we get closer to the event. With that, I'll turn the call back to Jeff.

Jeff? Thanks, Jaktar. Again, I just want to say how pleased I am with our results and our return to year-over-year growth, our continued profitability improvements, the strength of our balance sheet, and our strong cash generation performance. With intentional action taken on our four-phase plan, we're reinforcing our leadership in this exciting industry. We plan to continue looking for opportunities to optimize our resources, divesting or investing as needed to support sustained, exciting growth and profitability. We'll now take your questions. Kevin, let's open it up.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. We ask that you please ask one question, then return to the queue. Once again, that's star 1. Be placed in the question queue, and we ask that you please ask one question. Our first question today is coming from Greg Palm from Craig Hallam. Your line is now live.

Hi, guys. This is actually Danny Eggerton for Greg today. Thanks for taking the questions and congrats on the good results.

Thanks, Danny. Thanks, David.

Obviously, healthcare was really good. I think you mentioned some outsized growth in dental. Maybe just in terms of mix there, was this maybe you said they're both strong. Was this maybe driven by better growth in printer sales or maybe materials and how should we look at that going forward?

Yeah, Danny, this is Jack Tark. Good morning. So we did have very strong printer sales in the quarter. I think I mentioned that in my prepared remarks. You know, we expect that to drive sort of the future consumable services revenue that is high profit for us. So we were pleased with the high printer sales. But we saw increases in both printers and materials. Printers was just a little bit stronger.

Got it. Then maybe if I could just get a quick one on maybe supply chain shortages. We've seen kind of the semi-chips and maybe even some resin shortage. What kind of impacts are you seeing there?

Yeah, Danny, good question. You know, we got out in front of it early. You know, with the headlines as 2020 closed, we anticipated it and got out in front of it early. But, yeah, there's no doubt it took a lot of work this quarter to to keep it from hitting us financially. So we didn't let any customers down. We shipped everything that customers wanted to take in the quarter. But it was a lot of work, Danny. And we think it is a risk going forward, just availability, supply chain, logistics. You read about semiconductor chips, but really there's a lot of components that go into printers that are in fairly short supply. So it takes a lot of effort to stay on top of it, and we're working real hard at it.

Got it. I'll jump back in the queue for now. Thanks for taking the questions.

Thanks, Danny.

Thank you. Our next question today is coming from Sarkis Serbechian from B-Riley FBR. Your line is now live.

Hey, thank you for taking my questions here. Just wanted to see if you can provide an update on the cost restructuring initiatives, how much is left to go in the savings program. I think last quarter you mentioned achieving a 60 million run rate cost savings. So just want to get a sense for where we stand today, how much is left to go, and what's the timetable.

Well, we're right on track with where we thought we would be this year in terms of our cost takeout efforts. So what we said was with the divestitures, we would get another – with the divestitures having occurred right at the end of the year and beginning of this year, the target now this year was a $20 million incremental cost takeout. We're on track with that. It's going very well. The balance there is looking at investments for growth because the market is rebounding. we're very pleased with the number of new applications customers want to pursue right now on both the metals and plastics side. So we are funding that growth. So in terms of seeing what you're seeing flow through this year as a net of those two factors, we'll get $20 million out of our cost structure, and we'll look to reinvest, you know, some or potentially all that savings back into the cost structure to fuel growth. But you should see it – you should see a nice –

uh response in terms of revenue growth margin performance you know that's really the trade-off that we're making there so jack do you have any more lights you want to put on that uh no i think you captured it well jeff but i think you know we are we are getting the 20 million out this year um you know i would expect opex going through the course of the year because that'll be the next question uh to be you know in line or marginally up with where we were in q1 as we as we balance taking costs out with the initial investment for the opportunities we're seeing in the market?

You know, I was very glad that we got the $60 million out last year and got everything restructured because it really positioned us well as the market rebounds now to leverage that reduced cost structure. And now it's really a horse race between, you know, taking further costs out of the business and investing for growth. We are determined to grow profitably, so we're not going to overspend on that and get out in front of our skis. but we certainly are going to support the strong markets that we see right now ahead of us.

Fantastic. Just one follow-up, a quick one. I think the healthcare business is pretty obvious, performing pretty nicely there. Just any comments or color you can provide on the industrial side, which end markets do you think, you know, there's a nice growth opportunity here in the near term to intermediate term, and then which might be giving you some trouble? Thank you.

It's really interesting. You could go through each market vertical. And in automotive, clearly ignoring the semiconductor issues they have as a total industry, there's clearly kind of a megatrend headed toward electric vehicles. So we're really pleased with our exposure there and where that's going. It's a smaller business today, but clearly from everything you read, you can tell publicly it's a growing market, a growing business. And the lightweighting and strengthening of those cars we think is real. And the stories we hear back from customers about their utilization of additive is really encouraging for that. Aerospace clearly has lagged. It was really impacted by COVID. It's nice to see more people flying now as the U.S. at least opens up. So you would expect aerospace to lag but be a driver in the next couple of years. Interestingly, applications related to heat flow, heat management, thermal management are really exciting. And I say it broadly like that because there's a lot of applications for managing heat. When you think of data centers, how do you eliminate the heat? One of the major expenditures any developed country has for energy usage is in data center cooling. And it just shows you the impact, the magnitude of heat generated there and how to dissipate it is a real issue. Additive manufacturing is great at that. And when you carry it down to a system level, things that are very temperature sensitive. So I'll give you two extremes. One is rocket travel, space travel with rockets. You see that competition heating up now in the commercial realm, which is really exciting. between a number of public companies getting into the space race, getting into commercial space travel. Well, space travel is enabled very nicely by additive manufacturing, both propulsion and the systems themselves. And then another exciting application we're finding a range of applications in is semiconductor chip manufacturing. You know, when you start controlling stereolithography and other applications, activities to make modern semiconductor chips, control of the thermal environment, the temperature environment in a system is incredibly important. And the structures you can make with additive at very effective costs are remarkable, absolutely remarkable. So we've been very pleased with the interest level and the growth in the business of the semiconductor equipment manufacturers. So I could go on and on, but those are several that we think will both lead and trail in the opening economy. Thank you. You're welcome.

Thank you. Our next question today is coming from Noelle Dilts from Steeple. Your line is now live.

Hi, guys. Good morning, and congrats on the good quarter. Good morning, Noelle. I was hoping that you could expand a little bit on some of your bioprinting initiatives and you spoke to some of the opportunities in the near term around cosmetics and I think printing on slides. Could you speak to how to think about the monetization of this over the next few years when you think it could become contributory and how to think about the longer term ramp of that side of the business? Thanks.

Thanks, Noelle. It's a great question. For an emerging industry, it's always tricky to predict the timing. Again, I don't want to be too aggressive and tell stories, but I've got to tell you, I am so excited about the progress that we've made technically and the way the markets are evolving. Clearly, we started on the very long-term end of things, and that's our engagement with United Therapeutics on the printing of human organs. That's a long-term effort that will be measured in years, not quarters. But doing that and setting that high bar really got us involved in progressing the technology. And as we did that, we started opening up nearer term markets. So other parts, it sounds funny to even talk about it, other parts of the human body that you can print with bioprinting and get into application. When you think about it, everyone's body is unique. Everyone's body. You know, arteries, veins, muscles, tissues, bones. And so it generically lends itself to additive manufacturing where you print things that are specialized for each human body. So we were very happy as we entered 21 to say, hey, let's broaden our scope and go for some nearer term applications, which might be measured in fewer years, okay, to get into. So all of those are funded, you know, that effort is all funded internally. And I would tell you, We model a nice return on investment, but it's still measured in years to get fully FDA qualified and all of that. Progress is remarkable, but it still takes a lot of time. So with that, we said, well, how do we run further and faster and shorter term? And you look at the laboratory applications, and then the Alevi acquisition came along as an opportunity for us. We are able today to print three-dimensional tissue specimens in the lab for First of all, for basic studies of regenerative medicine, and that's fine. That's needed to progress the science. But I would tell you, Noah, what I'm really excited about are the applications in the pharmaceutical industry because the testing of drugs and other skin therapies and treatments relies on an enormous amount of computer simulation and then animal testing. And then they very, very carefully go into real human testing. The regenerative medicine approach, bioprinting, gives you an opportunity to really test the effects on human tissue, but in a lab setting. And I would tell you, Noel, I believe that can be an exciting near-term market for us. It's, you know, we're through a levy. We're now exposed to hundreds of research laboratories around the world. We can take the technology we've developed for organs and other human applications and and refine it to apply it to laboratory settings, leveraging what Alevea has done in their customer base. So I would tell you, I think the pharmaceutical industry and things like cosmetics and other skincare, I think that could very well be a revenue stream for us that's certainly measurable next year. and can contribute in the long term to the business substantially. It can be an enormous business for us, and it will be for someone, and I feel good about our leadership role in that today. It's nascent, it's evolving, and we want to be out in front making it happen.

Thank you. In the interest of time, I'd like to remind everyone to please limit themselves to one question, then return to the queue. Our next question today is coming from David Mizrahi from Berenberg. Your line is now live.

Hey, guys. A line guided to CapEx of greater than $300 million this year, while the last two years have tracked roughly $150 million. And part of this is going to support a new factory in Poland. Can you just discuss the implications for you guys or any conversations you've had? And I'll jump back in the queue. Thanks.

No, we really can't. We really can't. I would love to tell you about the conversations we have with individual customers. But we just can't go there. I love our customer base. We have a terrific customer base and some very long-term customers that have done very well in their industry. But we just can't talk about them. It's too sensitive to them as much as I would love to talk about it ourselves. We just can't do that. But we're excited. I mean, clearly, medical in total is growing really nicely for us across the range of big-name healthcare companies and in markets and users like surgeons. Same with dental. It's an exciting business and a dynamic business, and it's broader than you might think, and it's going very, very well. But I just, David, can't really comment on individual customers. I'm sorry.

Thank you. Our next question today is coming from Paul Koster from J.P. Morgan. Your line is now live.

Hi, this is Paul Chang on for Koster. Thanks for taking my question. So, I see that you're splitting out healthcare and industrial by operating profit in the 10Q. Will you be kind of providing the historical data and, you know, how should we think about the margin performance between the segments moving forward? You know, there's kind of quite a discrepancy today.

Yeah, Paul, unfortunately, we won't be providing historical data. So to provide that operating segment data, we, as you know, made a substantial restructuring of our business last year into these two verticals, healthcare and industrial. That required a pretty substantial rewiring of our financial systems to be able to now report by segment down from not just revenue but down to operating profit, healthcare, and industrial. We did that on a prospective basis. not a previous year basis. So we don't have the ability other than kind of Excel spreadsheets to report historical results. Going into 2022, we'll have 2021 results, so you'll be able to see year-over-year impacts. So that's our plan going forward.

And how does that margin performance evolve kind of through the year and into 2022 and, you know, getting to your goals, longer-term goals? Thank you.

Yeah, I would expect that, you know, if you look at our business in totality, you know, I think, you know, as we look at, you know, EBITDA margins for the year, right, I would expect just looking at kind of where, you know, consensus revenue guidance is right now, right? If I take consensus revenue guidance for the balance of the year, I apply the midpoint of our gross margin guidance range, 40 to 44%. And I say OpEx will be, you know, about where we were in Q1, maybe marginally up from the investments that we're making. I think that gets us to, you know, low double-digit adjusted even margins. And I think that will be roughly split between healthcare and industrial the way you saw in Q1.

Paul, I would just add in terms of our long-term financial model for the company, I mean, we certainly see healthcare's got a great future to it. And it lends itself to kind of what's called mass customization through additive quite effectively, both on the implant side and on the dental side, really, really well. And it generally is growing faster and carries a higher margin. So in terms of supporting our long-term financial objectives, you can see the mix between the businesses that we would expect that trend to continue. And that kind of supports our, when you extend out, that kind of supports our longer range targets. And we'll be talking more about that at our investor day in September.

Thank you. Our next question is coming from Brian Drab from William Blair. Your line is now live.

Hi, good morning. Thanks for taking my question. Or question, I should say. And I'm sorry, I'm listening to two calls simultaneously, so I'm sorry if you addressed this. But are you hearing anything from your largest customer in terms of their planned capacity expansions and the requirements of 3D systems in 2021?

Thanks. Yeah, Brian. You know, again, we don't want to talk about individual customers. They really don't allow us to. They don't want us to. But I would tell you we're very intimate with a number of our large customers, and I think we understand their growth plans themselves and what they would like us to be doing and investing for, and we're excited about that. So across the board, I think all the guys we support are growing nicely and have exciting plans, and I expect us, if we execute our business well, to be a key part of it.

Okay, thank you.

Thanks, Brian.

Thank you. Next question today is coming from Wamsi Mohan from Bank of America Securities. Your line is now live.

Hi, good morning. Sorry. Thanks for taking my question. Jeff, you mentioned that you were excited about the reopening of the economy and the impact to your business. How should we think about seasonality from here? As we go through the course of the year, I know, Doctor, you addressed sort of the OPEX side of it. But just from a revenue perspective, given the reopening and easy comps, especially next quarter, any color around how we should think about the revenue trajectory. And just a quick clarification, on the reclass of the segments historically, you just gave us Q1 of 20 numbers on a restated basis. So why are you not able to give us the other quarters for 2020? Thank you.

Well, let me take the reopening question there. I'll let Jack answer the second question you had. In terms of revenue expectations, it is the big question. And the struggle, we have two struggles. Number one, the world is much different in different locations in terms of rate of opening. You know, the U.S. is good systematic opening. We see, you know, it's kind of becoming predictable now. So you see customers behaving that way. and ramping up their current capacity, planning for new investments, all of that. And then you've got Europe on the extreme side, India, where Europe is really not opening quickly, to put it that way. And then India is kind of headed the other way, as you see in these tragic headlines out of India. And we do some business in India. So you have to net it all out to look at revenue performance. I want to be very careful in Q2. Again, I'm really pleased with the demand profile we see out there and It's more of a pacing item. How fast can we, you know, how fast are customers comfortable placing purchase orders and ramping up their capacity? In the U.S., I'd tell you, very confident. Things look really good. Europe is much more of a flip of the coin. And then, you know, places like India are still going backwards. So it's tough. And I think that should clear up nicely in the second half of the year. But predicting Q2 is a little hard, which is why we're not giving guidance out there. On top of it, you have logistics and these short-term, I think, short-term supply constraints. And we're managing our way through that fine, but it's a week-to-week, month-to-month foot race to make sure we have, you know, all the components we needed to build product and ship it. It's going well, but we just have to – it just remains a risk factor for us going forward. So the hardest thing, frankly, to predict right now is the short-term. In the long term, and, Jack, I ran through your cost structure. That's pretty easy to predict. But the longer term, you know, or the short-term outlook on revenue is a little bit trickier. It's more full of noise. Jack, do you want to take the second half of that question?

Yeah, I'll address the question I think, Wamsi, you had was on our segment revenue reporting. So we did disclose, obviously, as you know, Q1 healthcare versus industrials. We do have the ability to do that for other quarters. What I was addressing in that prior question was operating profit, but revenue we certainly have, and we can make that available post this earnings call.

Okay, thank you.

Thank you. Next question today is coming from Nanda Brua from Group Capital Markets. Your line is now live.

Hey, thanks, guys. Good morning. Thanks for taking the question. Congrats on solid execution. Hey, just real quick, how should we think about opportunity for divestitures going forward and then cash use now that it's starting to collect? Thanks. That's it for me.

You know, great questions. Clearly, you know, we started down this path on divestitures having defined the purpose of the company. We looked at what's outside that envelope. And we did, you know, we felt great. We did a couple of them very late last year, right as we rounded the curve into 2021. That work is still ongoing. We're still considering what is, what do we want to hang on to? What do we want to divest? What fits within that core package? I don't really want to talk more about it because it's obviously a very sensitive topic. But yeah, we're not finished and we continue to work on that. You'll hear more about it in the coming months and quarters. In terms of what we're going to do with the cash, I feel great. We've got nice cash on the balance sheet. We're generating good operating cash flow. We've got no debt. I feel really good about our investment opportunities now, and they should continue to expand. In terms of priorities, clearly, we're now on the hunt for smart investments across our business. It could be technology investments like we did last quarter that, you know, make printing more efficient or move us into a new market with regenerative medicine. That was an example. Would love to do more in healthcare. Would love to do some more in our core technologies, although I have to tell you, we're in really good shape organically on that as well. So I love the additive works addition from a software standpoint. It was incremental to what we had the capability to do internally, which was great. Those are the kind of opportunities we look at. They are small-ish, niche-y kind of technology opportunities that really don't shift the needle in a given year materially, but they make a huge difference in the long term. So they open up new markets. They bring new technology. So we'll continue to look for those. And fairly aggressively, I would tell you, there's no lack of opportunity. You just have to look at getting a good return on the investment for our shareholders.

Yeah, I'll just add a little recall on top of the potential use of CAS and M&A that Jeff mentioned and technology investments. I would also say, you know, you'll see increased use for CapEx. I think our CapEx has been light for the last year now. We'll be increasing CapEx as we, you know, make investments in our business. We talked about the expansion in Denver. that and other areas of investment. We'll get CapEx up closer to the 4% or 5% of revenue that we talked about in the last earnings call. We'll still have some cash for restructuring activities as we continue to restructure our business and reduce costs. And then finally, I'd also say we'll probably have some inventory builds going into Q2 and maybe later this year. We are seeing increasing demand. We talked about supply chain concerns and and wanted to make sure that we had sort of adequate product or components to meet in demand. So we will probably be investing in inventory to the balance of the year. Thanks, guys. Super helpful. Thanks.

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.

Hey, gentlemen, congrats on the nice results.

Thanks, Troy.

Hey, Jeff, just quick for you, I guess one new trend we've seen is high-temperature DLP. You know, I always think of 3D systems when it comes to SLA and DLP technologies. Could you just remind us, update us on what your strategy is to do more in high-temperature DLP? Or maybe you have, and I just didn't know more of it.

Well, number one, Troy, we've really increased our investment internally on new materials for both SLA and DLP. We were playing a bit of catch-up there, and we've got some really exciting materials coming out this year, actually quite a lot. So in terms of developing new materials for our current platforms and our next-generation platform, which we haven't talked about yet, but that will be coming soon, we want to make sure the materials pipeline is really strong It's really hard to start getting the payback on those platforms, as you know, from your experience. It's really hard to get the payback on the platforms until you have good materials flow through it. Plus, customer adoption has helped tremendously by having a good portfolio of materials. So we're trying to get out in front of the materials question on those, and we then have some next-generation platforms coming along that we'll talk more about in the fall.

If I can piggyback a follow-up just on that trend of materials, how about composites displacing metals? Are you doing a lot more? Can we expect to see more composite materials from you?

Yeah, Troy, I think composites have a really nice role to play, and we're looking at it from a number of angles, both the material systems themselves and obviously the combination of matrix and fiber and what you do there, as well as the printing technology, just the printing hardware. How do you best print composite structures? There's a lot of exciting work going on, and So we can progress some of it internally, some of it we're looking at through partnerships and acquisitions, but I think you put your finger on it. There's a really nice evolving niche between classical polymer technology and metals technology for lightweight, strong, stiff materials of composites. So it will be a factor, and we're excited about it.

All right. Well, good luck, John.

Thanks, Troy. Thanks, Troy.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to John Maipapa for any further closing comments.

Thank you for joining us today and for your continued support of 3D Systems. A replay of this webcast will be available after the call on the Investor Relations section of our website. Have a good day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.