3D Systems Corporation

Good morning and welcome to the 3D Systems conference call and audio webcast to discuss the results of the second quarter 2021. My name is Donna and I will facilitate the audio portion of today's interactive broadcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question on the phone, you may do so by pressing star 1 on your telephone keypad. 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 conference over to John Naipavar, Jr., Vice President, Treasurer, and Investor Relations. Thank you, sir. Please go ahead.

Thank you, Donna. 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, Executive Vice President and 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. and our press release and slides accompanying this webcast, which are both available on our investor relations website, you'll find additional disclosures regarding these non-GAAP measures, including reconciliation 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?

Thanks, John, and good morning, everyone, and thank you for joining our call today. You know, when we reported second quarter results last year, our company and the world at large was increasingly gripped in the COVID crisis. No one could foresee how long and painful this situation would become. We were concerned foremost about the safety of our employees and in meeting the ongoing needs of our customers, particularly in the healthcare industry, where focus had rapidly turned to treatment of the victims of the pandemic. While there were to be many dark days ahead, the resiliency of our employees and of our customers sustained and inspired us to weather the storm. We will forever be grateful to our 3D Systems colleagues and to the multitude of frontline workers who struggled each day to take care of the sick, protect the well, and keep our essential services running. It was in this cauldron that our new 3D Systems leadership team was formed, coming together quickly to develop plans, not simply to stem the losses, but to position our company to emerge from the pandemic stronger and more focused than ever, ready to capture the exciting future we saw ahead for additive manufacturing. Our first essential step was to develop a clear purpose statement, which is to be leaders in enabling additive manufacturing solutions for applications in growing markets that demand high-reliability products. We then executed a four-phase plan to enable this vision, reorganize into two business units, restructure to gain efficiencies, divest non-core assets, and invest for future growth. Our results since that time have shown consistent, steady progress, first with a return to growth and profitability by Q4 of last year, and then continued momentum this year, which carried us in Q2 well beyond 2019 second quarter levels, an important pre-COVID benchmark for all companies to measure themselves against. Looking specifically at this year's second quarter results, given the difficult environment of Q2 last year, it's no surprise to see exceptional rebound in revenue, profitability, and cash performance. When adjustments are made for divestitures, which we then refer to as our organic performance, our top line grew almost 60% year over year, and EBITDA by a whopping 650%, to a level of 12.4% of revenue for the quarter. Jagtar will review details for you in a few moments. In addition to the usual year-over-year comparisons, two additional reference points are helpful in understanding our business momentum. One is our consecutive quarter performance, which reflected revenue growth of over 11% in Q2 versus Q1 of this year. The second reference point, and perhaps the one that's most compelling, is to our pre-pandemic performance. If we compare Q2 of this year to the second quarter of 2019, our organic revenue grew 11.4%, which reflects true acceleration in the adoption of additive manufacturing and the effectiveness of our intense focus on select market verticals and applications. From a cash perspective, I'm very proud of the team's ability to manage the business efficiently in this rapidly changing environment. which resulted this quarter in the generation of over $13 million of operating cash flow. This allows us to make critical investments needed to support the exciting growth opportunities that we see ahead. So reflecting on the overall state of our business, from a strategic positioning standpoint, our combination of global scale, industry-leading breadth of technology across metals and polymer platforms, and our consistent financial performance has now combined to differentiate our company from and positioned us well to be a partner of choice to leading OEMs in healthcare and industrial markets. Turning then to our divestitures, in order to improve our focus and greatly enhance our ability to invest in exciting growth opportunities, we've moved aggressively over the last year to divest non-core assets. In June, we announced an agreement to sell our on-demand parts business. This business focuses on the rapid production of components using additive and subtractive manufacturing methods which, in addition to having divergent business metrics from our core focus, often put us in conflict with other service bureaus, which is an increasingly important market for additive technology. So this sale not only increased cash for investment, but increases our available market for future sales. More recently, just after quarter end, we announced the planned divestiture of Symbionics, our medical simulation business. This is a very good business and one that does not align with our core focus on additive manufacturing. By selling it to a strategic buyer, we created a sustainable leader in medical simulation while delivering to us significant cash for future investment in our core, a true win for all stakeholders. In executing these divestitures, it's important to note that we have now completed our plan to exit non-core businesses. The proceeds from these sales will leave us in a strong position with a cash balance of roughly a half billion dollars and no debt. We now move forward with strong organic growth and profitability at both the gross margin and EBITDA margin level, positive operating cash flow capable of sustaining the investments needed to meet increasing customer demand, and plenty of dry powder on our balance sheet for additional growth investments. I again want to thank all of my colleagues at 3D Systems. We've worked so hard in executing our business plan, which has successfully reinforced our leadership position over what's been an extremely challenging 12 months. As we near completion of our divestiture efforts and our momentum accelerates in both of our business units, we turn to the future and have begun making investments for continued growth and profitability. Over the last several months, we announced plans for the expansion of our facilities in Rock Hill, South Carolina and Littleton, Colorado. In addition, we recently announced the creation of a new executive leadership role, Chief Technology Officer for Additive Manufacturing. The purpose of this role is to drive organic growth by expanding and accelerating application development and product innovation, including all hardware, software, and materials development for production scale additive manufacturing solutions. I'm pleased that Dr. David Lee joined the company in this capacity. David's been a pioneer in additive manufacturing with more than 30 years of experience in the industry. With this new role, we're accelerating our investments in people, processes, infrastructure, and technologies that position us for future growth and profitability. 3D Systems has tremendous potential to revolutionize markets through the enablement of production scale, additive manufacturing, and delivering breakthrough innovation is essential to achieving this vision. We're very fortunate to have David join us on this exciting journey. Before I continue, I'd like to offer an example of how our application focus is driving our development efforts and translating into accelerated growth opportunities for our business. As many of you might remember, over the last few years, we developed a new printing platform called Figure 4. It's a DLP-based technology that opened up new and exciting applications for polymeric components. Central to Figure 4's success is the availability of new polymer materials that offer a customer attractive performance characteristics. To this end, over the last year, we've expanded our investments in photopolymer development, targeted towards specific applications and market verticals. As an example, for the automotive applications, a key relationship was established with Toyota Gazoo Racing, where our joint teams focused on a new figure four material called Pro Black 10. This was successfully introduced for racing applications, but our work did not stop there. Looking to expand to larger component sizes, we worked with the Toyota team to modify the material and process for broader SLA application. This work has now led to the introduction of a new material called Acura AMX Rigid Black, a material that has excellent mechanical and environmental performance, along with automotive quality surface finish, and can be printed economically in large SLA formats that deliver tremendous productivity improvements over competing production processes. Moving forward, this material will provide application solutions well beyond automotive, such as consumer goods, service bureaus, and specialty contract manufacturing markets. It is this combination of materials, printing technology, and software focused on specific breakthrough customer applications that's at the heart of our organic growth engine. And finally, before I close, I'd like to comment on an area that I am particularly excited about for our longer term future, and that is regenerative medicine. One of the key reasons behind Dr. Lee's appointment as our new CTO for additive manufacturing is that it allows our co-founder, Chuck Hall, to focus increasingly on our groundbreaking biotechnology efforts as our chief technology officer for regenerative medicine. As we've stated before, our partnership with United Therapeutics is central to our combined efforts to print human organs, beginning with a human lung. These efforts are by any measure extraordinary, and we look forward to updating you on progress at some point in the future. Building upon this core development program, we are accelerating our efforts to bring to develop and bring to market other non-organ human applications for the body. Just as with our existing healthcare business, this extension of 3D printing into other human applications involves the combination of new tailored materials, very high precision printing technologies, and customized software solutions. In addition to being printable, the materials used in these applications must meet very specific requirements, including physical and mechanical properties as well as having biocompatibility characteristics to limit or even eliminate the risk of rejection in patients. In this pursuit, we're partnering with other firms that can bring specific technology or application know-how that can move us ahead more quickly. One such partnership that we announced this quarter is with Coal Plant, a biomaterials company that brings unique expertise in plant-derived RH collagen material. One application of this material that we are focused on as its use is printed soft tissue matrices for breast reconstruction procedures. Today, these soft tissue matrices are most often derived from human cadavers or even animal sources, which have limited supply and complications driven by incompatibility with the patient. A biocompatible collagen-based matrix could potentially address these issues and improve patient outcomes for those needing breast reconstructive surgery following cancer treatment. This is only one example of the rapidly emerging range of human applications that we're excited about as we expand our technology base and application expertise for regenerative medicine. There will be many more to follow. A natural extension of our efforts in this area, enabled in part by our recent acquisition of a levy, is our move to support academic and other research laboratories that are studying the fundamental science of regenerative medicine. From this foundation, for which Alevi has a presence in over 350 research labs around the world, we're increasingly excited about the potential of pursuing applications in the pharmaceutical market where printed, customized three-dimensional tissue samples can be used for advanced drug therapy development. The ability to print specific three-dimensional tissue specimens representing either healthy vascularized cellular structures or even tumorous tissues offers the potential of enabling tailored experiments for drug development, which could shorten time to market and improve patient outcomes. While these investments will take time to bear fruit, with our strong foundation in healthcare, which now comprises over half the company's revenue, and key technology partnerships that we're now establishing, we believe we are well-positioned to play a leadership role in this emerging field of regenerative medicine. So to summarize, having executed our four phase plan launched last summer, we're now a company exclusively focused on additive manufacturing. With industry leading scale, the broadest range of metal and polymer technologies, all linked together through a strong application focus with customers that are true leaders in their market. The success of our approach is reflected in our financial performance, where we've consistently delivered the strongest top and bottom line performance in our industry. From a balance sheet perspective, After the close of our remaining divestitures in Q3, we expect to have approximately a half billion dollars of cash on our balance sheet to support the exciting future we see ahead. With this investment capital, we're increasingly looking for strategic investments that will add to our scale and technology portfolio in a systematic and disciplined manner. With that, let me turn the call over to Jagtar, who will now describe our second quarter results in more detail. Jagtar. Thanks, Jeff.