3D Systems Corporation

to gain efficiencies and divesting of non-core assets. We completed all of these efforts while prioritizing the health of our employees and delivering on a dramatic increase in demand for our products and services. I couldn't be prouder of our team's performance, which made 2021 one of the most successful years in our company's history. Let me share with you a few key highlights of what our 3D Systems team accomplished over the last year. At the outset of 2021, we as a management team decided that given the momentum that we had achieved as we exited the prior year, that in addition to comparing ourselves to 2020, which was a year severely impacted by COVID, we would also use our 2019 pre-pandemic performance as a primary benchmark for comparison. We set this bar, this set the bar at a much higher level, one that we felt would be an appropriate challenge for both of our businesses. As we closed out the year, the results clearly spoke for themselves. When adjusted for divestitures of non-core assets, our results for 2021 not only dwarfed our 2020 performance, but also significantly surpassed 2019 across all key financial metrics, from top line growth to profitability and cash flow. From a balance sheet perspective, our combination of operating performance and sale of non-core assets allowed us to add over a half billion dollars to the balance sheet by the end of our third quarter. We then strengthened our cash position further through a convertible bond offering at an opportunistic time in the fourth quarter, details of which Jagtar will elaborate on in a few moments. This operating performance was delivered in spite of the significant headwinds we experienced from supply chain shortages and logistics issues. As we completed each quarter in 2021 and our trajectory became more apparent, The question that was increasingly asked was, how did all this come together so quickly, particularly in the face of the challenges from COVID? Well, the answer is very simple. We rallied our team around our singular core belief that if we focused our energies, we could be the best additive manufacturing solutions company in the world. Everything that distracted us from our singular mission was either stopped, shut down, or sold, and we focused our entire efforts on reaching our goal. This approach resonated strongly with our employees and our customers, and its effectiveness was reflected in our financial results. Strong double-digit organic growth, industry-leading profitability, and positive cash performance. Our shareholders benefited significantly as well, as our share price rose by over 100% for the year, greatly outstripping our public company industry competitors. By staying committed to this approach and supporting it with a sound investment strategy, I believe this singular passionate focus will continue to serve us very well in the years ahead, creating significant value for all of our stakeholders. One less obvious but extremely important benefit to this performance has been our ability to increasingly attract key talent to our organization. Just as in sports, everyone wants to be a part of a winning team and to be recognized for the unique value they bring to the game. Like the market itself, talented individuals are able to distinguish between companies that offer promises of future success versus those that deliver on their promises each day. Perhaps the most visible public examples of our organizational success in 2021 were the hiring of a new chief technology officer and a new chief scientist for additive manufacturing, both of whom came with outstanding industry experience and credentials. However, equally exciting to me has been the influx of outstanding young engineers and other professionals who bring with them talent, unbridled enthusiasm, diversity, and exceptional creativity. One indicator of this success has been our intern program for college students, which we started at the height of COVID in the summer of 2020. Since inception, we've averaged over 100 applicants for every internship position we've created, and these numbers continue to rise each year. The energy and excitement of these young professionals who represent the future of our business is absolutely contagious, and their impact is being felt throughout our company. In these challenging times, never has the need to attract the best talent been more important, and I'm extremely pleased with our progress in this area. As we completed our divestitures late in the year and continued to gain momentum in the market, we turned our attention increasingly to investing for growth. We first prioritized our internal investments in R&D and infrastructure, firming up our new product plans and priorities. Our efforts bore fruit in the fourth quarter with the release of three new powder bed printing systems, including our SLS380 polymer-based system, as well as our DMPFlex200 and DMP350 dual metal-based printers, the latter of which is a dual laser version of our top-selling single laser system. The increased productivity that our dual laser system delivers is already expanding our market opportunities, particularly in healthcare business, where productivity benefits to medical device customers has proved compelling. In addition to these new printing systems, in 2021 we released the largest number of new material offerings in our company's history. These materials span all of our polymer technology platforms and address key application needs, such as those requiring precision surface finishes, fire retardancy, and improve strength and toughness characteristics. This expertise in polymeric materials technology is a key differentiator for our company in the marketplace and an important sustainable competitive advantage. Given the exciting lineup we have ahead for all of our product lines and our rapidly growing demand outlook, we've decided to incrementally increase our R&D commitment for 2022 in order to bring these products to market at regular intervals over the next year. We look forward to sharing highlights of our new product introductions with you in the months ahead. In addition to our new hardware introductions, customer feedback over the last year made it very clear that software will play an increasingly important role in the move of 3D printing from the laboratory into factory production environments. While for many years we've had very strong software offerings to control and optimize the print process itself, production-focused customers have now clearly identified the need for a software system that can control entire fleets of printers, regardless of the manufacturer, as well as an array of post-print inspection and inline automation processes, spanning from raw material to finished parts. An additional challenge is the need to be fully compatible with existing enterprise systems, such as SAP, Oracle, Microsoft, and Salesforce, in order to minimize factory disruption and costly upgrades as production additive workflows are introduced. In short, In order to be successful at scale in a factory environment, our customers need a cloud-based manufacturing operating system that could optimize and manage the entire workflow, applying native AI and leveraging machine intelligence to maximize component quality and throughput. To meet this challenge, in 2021, we significantly strengthened our software portfolio with the acquisitions of Additive Works, which brings real-time process simulation to optimize the printing of new components and production. and Octen, a unique and versatile cloud-based manufacturing operating system that meets all of the key requirements articulated by our customers. We believe the Octen system will not only benefit the adoption of our company's solutions, but could dramatically expand the adoption of additive manufacturing for all companies in our industry. For this reason, we've opened our Octen software suite, which includes our entire legacy software portfolio as optional add-ons. to the entire additive industry, as well as our collective customer base. We've been pleased to see numerous equipment suppliers have already announced plans to partner with Octon, and we look forward to the growth we believe it will enable. In addition to software, in 2021, we also expanded in exciting new markets through the acquisition of Volumetric and Alevi in the regenerative medicine space. These two acquisitions leverage breakthroughs that we've made in the printing of biomaterials, as a part of a multi-year development effort with United Therapeutics, the goal of which is to ultimately manufacture an unlimited supply of human organs for transplantation, beginning with the human lung, to meet the needs of critically ill patients around the world. This expansion into 3D printing technology for biologics is an important long-term growth plank for the company that I've spoken about extensively in past quarters, so I'll limit the time today. But suffice it to say that I'll look forward to updating you on our progress in this incredible area of development in the future. Altogether, our four acquisitions completed in 2021 supported our strategic focus by adding technologies that complement our core strength in additive manufacturing, bringing these capabilities to new and exciting markets, which we believe will continue fueling our growth and profitability well into the future. By the end of 2021, with these acquisitions having closed, We exited with roughly $800 million in cash on our balance sheet for the future. Before we turn to our plans for 2022, I'll take a minute to comment on the unique foundation that creates our leadership position in the additive manufacturing industry. In short, we're a full solution provider, meaning that we bring together the industry's broadest set of metal and polymer printing technologies, hundreds of unique materials, and industry-leading software platforms. using our exceptional applications expertise to deliver production-ready solutions for industrial and healthcare customers around the world. The effectiveness of this approach has proven itself over time through the installation of hundreds of production printing systems across countless factory sites around the world. This scale has a tremendous advantage, not only increasing our operating efficiencies, but also in providing critical ongoing customer application support 7 service to our customers, no matter where they're located, over the life of their investments. We're proud to say that our installed base currently prints over 700,000 parts per day, which is more than the rest of the industry combined. This production experience is invaluable in providing the feedback needed for us to adapt to the ever-changing needs of our customers in this volatile but exciting time. And lastly, we continue to innovate, invest, and grow our business. all while tightly managing our financial performance. For customers, moving to additive manufacturing is a very strategic decision. Any customer investing significant capital in fleets of hardware to adopt additive manufacturing at a production scale wants to know that their partner is financially sound and has the scale, capability, and commitment to support them wherever they operate over the immediate and the long term. Our combination of scale, expertise, and financial profile is the best in the industry, inspiring the confidence of our customers as they balance their growth opportunities with the ever present risks that we all face in this complicated global economy. Simply put, we're increasingly the partner of choice for companies ready to make significant long-term investments in additive manufacturing. So where do we go from here? Well, first and foremost, we continue to run a disciplined business. balancing our short and long-term performance, and making prudent investments for the future. Given our operating momentum, our demand outlook, and our financial strength, we continue to look for investments that will enhance our customers' capability to adopt additive manufacturing while delivering strong returns for our shareholders. This has led us to two additional acquisitions which we announced last week, each of which bring us a new, unique technology for our industrial and healthcare businesses. The companies are called Titan Robotics and Cumovus, and I'd like to spend a few minutes discussing each. Titan Robotics, based in Colorado, is the market leader in 3D printing systems using pellet-based extrusion. This technology addresses critical customer applications requiring large build volumes, superior performance, and improved productivity at significantly lower cost. Through Titan, we can now provide solutions to new applications in markets such as foundries, consumer goods, service bureaus, transportation and motorsports, and aerospace and defense and general manufacturing. Like 3D Systems, Titan takes a solution-based approach with customers, working to ensure they provide the best product to address the customer's application. They are the only manufacturer offering hybrid tool head configurations that include any combination of pellet extrusion, filament extrusion, and spindle tool heads for component finishing. This unique capability gives customers the flexibility to choose the best production printer configuration to meet their specific application needs, with the selective use of pellet-based polymers providing a significant cost advantage over filament-based systems. With an open system architecture, a Titan printer has available to it hundreds of standard polymer formulations, allowing customers to not only select the ideal material for their application, but also realize potential cost savings of up to 75% versus traditional filament extrusion. With Titan's technology and our go-to-market reach, as well as the combination of Titan's engineers and our applications group, we're confident we can rapidly expand into the extrusion marketplace for our industrial business. Moving next to Comovus, they are a very special engineering company headquartered in Munich, Germany, with a strong focus on the development and commercialization of a unique 3D printing system for use with medical quality PEAK materials. PEAK, which stands for polyether ether ketone, is a high performance polymer material that's approved for use in the human body for orthopedic applications. It simulates the properties of human bone very effectively. To date, Peak has been fabricated for these applications using slow, expensive, and wasteful machining techniques, which have limited its usage in medical implants. The Camovus 3D printing technology is unique, allowing high-volume, cost-effective manufacture of custom medical implants. This acquisition is a perfect fit with our current healthcare business and will allow us to expand from our historical leadership in titanium orthopedic implants to to now offer customers a choice between titanium and peak polymeric solutions, each of which have their own specific use cases. Integrating Comovus into our healthcare business will drive growth in three principal areas. The first is cranio-maxiofacial reconstruction, which has been a cornerstone of 3D Systems Healthcare for many years, and one of which we're the dominant player for titanium solutions today. Having the unique Covus printing capability will allow us to expand our virtual surgical planning portfolio to include peak implants, in addition to surgical instrumentation and anatomical models. The second application area is spinal cages, where 3D Systems is a leader in the development, production, and sale of both implanted titanium components and complete printing systems for in-house OEM medical production. Cumovus expands the material options for customers in this key product line, enhancing patient experience by allowing us to provide the best solution custom tailored for each patient. And third, bone plates for trauma patients. Comovus is developing a carbon fiber reinforced peak process for bone plate applications for patients suffering from severe trauma and fractures. In addition to mass produced custom patient solutions, Comovus has also developed a unique self-contained clean room printing system which opens new opportunities for 3D systems to expand our point of care market segment for trauma patients, where printing capability is provided locally within the hospital or even within the surgical suite itself. These applications offer perfect complements to the point of care work we're doing today with large medical institutions such as the VA hospital system. We believe the point of care printing for customer patient solutions will be an increasingly exciting market in the years ahead. and one for which we're a clear leader. When taken in total, we believe the Comovus market opportunity is measured in hundreds of millions of dollars, and the synergies with our current offerings and infrastructure are outstanding. Given the FDA approvals that are already in place for peak materials in human applications, we expect regulatory clearance for printed peak components to be granted later this year, and that this technology will contribute in a meaningful way to our healthcare business in the years to follow. So in summary, with our tremendous progress over the last 18 months, our continued strong momentum, our breadth of technology combined with our clear application leadership, and the benefits of scale as one of the largest pure play additive manufacturing companies, we enter 2022 with a great deal of optimism. This optimism is not only for 3D Systems, but for the additive manufacturing industry as a whole. As new production opportunities open each day, We firmly believe that additive manufacturing adoption in production settings will continue to grow at an exciting pace, and we're confident that we will help lead this transformation. Our value proposition is simple. We offer the strongest and most complete portfolio of additive manufacturing technologies brought together with the most knowledgeable and creative engineering teams to solve the most valuable application needs of our customers. We do so by combining a belief in financial discipline with an overlay of strategic perspective to guide our continued investments for the future. As we look forward, we see a growing industry and a tremendous potential to serve our customers. For us, 2022 will be a year of exciting growth and investment as we continue to strengthen the company for the future. Our investments will continue as they have over the last year, including adding industry-specific application expertise, back office infrastructure, and this is important, the foundational technologies that enable the value we bring to our customers. Specifically, we'd expect that over the next 18 months, we will refresh our entire lineup of metal and polymer hardware platforms while continuing to release record numbers of new materials and improvements to our software products offered through OCTN. In partnership with United Therapeutics, we will make substantive progress in our regenerative medicine efforts, creating what we believe will be significant value in the years ahead. We recognize that bureaucracy is an impediment to growth, so we're committed to remain a lean and nimble organization that challenges itself to execute flawlessly, introducing new products on an almost continuous basis while reducing manufacturing costs and maintaining industry-leading quality. Growing adoption of our technology into customer production applications will drive high-margin, post-install recurring revenue streams via consumable materials, software, and services. In the coming years, we're confident that this focused approach and simple business model will result in consistent year-over-year double-digit organic growth with expanding gross margins, our goal of which is to exceed 50% over time. With 3D systems at the forefront and driving adoption of additive manufacturing, we'll continue to transform existing industries within healthcare and industrial markets as well as creating entirely new markets, such as regenerative medicine. With that, let me turn the call over to Jagtar, who will now describe our fourth quarter and four-year financial results in more detail. Jagtar. Thanks, Jeff.

Good afternoon, everyone. As Jeff said, 2021 was a tremendous year. Our teams worked extremely hard and delivered outstanding results, which I am pleased to share with you today. I'll begin the discussion with full year 2021 numbers, starting with revenue. Revenue for 2021 was $615.6 million, an increase of 10.5% compared to the prior year. This increase occurred despite the divestiture of our portfolio of non-core businesses. When adjusted for those divestitures, 2021 revenue increased 31.8% as compared to 2020 and versus pre-pandemic 2019 revenue increased 16.9%. This impressive performance against both 2020 and 2019 validates the transformation efforts we have guided the company through and upon which our team has executed over the past several quarters. Our strategy of providing additive manufacturing solutions for industrial and healthcare customers Utilizing a broad portfolio of hardware, materials, and software solutions combined with applications expertise is delivering consistent, strong, double-digit revenue growth. Gross profit margin for 2021 was 42.8% compared to 40.1% in the prior year. Non-GAAP gross profit margin was 43% compared to 42.6% in the prior year. Gross profit margin increased primarily as a result of prior year non-recurring write downs related to equipment and inventory. Operating expenses for 2021 on a GAAP basis decreased 13.3% to $296.8 million compared to the prior year. On a non-GAAP basis, operating expenses were $214.7 million, a 9.4% decrease from the prior year. The lower non-GAAP operating expenses are primarily a result of restructuring efforts done in late 2020 and businesses divested as part of the company's strategic plan. We had GAAP earnings per share of $2.55 for 2021 compared to a GAAP loss per share of $1.27 in 2020. The increase was primarily due to the gains recognized on businesses divested during 2021. Our non-GAAP earnings per share for 2021 was 45 cents compared to non-GAAP loss per share of 11 cents in 2020. This increase was primarily due to our higher revenue combined with the lower operating expenses talked about earlier. Now we'll turn to fourth quarter results. For the fourth quarter, we generated revenue of $150.9 million, a decrease of 12.6% compared to the fourth quarter of 2020. The decrease is the result of the aforementioned divestitures. When adjusted for divestitures, we saw strong double-digit growth of 13.1% versus Q4 2020, a 10.4% increase over Q3 2021, and impressively, a 21.9% increase versus pre-pandemic Q4 2019. We are seeing great demand in both healthcare and industrial segments that are driving this consistent growth in our core business, which I'll speak to in more detail shortly. In the fourth quarter, we had gap loss per share of $0.05 compared to gap loss per share of $0.16 in the fourth quarter of 2020. Non-gap earnings per share was $0.09, flat to non-gap earnings per share of $0.09 in the fourth quarter of 2020. As I mentioned earlier, our revenue growth is being driven by strong demand in both healthcare and industrial segments. On a full year basis, adjusted for divestitures, revenue in 2021 for healthcare increased 40.1% and industrial increased by 24.4% as compared to 2020. The rebound in industrial began in Q4 of 2020 and has continued through 2021. Industrial revenue in the fourth quarter 2021 outpaced Q4 2020 by 22.2% and Q3 2021 by 12.4% after adjusting for divestitures. In fact, this marks the fourth consecutive quarter of year-over-year organic growth in the industrial segment. This consistent growth pattern is a result of the strategic investments we have made such as adding crucial application expertise in key industrial sub-segments like aerospace and transportation, as well as our focus on materials development to provide customers solutions to complex problems. And perhaps most importantly, we continue to invest in our software platform, which not only enables customers to move from design to successful build faster than ever, but also allows them to literally run their entire manufacturing process with one integrated cloud-based software solution. This will be a key driver in empowering customers to make the transition from traditional to additive manufacturing at an ever increasing pace. And our investment in Titan Robotics with their extrusion-based technology opens up even more opportunities for our industrial business to grow as we enter new markets. Healthcare growth was broad-based in 2021, from dental to personalized healthcare and point-of-care services, with dental enjoying a large tailwind from the sale of materials for aligners, crowns, and dentures. These subsegments are heavily influenced by patient access to dental and medical offices. 2021 ended with a substantial wave of Omicron cases and a similar pattern to the original COVID wave. Patients were either unable to get appointments or offices were understaffed due to infections, resulting in a reduction in short-term demand for certain elective healthcare procedures during Q4. As such, we expect material sales to moderate early in 2022 as existing inventory originally met for Q4 is consumed during the first half, but demand should remain strong for healthcare as the backlog of appointments are filled throughout the year. In addition, our investment in Comovus opens up new markets for us medical devices. We have a leadership position in this area and are now able to satisfy customer application requests for parts and hardware that require medical grade polymers like Peak. Now we turn to gross profit margin. GAAP gross profit margin was 43.9% in the fourth quarter 2021, bringing the full year GAAP gross profit margin to 42.8% as compared to 40.1% for the full year 2020. Non-GAAP gross profit margin in the fourth quarter was 44.1%, bringing the full year non-GAAP gross profit margin to 43% compared to 42.6% for the full year 2020. Gross profit margin and non-GAAP gross profit margin increased in the fourth quarter primarily as a result of better absorption of supply chain overhead resulting from higher production volumes combined with strong inventory management resulting in reduced obsolescence. GAAP operating expenses decreased 2.3% to $70.1 million in the fourth quarter of 2021 compared to the same period a year ago. On a non-GAAP basis, operating expenses were $54.3 million, a 6.4% decrease from the same period a year ago, driven primarily by lower SG&A expenses due to restructuring efforts in divestitures. GAAP operating expenses for the full year 2021 decreased 13.3% to $296.8 million compared to the prior year, primarily as a result of a goodwill impairment charge of $48.3 million and cost optimization charges of $20.1 million that both occurred in 2020. On a non-GAAP basis, operating expenses were $214.7 million in 2021, a 9.4% decrease from the prior year. The lower non-GAAP operating expenses are primarily a result of restructuring efforts done in late 2020 and businesses divested as part of the company's strategic plan. Adjusted EBITDA, defined as non-GAAP operating profit plus depreciation, was $74.1 million for full year 2021, or 12% of revenue, compared to $28.7 million for full year 2020, or 5.2% of revenue. The year-over-year improvement was primarily due to higher revenue in spite of divestitures and lower operating expenses as a result of cost optimization actions and divested businesses. Now, let's turn to the balance sheet. I will begin by noting that we issued a $460 million five-year convertible bond in the fourth quarter. We decided to issue this bond after considering the growth potential of our industry and business and the robust investment opportunities that we see going forward. The marketing of our bond met with a very healthy demand and we were able to issue our bond at a 0% coupon, providing the company with a significant arsenal for investment with very low carrying costs. After completing this bond offering and combined with our previous activities of divesting non-core assets, making strategic organic investments and generating $48.1 million of cash from operations, We ended the year with $789.7 million of cash on hand, an increase of $705.3 million from the beginning of 2021. We believe we are good stewards of investor capital as we manage our cash and evaluate investment options that will drive future growth and profitability. We were excited to have an early opportunity to invest some of our cash as we expand our hardware technology to include two extrusion-based platforms through the acquisition of Titan Robotics and Comovus. The acquisitions are expected to close in the second quarter. We are very excited about these investments. Both of these acquisitions bring unique capabilities and are well positioned for the industrial and healthcare applications that they intend to serve. We expect that these acquisitions will add a point or more of organic growth and be accretive to earnings in 2023. Going forward, we believe cash from operations along with a portion of cash on hand will fund organic growth opportunities and we will continue to explore a robust M&A pipeline to support our strategy of driving recurring revenue growth and greater adoption of additive manufacturing in both the industrial and healthcare segments. I want to reiterate my view that our revenue growth, strong adjusted EBITDA, cash generation and cash available for investment sets us apart from others in our industry. Beginning last year, we provided guidance on full year non-GAAP gross profit margins. This year, we are expanding our guidance to include revenue and non-GAAP operating expenses. We believe these are helpful data points for investors to evaluate our company. For full year 2022, We expect revenue to be within a range of $570 million and $630 million, non-GAAP gross margins to be between 40% and 44%, and non-GAAP operating expenses to be between $225 million and $250 million. Our revenue guidance reflects our expectation of an expanding additive manufacturing opportunity that will drive demand and, as a result, our continued revenue growth adjusted for divestitures. At the same time, we see demand continuing to expand, not just in 2022, but in future years as well. As a result, our operating expense guidance includes our commitment to invest organically in the technology behind our market-leading hardware, materials, and software platforms as well as investing in the right talent to continue the successful execution of our strategy. We believe these investments will position the company to continue to lead the additive manufacturing industry with robust market-leading solutions. Our guidance does not include the potential for significant additional macroeconomic events that could negatively impact our business, such as COVID-19, geopolitical events, or other factors that could further impact either demand or disrupt our supply chain. Before we turn the call over for questions, I am thrilled to announce that we have finalized a date and location for our Investor Day event. It will be held in Detroit on May 16th prior to the opening of the Rapid Plus TCT Trade Show, a leading additive manufacturing conference. This will be an in-person event, and we are excited to give attendees more details about our strategic vision, including our plans for new products, services, and exciting new applications. Invitations will be coming soon. We hope to see you there. With that, we will open it up to questions. Operator?

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. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Ananda Barua from Loop Capital. Your line is now live.

Yeah, good afternoon, guys. Hey, congrats on the momentum, and thanks for taking the question. I really appreciate it. I have just – yeah, yeah, you got it, of course. I have kind of like one-and-a-half questions. One's going to be super quick, and then one is sort of more like a legitimate one. But of the 22 growth forecasts, how are you guys thinking about the organic growth contribution in that forecast and what's a good way for us to think about it? And then just – On the new product, and then what would be the new product contribution in 22? What's the best way to think about that? You guys, it seems like clearly you're sort of setting us, setting a context, you know, for us to expect ongoing new product introductions, you know, throughout the portfolio for the next couple of years. And so what's the right way to think about, or a useful way to think about new product contribution in 22? And so those are my two questions. Thanks.

I'll comment, and Jack, if you want to add something, you're welcome to. So the vast majority of our growth this year will be organic. The investments we made late last year and that we've made now with Comovus and Titan, they'll primarily impact starting in 2023. It'll be relatively immaterial in 2022. And we're nicely... We have a very strong demand profile right now, so when we talk about double-digit growth this year, it's virtually all organic. There will be some small contributions from these acquisitions, but most of those will ramp up materially in 23. So that's really what we're positioning ourselves for. In terms of new product contributions, we'll talk a lot more about that as we go through the year. We were pleased to launch a few in the fourth quarter of 21. You'll see those increasingly roll out through 22 now and into 23. And by the time we're finished, we'll have refreshed our entire platform over that period of time. The revenue from that will obviously phase in over time. And, again, most of that will be hitting in 23 is what we're thinking. Jack, is there any other color to add?

The only thing I'd add for you, Ananda, is that if you go to the press release, we did provide a disclosure on revenue excluding debesters. of $544 million for 2021. So if you want to see what 2021 will look like now, you know, those investors are behind us, and so you can see what that means for year-over-year growth based on our guidance.

Totally got it. All right. Great. Super helpful. Thanks, guys.

Thanks, Ananda.

Thank you. Next question today is coming from Greg Palm from Craig Hallam. Your line is now live.

Yeah, thanks. Good afternoon. And, yeah, hey, congrats on the good end of the year here.

Thanks, Greg.

Starting with gross margin, really good Q4 performance. And I'm just sort of, you know, what are the assumptions behind the guide, knowing that Q4 was sort of the first clean quarter? It looks like the guidance for fiscal 22 is a little bit below what you did in Q4. So just trying to get a little bit more color there.

Yeah, we had a great Q4 on gross margin, Greg. As I said during my prepared remarks, Q4, we were at higher production levels, which helps us from the perspective of absorption on fixed costs in our supply chain. We did a great job of managing inventory, so didn't have a lot of obsolescence or scrap or other areas. That was the primary two drivers of gross margin performance. There was pricing and mix a little bit, but that was less impactful than just good, solid execution of the supply chain. So as we look to 22, you know, we will continue to manage, you know, supply chain tightly, but really, you know, gross margins will be impacted a little bit by, you know, what's going on, you know, kind of geopolitical-wise or, you know, economy-wise as we're seeing kind of the supply chain constraints around the world sort of continuing for at least the first half of the year, and the rising costs that are resulting. So, that's a little bit of the delta as well as kind of production volumes and the extent that we continue to manage the supply chain tightly. So, hence the range. We think we did an excellent job executing in Q4. Obviously, we'll continue to manage execution going forward, but that was basically the assumptions that went to the range.

There's no hidden messages in that at all, Greg. We're just trying to anticipate risk factors around ongoing cost and supply issues for building product. And then just the overall unknown between COVID and geopolitics. We just wanted to be, at the beginning of the year here, realistic about risk factors and to factor that into the guidance range.

Totally understandable. Okay, and then in terms of the breakout between segments, healthcare and industrial, it looks like specifically in Q4, industrial was really the standout. I don't know if I missed it, but did you give a dental and a non-dental growth for healthcare?

We did not. Dental was up, I would say, just eyeballing it. 15%-ish. Non-dental was flat to slightly down.

Okay. And then just one quick follow-up on Jeff and your remarks about Russia. I don't think they're a material part of your revenue, but do you have any sort of estimate on the revenue contribution that might be impacted by your decision not to sell into that region?

No, it's really not a material number, Greg. It's you know, a bit more point of principle and symbolic on our part. But it was a market that we were excited about, you know, growing when everything was under control and going well. But with this recent incursion into Ukraine, we just don't want to be supporting them with sales right now. So that's why we've taken this position.

Got it. Okay. All right. I'll hop back into you. Best of luck going forward. Thanks.

Thanks, Greg.

Thank you. Next question today is coming from Troy Jensen from Leach Street Capital. Your line is now live.

Hey, gentlemen. I also want to say congrats on the great quarter and great year. Thanks. Thanks, Troy. Hey, so, Jeff, maybe for you, I'm just interested in Titan. Can you let me know, is this a high-temp build envelope, and specifically, can they do all-temp material? And then how does it tie in with Roadrunner?

Yeah, two good questions, Troy. So, it is designed for... higher temperature applications as well as room temperature applications, but it can go to higher temperatures. We'll be extending those. So it is designed to encompass whole temp type materials and high performance materials. What I love about it, Troy, is the high production rates and the cost of the raw material. Using pelletized material is unique and it's a significant cost advantage for customers building large parts. So we really like that. It's a starting point on the on the progress path to the Roadrunner, which is more what we're seeing as the goal of our entire extrusion program, if you will. So we'll factor in both filament now and extrusion technologies as we evolve that next generation product. So there'll be more about that at Investor Day in May, but that's really laying out our long-term roadmap for extrusion-based technologies.

All right, perfect. And maybe one for Jagtar. Thank you for the full year guidance here on revenues. Any thoughts or any help on normal seasonality? I mean, I always think of Q1 as kind of down 12, you know, maybe 12 to 15% sequentially. Q2's up nicely, Q3's flattish, and then a bigger spike in Q4. But I'd just like to hear your thoughts now with all the dust that's behind us.

Yeah, sure, Troy. I think what you'll see, I think you'll see similar profiles to prior years, excluding 2020, which was a little bit of an anomaly. The one thing I'd point out is that right now we're more supply constrained than demand constrained, meaning that the issues in supply chains that we've been all reading about have been more the impacting item to revenue for us right now than customer demand. So as a result, I think you'll see, you know, seasonality in Q1 a little lighter than normal. Not by much, but a little. And, you know, hopefully with supply chain issues getting fixed, as we expect, you know, Q2 and Q3 will be a little bit stronger than normal, then you'll have your normal Q4 ramp.

So I think you'll just handle that.

Yep, thanks.

Understood.

Thank you. Next question is coming from Brian Traub from William Blair. Your line is now live.

Hey, thanks for taking my questions. Did you say, or can you tell us, since the K is not out, what percentage of sales was in 21 to your largest customer?

Yeah, it was, you know, actually I don't have that number off the top of my head, but it was about 25%.

25% for the year in total? For the year. Okay.

Yeah. Okay.

Thanks. Okay, thank you. And then I think it was Titan, right, is the acquisition that is using an open consumables model. Is that, I'm just curious, is that something that you've considered exploring for other product lines, you know, the open consumables model? And, you know, what sort of margins can you generate with a product line like that relative to your corporate average?

Yeah, so good questions, Brian. We want to do what's best for our customers and what will allow them to adopt additive the fastest. And that really varies platform by platform. In some cases, it's really difficult to separate the material from the printing platform. The process is just so interdependent. And in reality, that would apply all the time. It's just some machines are easier to adapt to standard off-the-shelf materials than others from a processing standpoint for customers. So we want to make sure the customer experience is good. If that requires us to go with a fixed set of materials from ourselves, we do that. If not, we open it up to them buying materials from third parties and So that's one way to look at it is where a machine is versatile, flexible enough to accommodate off-the-shelf materials, we'll make it open. And we'll do that knowing that we can make an acceptable margin on the hardware and, of course, the aftermarket software services, all of that as well. And we can refine our model to tune in a process for a material for a customer if they want to use that. with them buying off-the-shelf materials for the future. So I'm not giving you a real crisp answer, Brian. It'll vary by platform and over time. But I would tell you we're looking at it from a very open-minded perspective now about what's best for our customer for each platform we sell. And we're also looking at the materials availability. We have a great portfolio of proprietary materials, and we're also looking at how best to take those to market. Because we think customers broadly will value those materials. So we're looking at both dimensions of the materials question.

Okay, great. Thanks very much. I'll talk to you later.

Hey, Brian, I just double-checked that percentage number for the largest customer.

It's 21%. Got it. Thanks, Jack.

Thank you. Our next question is coming from Jim Rashudi from Needleman Company. Your line is now live.

Hi, good afternoon. I just wanted to maybe go through again the gross margin guidance for the year. And it sounds like, you know, just some of the puts and takes there. It sounds like, you know, to some extent you're looking for potentially a little bit of a slower start. Does that impact some of the gross margin guidance for the year coupled with what you just also noted, what we're all hearing about supply chain challenges? And should we assume that that just picks up as we go through the year?

Yeah, that would be a fair assumption, Jim. We know supply chain is challenging right now as we see it. We're seeing shortages of supply for certain parts that we're then having to go through a broker to obtain, which is in some cases resulting in higher costs. So I would expect margins to be, as I think about the the seasonality of margins of the year, I would expect that margins will be a little lower in the beginning of the year, and then as volumes increase and supply chain issues hopefully start to evaporate, the margins will increase over the balance of the year.

Got it. Jeff, I want to go back to your comment and the reception so far since it's been part of the 3D systems. I wonder if you could elaborate on what you're seeing in the market there

Jim, you broke up on a little bit of that, but you want to know my perspective on the market now that I've been here?

No, no, I'm sorry. Hopefully you can hear me okay now. I wanted to go back to the comment you made about Octon and the reception of some of the other industry players to the acquisition. How satisfied are you with the way this is developing? Sorry about that.

I know I'm with you. It's the software question around Octon, Jim. Yeah.

Yes, that's right.

Gotcha, gotcha. Yeah, no, I'm pleased. You know, I understand. This industry is still relatively young. There were a lot of emotions involved early on as the industry matures. But my perspective, Jim, coming in the last couple of years is the industry is maturing now. And you've got folks who truly set kind of increasingly set emotion aside and look at what's going to drive the adoption of additive most quickly. So, no, I've been very pleased. You know, we still fight, you know, old feelings and things. But more and more, I think across the industry, everybody sees the inroads that Additive is making. And whatever opens up those doors faster is good. So, as you look at it, the Optum platform is the best in the industry. And the more that our customers adopt that, the easier everybody will have a chance to sell their technology into the customer base, and it can handle all these platforms. So increasingly, we're seeing acceptance. among the industry on using that software and also a fairly rapid acceptance by our customers. We're still highly in the demonstration phase, but as customers start to use it, certainly that encourages the rest of the industry to use it as well. So, yeah, would I like it to move faster? Sure, I absolutely would. But I think if people see that we are running the business as a platform business for the entire industry, that increasingly they'll adopt it. So it's coming along, Jim. I always wish things moved faster, but I am pleased with the progress, and I think we'll continue to see it in future quarters and years.

Thanks a lot, and congrats on the year.

Thanks so much, Jim.

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

Howdy, Paul.

Hey, thanks for taking my question. So It's great to see the annual guide again, so just wanted to kind of expand on that. What do you think are the kind of relative growth between healthcare and industrial verticals? You had very strong performance in both, though comps might be a little bit tougher in healthcare this year. I think you mentioned electives may start to come back. Just any additional thoughts there between the segments?

Yeah, Paul, so we're not really giving guidance by segment. I will say that, you know, I think I expect both businesses to do well. You know, you are right, comps for healthcare will be harder, but, you know, we've got a great business there now, you know, added by a new acquisition that will help the business. So I would expect both businesses to perform well in 2022. Okay.

Paul, it's interesting dynamics. The industrial markets are probably in total larger. If you add them up, they're probably larger and have greater potential for growth. Some are more competitive than others in terms of what the application demands and all that stuff. Healthcare may be slightly smaller, but the payoff for additive is extremely high in healthcare with some of these mass-produced, customized solutions for patients. And I think the adoption rate will continue to be exciting. So it'll be a real foot race. between the conversion of industrial markets to additive and the embrace of the healthcare business. And it's very hard to handicap, but nicely, you add them both together and you get really good, solid, double-digit growth, you know, year over year organically, which we're just thrilled about.

Gotcha. And then just on the kind of pricing versus shipment dynamic for guidance, you know, how do we kind of think about maybe some anticipated pricing increases, just the overall unit shipments and then any comments on your pipeline and visibility that kind of provided you the confidence to reinstate guidance, that would be helpful.

Yeah, sure. So on pricing, so, you know, pricing is something we constantly evaluate. You know, we did do a temporary surcharge in Q4 that we've continued this year. You know, we will, you know, we're continuing to evaluate pricing of our products pretty regularly, especially since in certain of our products we are, you know, frankly just supply constrained right now. In certain of our products we've got more demand than we've got availability, so we are evaluating pricing on all of them. And what was the second part of your question, Paul?

Oh, sorry. I was just talking about the pipeline and the visibility.

Oh, yeah, the pipeline. So it really can't come in a pipeline, but I will say, you know, we, you know, last quarter I talked about how much revenue we left on the table going into Q4, which you may recall I said $3 million. I will say, you know, coming into Q1 this year, exiting Q4, Because of supply constraints, you know, we left about $8 million on the table. So that number increased despite, you know, the great results we had for Q4. So, you know, as I've said earlier, we are more supply constrained right now than demand constrained.

Paul, I think the only comment I'd add is if you get back to just the fundamental revenue guide, how much is baked in for price versus volume and stuff, A predominance of our growth and revenue is going to be volume-based. We're looking for pricing opportunities because our costs are also up. We've got other cost initiatives trying to keep them down. And we do have, as Jack mentioned, some surcharge kind of logistics costs, pass-ons that we're trying to do. But by and large, the revenue growth is volume-driven because of increasing demand in both of our business units.

Gotcha. Thanks for that. And then lastly, just on your kind of implied operating margin guide, you know, it sounds like you're recognizing much of the op-ex related to some of the acquisitions you did last year and this year. Sales may be expected to kind of scale in 23. So maybe, you know, how should we think about kind of normalized operating margins out the gate when those businesses do start to scale maybe in 23? And then you see some normalization of gross margins. Thank you.

Yeah, I think we are focused on the strategic plan that we've talked about. We'll talk more about this particular topic on Investor Day. But our ultimate goal is 50% gross margins, double-digit revenue growth, and 20% adjusted EBITDA margins. And obviously for this year, this is an investment year to continue to modernize our product portfolio or improve our product portfolio and to continue to be the leader in this industry. So we're making those investments. The financial goals that we've set as part of our strategic plan are firmly still our objectives, and we'll talk more about the details on our investor day.

Great. Thank you.

Thanks, Paul.

Thank you. Next question is coming from Sarkis Rebetchian from B. Reilly Securities. Your line is now live.

Good afternoon, and thank you for taking my question here. I'll try to make it quick. Can you give us a sense for what's being paid to acquire Titan Robotics and Comobus?

Yeah, so the two acquisitions together were just under $80 million.

Sorry, that's 80-80? 80, yes. Okay, perfect. And I'm assuming is that going to be all cash or is there a mixed process?

All cash. That's all cash.

Okay. All cash. Great. And related to that, can you maybe dive a bit into your build or acquire strategy, just kind of looking at the big balance sheet you have today? And clearly, you know, it sounds like you're gaining talent here for your business, for the organic side as well besides the acquisition. So just want to get a sense for, you know, what you're willing to spend on on from an acquisition perspective and what you're willing to kind of build organically. Thank you.

Yeah, sure. No problem. Sorry. So our default is always, can we do it ourselves? Can we hire the talent, do it ourselves? It's the lowest risk, highest controlled way to develop a new product. We have great in-house capability and we continue to expand that. and we take an equal view of software materials and hardware platforms to see what we can afford to do and what we need to prioritize. Beyond that, we're opportunistic about acquiring technologies. When you look at our portfolio, We've got a full spectrum of technology available to us. If you go back to the earlier question I think Troy asked about the evolution of extrusion technology as an example, we didn't have an extrusion platform. It was one of the few that we didn't have. We added that. And now it's a matter, okay, how fast can you evolve that product line and expand it? So we'll look at doing that organically, you know, investing in it. If there's a way to accelerate it, just using it as an example, we would always consider the return on that incremental investment. So if there's something opportunistically out there that would accelerate our strategic plan, our direction for a platform, we would consider it and look at the return on that investment. Asset prices have certainly come down, which makes it a better race between internally and externally when you've got cash on the balance sheet. It's good to consider both. So we don't have a specific formula. We aren't in such need of a new technology that we must go out and buy it, which is really a nice position to be in. So we will opportunistically go to the outside and bring things in. And the more synergy they have with our existing systems, the more attractive that proposition becomes. If you look at the Comovus acquisition recently, they bring a great printing technology and a new material to healthcare. We've got great synergy with all of our SG&A and overhead infrastructure in our Denver facility to get that product to market. So that all factored into the equation to go outside and bring that in to give us this wonderful new polymer technology for healthcare. That's the way we look at it. When those assets come along, we evaluate the cost of doing it internally and the time versus bringing it in from the outside. So that's the most definitive answer I can give you.

Great. Thank you for that. I'll hop back in the queue. Okay.

Thank you. Next question is coming from Noelle Diltz from Stiefel. Your line is now live.

Hi. And again, congratulations and thanks for taking my question. Just on the hardware platform refresh, I'm just kind of curious if you're anticipating any sort of temporary impact to gross margin as you introduce those new platforms and if that's incorporated into your guidance at all. Thanks.

Yeah, it's certainly incorporated, and I wouldn't expect from a gross margin standpoint You know, we're trying to design, obviously, like most guys, we're trying to design products that will bring more value to customers that you can price for and also have a lower manufacturing cost. So we're trying to drive gross margins in a positive direction through this introduction, not a negative one, though. But with that said, in terms of the R&D drag on the new platform, you know, that we try to lay out with our OPEX guidance. And there is an expense associated with it. But from a gross margin standpoint, I would expect it to be, you know, certainly neutral at worst to positive over time.

Yeah, I would add, Noel, that, you know, as we introduce new products, we have costs within our supply chain that are devoted to sort of maintaining the products that we have in the field today. When certain components go out of manufacture, we've got teams of people that have to find new components, source new components to go into those machines. So by incrementally refreshing our portfolio, we're going automatically to components that are in production today at lower cost. So I would expect that as a result of that, over time, that will reduce the cost of supporting those machines that are in the field in our supply chain. And that'll help gross margins over time. But at this stage, I wouldn't be able to quantify that. But I think there is an expectation that that will improve gross margins over time.

Okay. Okay. That makes sense. And then just on your, you know, you kind of talked about this robust acquisition pipeline. Could you give us a sense of, you know, sort of what the pipeline looks like in terms of size and I think last quarter you talked a little bit about where your priorities lie in terms of the deals you'd like to take on. If you could maybe touch on that as well, that would be helpful.

Sure. Yeah, I think I would tell you after being in this role a couple of years, there seems to be a continual stream of printing technology that comes online. And I think fundamentally it's because the components continue to evolve and there's creative people and little workshops around that are trying to put those together into a new printing technology, a few of which have real potential and many of which don't. So there's always a stream of hardware development. New printers, if you will. We evaluate those all the time. And quite frankly, most of them are not. Most of them have Achilles heels to them and don't make it. But a few do. And the Camovas application is one of them. A Titan, for that matter. I mean, bring a much faster, lower-cost component to customers that want big components. So occasionally one comes along that works, it's a really nice acquisition, you bring it in, but there's a lot of them. So we spend resources evaluating those. Materials is a lot harder to come by. There are very few really good material groups out there that you can look to acquire. There are partnerships, which are equally difficult, but there are fewer opportunities for materials acquisitions, which is why we tend to invest a lot of R&D money into doing that ourself. It's an extremely important part of the business. And then software, you know, we did a couple of big ones to provide missing pieces last year in process optimization and obviously the Octon manufacturing infrastructure. That was a big missing piece, I think, for the entire industry, frankly. So I love that one. I'm not sure there's a lot more to do in acquiring software. There's just more to do in internal developments. But we'll continue to hunt and take a look, especially for production efficiency kind of things. That's important. So we'll continue to look for factory efficiency kind of software applications. Beyond that, Noel, it's a lot of application expertise. Are there ways for customers to bring in new applications faster through the use of process simulation, specific application knowledge, things like that? There are little groups you can acquire to do that. to just expand your application capability, which is really the cornerstone of our business, if you will, what's driving our growth. So that's kind of a, I gave you soup to nuts on everything that's possible out there. There are a few larger acquisition potentials, much rarer and more difficult to do that would bring both revenue and cost synergies, but those are highly opportunistic and we continue to be open to those, but there's not many of them, frankly. So we mainly focus on technology and bolt-ons.

Got it. Thank you.

You're welcome. Thanks for the call.

Thank you. Our next question is a follow-up from Greg Palm from Craig Callum. Your line is now live.

Yeah, just a couple of quick follow-ups. As it relates to the two acquisitions, Is their revenue contribution included in this year's guidance? And if that's correct, what numbers are you expecting? Maybe better said, what type of revenue profile did they combined have in 2021?

Yeah, so the revenue contribution for them is included in the guidance. We're not breaking it out specifically, Greg, but it's not a huge component of the guidance this year.

Okay, fair enough. And just going back to the question on customer concentration, I guess by my math, even if you look at it on a revenue from healthcare excluding divestments, it looks like that the vast majority of that absolute increase from fiscal 20 to fiscal 21 was driven by that one customer. I guess, can you confirm if that math is correct? But more importantly, my assumption is the growth in 22 and beyond will be much more broad-based. So I was just hoping you can maybe sort of go through those assumptions a little bit more.

Yeah, on the 20 to 21, you know, clearly that customer was a big contributor to the healthcare growth. You know, we did have pretty good growth in the medical devices segment. with the exception of Q4, for the reasons I talked about during the call, you know, we had Abercrombie show up, which kind of impacted, you know, services in the healthcare industry, which then impacted our revenue. I do think that in 2022, you will see kind of a much more broad-based increase. You know, that customer is still a good customer, but we, you know, we have a number of activities occurring in healthcare.

Yeah, Greg, when you look at it, unfortunately, with COVID, A lot of the orthopedic procedures that we're really good at supporting were viewed as optional procedures, and they were kind of the first to fall out when hospitals had to make tough choices. So we would expect that to be increasing nicely. It's a really good business. It was unduly impacted by COVID if you look at the full year. So while our large customer in the dental segment will obviously continue with nice growth, I would expect our growth to be much more broad-based next year, or this year in 22, in both healthcare. And then the industrial market has been delightful. I'm really pleased with the applications we're identifying in the industrial market that we can really go in and make a difference with. It's really going well. And I got to tell you, of the pleasant surprises since I've been with 3D Systems, the industrial growth right now has been really impressive and strictly organic. It's been a really nice change. So I'm really pleased. I think 22 will be a broader success story across many market verticals. And again, I think as we sit here today, when we weigh the risks and the opportunities, we would tell you today we're going to grow double digits this year. Now, there's a lot of puts and takes that go into that. As Jack mentioned, the acquisitions we've done really will not, we don't expect to contribute materially this year, but they do help offset a little bit of risk and add to the potential positives of the year. So I feel good about a double-digit, basically organic growth scene for the year with all of the risks that you and I could both list, you know, that are going on in the world right now.

Yep. Well, I appreciate you taking the follow-ups and looking forward to seeing you guys in May.

Sounds good, Greg. Thank you.

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

Thank you, Kevin. Listen, thanks, everyone, for joining our call this evening. While the world continues to be volatile, we're optimistic about the future, and we believe we're better positioned than ever to weather any storm while positioning ourselves for the bright future we see ahead. We wish you good health and a great start to the new year. Thank you.

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.