3D Systems Corporation

Greetings, and welcome to the 3D Systems fourth quarter and fiscal year 2024 earnings conference call and webcast. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow a formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Mick McCluskey, Vice President, Investor Relations. Mick, please go ahead.

Hello, and welcome to 3D Systems' fourth quarter and full year 2024 conference call. With me on today's call are Dr. Jeffrey Graves, President and CEO, and Jeff Creech, EVP and CFO. 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. 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 our latest press release, and our filings with the SEC included on 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, you will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures. Finally, unless otherwise noted, All comparisons in this call will be against our results for the comparable periods of 2023. With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.

Thank you, Mick, and good morning, everyone. We're pleased to have you with us today to discuss our 2024 results and our view of 2025. While we'll go into more financial detail in a moment, it's important to highlight at the outset But our fourth quarter results reflected the change in accounting estimates for our regenerative medicine program. This change in estimate was driven by the refining of our technical acceptance criteria for the program milestones. This resulted from a change in testing methodology for 3D printed human lungs, which are the focus of this program. Let me give you a little more color on what that means in layman terms. If you've followed our company for the last several years, you'll remember that since 2018, 3D Systems has been in a terrific partnership with United Therapeutics with a goal of developing the world's first 3D printed biocompatible human lung. The program has made remarkable progress since its inception, and as we now move closer to our goal of manufacturing human lungs for transplantation, the scientific requirements will be actively refined as a result of our advanced research and testing. This refinement may be in a more challenging technical direction, or in some cases an easier one. But in any case, these milestones will be periodically updated to reflect the experience we gain each day in the development process. In the fourth quarter, a key element of consideration was an update in the testing methodology for the lung. In short, the program now contemplates the incorporation of what's called in vivo human decedent testing, which has recently been successfully demonstrated by our partner, United Therapeutics, for kidney transplants. These new test methods offer invaluable insights into both the performance and biological acceptance of the manufactured organ in a human body. And the earlier this information is available, the sooner this technology can be introduced for the thousands of patients that are in desperate need of lung transplants around the world. From an accounting standpoint, the updated milestone criteria related to this testing methodology required a corresponding change in revenue recognition, which in this case resulted in a $9 million reduction to revenue and gross margin in Q4. This revenue will obviously be available to us in the future as updated criteria are achieved. Given this accounting change was not anticipated in our 2024 guidance, I was pleased that our core business still delivered within the full-year revenue range that was communicated in our prior forecast, and that the end markets showed welcome signs of strengthening in the fourth quarter. Thank you for allowing me to start with this highly technical item. For simplicity, through the remainder of this morning's call, we'll simply refer to this item as a change in accounting estimate. So, assuming you're not all exhausted with that explanation behind us, I'll start today's call with a recap of 2024. I'll then shift focus to some of our key markets and our progress on new products. Finally, I'll finish my remarks by narrowing in on specific actions we're taking in the near term to drive improved profitability and enhance shareholder value in 2025. Then our CFO, Jeff Creech, will provide more details on our financials. And we'll then open the line for Q&A. Let's move to slide five. 2024 as a whole proved to be a challenging year for top line performance across our industry. While our full-year sales were clearly impacted by the broad weakness in customer capex spending, our fourth quarter performance reflected, for the first time in several quarters, stabilization and even a degree of strengthening in customer demand for new capacity. This improvement in sales of new industrial printers was an encouraging note to close the year on. While on a full-year basis new printer sales were pressured, Our consumable sales are basically flat, with this resilience reflecting increased utilization rates across our large installed fluid printers as the year progressed. Material sales benefited most from our orthodontics business, which on a standalone basis grew over 30% in 2024. So in short, 2024 was a tough year from a demand standpoint, as our customers faced economic and geopolitical uncertainties, that caused them to curtail CapEx spending until their future was clear. With a rise in capacity utilization and increased printer sales in Q4, we're hopeful that we've seen the worst, but only time will tell. On a more positive note, as the performance, reliability, and economics of 3D printing continuously accelerates, customer interest in production applications continues to rise unabated. In fact, for 3D systems, The level of customer exploration and engagement in our additive technology has never been higher, as reflected in our application innovation group activity, which was up 18% for the year. This increased interest was punctuated by several exciting customer announcements throughout the year, as customers incorporated 3D printing into their future fulfillment plans. Examples included our collaboration with Daimler Truck, which described a spare part fulfillment model that integrates digital rights management and regionalized on-demand print capabilities linked together with the Octon software platform to address an additive automotive market for spare parts expected to reach nearly $8 billion by 2027. In another example, our strategic partnership with Precision Resources, advancing metal component manufacturing in high reliability markets like automotive, aerospace, and medical devices. These high reliability markets are of growing importance to our company and an area where we have a strong focus moving forward. Over the course of our quarterly earnings releases through the coming year, we plan to expand on these markets for you, including their size potential and strategy on how we win. In just a few moments, I'll begin this series by diving more into our dental business for this call. Given the rapid pace of additive technology evolution for both healthcare and industrial applications, We have great confidence in our longer-term growth prospects, but in the near term, we also acknowledge the need for more aggressive cost actions given the current economic environment. I'll describe these new cost actions in a moment, but it's worth mentioning some of the actions taken previously that will bear fruit in 2025. One of the most important changes in the company over the last two years has been the insourcing of our manufacturing operations and supply chain management. This transformation was designed to give us full control over our new product introduction process, our manufacturing costs, delivery schedules, and product quality. I believe these changes are long-term competitive advantages that set us apart from others in this industry. While sales volumes were weak in 2024, this insourcing initiative, which is now largely complete, will pay dividends as our new products are introduced and volumes rise in the future. In addition, 2024 also saw significant investments in our back office operations in parallel with a change in company auditors, all of which increased our OPEX spend in the short term, but will yield continued improvements in our operating efficiency and performance as we expand our global operations moving forward. Fortunately, we were in a position to support these investments in addition to our ongoing R&D activities, given the strength of our balance sheet And we can now build upon these efforts with new actions moving forward. Now to slide six. At 3D Systems, we're driven by relentless curiosity, and our legacy is the pioneers of 3D printing, delivering the highest value, application-driven solutions to empower our customers to innovate without limitations. Our new mantra is transforming manufacturing for a better future. This core objective is why today we offer the broadest range of additive technologies in the entire industry, bringing together metal and polymer hardware platforms and an exceptional materials portfolio with intelligent cloud-based software to deliver application solutions to key customers around the world. It's also why our installed fleet of production printers is responsible for over one million custom components per day, more than the rest of this industry combined. We're organized into two distinct business segments, healthcare and industrial, with a structure that allows us to develop targeted strategies for our core end markets. For 3D Systems, we leverage our unmatched application engineering expertise and depth, breadth of technology, and our global footprint to focus on strategic industries, such as the one shown on this slide. These range from advanced rocket and satellite systems to rapidly expanding AI infrastructure to personalize human applications for dental and orthopedic patients. Let's turn to slide seven to delve deeper into one of the most significant and immediate strategic growth opportunities in front of us today, which is the dental market. For our company, dental applications reside in four key pillars, which we categorize as straighten, protect, repair, and replace. These four areas are all converting to a large extent to 3D printing technology, which lowers cost, improves performance, and shortens lead times for the patient. What you'll see on this slide is our estimates for the first time that we shared publicly for the addressable market size for each of the four areas by 2029. Two important items to note. These figures are specific to 3D printing companies that are active in the broader dental market and they are only the U.S. opportunity, which represents roughly one-third of the global total. The straightened market comprises products such as indirect aligners today and the potential of direct printed aligners in the future. While it's the most relevant for current operations and we are the dominant supplier to these customers today, it's important to note that it's also the smallest of the four opportunities in the longer term. with an expected addressable market size of $125 million in the U.S. Our significant position in the aligner market today gives us a strong foundation to build upon. At one customer alone, we've deployed fleets of production printers totaling over 600 that operate simultaneously across three continents globally each day and have the ability to print over 1 million custom parts per day. Our expertise in this domain was evidenced in the landmark contract we announced last summer with a leader in the clear aligner space, valued at a quarter billion dollars to support the production of clear aligners over five years. With the emergence of technology to direct print aligners, we anticipate further expansion of this market in the coming years, and we plan to lead the way. Our Protect product strategy will be centered on night guards, which are rapidly expanding in both their dental and sleep apnea applications, while repair encompasses crowns and bridges, a market we've participated in through our Next Dent Materials brand for many, many years. Each of these markets represents an additional opportunity of approximately $150 million in the future. And again, those are U.S. numbers alone. Lastly, replace is the largest opportunity by far estimated at around $600 million in the United States. With recent announcements regarding our monolithic, multi-material jet adventures and 510 clearance from the FDA in hand, I believe we're better positioned than anyone to secure a dominant share of this market in the road ahead. Our combination of product beauty and toughness is simply unmatched. And the operating efficiencies we offer through our new printer platform that is scheduled for release this summer is compelling for both large and small dental labs alike. Taken together, the dental opportunity we have in front of us is estimated at over $1 billion in the United States alone. And we're targeting it as one of the largest company priorities going forward. So a key question you might ask is, why will we win in this market? From my standpoint, it's very simple. Our legacy and current leadership in the well-established aligner market is undeniable. The reputation for quality, reliability of our next-gen materials further strengthens our brand in the market each day. Across the entirety of our healthcare segment, we have the experience and proven track record to bring customized patient solutions to the market, and we have proven ability to navigate complex regulatory markets, having been granted over 100 FDA-cleared and CE-marked devices across our portfolio. Supported by our tenacious approach to innovation, I believe we're best positioned by far to capitalize on this billion-dollar market opportunity as dentistry quickly pivots to 3D printing technology for the future. Continuing this theme, let's turn to slide eight. 2024 was a historic year of innovation for our team. Despite challenges in the broader macro, Our approach to R&D has been sustained over this period and highly disciplined. You'll need dozens of new printers, materials, software, and product enhancements to the market in order to capitalize on increased customer interest and embracing of the new technology for production applications. While our innovation engines are certainly not slowing down, we're also equally focused on commercializing these recent advancements. We cover the full range of polymer and metal printing platforms. the broadest range of technologies in our industry. By way of example, just a few weeks ago we launched our Nextent 300 printer at a conference called LMT Lab Day in Chicago, which is the largest North American dental trade show each year. The printer is central to both night guard and jetted denture production. On display at Lab Day was not only the beauty, but notably the durability of our printed dentures. as customers were actually encouraged to drop samples of our dentures into a porcelain sink to show the toughness of the product in a common customer environment. In a flawless demonstration of their strength, our jetted dentures were dropped and even thrown from a distance without a single fracture to their integrity as they landed in the sink. Customer response was strong, and we closed multiple pre-orders for the next N300 at the show. At the upcoming Rapid TCT trade show, which is the annual additive manufacturing show, which will be held in Detroit next month, we'll be demonstrating our ability to drastically reduce costs and amplify throughput for customers as we showcase our new Figure 4-135 solution. This immediate focus for printer platform is high-mix, low-volume polymer parts encompassing a broad range of applications. including, importantly, electrical connectors, a market we currently estimated over $90 billion. 3D printing is targeted at the enormous tail of the curve, meaning complex, low-volume, high-mix part types or injection molding tooling often presents a prohibitive return on investment for the OEMs. To serve these markets, a solution needs to include not only a reliable print platform, but also specialty materials and a software solution for the full workflow, which gives us an advantage in meeting these application challenges. These are just a few examples of the new printers and applications that we're excited about for the coming year, and we'll update you regularly on our progress. However, in order to maintain support for innovation at this pace, we recognize the additional actions we must take to improve overall profitability. Now turning to slide nine. Last evening, we announced cost reduction and restructuring actions targeted at over $50 million of annual life savings through actions we will take through the middle of 2026. These actions are designed to improve our gross margins through a reduction in cost of goods sold and to reduce operating expenses. These actions will expand upon the benefits from previous actions that we described earlier and will lead to significant improvements in EBITDA performance and cash flow throughout the year. To support this objective, we've created a dedicated transformation office, the leader of which reports directly to me and is responsible for managing the large number of actions that are underway, tracking their completion and effectiveness, and ensuring a clear tie-out to our financial results. In the first quarter, we've already executed four site closures and a global headcount reduction, among other items, which will result in approximately $5 million in annualized savings tied to our plan. From a cash perspective, in addition to the cash on our balance sheet, which totaled over $170 million at the end of last year, we announced the divestiture of our GeoMagic software platform for $123 million. This transaction is expected to close shortly, having now received all of the necessary regulatory approvals over recent days. Given our strong R&D potential that will fuel organic growth, our priority for cash usage is investment in our operational improvements and support to our organic growth initiatives. To be very clear, we have no need for high-risk acquisitions to fuel our growth. With our scale, we simply need to drive ongoing efficiency programs, invest in our technology platforms, and over time expand our sales and service network to ensure we continue to serve our growing customer base. In other words, our priorities are to focus strongly, execute well, and simply run a good business. To give you a little more color on our cost plans, let me offer the following. In real estate, When I arrived at 3D Systems in the summer of 2020, our global footprint stood at roughly 50 locations, 5-0, as a result of a long history of acquisitions with little consolidation. Between the actions we've taken over the last two years and the ones we'll take in the coming months, we'll reduce this number by over 50%, resulting in millions of dollars in annual life savings. For manufacturing, with our insourcing activities virtually complete, We expect to realize incremental benefits from our sourcing initiatives involving raw materials and other expenses. A leaner footprint and operating model will also yield greater efficiencies for logistics, factory utilization, and inventory control through our lean and six-segment limitations, all of which is expected to contribute to gross margin improvement. Indirect procurement consolidation and overall reduction in vendor spend are expected to yield over $20 million in annual savings. driven by the investments made within our teams to replace contractors and other external support with internal talent. From a timing standpoint, we anticipate these actions will materially ramp in the second and third quarters of this year. Alongside this will be the review of our back office functions, incremental to actions already taken in an effort to streamline cost and efficiency across the organization. With 10% of the $50 million target already implemented in early 2025, we plan to provide regular updates on our progress in the quarters ahead. Now turning to slide 10. I'll ask Jeff to discuss our formal 2025 guidance at the end of this morning's call. Let me start at a high level. Given continued uncertainty in the macroeconomic climate, we're expecting revenues normalized for our planned divestiture of Geomagic in the year-over-year comparisons to range from essentially flat to modest growth. However, with the cost actions I just referenced, we expect a dramatic profitability improvement during 2025, even in a flattish sales environment. This translates to three things. Expansion of gross margins despite the loss of an accretive Geomagic business, which was included in our 2024 results. Year-over-year operating expense improvement in every quarter, with the most significant impacts beginning in the second half of the year. Meaningful adjusted EBITDA improvements in every quarter, culminating with break-even or better EBITDA by the end of the year. We believe these improvements, taken in combination with a significantly enhanced balance sheet following our asset divestiture, place the company on an exceptional footing for meaningful shareholder value creation going forward. And with that, I'll now turn things over to Jeff Creech. Jeff?

Jeff, thank you, and good morning, everyone. I'll begin with our revenue summary on slide 12. For the fourth quarter, we reported consolidated revenues of $111 million, declining 3% from prior year. This was primarily driven by a $9 million decrease associated with a change in accounting estimate, but somewhat offset by strong services revenues across the company and a healthy finish to the year with respect to industrial printers. Within our segments, industrial solutions grew 11% in the fourth quarter with revenues of $71 million, primarily related to strength in printer system sales and services. Revenues for the quarter were up across nearly all major industrial end markets with the most significant contribution from aerospace and defense. Healthcare Solutions reported fourth quarter revenues of $40 million, down 21% from prior year. This includes the $9 million impact from our change in accounting estimate, in addition to softness in printers and year-end inventory management across dental customers with respect to materials. Shifting to the full year on slide 13. We reported consolidated revenues of $440 million, down 10% from the prior year, primarily impacted by broader macro pressure on printer sales. As Jeff mentioned earlier, revenues ended within our full-year guidance range, even when considering the $9 million unexpected headwind related to a change in accounting estimate that was not originally contemplated in our expectations. Revenues for industrial solutions of $250 million declined 9% from prior year. Within their end markets, growth in critical focus areas such as aerospace and defense, energy, and AI infrastructure were offset by weaknesses in most other industrial markets. Healthcare solutions delivered a full year revenue of $190 million and declined by approximately 11%, primarily related to printer sales, and our change in accounting estimate, but were partially offset by double-digit growth in dental materials. In addition, full-year revenues for our personalized healthcare business grew nearly 12% from prior year, which represents yet another full year of impressive double-digit growth. Now to gross margins on slide 14. Specific to the fourth quarter, non-GAAP gross margin was 31.3%, down from 39.8% for the prior year period, primarily driven by our change in accounting estimate. For the full year 24, we reported non-GAAP gross profit margin of 37.4% compared to 40.6% in the prior year. The decline from prior year was primarily driven by our end-of-year change in accounting estimate, an increase in inventory reserves, and lower volumes. Excluding the impact of the referenced accounting change, non-GAAP gross profit margins were 36.3% for Q4 and 38.7% for the full year 24, offering a perspective on our core healthcare and industrial business performance. Turning to slide 15 for operating expense. Non-GAAP operating expense for the fourth quarter was $58.4 million in line with our expectations. representing both sequential and year-over-year improvements. When viewed at their peak in the first quarter of 2024, our most recent quarter represents an $8 million run rate improvement. Operating expenses benefited from our previously announced cost reduction initiatives, and as just mentioned, present a significant opportunity for further reduction in the quarters ahead. On a four-year basis, operating expense was $250 million compared to $246 million in the prior year. The increase was mostly driven by professional services spend and partially offset by our cost initiatives during the year. Turning now to slide 16 to finish up the P&L. For the fourth quarter, adjusted EBITDA of negative $19.1 million declined from the prior year by $5 million. primarily driven by lower revenues and gross margin. For the fourth quarter, we reported fully diluted loss per share of 25 cents compared to $2.25 in the prior year. Non-GAAP loss per share was 19 cents compared to a loss per share of 13 cents. For the full year 2024, adjusted EBITDA of negative 66.4 million declined from the prior year by $40 million driven by headwinds just discussed for revenue, margin, and operating expense. For earnings per share, full year 2024 resulted in a fully diluted loss per share of $1.94 compared to a loss per share of $2.79 for 2023, and non-GAAP loss per share of 62 cents compared to 28 cents for the prior year. Turning now to slide 17 for our balance sheet. We closed the year with $171 million of cash and cash equivalents on our balance sheet compared to $332 million at the end of the prior year. The largest use of cash during the year was $87 million used to repurchase $111 million of debt in March. This repurchase, in combination with the previous repurchase of $135 million in debt in late 23, opportunistically reduced our original November 2026 convertible note maturities outstanding balance by more than 50%. Both transactions were also executed at a highly attractive discount in comparison to the current market value, which is now trading significantly closer to par. As a result of these prudent liability management exercises, upon the expected closing of our geomagic divestiture in the near future, which we expect to bring back approximately $100 million of cash to our balance sheet after taxes, the company will be in an overall net cash positive position. Cash used in operations during the year is roughly $45 million, representing nearly $36 million of improvement when compared to the prior year. Much of this improvement is attributed to a reduction in working capital, with the largest driver being a reduction in inventories to more normalized levels now that our insourcing actions are complete. Looking forward in tandem with broader profitability improvement plans for the new year, we would also expect an overall improvement in cash usage for the company. However, I would point out that the calendarization of this will be most significant in the second half of the year. Finishing on slide 18, assuming no material change in current macroeconomic conditions, and the expected divestiture of the GeoMagic business to occur during Q2 2025, we are providing the following full-year 2025 outlook. Revenue within the range of $420 to $435 million, representing essentially flat to modest growth after excluding GeoMagic revenue in Q2 through Q4 of 2024. We expect revenues to be flattish from prior year for the first quarter, with a modest increase in the second and third quarters, resulting in the most significant growth in the fourth quarter, as more of our recent innovations in the market ramp up over time. Additionally, I would also note that our dental orthodontics business was particularly strong in 2024. While our long-term purchase commitment provides for a strong foundation for share leadership, we also acknowledge that year-over-year inventory management of consumables by our customer may create short-term volatility. Non-GAAP gross profit margin within the range of 37% to 39% and non-GAAP operating expense with the range of $200 to $220 million, both of which will have a significant contribution from this morning's cost reduction plans, but will also be expected to benefit further in 2026 as the remainder of our planned actions are concluded. Finally, as a result of these items, we would expect an improvement to adjusted EBITDA in every single quarter of 2025, and the degree of annual improvement should continue to grow throughout the year with the expectation that we will achieve break-even or better adjusted EBITDA by the fourth quarter. We thank you for your time and continued support of 3D Systems, and we'll now open the line for questions. Operator?

Thank you, and I'll 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 Jim Rusciutti from Needham & Company. Your line is now live.

Hi, thanks. Good morning. Question just on the industrial vertical, the improvement that you saw in revenue. Sounds like it was more on the system side. You alluded to the strength in the aerospace and defense market being one of the drivers. Just wondering what you can say about that vertical improvement. in Q1? I know it's a seasonally weaker quarter, but maybe just some color on a year-over-year basis, how we should think about that.

Yeah, good morning, Jim. Thanks for the question. You know, Jim, it was really encouraging in Q4 to see the uptick in new printer sales in the industrial market, and as I believe we mentioned, it was driven by those high-reliability markets, you know, rocketry, space, satellites. A little bit of automotive, especially some of the more luxury automotive. And I would expect, again, Q1 is normally a little bit weaker. But I think the big overhang, Jim, is just the tariff situation. And our customers clearly are struggling to figure out where they should be spending their CapEx. Their demand profile is growing. They see more customer demand out there right now, even in an uncertain market. The question is, if you're, for example, automotive is probably the best example. If you're a big automotive company, you've got factories all over the world. Where do you put your new capacity? Where do you put it? When they put that capacity in, I think 3D printing will play a nice role. And so certainly industries that are completely contained within the United States, whether it's big growth, like we love rocketry, we love satellites, defense and aerospace, that's good, because it's within the country. Those guys have more stable plans, if you will. It's the multi-continent global players that are just hesitant to spend a lot of CapEx. So if you add all that up, Jim, I think we'll probably follow a more normal seasonality pattern this year is my best guess, quarter to quarter. But as we said in our guidance, I think it'll be everything else being equal. I see no reason why it just wouldn't be a flattish to slightly positive year. I think overall capacity utilization is up, so they're going to need some more printers. And their plans include for capacity include 3D printing, which is terrific. We just want to see that CapEx unleashed. They all have strong balance sheets. I say all, virtually all of the majors have strong balance sheets and are ready to invest. The question is, where do they invest for growth? I mean, clearly, with most of our operations and focus being the United States, the more they bring that into the U.S. and expand here, the better it is for us. You know, we have a better, you know, cost position. Obviously, it's U.S.-based technology. We design and manufacture here. With our insourcing complete, that's really magnified, so we're in a position to benefit from that. But I think it's just such a darn volatile environment right now that they're struggling to know where to spend money. So I net that out, Jim, to say it's probably going to follow a normal seasonality pattern this year, and the overall trend is going to be flat to slightly up. And I could be right. I hope I'm wrong and that this capacity utilization leads to a higher capex spend. I hope I'm wrong in that direction. but that's why we're really making sure we focus on our cost and execution plan, and we'll let the macro work its way through.

Got it. Thanks for that, Jeff. Just a quick question just on dental. Is it fair to say the bulk of dental in 25 continues to be more on the aligner side of the business? I guess what I'm trying to get to is, The other three segments, which certainly look attractive from a growth standpoint longer term, do you see meaningful revenues for that more toward 26?

Yeah, realistically, Jim, I think it'll be a 26 ramp up, but a lot of the investments will start being made here in 25. And especially, I think the denture, it's all flipping to, certainly it's all flipping to digital. A lot of the new capacity is flipping to actually 3D printing. As I mentioned, I think we're well positioned for that. In terms of sequencing, aligners has already gone there, clearly. The indirect printing method for aligners has been focused on 3D printing for years now, and we're a very big player there. The direct printing of aligners is probably going to ramp over the next couple of years. It's probably two years out. The night guard production is nearer term. as is the denture production. And dentures, you know, by far, it's three to four times the size of the other markets individually, and I'm super excited about that. I think once you see momentum building there, a lot of the new spend will be in that area for printers and then consumables as they ramp up, which is why it's right at the front of our parade right now. So some of it, I guess, to be clear, Jim, Some of it will hit in 25. I think the bigger impact, obviously, will be in 26 and beyond.

Got it. Thank you. Thank you. Next question is coming from Troy Jensen from Cancer Fish Show. Your line is now live.

Hey, gentlemen. Good morning. Thanks for taking my questions. Jeff, maybe to start with you, I'd love to get an update on the cost cut side of it. And I always think about bioprinting. I think about system on a chip. I think about segments for you guys that aren't generating revenues, but I know they're you know, huge growth opportunities. So can you just talk about where you are now in the spending for those kind of categories and if that's part of the focus of all of the cost cuts?

Yep. No, you got it. That's a very thoughtful question, and good morning. I hope the weather's improving in Minneapolis.

It is.

Thank you. So very thoughtful question. You know, if I go back, if I put it in a historical context, We had developed so much new technology in bioprinting over the last several years, but certainly about two years ago, it really started becoming clear we had something novel there. So we went through a heavy exploration phase the last couple of years through organs on a chip and the printing of human tissue for wound repair and breast reconstruction for mastectomies. We did a lot of exploratory work to see what the potential is for that technology. And what we were able to do, Troy, is kind of put timelines on it. It's all really interesting, and I'm sure it will all come to pass at some point in the future. The question becomes for a company our size, how long can we carry that development? How far should we carry it? We have a good IP position. We have done a lot of pioneering work there. The question then becomes, in a down market like we have right now, in a macro sense, last year, so how long can we carry the R&D spend for that? And so the natural thing is we look for, okay, how do we focus it? What should we be doing versus others? Should we bring in partners in that area? Or should we just pause in some of the areas and let time go on until the rest of the market comes back? So if you add all that up, Troy, what I would say is we are looking really hard at how much we spend on bioprinting right now outside of the human lung. The human lawn clearly is an enormous activity for us. It's supported with this partnership we have at United Therapeutics. It's magnificent. And it spins off a lot of technology that we can use in these other areas. We realistically, Troy, we will slow some of them down. Some we may halt for a while and put on the shelf. And in other cases, we may look for partners to pick them up that are better positioned to, number one, support the R&D, but also take the product to market. We always knew we'd need some partners to go to market with that, so we may just accelerate that. You can put all that in the heavy focusing area, make sure we get cost out of that, because some of the longer term activities we're just going to have to slow down and curtail.

All right, perfect. Now maybe a question for Jeff Creech here. Can you just talk a little bit about Q1 seasonality? I mean, we're kind of deep into the quarter here, so I'm pretty sure you've got good visibility. But couple that with, I'm assuming you're going to get one quarter of GeoMagic sales, and then Geo probably falls off in Q2. So just kind of help us with the first half, kind of revenue thoughts.

Sure. And good morning. You've got it exactly right, Troy. So what our modeling indicates and, frankly, what our actions indicate will result in is that after the first quarter of this year, revenues associated with GeoMagic fall off. Our expectations for the year, which I just mentioned a few minutes ago, contemplate that fact, right? And so what we'll see as we move through the balance of the year is a revenue number that of course excludes those GeoMagic revenues and really provides what you might describe as more of a core look at our business for industrial and healthcare. All of these comparisons have been essentially taken out of our forecast so that we're going to be able to present to the street and to all of you guys going forward a picture that essentially excludes Geomagic, both from the numbers and from the conversation.

Okay, so the 420 to 435 is just kind of all organic, Geo, but you may get some revenues here in q1 from that so all right And I just just a quick comment gross margins at that. I was impressed I guess I thought it was going to be worse Giving your cell on the Geo business because if I remember last year I think you guys guided for 38 to 40 percent gross margins Now you're taking out a software component, so is that just all cost cuts that have driven You know kind of almost stability and gross margins despite the exclusion of that Geo

Yeah, it's a bit of cost cuts, Troy, and it's much more the efficiency gains from the insourcing activity. So you're starting to see that show up now in our gross margins, even at these reduced volumes. We've got an excellent geographic position down here in South Carolina with a great workforce. They're able to drive productivity. We took responsibility for our supply chain management, all of that, the last couple of years. So we run a better supply chain. We do a more efficient assembly operation in our plants. And I'm thrilled with the prospects. And I think you'll really see that as volumes tick up in the future, but even see a bit of that coming into the year in results, as you pointed out. So I'm really happy with that lift. And most of that is really through that insourcing initiative.

Yeah, awesome. All right, guys. Well, good luck, and I'll see you in Detroit.

Thanks so much. Thank you.

Thank you. Next question is coming from Greg Palm from Craig Holland Capital Group. Your line is now live.

Yeah, good morning. Thanks. It sounds like you were you know, X this accounting change that that impacted the revenue profile at q4. It sounds like you were, you know, maybe pleased with just how the year ended. I'm curious outside of kind of normal seasonality. What is the tone from the customer base as we sit here, you know, almost done with q1? You know, just has it has it changed at all versus kind of what you saw at your end?

So here's the question, Troy. We've been trudging through the desert as an industry the last four to six quarters from a sales standpoint. We hit a bit of an oasis in Q4. It was great. We were able to take a drink of water and say, this feels good. The question is, is it an isolated oasis, or are we land on the other side of the desert here? Customers are really excited. about where 3D printing has come the last couple of years for production environments. And I say that broadly. It's not just for 3D systems. I compliment some of our competitors. I think the industry's gotten costs down and reliability up and throughput up, and the parts you can make are amazing, obviously. So there's a growing backlog of people that are interested in investing in the technology for their plants. the what's holding them back right now greg and i and you know you get a real sense of this here in the new year is you know what's happening in the in the macro environment the the geopolitical situation in in you know is still volatile you know maybe it's called a little bit still volatile the the macro economic environment with tariffs is is still wildly fluctuating and i think you know customers need to think through where they're going to spend their CapEx. How much is here in the States? How much is elsewhere? Because a lot of our customers are global players. They've got plants on every continent, every major continent where they do business, and they've got to decide where they spend their money. So we definitely see a hesitation on their side, saying, do we really need to place the first order this quarter? Can it wait a quarter? Demand is building, so it's good to see that. I feel good about that. Our applications here are very busy. The question is timing. And I wish I could help you more. I really believe everything else being equal. And again, you saw it in the press this morning. The situation is very volatile. But everything else being equal, if it just maintains this level of volatility, maybe ratchets down a little bit, then in the tariff and macroeconomics scene, I think you'll see demand starting to rise. But as it sits right now today, we're saying let's plan for a flattish environment. Let's focus on cost, get cost out of our business, improve gross margins, improve our OPEX position, which we're in a position to do, and then the top line will take care of itself. If we get stronger growth, great. If it's flattish or even if there were some additional headwinds, We're well positioned with our new product pipeline. We can focus on cost now and just get more efficiency in the business. I can't tell you if it's going to be a protracted rebound or not. The volatility still exists out there.

That's helpful. As it relates to the cost cuts that you announced here, what is the expected or potential revenue impact of those, whether it's, I don't know, discontinuing certain initiatives, halting. And I'm just curious, of the 50 million that you talked about, you know, how much of that is permanent? I guess it's a little bit unclear on how much is, you know, you're permanently halting versus some of the stuff you're pausing and might start back up at some point.

Oh, Greg, the vast majority is permanent. And there's Yeah, and I expect very little revenue impact from the cuts we're making. It's really focused on efficiency improvements. And when we layer those in, and it's things like site consolidations, things like that that are permanent changes as we change our footprint and introduce more efficiency initiatives, those are permanent changes. And so I won't say there's zero impact on revenue, but extremely small, very immaterial. It's much more... Again, because we've gotten a lot of new products out and there's a lot based on the funding that we've maintained over the last couple years, a lot coming still, we can really focus now on efficiency and leverage the insourcing, focus on a lot of our back office operations that still need improvements or can benefit from improvements in efficiency through basically through integrating acquisitions that were done years ago. and getting costs out of the business. And I put that in the permanent category, Greg. I don't think many of these things are just volume-driven, and you'll see costs popping back, okay?

Yep, okay. And then lastly, just on cash flow expectations for kind of the year, and then as we look to sort of that bridge from EBITDA break-even, I'm just curious if you've got a specific quarter scenario in mind likely in fiscal 26 when cash flow turns positive based on what you know today?

Greg, I wish I had an ability to predict that really accurately. Clearly, that's our goal. We're driving to be even that positive. Late this year, we want to continue that trend in 26 because some of our cost savings are back in loaded. So, clearly, we expect that to flip positive for the year next year and continue to improve. With that, obviously, comes cash flow. I don't think we have any extraordinary capex spending plans. So, you know, hopefully we'll get into, you know, quickly an operating cash flow positive situation. And then beyond that, a free cash flow positive situation. Will it happen in 26 or beyond is somewhat, you know, demand dependent. and also the timing on some of those cost takeouts we have that we'll do late in the year and in early 26. And those would relate to some of the more complex consolidations and deeper changes in our back office systems, if you will. Those will be back end loaded. And that'll all affect the timing in 26. So I just can't give you an outlook. But I think the trend is certainly very clear. And our goal, I can say very clearly, our goal is to flip to operating cash flow positivity and then free cash flow positivity in 26. That's our goal. Now we'll see how the timing is on the cost takeouts and all of that and what happens to volume, what happens to demand. Those will certainly impact the timing of that. Jeff, is that a fair summary?

Entirely consistent with our expectation, guys. Couldn't have said it better myself. Our expectation, our goal is for 26 positivity and free cash flow as well as operating cash flow, but a lot of it will be dependent on how well we execute our cost takeouts, and as Jeff said previously, on demand. So we've got a very focused perspective on the issue.

Okay. Great. Look forward to seeing you guys a couple weeks in Detroit.

Great. Thanks so much, Greg.

Thank you. Next question is coming from Trevor Saar from William Blair. Your line is now live.

Hey, this is Trevor on for Brian drop this morning. Uh, thanks for taking the question. Just one for me. Um, it was great to see some of the detail you provided in the slide on the dental growth strategy. Um, I, I guess just from a high level, could you help us understand a little bit more, um, both in the U S market, uh, kind of how penetrated you are, uh, specifically on the, on the replace the larger side of that, uh, the dentures market, uh, what the opportunity is here in the near term in 2025. And then also internationally, you know, kind of the larger opportunity set internationally, you know, how you expect to penetrate that market and maybe a timeline if it's near term or if it's over the next couple years.

Yeah, Trevor, all good questions. So in terms of the penetration profile in those different verticals, Clearly aligners are, you know, virtually entirely dependent today on 3D printing, so those are great. The indirect printing of aligners, and we're a big supplier into that market. The direct printing will come along in a couple of years, and I don't, I mean, my personal opinion, I don't believe it'll supplant the indirect method. I think it'll add to it. I think it'll be incremental, and you'll see some upside there on overall market, but that's just Jeff Graves' view of life. I think the direct printing opens up many options for, for more aggressive teeth repositioning. And you'll see that continue to grow versus the traditional wire braces for people. But we'll see how that technology works out. It's still a couple of years out. Indirect print aligners, I think, are here. They're taking off. They're taking off in the US, Europe, and in Asia. And the biggest player in that market's well positioned for it. The others are following suit. So overall, that'll be a growth market. worldwide, the indirect printing of aligners worldwide. In terms of the other market verticals, dentures, I really believe, Trevor, are going to flip pretty fast. Now, will that translate to a lot of revenue in 25? Probably not, because people have to buy machines, get them installed, and prove them out. We've gotten FDA approval in the United States for our denture product, so that's in hand. What is needed in Europe, which nobody has, is the approval for prolonged use in the human body for dentures. It's very similar to the FDA approval process. It just takes longer. Nobody's there yet. We're well on our way, and we would expect approval over the coming year. But the rate at which things are approved in Europe right now for medical devices, which this is, And I'm not talking about the level of approval where you can put them in for 30 minutes or, you know, something. I'm talking about the full approval equivalent to an FDA equivalent 510K. That approval, that takes an extended period of time. When that happens, which will be late this year, I believe, Trevor, to be clear, I think then you'll see Europe following in the footsteps of the U.S., and it'll double that market size. So remember, that $600 million for dentures is what we think 3D printing can address today in the United States, okay? That market's opening up with our FDA approvals, okay? And we launched the printer for that this summer. Europe is, you know, thumb in the air. It's about the same size with the same needs for people that are all, you know, are aging like the United States and The demand is there. Once that European approval is granted, I think that whole market opens up and the market doubles. So you'll see an uptick and you'll see the beginnings of purchases for it this year. You'll see more aggressive purchases and the introduction of production in 26. And then I think Europe will just lag of that nominally 12 months. So you'll see an uptick in investment in 26. You'll see a ramp in revenue in 27. So I think dentures are strongly on that path. When you look at how they're manufactured today, Trevor, by any measure, and I know you guys at William Blair have done a nice job of doing background work in this market, it's archaic. I mean, by modern manufacturing methods, 3D printing brings it right up to the cutting edge of technology. It's fast, it's inexpensive, the turnaround times are magnificent. So I think the patient benefit is clear the demands out there. We just need to get the technology to market. So long-winded way to say I think in the U.S. it'll start happening this year. I'm not over advertising the revenue benefit. It'll trend in the right direction. 26 I think will be a much stronger year for dentures in the United States and I think Europe will be about a year behind that. Night guards are really interesting because night guards in the past have been viewed as a pretty inexpensive protection media for the mouth. with 3D printing, as we've talked about before with you guys, you know, the ability for us to use dual materials, you know, soft around the gums, hard on the surface of the teeth, so the more flexible materials compositions, the ability in the future to even embed instrumentation, to monitor the health of somebody wearing them, has outstanding potential. So I really like the night guard market, and I'm hoping we can add to and even displace some of the technology today, you know, over the next 12 months. It's also interesting that doctors are looking at it more and more for sleep apnea applications. You know, if you're wearing a night guard for teeth protection, can it help with sleep apnea? So I love those dynamics, and I think, again, 3D printing is excellent for that, and broadly, and I think we're well-positioned to capture part of that market. So needless to say, I'm bullish on the market. I love the four pillars that we're going after. and it is a very high priority for this company.

Yeah, that's great. Thanks so much for the detail. I'll pass it on.

Okay. Thanks so much, Trevor. Thanks for spending time with us at Lab Day. It was great to see you.

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

Thanks, Kevin. And just a thanks to the audience for tuning in today, for going with us on our year-end wrap-up. We'll look forward to updating you again in short order here on Q1 and then the following quarters. We'll try to provide color on these end markets that help you understand where 3D printing is going and where our company is headed, as well as updating you on progress on our cost of reduction and efficiency programs. Thank you again for joining us. We'll look forward to talking to you again soon.

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.