Good morning and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the results of the Second Quarter 2021. My name is Donna, and I will facilitate the audio portion of today's interactive broadcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time I would like to turn the conference over to A - John Nypaver Junior Vice President, Treasurer, and Investor Relations. Thank you, Sir. Please go ahead.

Thank you, Donna. Good morning and welcome to the 3D Systems conference call. With me on the call are Dr. Jeffrey Graves, our President, and Chief Executive Officer; Jagtar Narula, Executive Vice President and Chief Financial Officer; and Andrew Johnson, Executive Vice President, and Chief Legal Officer. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. For those who have access to the streaming portion of the webcast, please be aware that there may be a few seconds delay and that you will not be able to pose questions via the web. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on the slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in last night's press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2020. Now, I am pleased to turn the call over to Jeff Graves, our CEO. Jeff?

Thanks, John. And good morning, everyone, and thank you for joining our call today. When we reported Second Quarter results last year, our Company and the world at large were increasingly gripped in the COVID crisis. No one could foresee how long and painful this situation would become. We were concerned foremost about the safety of our employees and then meeting the ongoing needs of our customers, particularly in the Healthcare industry, where the focus had rapidly turn to the treatment of the victims of the pandemic. While there were to be many dark days ahead, the resiliency of our employees and of our customers sustained and inspired us to weather the storm. We will forever be grateful to our 3D Systems colleagues and to the multitude of frontline workers who struggled each day to take care of the sick, protect the well, and keep our essential services running. It was in this call that our new 3D Systems leadership team was formed. Coming together quickly to develop plans, not simply to stem the losses, but to position our Company to emerge from the pandemic stronger and more focused than ever. Ready to capture the exciting future we saw ahead for additive manufacturing. Our first essential step was to develop a clear purpose statement, which is to be leaders in enabling additive manufacturing solutions for applications in growing markets that demand high-reliability products. We then executed a four-phase plan to enable this vision; reorganizing the two business units, restructured again efficiencies, divest non-core assets, and invest for future growth. Our results since that time have shown consistent steady progress. First, where the return to growth and profitability by Q4 of last year and then continued momentum this year, which carried us in Q2 well beyond 2019, Second Quarter levels, and…

primarily related to the Delta variant. This has created uncertainty in the ability of some interested parties to travel and attend in-person gatherings. Out of an abundance of caution for the safety of our investors, analysts, and employees, we have decided to postpone our Investor Day event. We plan to reschedule to a later date this fall. and our preference is to continue as an in-person event, depending on the trends of the virus variant, the vaccine rollout, and new guidance from public health officials. We will provide an update as soon as possible and look forward to sharing our long-term growth strategy in more detail with the investment community. With that, I will turn the back -- the call back to Jeff. Jeff?

Thanks, Jagtar. The last 12 months are now behind us and I truly believe the next 12 months can be the best this Company's seen in its history. Financially, we are arguably the strongest Company in the space, which means we're the best positioned to take advantage of the accelerating adoption of Additive Manufacturing. We'll use our Balance sheet to drive growth in our core business, and a key focus on driving recurring revenue streams. We'll be deliberate in searching for strategic investments that will support the core business we built. We will now take your questions. Operator?

Thank you. Ladies and gentlemen, the floor is now open for questions. Our first question is coming from Ananda Baruah of Loop Capital Markets. Please go ahead.

Hi. Good morning, guys. Thanks for taking the question and congrats on the ongoing solid execution. It's -- yes, you're welcome. It's good to see it -- good to see it sort of clicking, continuing to click altogether. I guess just one for me. I guess maybe a couple of parts, but all related. How do you guys see the organic growth profile going forward? And Jagtar, you sort of referenced double-digit and getting to that. But just any context around how you see the organic growth profile going forward, and what the key action items and milestones are to achieving that. And then just as an additional part of that, what could also happen to allow you to exceed that? So that's it for me. Thanks.

So, I'd say Ananda, thanks for that question. That's very thoughtful. I'll comment and I'll leave it for Jagtar if he wants to supplement as well. We adopted a very specific business model a year ago, and that model is really working well for us. We're extremely application-focused in very specific markets, and clearly, Healthcare is tremendous. We've got a lot of expansion capability there and industrial verticals are becoming increasingly attractive across a number of them. There's plenty of room to hunt, and that horizon's expanding every day as businesses reopen and they're reopening, Ananda, with new concerns in paradigms about their supply chain. I think you've been with new concerns in paradigms about their supply chain, I think you'd see this broadly as folks are nervous and you see the rise of the Delta virus now, right? And we have the same conversations as last year. Gosh, where will we make parts? How do we get them in? How do we get them in? This is our customer conversations. Well, Additive Manufacturing can address a great many of those concerns and offer higher performance parts, whether it's for human application or industrial markets. Their willingness to experiment, to try new applications, to come in and work with our applications in the years, their appetite for that is up tremendously. And as the economy reopens on the Industrial side and Healthcare continues to grow, I think -- we see no end in sight for that. I think the adoption of production-scale industrialized Additive Manufacturing is here and it's going to really take root and grow from here. That's a comment I'd say for the entire industry. For us specifically, I think our business model is somewhat unique. We really focus on finding the right customer and exciting market verticals…

Yeah. All good. I appreciate all the insight. Thanks. I'll hop back in the queue.

Thanks

Thank you. Our next question is coming from Sarkis Sherbetchyan of B. Riley FBR, please go ahead.

Hey, good morning, and thank you for taking my question here.

Morning.

The first question just really revolves around the revenue from divestitures that are called out for both Fiscal '19 and '20 on the bottom of the release. I think some total -- let's call it a range of $40 to $50 million on the year, but in the prepared comments, I think you mentioned the quarterly run rate of the revenues from divestitures is $25 million, so that adds up to a 100 million. Just wanted to get a sense of the revenues called out in the press release for wherefrom GibbsCAM, Cimatron, and the other revenues that you called out in the Earnings deck. Is that for the businesses pending divestiture in 3Q?

Yes, Sarkis, you've got that exactly right. What's called out in the release is to reconcile to organic growth. Those are only the acquisitions that have already closed -- or sorry, the divestiture has already closed, which GibbsCAM, Cimatron, and a couple of small divestitures that we did last year. Or the end business in China and Australia. And that's the $40 to $50 million that you're referencing of revenue. The 25 million I referenced in my prepared remarks are for the divestitures that we have not yet closed. That's the On-Demand Parts business in the Simbionix business. And we expect that to close midway through the second quarter some point or third quarter, some point.

Okay. So just to use some crude math here, if I simply take the sum total of the 19 as a baseline rate. X divestitures and then remove about a 100 million bucks in top-line, I guess at about $500 million or so. And let's call it performed the top-line. We should grow the business from that point forward and then kind of take your margin range of I think you said 40% to 44% still. And work with that, correct?

Yes. That's absolutely correct. I think I mentioned in my prepared remarks that we would expect to be on the order of $500 million revenue Company post investors profitable. And so I think you've got exactly right.

Okay, great. And just one final one for me. From a Capex perspective, I know you're kind of reinvesting back into some of these interesting drivers for future growth. Any revisions or any kind of outlook you can provide us for capital expenditures this year and next? Thank you.

Yeah. I said, in the past that we expect Capex about 4% to 5% of revenue, I'm still holding to that number. Our Capex some Additive Manufacturing for the reasons I mentioned. Its supply chain has become very risky, and you see that as an ongoing issue for most companies. They are looking for new ways to make parts closer to home with more assurance. And that's so -- beyond COVID, and this was an important quarter for that because we surpassed our 2019 sales number quite substantially. You say, what's driving that? Well, there's a couple of things. Number 1 is I like to think we're executing very well, our model's working with customers coming in with a strong application focus. I think the model is right, and I think their receptivity to adopting additive is really strong. So, so I think we're selling, we're selling into the customer base that's excited about Additive. And I think we've got just the right business model right now to take maximum advantage of that. And you see the net result of that reflected the numbers. I was particularly pleased with the consecutive quarter growth and the comparison to 2019. That 11% growth over '19, I think -- honestly, I think that shows that the model's working, and customers are very receptive to have it right now as it moves into a true production environment.

Okay, great. Thanks. Very helpful. And then on the printer side, just given your broad portfolio, I'm just curious if you could point out any particular areas or lines of strength and even if there are some notable trends in terms of what you're seeing across metals versus plastics.

Yes. It's very -- that's another good question. I've been particularly pleased, I would tell you, on the side of the metal. Metals are really doing quite well in terms of customer interest, volume growth. Both our 350 units now are 500 units.

As Jagtar mentioned we had 3 sales on our Factory 500, which is our largest flagship metal product now, and the 350 is doing very well. We're really pleased on the metal side and it is --customers that have shown interest and are now going as the applications are demonstrated now -- they're going firmly in this direction where they say; Okay, I've made a variety of parts now that really bring me performance benefits. I understand the workflow and the cost impact. I'm in. And they are placing orders for those machines. But also excitingly on the polymer side, the better we do on developing materials, especially in the photopolymer area from a performance, a toughness perspective, and surface finish, The -- and the better we can use our software to densely pack printing chambers, the more these polymer systems are in demand. And I am extremely excited also about our polymeric work, it's, it's really good. The work on SLA and DLP, with these new photopolymers. But a lot of the magic there is in having the material and then integrating it with the process. So the printer itself is important. But I cannot understate the importance of the print process in conjunction with the material. Getting that combination right is extremely valuable to our customers. And then obviously the photopolymer area has been instrumental in helping us in our regenerative medicine efforts as well. So having that core expertise is very beneficial there. And again, we will hear more about that in the years to follow.

All right, thanks so much.

Thanks, Rob.

Thank you, your next question is coming from Paul Chung of JP Morgan. Please go ahead.

Morning, Paul.

Morning. Thanks for taking my questions. So on the topline, can you give us a sense of materials versus systems mix? You mentioned higher growth in materials in the quarter in healthcare. So should we start to see materials kind of accelerate over the next couple of quarters and some upward contribution on overall margins as you've seen, some nice momentum on-system sales over the past three quarters?

Yeah, Paul, so I think you articulate our strategy a little bit. Material sales, I think we've got a disclosure in the Q we're mentioned recurring revenue which we put materials into that bucket. So material sales, as I think roughly about 1/3 of our revenue in the quarter. It is high margin revenue for us, so one of our stated strategies is to continue of printers, drives future materials revenue and that future material revenue turns into high margin recurring revenue. I think you've captured nicely how we think about the business. Okay. And then on the OpEx side, really translate into driving development. And the reason I put that in there is that the development of that Pro-Black came out of a discussion we were having with Toyota and to meet their needs and the way the least their Company pioneers a lot of technology is through the racing teams. So we launched that material where the racing team developed and launched it with them with an eye toward expanding it into their automotive business. And so we were able to do that and they needed larger format parts. So we've changed our development program to move it over to the SLA platform. So I thought it was a nice example to use. I would tell you I wouldn't read too much into that one single material. It's a great material, but we're launching we have, we have a host of materials, polymer materials, photopolymers, that are under development, Troy. It is a really important part of the business than that's why we're we're putting a new building here in Rock Hill. We're expanding our development laboratories. And we've got new production capacity coming off for materials because, particularly in the photopolymer area, having material for a customer is absolutely instrumental. The best printer in the world without the right material, as you know, this fails. And you've -- so you've got to have those in. Our best success is when we can tie it directly to a customer application and drive our development off of that application. As long as the market is big enough out there to sustain growth. So that's said, as long as the market is big enough out there to sustain growth. So that's the model we've adopted and it's really resonated well with the workforce and with our customers. And so don't read too much into the Pro-Black example in terms of dollars, but it should serve as an example of how we're really driving our development efforts.

Okay, that's fair. And these rig Ag-Tech, could you just size up the software to just curious to know how big that is within the systems or product revenues?

Software is right now subbed $10 million per quarter for us, between $5-10 million per quarter.

Do you have mainly just 3D Expert?

Yes. 3D Expert, Geomagic, 6 3D Print.

Okay. Perfect. Anything interesting guys? Go ahead.

just to supplement what Jagtar said on software. Some of the most positive feedback in the last 12 months has been around the software platforms, so we're looking to expand our use by customers. They are wonderful tools. I don't know that we've been aggressive enough about getting out and explaining to new customers how really effective they are. You will see an increased focus from us on software. It's a vital part of the ecosystem. And it's one that I think we've got a really good foundation in that we just need to grow from.

Great. Well congrats again, gentlemen, and look forward to seeing it in a few weeks.

Yes, we will. Troy. Thanks so much.

Ladies and gentlemen, we would like to apologize for the technical difficulties experienced by participants on today's webcast. A complete archive will be available later this morning using the same link. At this time, I would like to turn the floor back over to Mr. Graves for closing comments.

So thank you for joining the call today and for your continued support of 3D Systems. A replay of this webcast will be available on our Investor Relations page, where you can see the supplemental charts they go through it, they appreciate the time and the interest in the Company and we'll look forward to talking to you again next quarter.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and have a wonderful day.