Greetings. Welcome to 3D Systems' First Quarter 2025 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the following presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Mick McCloskey, VP, Treasurer, Investor Relations. Thank you. You may begin.

Hello and welcome to 3D Systems' First Quarter 2025 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, including 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 stated, all comparisons in this call will be against our results for the comparable periods of 2024. With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.

Thank you, Mick, and good morning, everyone. As usual, I'll provide some opening comments on our current operating environment, our key initiatives and priorities, and then end with a few highlights of areas I think are important to investors for the future. I'll then hand off to our CFO, Jeff Creech to provide details on the quarter's financial results. And we'll then open up the call for Q&A. So with that, let's move to Slide 5. Let me start by putting the current market dynamics in perspective. Our 3D printing industry broadly is pioneering a new compelling method of manufacturing products that will take its place over time alongside traditional methods such as injection molding of polymers and casting of metals in factories around the world. This trend is exciting and it's unstoppable. These 3D printing technologies bring unique benefits to customers in terms of performance, cost and dramatically shortened lead times. They also provide an effective means of reducing supply chain disruption risks as the world experienced during COVID or even as we are going through now with the tariff landscape shifting dramatically and often on a daily basis. Just look at the last 36 hours. As such each year, 3D printing is earning its way into factories around the world. So, if this trend is so prevalent, the obvious question is why are sales weak? Well, the simple answer is the capital spending by customers across most markets is virtually frozen due in large part to the uncertainty around tariffs. Speaking specifically for our customer base, with the exception of personalized healthcare, defense and AI infrastructure to some extent, virtually all others are waiting to see what the future demand looks like and where they will need new capacity to meet this demand cost effectively. It's that simple.…

Thank you, Jeff, and good morning, everyone. I'll begin with our revenue summary on Slide 10. For the first quarter, we reported consolidated revenues of $95 million declining 8% from prior year as growth in services and hardware systems was offset by a decline in materials. Within our segments, industrial solutions declined 7% with revenues of $53 million with the shortfall driven by material sales. Somewhat offsetting this was growth in printer sales and a continuation of success in aerospace and defense end markets. Healthcare solutions revenues of $41 million decreased 9% from the previous year as growth in services was offset by a decline in materials and essentially flat printer sales. Materials performance was primarily driven by near-term inventory adjustments in the dental orthodontics market. However, customer commentary suggests more resilient patient demand to continue supporting the business. Additionally, as Jeff mentioned earlier, personalized healthcare and parts manufacturing remain integral pieces of our strategy and were up 17% and 18%, respectively. Now to gross margins on Slide 10. For the first quarter, we reported non-GAAP gross profit margin of 35% compared to 40% in the prior year. This decline in period over period margin was primarily driven by lower volumes and unfavorable price and mix. Longer term, we maintain the expectation to drive benefits to our margin profile by way of our announced cost initiatives, focused on footprint consolidation, enhanced factory utilization and inventory management as well as logistics efficiencies. Let's look at Slide 12 for operating expense. Non-GAAP operating expense for the first quarter was $61.6 million, a $5 million improvement from the prior year driven by our cost initiatives. Looking ahead, we expect our cost management programs, inclusive of yesterday's announcement, to continue to drive a meaningful improvement in operating expense going forward. Turning to Slide 13…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question come from the line of Troy Jensen with Cantor Fitzgerald. Please proceed with your questions.

Hey. Good morning, gentlemen. Thanks for taking my questions here. Let me start out with you, Dr. Graves. Just to comment on aligner inventory and the movement to just in time, can you go into that a little bit more and just kind of let us know what you think kind of the current material inventory levels are in numbers of weeks or something?

Yes. I'll take a shot at answering that, Troy, and it's great to hear your voice. So the aligner market continues to be a growth market all-in-all. If you listen to the commentary by the companies that are in that space, it continues to be a growth market. It may have moderated some, but it's still a growth market and moving global. As the dominant companies there have gotten more sophisticated and larger, they've and as their growth rates have slowed, they're just paying a lot more attention these days to inventory and working capital. I think it's a common symptom of a maturing business where they have a more sophisticated infrastructure to manage their inventory quite frankly. So, they can move to, if not a day to day process, they can move to a much more controlled environment. And with factories around the world, the money they tie up in working capital is significant. So, it's a big payoff for them. So, as a supplier to them, what it means is, as they go through that transition, just a lot more volatility and forecast and things to us. So, we have a great relationship with them. We've got a -- we talk to them on a daily or hourly basis about meeting their supply needs. It's clear that they're migrating to a more sophisticated approach to do it and with that they'll be closer in matching supply with demand. In the past, when they were growing really fast, Troy, I think it was just make sure you never you always had materials on supply quite frankly and I'm speaking for them, but the attitude they projected was very much, look, just make sure we have all the inventory we need to make sure we keep all the manufacturing running.…

Number of weeks of inventory, but that's okay. I'll go on to the next one here.

Yes, in terms of inventory numbers, I really can't quote a number for you. But I think it's very well managed right now. I think they work through a lot of their inventory bring down, if you will, or leaning out. So I don't have a number for you, but I think they worked it to where they wanted to be to kind of match their growth trajectory now. So it's just full speed ahead.

Perfect. Very helpful. All right. So then my follow-up question, with all the cost cuts going on, I've known over the past couple of years you've been in some new markets with via acquisitions and acquired new technology. Does it make sense to like maybe completely exit some of these new technology areas that just are nascent with respect to your revenues right now?

Yes, Troy, it's an excellent question to always ask, especially when sales are off. What can you with greater assurance really focus on? Some of the acquisitions that we did of new technology bringing in and integrating, they're clearly winners. I love our extrusion technology with the Titan platform. We're fully integrating that. The Kumovis acquisition for some of the cranial implants, great technology. We can fully integrate those, get cost out and just keep running. Those are great. Some of the stuff that we've moved into in regenerative medicine, I'll be candid with you. Our lung program with United Therapeutics is fantastic. And if I go back three years ago, it spawned some truly novel technology that we really wanted to explore and see what the potential was of it. So, everything from printing other types of human tissue to looking at the pharmaceutical market and tissue printing for those organ on a chip printing basically for testing of drugs. So those were exploratory efforts, largely R&D efforts to see how far we could carry the technology and to lock up some IP for the future, things like that. When sales are soft, you start looking really hard at those R&D investments and say, should I bring them back or even pause them for a while and let the world kind of stabilize. That's very much the mode we're in right now. So, we're picking our priorities. Again, our organ program is fantastic. The partnership with United Therapeutics, the lung work, there'll be, I think, revolutionary things that come out of that in a couple of years. The spin offs of that technology are going to slow down undoubtedly. And then, the other benefit is, we can carry some of that technology into our industrial printers. For example, very…

Yes. Thank you, Jeff, and good luck guys this year.

Thanks.

Thank you. Our next question comes from the line of Greg Palm with Craig Hallum. Please proceed with your questions.

Hey, good morning. Can we just maybe go back to the quarter and spend a couple of minutes? I'm still a little confused because you held your Q4 earnings call on March 27th, so you had just a handful of days left in the quarter. And you guided for flattish revenues at that point, call it $103 million which means you missed by like $9 million. I mean, are you able to break that out? I mean, were you expecting like a $9 million consumable shipment rate at the end of the quarter or what exactly sort of caused the shortfall?

Fair question, Greg. So the two factors and they both relate to either POs or shipments. On the material side, you're right. I mean, we were expecting and your magnitude was off, but I mean, you were right. We were expecting as always, there's end of quarter shipments for materials, particularly in the frankly in the aligner market. There's always plans for shipments at the end. Some of those logistics we don't control and we don't have direct control of. So, some of those we prepare for and in good faith expect, but they can often slip into the new quarter. So, there's a bit of materials part of that. The other and we have no real visibility into that till the last day of the quarter. It's very it's often very backend loaded. On the equipment side is a little bit more interesting answer, probably no less, no more satisfying. But on the equipment side, we're penetrating real production environments now, okay. And especially in metal systems or the big polymer systems where the ASPs are higher, a lot of those deals end up happening, those POs will have the finished goods in stock and ready to go and we're waiting on the PO to be issued. And we saw in Q1 a particular spike in POs that were relooked at, that were -- I wouldn't say all even pushed out. I would say that's where my comments around customers revisiting how they're spending capital. There's a broad, I think, most every company that has industrial exposure, there is a broad relook at where they want to put factories and where they want to put production capacity. So we felt the brunt of that, people saying, hey, with good intention, we had you prepare this, we're not going to…

Are you able to quantify what the consumable or material sales were on a year-over-year basis in Q1?

The material sales in Q1 in total? Is that the question, Greg, or how much slipped down?

The year-over-year revenue decline, yes, I mean.

Yes, it was, I'll be wrong and I'll be a little bit wrong in the end, but it was in the higher single-digits of millions, not percentage, but and correct me, Jeff, if I'm wrong there, but it was in the.

So materials were actually down 23% period over period and we've spoken to that, Jeff did and I did as well in our comments. We did experience a fair amount of material decline in the period over period comparison, which was propped up in the services and printers area. And again this gets back to the comments that Jeff made just a moment ago, right? The predictability of these sales in the markets that are becoming increasingly more unpredictable. So, and again, back to the dental materials area, continued inventory management that caused those numbers to go down.

It's interesting, Greg, and I'll get off this question in a minute. But when you look at the impact of tariffs, it's the bigger impact for us and I think it's this way for a lot of companies is not so much in the purchase components that come out of China or elsewhere. It's in logistics costs, where are you shipping stuff on a transitory basis, where are you warehousing things, stuff like that. So the desire to bring inventories down, it is a little counterintuitive. You would think people would lay in more inventory when there's a risk of tariff ahead. But when you look at the logistics costs and the effect of tariffs when you ship to one warehouse and ship to another geography, it can be really significant. So, when we talk to our customers about, hey, why would you bring your inventories down, certainly, the soft economy can do that. But the unknown risk of tariffs, there's a big ripple effect on logistics costs, which companies are really starting to try to manage. So to minimize that risk, they start bringing inventory levels down. And I think that was a big part of what we saw even in the aligner market. Some of it was just was inventory obviously, it was inventory adjustments. But I think it wasn't all demand related. A lot of it was interim cost related as they ship materials around the world. So, I understand that. We go through the same analysis ourselves and it's really maddening.

Yes, understand. In terms of the path to profitability, I guess, when these current cost savings programs are completed, do you have a breakeven rate in mind? I think you mentioned profitability at current revenue levels. So that implies like $95 million. But is that the case, again, when you're sort of fully completed with the $70 million?

Yes. And it's a rough number, Greg. But we are -- our goal right now is we're driving to be profitable at current revenue levels when you analyze. Now that assumes we get all of our cost takeout finished up and it's all flowing through, but we're just making this macro assessment saying at the current revenue level, we need to be profitable and generate positive cash flow. So let's adjust our cost structure to get there. We've spent a lot of money in the last three years in refreshing our portfolio and insourcing manufacturing. We're in a great position to do it. So let's focus on it and assume the world stays as it is. If they get tariffs figured out and the world turns brighter, there'll be just upside from that. So that's our goal. And we're not laying out a specific date, but we're what I will tell you is our cost actions we're taking right now are aimed to get us there when they're all implemented at the current kind of revenue levels we're seeing. Okay?

Yes. Okay. I will leave it there. Thanks.

Thanks, Greg.

Thank you. Our next question comes from the line of Brian Drab with William Blair. Please proceed with your questions.

Hi. Good morning. Thanks for taking my questions. I wanted to just start by asking, what are the options as you view them as you steer down that debt maturity 18 months from now? Obviously, it's going to be a higher it seems like it's going to be a higher rate environment than you like. I'm just wondering what are the options as you view them?

Well, hey, Brian, it's good to hear your voice. It's -- our current rate is zero. So it's been great debt actually. I mean, we went to market just at the right time a few years ago, so that was great. Unfortunately, that will come to an end and we'll do something. Whatever debt we have remaining, undoubtedly, it will be at a higher interest rate. We're looking at all options, Brian. We'd love to have the cash to just pay it off. If the world looks tough and we want more cash on the balance sheet, we're looking at options to roll the debt forward. So I'd say everything is on the table. We wanted to wait to get the Geomagic sale done and the cash in the bank, which we've done now. So now we're going through a thoughtful process to say, okay, how do we want the balance sheet to look, how much debt do we want to have left. To your point, it's going to have, it's going to carry some interest rate, and how much of it can we just pay off, how much comfort do we have that the world is going to get kind or how much cash we want to have remaining. So those are the variables we are going through and it's we're marching down the path of assessing those options, reviewing them with the Board and we'll make a decision in the very near future about what we do.

Okay. Thanks. And then can you just talk a little bit about the areas where you're going to cut costs with and I'm speaking of the incremental plans to cut costs, and how that could or just the concern is that it could affect your growth and then it kind of relates to my first question because you need a I think these are probably the two biggest questions that you're thinking about.

Yes. That's Brian, I'll tell you that's an absolutely great question, because that's the debate you go through. And we have stubbornly held on to our R&D spend particularly for the last three years. We've been spending 20% of sales and that has been very deliberate and our competitors have all cut back, they've all throttled back and I understand why, because current demand is soft. But I really believe, Brian, on the rebound, these new systems will sell very well. And I also believe, as I said very clearly, I think for a company to be successful, you're going to have to have polymers and metals, both. And you're going to have to have a range of polymer solutions because they're all good for different things. So I love our portfolio. Unfortunately, it is expensive from an R&D standpoint to maintain it all and we had a big hill decline three years ago in refreshing the whole thing and we've done it. I mean, it's not all commercialized yet, but it's all past the point of intense spending for development. And you can never stop, but you can throttle back on the rates and just kind of maintain momentum, kind of like riding a bike up a hill. You got to work real hard till you get near the summit. And then you still got to pedal, but it takes less effort. So you can afford to take some cost out at that point. We're to that point. I'd say the same thing with insource manufacturing. I think it's a strategic advantage for us to be able to make our own products because of the quality control and the mix that customers want. We directly do that now, predominantly here in South Carolina and it's a great asset for…

Thank you.

Anything else Brian? Okay.

Sorry, I did mute because I am outside and it's noisy.

No, no problem.

That was all very helpful. I just think in the modeling it would help us if you could give us any sense for costs. And I don't know if you said this, but costs coming out of SG&A and the incremental plan or cost coming out of cost of goods. And that was a good description of the growth opportunities, but I'm really trying -- and I know it's sensitive to talk about where cuts are going to happen, but I'm concerned, like, are you going to be able to maintain the reseller channel, the marketing, the sales, and everything to drive growth and how do you strike that balance? But we can discuss later too, but any more comments on that would be helpful, but I'll pass it on and just get back to the queue. Thank you.

It's going to be a fairly evenly split between cost of goods and OpEx, Brian. So and the devil is in the details there as you pointed out. So we'll come back to that in the future with you, okay?

Sounds good. Yes. Thank you very much.

Thanks.

Thank you. Our next question has come from the line of Alek Valero with Loop Capital Markets. Please proceed with your questions.

Hey, guys. Thank you for taking my question. This is Alek on for Ananda. So you mentioned AI infrastructure. Can you elaborate what areas you are currently involved in? And can you provide any color on any potential future AI infrastructure areas where you think you can play a meaningful role?

Yes. So there's two areas you can think of for AI infrastructure, well, actually three. One of them is in making chips, okay. So the semiconductor equipment manufacturers, so the folks that make the equipment to print the chips, they're involved in that very expensive machinery and for a very good reason. The precision in making a chip, it has to be extremely high and the machine has to be extremely stable. And so, one of the attributes of it is getting heat out of it and to make sure it's thermally stable, okay, extremely and obviously structurally stable. So we can make basically collections of components that are normally bolted or welded together. We can make them in single printings. We can also make hollow structures that allow heat to be removed very quickly from the platform where the chip is printed on. So, in the end, we can make very stable platforms to print chips on, and with fewer part counts, so you get some cost out, you get higher performance, it's a perfect for 3D Printing. We've been at that for several years to work our way in and now is the time. So I love that business. It's hard to work your way in and we're there on the chip making side. The interesting second area that's opening up right now is as people are building these massive data centers, getting heat out of them is a huge challenge because of the electronics. Getting heat out is an enormous challenge. We can print pure copper or high purity copper with some strengthening agents in order to with exotic shapes to get heat out of the data center more effectively, very simply. So whether it's a GPU or the entire data center, we can get heat out much more effectively. So you'll see copper printing primarily for that as a growth area for us in the future. And then you've got the whole electricity supply question from people like General Electric and others that are having to put in capacity to supply the massive amounts of energy needed by data centers, 3D Printing has a key role to play in those machines, those turbines, whether it's for turbine blades or other infrastructure in the turbine that has to be cooled. 3D Printing has been there for some time and will continue to grow. So there's three areas in AI. Infrastructure, we're very excited about, chips, data centers and energy production.

Really helpful. Just a quick follow-up. Just kind of on a similar note removing the impact of macro, what areas would you identify as being the greatest opportunity for you at the moment?

Well, the most stable areas are the most predictive. It's the best to be in right now. Aerospace and defense is great, okay? And we've historically had a smaller presence there. Metals for us has been instrumental in getting into that business in a bigger way and it will be an investment area for growth for us because we are a US company. We have our full capability here in the States as we want to exercise it for the US Defense Department and others. We also have facilities in Europe for European aerospace business as well up in Belgium. So we have great capability locally to handle sensitive data, to manufacture parts, develop processes and ultimately to sell printers. So aerospace and defense is a big area. Again, AI infrastructure tends to be a very regional business when it comes to data centers and energy production. So I like that area very much. It's good. Oil and gas, clearly, oil and gas needs are going to go on for decades to come. We've made a lot of inroads there. So those industries aren't as affected by tariffs and we like them very much. And then it would -- the same would apply to our polymer systems in those same industries. The more -- the closer you get to the consumer, the more extended you get on supply chains, those are less exciting right now because of the tariff volatility. And we just have to see where people want to put capital. Once they make those decisions, they can be great markets. In the short-term, many customers are pausing or reducing their CapEx spend waiting to see where all this discussion goes in the world. Okay?

That was really helpful. Thank you.

Sure.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Jeff Graves for any closing comments.

I just want to thank you all for participating in the call today and we look forward to updating you once again at the close of the second quarter. Thanks, operator and that will be the end.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.