Greetings, and welcome to the 3D Systems Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Monica Gould, Vice President, Investor Relations. Please go ahead, Monica.

Hello, and welcome to 3D Systems Fourth Quarter and Full Year 2025 Earnings Conference Call. With me on today's call are Dr. Jeffrey Graves, President and CEO; and Phyllis Nordstrom, Interim 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 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, Monica, and good morning, everyone. Having executed well on both our 2025 savings initiatives and new product launches, I'm pleased to report a stronger finish to 2025 with momentum continuing to build as we move into '26. I'll start today by reviewing a few highlights from our fourth quarter and provide some comments on overall market conditions as we enter the new year. I'll then focus very specifically on our strategy and key growth initiatives, the early stages of which you can see reflected even now in our operating trends. After this, I'll turn things over to our Interim CFO, Phyllis Nordstrom, to provide details on the quarter's financials. When Phyllis concludes, we'll open the call for Q&A. So let's turn to Slide 5. Despite global economic and geopolitical challenges that have translated to restraint in CapEx spending by our customers for some time now, we've been able to balance the need for significant cost reduction with the requirement for continuity in key R&D programs that are essential to long-term growth and value creation for our customers and shareholders alike. I'm extremely proud of our employees and their ability to execute this balance day-to-day over the last two years, and I'm pleased to see the results of their hard work and creativity now entering the market. These efforts are allowing us to refresh our installed base of printers, which is the largest and most diverse in the world and launch exciting new products and applications that provide extraordinary value to our customers. Importantly, during a period in our industry where cost savings are imperative, we've reduced overall operating costs while selectively doubling down on those industries where additive manufacturing is poised to reshape the market and where we have a unique competitive advantage. I'll provide specific details on…

Thank you, Jeff, and good morning, everyone. Before I begin reviewing our fourth quarter results, I'd like to remind you that we completed the divestiture of our Geomagic software business on April 1, 2025. Throughout today's call, I will reference both reported results and adjustment comparisons that exclude Geomagic to provide a clear apples-to-apples comparison of our performance across periods. Additionally, in the fourth quarter of 2024, we recorded a onetime regenerative medicine accounting adjustment that reduced revenue by $8.7 million due to a change in estimate. I will reference this accounting adjustment when discussing certain prior year comparisons. I would like to start off by highlighting a few of our key accomplishments in 2025. We have been strongly focused on driving expense reductions while also supporting new product launches, strengthening our balance sheet by reducing debt and improving operational excellence and cost discipline. These actions have enhanced the strength of our core business while allowing us to invest in new growth opportunities that are now beginning to deliver results. I will begin with revenue for the quarter, turning to Slide 15. Fourth quarter consolidated revenue was $106.3 million, an increase of 3% year-over-year, adjusting for Geomagic. When further adjusting for the regenerative medicine adjustment impacting prior year quarter, consolidated revenue declined 5%. The year-over-year decrease was primarily driven by softness in industrial printer and materials demand, which was partially offset by double-digit growth across our priority markets, including both PHS and aerospace and defense. Now to Slide 16. As we manage revenue headwinds in the first three quarters of the year, we saw solid strengthening in the fourth quarter, reflecting not only normal seasonality, but also what we believe to be a return to growth as we exit 2025 and begin 2026. We believe the sequential improvement is driven…

[Operator Instructions] Our first question is coming from Jim Ricchiuti from Needham & Company.

Phyllis, I may have missed it, I apologize, but did you give any color as to how we should be thinking about operating expense in the seasonally weaker Q1 just versus Q4?

Yes. I think operating expenses, remember, Q1 is seasonably more -- higher for us in terms of spend. So when you look for 2026, I'd say look for slight increases in Q1 and Q2 with a pretty steep drop off as we get into Q3 and Q4 to normalize a little bit less year-over-year than what we had in 2025.

I appreciate that. And just how much of that industrial business is currently being derived from A&D? And Jeff, you highlighted several drivers in that A&D business. How balanced are these revenue streams in A&D? Or is it more concentrated in any one area?

So on your last question there, Jim, it's pretty diverse, the four areas I outlined, and I know they're still very broad areas, so I try to give some more concrete examples. But those four areas are all strong. And A&D is such a broad area, you could find other areas to focus on, too. For us, the four areas I mentioned are -- we know we have a good technology base. We have a good runway in and we're doing well in. So I really like the naval applications, doing very well, printing these more exotic materials that are resistant to seawater is great. Some of the lightweight structures for rockets and planes, terrific stuff, titanium, the more exotic aluminum alloys, things like that, that are required for those are super. The propulsion systems themselves for rockets, particularly interesting and then also aero propulsion for engines. So those are all really exciting areas. In terms of total revenue, I don't -- have we broken that out?

We have not. But it is one of our top industrial segments. It's on track to be our largest industrial segment or market within the 2026 fiscal year. So it continues to produce sizable and meaningful revenue, both on the top and bottom line for Industrial. Its growth is about 16% year-over-year from '24 to '25 with really heavy sales coming from both printers and parts in 2025 as well.

And Jim, certainly, the added capacity we're putting in, in Littleton right now should be done by early summer, and we'll be phasing that in the second half of the year. But it reflects the growing demand we see from -- broadly from DoD-driven applications working really with their Tier 1 suppliers to those defense systems.

Our next question today is coming from Greg Palm from Craig-Hallum.

Going back to Q4, just a couple of questions on the results in terms of the upside on revenue, I guess, what outperformed relative to expectations back in, I guess, November? And on gross margin specifically, can you just maybe unpack that a little bit more? I think it was negative mix, but that was down sequentially on much higher revenue. So maybe just a little bit more color there.

Sure. So just looking at Q4, I think we over-indexed really in aerospace and defense, the mix for aerospace and defense, both on the margin side, but then a little bit of upside on the top line revenue was strong. PHS and our aligner materials were strong for the quarter. We also had an upswing in our Healthcare parts for the quarter as well, which helped contribute to the excess revenue that we anticipated when we first set guidance. So I think we were pretty spot on. On the margin side, we heavily were weighted towards printers in Q4. We had several new printer launches in the back half of the year. Printers just carry a lower margin. So I wasn't too surprised in seeing that. But the overall just decline in revenue year-over-year holistically was what we'll address next year as we start to look at margin pull-through from some of the new printer launches and just the increase in volume overall for the year.

Okay. And just thinking about Q1 specifically, I just want to make sure I'm understanding this right. So you're guiding revenue down quite a bit sequentially. You're guiding OpEx up a little bit and improved EBITDA. This is all sequentially. So that implies, I mean, a massive boost in gross margin from Q4 to Q1. I just want to make sure that's what the guide implies.

So I'll correct one item. We are pretty consistent with the prior year if you exclude Geomagic. So Geomagic had high revenue in Q1 of 2025. That was the last quarter in which we had Geomagic. So we've replaced that revenue with other sources for Q1 of 2026, and we had very strong operational expense savings that are going to be coming through Q1 as well. So while I said it's a seasonally higher spending, our overall reductions are going to see meaningful results as we report results for Q1. On the margin side, I think we're doing things to protect the margin in terms of just additional cost savings activities as well as anticipated better pricing in Q1. So both of those things, I think, should help to the overall adjusted EBITDA improvement you're seeing.

Okay. But I guess I'm looking from Q4 to Q1, and I just want to make sure -- based on what you've said, it implies gross margin is going to improve, I mean, meaningfully quarter-over-quarter. I just want to make sure that's what the guide implies.

Yes. Again, I'd say you have to look at it. We certainly are anticipating gross margin improvement in Q1, but we're also anticipating continued execution of our operational cost reductions in the quarter. The mix of both of those will drive the adjusted EBITDA improvement. So we didn't give specific guidance on those two is, again, product mix as we close out the quarter will really sort of align on that. But overall, we anticipate gross margin improvement for sure.

Okay. Okay. And then just cognizant of the fact that you're only giving one quarter guidance at this point, I mean, if we just think about some of the segment, A&D, you've talked about 20% growth this year. Personalized Health, that's growing strongly. It seems like dental is improving. You're still guiding to Q1 revenue declines on a year-over-year basis, just modestly at the midpoint. I mean is that just a weak spot for the year? I'm just trying to sort of reconcile a lot of these sort of growth areas to the Q1 guide, which still suggests a revenue decline on a year-over-year basis.

Yes, Greg, it gets very hard to call the actual inflection point. So we're just trying to -- I love the direction that it's going. It feels good after a couple of tough years. Things are moving in the right direction. We're just trying not to get too far ahead of ourselves. So yes, it's -- there's no particular weakness or something that we expect in Q1 to swamp results or anything. It's continuing the trend. So A&D should grow consistently. The rest of industrial is always a wildcard to be frank with you. It's much more dependent upon how people feel about the world. And as you know, it's a bit crazy out there right now. Oil is way up and stuff. So when it comes to discretionary spending on the part of consumers, that's always a concern for me when it comes to our more consumer-oriented business. With that said, it looked really good in Q4. It looks like it's coming back. We're launching some great new products there. It's just a more volatile -- the consumer stuff is a bit more volatile. So I love A&D. I've got high confidence there. We're going to continue the trend. Healthcare, very stable because most of that stuff is not optional with the exception of aligners. Some people put off aligner purchases when things get harder. But our increased exposure to dentures is a good thing. That's going to continue throughout the year to grow. And certainly, PHS is a very good thing because a lot of those procedures are really not optional procedures for orthopedics. So we're just trying -- we're reintroducing some guidance. We're trying to be -- we're trying to be prudent about it. I'm not going to say it's conservative, just trying to be prudent about how far out over our skis we get in terms of the future.

Our next question is coming from Kieran McCabe from Cantor Fitzgerald.

It's Kieran on for Troy. I just had a couple of questions. I guess the first is you had, in the past, a lot of R&D spend to refresh the product line and bring out a lot of new products that are now showing up in the results, especially in this quarter. Given kind of your focus areas of A&D and personal care product -- the personal health care area, sort of what's your -- and retaining some investments kind of based upon 4Q R&D, kind of what's your outlook for R&D going forward?

It's in the OpEx number, Kieran. We don't really break it out. We've been able -- so we had very strong spending. If you look at R&D spending, we had very strong spending for about three years to refresh our product lines. And what you're seeing now enter the market is reflective of that investment. And it was a difficult time with sales being off to maintain that continuity, but it was critically important to us because when these markets turn, you've got to have a fresh portfolio ready to go, and we do. So we've been able to throttle back on R&D spending to some extent as we launch those new products because the next platform will be out anywhere from a year to three years, so depending on the market. So you're able to throttle back a little bit on R&D spending. It's kind of a natural cycle a company goes through, and we went through a heavy periods. So heavy period at a difficult time of sales, which is why OpEx was a drag for us. It was certainly reflected in the bottom line financials and our cash position. We invested a lot for the future. I'm really pleased now that we're on the backside of that, that we did it. And it's -- we're well positioned as the markets rebound. It's just the world is a little bit crazy right now still. So we just want to be cautious about sales, make sure we don't get out in front of the market on it, but I feel like we're very well positioned. So R&D spending for us should be -- as a part of OpEx will be coming down to some extent. But also, Kieran, one thing to remember is we have the broadest technology portfolio in the entire industry, okay? We have metals and polymers. And in polymers, we have 5 significant platforms -- that's wonderful from a customer standpoint. We can service that and we can grow. It's a burden from an R&D standpoint. So when you look at our R&D burden, fundamentally, it's heavier than most because of the breadth of our technology. But in a growth environment, it positions you very well to serve the customer. So you -- I feel very good about our position. We are able to throttle back a little bit now because we were doing every refresh in parallel for three years. Now it's coming down to one here and one there, and we can get more in a rhythm of it. So it helps us with our OpEx management here in '26.

But I would say we have not excessively cut R&D. We certainly have pared it back. We have a sizable R&D budget for 2026 that's in the overall OpEx budget. It's rightsized to the current portfolio that we have and the product investment priorities that we have. You'll definitely see that come in. It's still double digits. It's lower double digits than what it has been, but I think fits the product road map and new product launches we have for next year.

And Kieran, a great example of the strength of that approach is when you look at metal parts for aerospace and defense. There's two ways that they're fundamentally made broadly. One is casting where they use our 3D polymer printers for as they know we're part of and one is direct metal printing for the more difficult alloys or the higher-performing components. Both of those are in demand in the aerospace defense market. And in both cases, we have launched new product upgrades over the last 12 months that are fabulous. And that's why we're growing in aerospace and defense. And it's the high value end of the market. That's where you want to be.

And my other question was just on speaking of aerospace and defense, everybody kind of is looking at aerospace and defense as a growth area because geopolitical and kind of the assumption that there'll be increased spending in that area. But even with aerospace and defense, how much of it is really kind of the companies and the government wanting to be more efficient and using additive to maybe change the method of producing the parts. So you may not need a new program, but maybe not be tied to that procurement budget, really kind of saying, well, we have this budget, and we have to be smarter about it and may not expect the growth or politics to get the growth eventually. How much of it is sort of really kind of rethinking and being more efficient and reducing times and things like that and really using to do that...

You touched on a good point, Kieran. So part of the demand in aerospace and defense is for the -- is just new weaponry coming out and new vehicles to deliver that weaponry. So you've got the advent of drones, you've got new generations of naval ships. So part of it is the natural evolution of technology that's drawing in because additive is really good at those things. The other part of it, I'd say there's two pieces. One is cost savings. By moving to -- from an assembly of many pieces to a casting that's a single-piece casting, you can simplify the system and get cost out, out of the manufacturing process now the finished product. That's significant. When you look at -- look at a modern rocket engine compared to three years ago and just look at the, that's available through 3D printed cores and shelves for castings. And then on direct metal applications, you've got the added benefit of a dramatically reduced cycle time for manufacturing and safer supply chains, more localized, more close to home and they can respond much more quickly. The example I put in the opening statements about the reduction for some of these naval components going from 12 to 15 months production time with traditional manufacturing to literally a couple of weeks to produce the same component out of the same materials. So you've got higher performance, you've got cost savings that are coming together in aerospace and defense that's really transforming the industry. So yes, overall volumes are up, demand is up. But you've got some key drivers that are highly sustainable in the kinds of parts we're working on, okay?

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

Thanks, Kevin. So I'd like to thank you all for participating in the call today, and we look forward to updating you on our progress once again after the close of the first quarter. Have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.