3D Systems Corporation Aktie

Greetings, and welcome to the 3D Systems First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Vice President, Investor Relations, Monica Gould.

Hello, and welcome to 3D Systems first quarter 2026 earnings conference call. With me on today's call are Dr. Jeffrey Graves, President and CEO; and Phyllis Nordstrom, Chief Financial 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. 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.

And with that, I'd like to turn the call over to our President and CEO, Dr. Jeffrey Graves, for opening remarks.

Thank you, Monica, and good morning, everyone. Building on the momentum we achieved in the fourth quarter of last year, I'm pleased to report a strong first quarter performance for 2026. I'll start today by reviewing a few highlights from our first quarter and provide some comments on overall market conditions. I'll then provide an update on our business strategy and key growth initiatives. After this, I'll turn things over to our CFO, Phyllis Nordstrom, to summarize the quarter's financials. When Phyllis concludes, we'll open up the call for Q&A.

So let's turn to Slide 5. The additive manufacturing industry is now beginning to emerge from a multiyear trough driven largely by global economic and geopolitical challenges that led customers to severely curtail capital spending. Our company's targeted investments in research and development, which we sustained in the face of intense cost pressures over this period, are now enabling us to introduce a completely refreshed portfolio of new products, spanning from direct metal printing systems to the 5 major polymer printing platforms. No company in our industry can match this range of technologies nor the product performance that these systems can deliver. While it's been a painful period, the results can now begin to be seen in our performance, and there's much more excitement to come.

I want to thank our dedicated employees for their hard work over the last few years in a highly cost-constrained environment. Speaking directly to my colleagues around the world, the success we're now seeing is a direct reflection of your talent and commitment to our company and to our customers.

To drive the highest value from R&D investments, we focus them intensely on our 3 key growth markets, Aerospace & Defense, Med Tech and Dental. These markets in particularly derive enormous value from 3D printing and are all expected to grow significantly in the years ahead. They are also the most challenging markets to penetrate, given the extreme requirements for quality, precision, reproducibility and regulatory oversight. Fortunately, we have a rich history and strong foundation in each of these markets, which provides the critical infrastructure and expertise needed for success.

On Slide 6, our Q1 highlights tell a story. Solid growth in printer sales, increased momentum in parts sales, strong growth in healthcare material sales. These results reflect the impact of our technology and market focus. From a product standpoint, we saw double-digit year-over-year growth in printer and material sales as well as parts manufacturing, particularly in metals. We also saw balanced growth across both of our business units, healthcare and Industrial.

Turning to Slide 7. In Med Tech, we continue to build on our market-leading position. During the first quarter, we saw strong double-digit year-over-year growth in several key areas, including medical parts manufacturing, printer sales and surgical planning services. Medical parts manufacturing demand was driven specifically by titanium spinal implants and both titanium and cobalt chrome joint implants used in replacement procedures.

Printer revenue was led by sales of our DMP 350 metal printer to medical device customers who are now entering a refresh and expansion cycle. This growth was partially offset by lower-than-expected sales to one key customer due to a temporary disruption in their internal operations, which was resolved by the end of the quarter. We're already seeing a recovery in their demand and expect a solid rebound in the second quarter.

We also saw increased requirements for print know-how transfer by a large global health care customer as they prepare to purchase printers and transition to high-volume parts manufacturing, likely to complete in 2027. This example illustrates the 3-phase growth model that we discussed on our Q4 call, namely process development, low to intermediate volume part production and ultimately full system sales.

As highlighted on Slide 8, momentum in Dental is accelerating across the full spectrum of our solutions, which we classify as straighten, repair, replace and protect. We saw strong year-over-year double-digit growth in Dental material sales driven by both an increase in demand for aligners as well as in prosthetic materials for tooth repair, which we sell under our Vertex brand.

Our Vertex Dental materials have been a mainstay in Europe for many years, and we were pleased to gain U.S. regulatory approval late last year following a protracted trademark negotiation. This doubled the size of the market for Vertex and is now beginning to be reflected in our dental revenue performance.

Now turning to Slide 9. As you know, we've been very excited about our new product launch in the denture market. 2 quarters into the sale of these marvelous platforms, I can tell you that the reception by our dental lab customers and dentists alike has been terrific. As an example, yesterday, we announced a major commercial milestone reflecting the enthusiasm of our denture technology is generating.

In this case, ROE Dental Laboratory, one of the nation's premier full-service digital dental labs, became the first major U.S. dental lab to deploy an extensive fleet of our NextDent 300 Jetted Denture printing systems across their multiple sites Following our U.S. launch in the fall of 2025, ROE has expanded their purchases, effectively tripling their manufacturing capacity for high-precision multi-material monolithic dentures.

As BJ Kowalski, CEO of ROE Dental Labs said, the NextDent 300 has exceeded our expectations in production efficiency, dentist acceptance and patient satisfaction. Adding more systems at this early stage allows us to triple output while maintaining the highest standards of quality and consistency.

From a market standpoint, following our U.S. regulatory approval last year, we recently received the equivalent EU Phase IIa approval for our denture printing solution, 2 months ahead of schedule. With both U.S. and EU regulatory approvals now in place, we've significantly expanded our addressable market to more than 60 million edentulous patients, roughly 1/3 of the global market. This represents a multibillion-dollar opportunity as Dental Labs around the world transition from traditional labor-intensive methods to scalable high-margin digital workflows. We expect to announce regulatory approvals in additional countries as they are gained throughout the year.

Looking ahead for our denture platform, we've built a solid order backlog moving into our second quarter and are raising our internal production targets for the second half of the year. The NextDent 300 has been the most successful new product launch since my arrival at 3D Systems 5 years ago, with very few installation issues, rapid integration in lab workflows and acceptance by dentists often upon initial exposure to the product.

From a patient standpoint, these printed dentures look wonderful, fit perfectly and can be worn with confidence due to their toughness and wear resistance, a winning equation for the lab, the dentist and the patient. I fully expect our portfolio of dental solutions to be a major contributor to our revenue and profitability for many years to come.

Moving to Slide 10. Before shifting our focus to Aerospace & Defense markets in detail, I want to first make clear the way in which 3D printing is used for these critical applications. What many investors do not appreciate is that our company is unique in offering 2 complementary approaches to the manufacture of high-reliability metal components, both of which are seeing a rapid rise in demand.

The first is direct metal printing, often called DMP for short of components, which uses high-powered lasers to directly center metal powder under a tightly controlled environment to form fully dense parts. In this process, it's essential that there is no binder or other contaminant in the system as these will degrade the performance of the part. This is the way the very highest performing metal parts are manufactured and it will remain so. Those that do not have this technology will simply not be able to participate in this high-value portion of the market.

The second path for making metal parts is through the use of high-precision SLA printed patterns for investment casting of specialty metals. This approach gives customers the flexibility on part size, material and design at a cost and performance level that's virtually impossible to achieve with any other approach. Many complex aerospace systems such as those used in rocket and aircraft propulsion systems increasingly make use of both methods for the manufacture of critical flight components. Without them, we could not be routinely discussing space exploration, hypersonic flight or many other advanced systems that are an integral part of our country's future.

For the last several years, we've targeted leadership in both of these metal technologies, the culmination of which has been our DMP 350 triple laser system and the SLA 825 polymer platform that we've released over the last several months. And that are rapidly gaining traction with key customers around the world.

As you can see on Slide 11, our metal printer portfolio now includes the DMP Flex 200, the DMP 350 Triple, the DMP 500 and our next-generation large-format metal printer system, the development of which has been supported in large part by the U.S. government. This $28 million development program is designed to ensure leadership for U.S. in metal printing for the future. These systems deliver significant performance benefits and lay the foundation for further expansion in capacity, productivity and material flexibility as the 3D printed metal market continues to expand.

And finally, turning to Slide 12. Aerospace & Defense, which we discussed extensively in our last earnings call, remains the largest and one of the fastest-growing segments within our Industrial Solutions business. Examples of the projects driving growth include titanium antenna brackets for satellite systems that are 25% lighter and can be produced in half the time compared with traditional methods as well as the mass production of turbine blades for jet engines and industrial turbines that improve performance and efficiencies in both flight systems and ground-based energy applications.

Given our unmatched breadth of defense-focused printing technology, we continue to expect over 20% growth in our Aero & Defense markets this year, equating to approximately $35 million in revenue in 2026. This growth will be largely driven by space, naval and aero propulsion applications as well as the expanding use of sophisticated flight and weapon systems in unmanned aerial vehicles and precision munitions.

In response to the rapidly growing demand for Aerospace & Defense components, we're investing in a significant expansion to our Littleton, Colorado facility, adding 80,000 square feet of manufacturing space for the production of metal components. The grand opening of our new facility is on track for late summer, and we're excited about these new growth opportunities that this new facility opens for our company.

Looking ahead on Slide 13. We have the largest installed base of production printing systems in the industry, a refreshed portfolio on both polymers and metals, new printer systems that are gaining traction with customers and rapidly expanding opportunities in high-growth, high-reliability markets. Acceptance of additive manufacturing is accelerating, and we're well positioned to capitalize on it. While the world situation never fails to present new challenges, I am more excited than ever about the future of our company.

With that overview, I'll turn to Slide 14 and hand the call over to Phyllis to walk through the financial results for Q1 in detail. Phyllis?

Thank you, Jeff, and good morning, everyone. Before I begin reviewing our first quarter results, I'd like to remind you that we completed the divestiture of the Geomagic, 3DXpert and Oqton legacy software businesses in 2025. Throughout today's call, I will reference comparisons on an adjusted basis, excluding these divestitures to provide a clear apples-to-apples comparison of our performance across periods.

Turning to our results for the first quarter, beginning on Slide 15. First quarter consolidated revenue was $95.5 million, an increase of 11% year-over-year, demonstrating a solid return to revenue growth in the quarter. This meaningful increase was driven across our key growth markets, Med Tech, Dental and Aerospace & Defense, each achieving meaningful double-digit growth in the quarter.

Performance within Aerospace & Defense and Med Tech was supported by higher metal printer sales, along with solid growth across other product categories. In Dental, higher sales were driven by strong material sales within both the aligner and repair markets. In reviewing our core products, printers, materials and parts manufacturing each delivered solid double-digit growth compared to the prior year period.

Moving to Slide 16. Within our segments, Industrial Solutions revenue totaled $45.4 million, an increase of 1.6% year-over-year. Industrial Solutions saw continued strength in our largest end market, Aerospace & Defense, which delivered over 20% year-over-year growth. This was complemented by a return to growth in the automotive and semiconductor markets and partially offset by lower demand in certain regional areas due to the conflict in the Middle East, primarily impacting our jewelry business.

Healthcare Solutions revenue of $50.1 million grew 21% year-over-year, surpassing Industrial Solutions as the larger segment this quarter. Growth was driven by strong performance across both Dental and Med Tech. Healthcare revenue included an increase in both printer and material sales and strong demand in health care parts, particularly for orthopedic medical implants.

Now moving to Slide 17. In the first quarter, non-GAAP gross margin was 36.1%, up 6 percentage points from the prior year period when adjusting for software divestitures. Non-GAAP gross margin performance reflects improved manufacturing absorption from higher production and sales volume in the quarter, along with a favorable consumables mix, improved printer margins and the benefits of our cost reduction initiatives.

Moving to Slide 18. We continue to demonstrate strong cost management discipline as we move into 2026. Two key areas were the primary contributors to our operating expense performance in the first quarter. First, we continue to realize incremental savings from the cost reduction initiatives executed throughout last year. Through the end of the first quarter, we've delivered more than $55 million in annualized cost savings. We expect to complete our defined cost reduction and efficiency programs by the end of the second quarter, marking the conclusion of a 6-quarter focused effort to optimize our cost structure.

Additionally, the company has made significant investments in R&D over the past several years to both refresh our product portfolio and advance our core technologies across both polymers and metals. The elevated R&D investments as a percentage of sales have led to the successful launch of our new jewelry printer, the MJP 300 Plus, our new denture printer and materials with the NextDent 300 and meaningful upgrades to our mid- and large frame DMP metal printer portfolio. As these launches are now substantially complete, we expect to transition to a more balanced level of R&D spending with a focus on targeted enhancements to further advance our portfolio innovation.

Reflecting on these actions, first quarter non-GAAP operating expenses were $36.6 million, down 35% or $20.1 million from the prior year period when adjusting for the software divestitures. On a sequential basis, non-GAAP operating expenses declined 11% or $4.3 million. Looking ahead, we expect operating expenses to remain largely stable through the remainder of the year with normal seasonal fluctuations across quarters.

Now turning to Slide 19 to finalize the P&L. First quarter adjusted EBITDA was positive $2.1 million. This represents an improvement of $26 million year-over-year or $28.2 million when adjusted for divestitures. This increase was driven by higher sales volumes, favorable product mix and the timing of seasonal costs, with the majority of improvement coming from operating expense reductions from cost savings initiatives.

There were several offsetting factors that were reflected in overall adjusted EBITDA performance, including supply chain disruptions related to the conflict impacting the Middle East, an isolated business disruption affecting a key customer that has since been resolved and modest FX and tariff impacts to our bottom line. In aggregate, these headwinds and tailwinds were largely offsetting, resulting in minimal impact to our adjusted EBITDA for the quarter.

Moving to earnings per share. First quarter non-GAAP loss per share was $0.01, an improvement from a loss of $0.21 in the prior year period.

Now turning to Slide 20 for a review of the balance sheet. We ended the quarter with $86.5 million in total cash, including $85.1 million in cash and cash equivalents and $1.4 million in restricted cash. We have $3.9 million of debt coming due in the fourth quarter of 2026, with the remaining $92 million maturing in 2030.

As we move into the second quarter, our focus is on maintaining a disciplined and efficient cost structure while remaining flexible to support strategic investments within the business and key growth markets. This positions us well to capitalize on accelerating growth opportunities ahead.

Lastly, I'll turn to Slide 21 for an update on the company's Q2 outlook. Following a strong first quarter, we expect demand to remain healthy through the balance of the year with customary seasonality in the second quarter. In line with these trends and given our current macroeconomic environment, we are taking a measured approach to our outlook and guiding second quarter revenue to a range of $93 million to $95 million with an adjusted EBITDA loss in the range of $2 million to $4 million.

With the completion of the review of our first quarter financials, I will now turn the call back over to Jeff for closing remarks.

Thank you, Phyllis. In summary, we had a strong first quarter performance across our key growth markets, driven by our leading direct metal printing capabilities across printer sales, parts production and materials. Additionally, we had one of our most successful new product launches with our NextDent Jetted Denture Solution, which is now being rolled out in Europe 2 months ahead of plan. Our manufacturing capacity expansion in Littleton remains on track and will help support the growth of our Aerospace & Defense business.

We expect to build on our top-line growth momentum in key markets over the coming quarters while maintaining strong cost discipline to achieve breakeven adjusted EBITDA or better for the full year. We thank you for your time and continued support of 3D Systems.

We'll now open the line for questions. Operator?

[Operator Instructions] Our first question today is coming from Greg Palm from Craig-Hallum.

Jeff, you -- I don't want to put words in your mouth, but you struck me as at least your tone was a little bit more positive than it has been in recent years. So I'm just kind of curious, as you're sitting there looking at your own portfolio and what you've done and just some of the industry green shoots that are emerging, what kind of strikes you as most important as kind of the lever to reaccelerate the growth profile here?

Yes, Greg. So in terms of tone, you're absolutely correct. It was a bet a few years back that we should hang on to our R&D spend and refresh our portfolio. And it turned out it was a good bet. We refreshed our entire product line, in time for 3D printing to start regaining traction in the market. So I'm really pleased about that.

Now look, it is -- you described it right. It's green shoots. It's early days, but what gives me comfort is it's broad. It's broad across the markets that are really embracing 3D printing. And for us, I think for everyone, Dental is a big driver. It's going custom, it's going 3D printing. Med Tech is really expanding nicely, especially in the orthopedic space. And then you've got Aerospace & Defense, which is really benefits from 3D printing.

So I look at that and say it spans Healthcare and Industrial, primarily on the high reliability markets. 3D printing is really starting to take off. And look, the world is still a scary place. There's a lot of stuff going on, but I feel better than I felt, Greg, in 2 or 3 years, and it's just in time for our new products to be hitting the market. So I like that. We need to see continued traction. I think health care, really much more predictable because a lot of these are non-optional or high-impact procedures that impact the quality of people's lives.

So I wasn't surprised to see that become our largest segment in the quarter. I think it will be neck and neck now with Industrial because of Aerospace & Defense. Aerospace & Defense broadly across many markets in that sector is really, really now understanding the benefits of 3D printing. They can make parts out of very exotic materials that have been difficult to fabricate, very expensive parts to fabricate. They can print them at high efficiency. The technology has gotten to the point where it's not only easy to use, but it's cost effective, and they're really figuring out how to do it.

Now the leaders in that space figured it out a few years back, okay? So you look at like Rocketry, you look at rockets that are going in the space, those guys are heavy users of this now. They were right at the leading edge. Now it's catching on across all of Aerospace & Defense, funded by big budgets as well as that sector expands.

So yes, I feel good about things for the first time in a few years. It is wonderful to see new products hitting the market right at the right moment. And I pray that the world continues to be at least stable, hopefully improve. And with that, in any scenario, our Healthcare business should continue to grow nicely and our industrial business should continue to gain strength. So I feel good about that across the board, Greg.

Okay. And just in terms of the Q2 revenue outlook specifically, normal seasonal trends would suggest a sequential increase. It sounds like you actually had one of your bigger customers that was maybe a little bit of a shortfall in Q1. So I guess you should presumably see improvement. Anything that was, I don't know, pulled forward or anything to note? Or should we maybe focus more on your comment of taking a measured approach to the guide at this point?

No, it's the latter. Yes. We didn't pull things forward, Greg. There were no pull forwards. Now there was an uptick in demand in certain sectors in Q1 above what we had forecast. And that's really what drove the overachievement on revenue versus guidance because it was just a legitimate uptick in demand. There were no pull forward. So the seasonality aspect in our business as dental particularly gets bigger and orthopedics what you find is people don't start procedures in the spring because generally, they're planning to go on vacation and nobody -- when they get out of school or they're anticipating family vacations, you see a distinct drop-off in anything that's optional.

So whether it's straightening your teeth or it's having an optional surgery, you tend to live with it because like orthopedic surgeries, people are often laid up for months, and they don't want to do that in a nice weather period. So Q2 is becoming a little bit more of a seasonal dip for us because of the size of our Healthcare business. Other than that, nothing unexpected.

We're also, I would tell you, Greg, trying to not get out over our skis in terms of excitement. We just want to stay measured because, again, the world is just so darn volatile. This issue in the Middle East it's probably continues to drive increased defense and aerospace spending, but it's made logistics a nightmare in many cases, just getting printers and parts and materials to customers. Certainly, if those customers are in the Middle East, which we have some customers there, it's been a real problem. But it screwed up logistics around the world in part. So we just want to be cautious and say, look, the world is getting better. Let's not get out in front of ourselves and let's keep the guidance realistic.

And last one, clearly, the bright spot was getting back to EBITDA profitability in the quarter. So congrats on that. Phyllis, I think what I heard was stable OpEx, which presumably means maybe OpEx is in towards this level that you reported in Q1, which was quite a bit lower sequentially and at least what I think we thought it would be. But it kind of implies EBITDA kind of breakeven-ish based on the Q2 guide for the second half -- for the first half. I'm having a hard time thinking or figuring out how you won't be nicely EBITDA positive for the year just given normal seasonality trends in the second half. So kind of the same question as the revenue, but was there anything that maybe positively impacted Q1 because obviously, that came in quite a bit better than expectations.

Yes. I mean for us, Greg, I think what you really have to focus on is product mix too in the quarter. I did mention in the script about our expenses being a little bit lower than you'll typically see as you look out the rest of the year. We had some timing just of expenses that were in our favor for the quarter. It wasn't significant, but it was noteworthy, and we took that into effect as we go into Q2 and Q3.

On the mix side, again, just looking at consumables, we have heavy printer sales that are coming in. Jeff talked about the increase in our metal printer sales. Those mixes will really drive sort of margin and overall performance. So you'll see us pretty consistent throughout the year as we aim towards that goal of adjusted EBITDA breakeven, but look at, again, more stabilization of that OpEx and product mix quarter-over-quarter will really drive that end result.

[Operator Instruction] Our next question is coming from Troy Jensen from Cantor Fitzgerald.

Sorry, I jumped in a little late. Maybe so I apologize if I'm asking stuff that's been addressed here. Jeff, for you, can you just give me an update on the Healthcare business, personalized health care versus dental on the year-over-year growth, was that primarily personalized health care? Or is it big dental kind of driving that also?

So Troy, I'll let Phyllis put some numbers to it, but I can say both were strong. The personalized health care, and that really, we call it now Med Tech. It encompasses all of the surgical planning work we do with surgeons, surgical guide production and implants, okay, implants into the body. So spinal and other bone or orthopedic implants. It covers all of that. That was a good business this quarter.

There was disruption in one customer, which cost us a little bit. And we expect that to kind of rebound now that that's behind them. But it was a very good business. It continues to be, I expect a double-digit grower year-on-year organically. And what's driving that, Troy, is we've gotten the response time to surgical requests down now to the point and the cost down to the point where we can turn things around fast enough to participate in trauma. So folks that are in car accidents and other emergent issues, we can respond to these folks within a matter of a couple of days now and really come to their age. So that's expanding the market for us.

The other real growth driver in that in the Med Tech part of it, Troy, is oncology. So the treatment of bone cancer. So planning these complex surgeries to remove the tumor and now to replace the bone using our printed PEEK implants, that's going to be a real growth aspect of our business. So on the Med Tech side of health care, nice consistent double-digit grower. We continue to invest nicely for new applications there. We have some great new technology for bone implants that I think is really taking root fast.

On the Dental side, we've got our traditional markets in alignment and repair. And on the repair side of that, the great news for us late last year is we got trademark approval finally in the United States, that Vertex material has been approved in Europe for a long, long time, and the trademark has been fine. In the U.S., there was a trademark dispute. So it wasn't a technical issue. It was a trademark issue. We got that resolved in the fourth quarter, and now you see that material stream coming online for repairing teeth. And then, of course, the straightening of teeth is always a good business.

Last year was pretty tough for them in the first half. So we see a nice stabilization of that business and a return to some modest growth. So I feel good about all parts of our Healthcare business. And it's because of the regulatory nature, Troy, as you know, it's hard to get in. And once you're in, it's -- there's a limited number of people that can fulfill those requests. So we love that business, and we continue to invest in it.

Great. And then just another question here, specific to like metal additive parts. Where are you guys kind of expanding in that category? I believe you're looking to expand the footprint in Littleton or something, but touch on it if you could.

Yes. Right, Troy. We're adding another 80,000 square feet on out there to a building adjacent to the one we have. The building we have today has been largely -- historically, it was health care, including health care parts manufacturing. As over time, there's been pressure to add industrial manufacturing there, too. And so we said we kind of hit that pivot point and said, let's get the building next door, and we'll turn it into an industrial part making facility. It leverages the quality systems we already have in health care, and it's coming along nicely. So we'll have a grand opening of that building anticipated at the end of July, beginning of August, sometime late summer. We'll have a grand opening of the building. That will be dedicated to part manufacturing and what we expect right now is that will be aerospace.

The parts we're focused on, Troy, are these very high-end difficult materials that our printers are really good for. So they're titanium, zirconium, nickel-based materials and copper nickel alloys for the Navy. So the nickel-based alloys are primarily for propulsion, so for aircraft and rocket propulsion, the coppers for the Navy. And you've got titanium and other lightweight materials for satellites and other flight systems for drones and things. So there's more demand than we can handle in our current facility. We're expanding that, and we'll be adding printers to that facility over time as we move through the second half of the year.

[Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments to Dr. Jeff Graves.

Thanks, Kevin. And listen, thanks, everyone, for joining the call today. I appreciate the time, and we'll look very forward to updating you again next quarter. Have a great day and a great start to the summer.

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.

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 these markets in a few moments, and Phyllis will summarize the impact of both our cost actions and growth initiatives on our financial performance and trends.

Slide 6. I'll start by reviewing our highlights from the fourth quarter. Consistent with past years, we had seasonally strong Q4 in our historic markets. But what was unusual this year was the additional top line benefit specifically related to our three key growth initiatives. Given their importance, I'll cover these key growth areas in some detail in a few moments. Overall, revenue increased 16% sequentially, above our guidance of 8% to 10% growth. From a product standpoint, these results reflect the strengthening of both our printer and material sales, driven by key new product launches over the last year in both our industrial and health care businesses. Now let me give you a little more insight into what drove this strength, beginning with changes in our historic markets. Within our Industrial Solutions business, we saw sequential double-digit growth in several of our more traditional consumer-oriented end markets, including both automotive and jewelry manufacturing.

In automotive, this growth reflected the impact of our newest SLA printing platform, specifically our dual laser SLA 750 that we launched just over a year ago, which is the most precise and productive industrial scale SLA printer in the market today. It's being adopted preferentially in both motorsports and in consumer automotive OEMs, delivering significant improvements in productivity in their development labs. The strong sequential growth in jewelry was driven by the recent launch of our new wax printer, the MJP 300W Plus, which delivers significantly improved accuracy and surface finish and wax patterns that are central to the casting process. These factors are very important to manufacturers as they provide dramatic reductions in gold loss during final polishing of the product, particularly at a time when gold prices are at record levels.

An interesting note with regard to gold jewelry is the rate at which the entire industry is now adopting additive manufacturing, which allows for virtually limitless customization of designs without increasing the cost of the product or in some cases, even reducing it. Anticipating these inflection points in an industry is essential in order to capitalize on the rapid CapEx investments that follow, disproportionately benefiting those companies that are well positioned to meet this rise in demand from its outset. With our industry-leading application engineering team, we're experts at doing just this. Within our Healthcare Solutions business, we saw sequential growth in dental material sales driven largely by stabilization of demand for aligners. These are also beginning to see -- we are also beginning to see sales from the commercial release of our new NextDent Jetted Denture platform, which is being very well received in the market, and I'll offer some more comments in a moment.

Looking beyond these trends in our traditional markets, I'd like to now spend a few minutes on what I believe are the three most exciting growth markets that are opening before us. These are aerospace and defense, personalized health services and dental. Applications within these markets greatly benefit from additive manufacturing in that their performance is greatly enhanced by mass customization design. And with the latest evolution of our printing technologies, the manufacturing cost has declined to a point to support rapid adoption. Turning then to Slide 7. One of our key growth markets is aerospace and defense, which has become the largest and one of the fastest-growing segments within our Industrial Solutions business. On a full year basis, our aerospace and defense revenue, which includes production printing systems, consumable materials and custom metal parts, achieved 16% growth, and we continue to expect over 20% growth for 2026.

So what technologies are required to deliver sustainable revenue growth in aerospace and defense? Well, the fastest-growing and highest value portion of this market, which is where we're focused, comes from the manufacturer of metal parts. These parts can be made in one of two ways, either by metal casting or by direct metal printing. We've invested heavily in both of these technologies, and they are playing a vital role in the growth we're now experiencing in this market. In the casting process, our market-leading photopolymer printing technology is used to manufacture complex cores and shells for high-performance cast metal components, while our direct metal printing systems, which are known for outstanding environmental control and precision, are used to manufacture high-value metal parts directly from powder using materials such as titanium and nickel-based superalloys.

Indeed, an increasing range of advanced aerospace and defense applications can only be made by direct metal printing due to the complexity of the designs needed for today's applications. This is why we have maintained our R&D investments in this area even through these challenging periods. Without this suite of technologies, a company simply cannot participate in the high value end of the market. From a customer standpoint, in aerospace and defense, we define three phases of growth. First is the development of a specific process to manufacture a customer's key components. Second is an offer of metal part production at a low to intermediate volume that allows the customer to directly scale from the initial test and manufacture the system to full-scale production. And then the third, the sale of the complete printing systems that allow a customer to further scale manufacturing to high volumes. This approach to aerospace and defense, which has been under intense development for the last three years, is proving to be very attractive to our customers and is a key in sustaining the growth we're now enjoying.

From a geographic standpoint, we're taking this approach through our operations in Littleton, Colorado for the U.S. market; in Leuven, Belgium for our European market and through our Saudi Arabian joint venture, NAMI for our growing demand in the Middle East. Each of these has very similar capabilities to serve their regional customer base. And as a final comment, this three-phase customer approach is the same one we've used very successfully in our Healthcare business for many years, which has given us the operating model and the quality infrastructure to make it work at scale in this adjacent market. So because aerospace and defense is a very broad market, many folks are asking what are the key focal areas for us. The ones we're gaining the most traction and look to be the most sustainable in the years ahead include satellites, naval and marine applications, aircraft and rockets and flight systems.

More specifically, in satellite systems, our technology is being used to provide antenna arrays, waveguides and filters as well as numerous lightweight structural brackets. This is a rapidly expanding market as satellite communication is proving essential in many areas of the world. For naval applications, submarines are often leading the way as our printing technology provides high reliability hydraulic fittings, piping and valves as well as advanced turbomachinery and pumps, all manufactured from very special materials that are resistant to the extreme environments that these boats encounter. For aircraft and drone applications, our printing systems are most often used for critical aerodynamic parts such as winglets, bearings and ducts, structural elements and airframes, rotor blades and stabilizers and air propulsion components, including complex turbine components.

In addition to the printing systems themselves, recurring revenue in aerospace and defense comes from material pull-through, which, in this case, includes both polymer resins used in casting workflows as well as finished parts consumed by customers at the early stages of full-scale manufacturing. Casting processes in aerospace and defense have been critical for decades, but they've assumed a new and even higher level of importance in the most advanced rocket and aero propulsion systems being introduced today. Interestingly, this acceleration has been driven not only by enhanced component performance requirements, but also in simplifying complex assemblies to reduce part count and therefore, the cost of new propulsion systems. As a leader in this field, we benefited from this expansion in 2025 and expect this momentum to continue, particularly as the number of rocket launches increase substantially in the years ahead.

Slide 8. As I mentioned earlier, expansion in naval and marine applications is very exciting and is in part why we're expanding our manufacturing efforts tied to design and qualification of naval components for our U.S. customers. For example, in shipbuilding, we're collaborating with Huntington Ingalls to enable the first-to-market direct printed copper nickel alloy solutions for naval components, dramatically shortening production times often from months to days. In addition to providing design flexibility for enhanced performance. These materials are critical to performance in seawater environments, but like so many specialized alloys, they're very difficult to manufacture using traditional methods. Direct metal printing from powder solves this problem and provides system designers flexibility in next-generation componentry. This early success has resulted in increased volumes within our parts manufacturing as we design and qualify parts as well as the transfer of that technology to Tier 1 suppliers to the U.S. Navy through the sale of our metal printing systems.

Slide 9. As we look toward the future, we also expect recent provisions in the National Defense Authorization Act, or NDAA, which restrict foreign sourced 3D printing systems for the Department of Defense programs will create additional tailwinds for our business as demand shifts to domestic suppliers. Having positioned ourselves well through sustained investments in metal-related technologies for aerospace and defense markets over the last several years, we remain confident in our ability to deliver on our 20% growth target in this segment in 2026. Strategically, we have very little exposure to lower-end applications such as jigs and fixtures used in factories, an area we believe will be under increased pricing pressure from non-U.S. suppliers in the years ahead. Instead, our growth will be led by expansion in the use of 3D printing for metal components, manufactured by either casting where printer sales and material consumption drives revenue and profit margins or by direct metal printing, where parts sales followed by printer sales and service provide similar financial benefits.

In terms of key applications, they will lie within satellite, naval and aero propulsion systems as well as the expanding use of sophisticated flight and weapon systems in unmanned aerial vehicles or drones as they're commonly referred to. To address our anticipated growth in aerospace and defense, we recently announced a major expansion of our U.S. facility in Littleton, Colorado. We're adding up to 80,000 square feet to increase our application development, process qualification, validation and production scale manufacturing capacity. This positions us to capitalize on the growing demand for secure U.S.-based manufacturing for national security and space applications and effectively leverages our quality and manufacturing infrastructure that also support our Healthcare business. Moving next to Slide 10. Our second key focal area is personalized health services, or PHS, which realized double-digit growth once again in 2025, becoming our largest Healthcare segment, and we continue to build on our market-leading position with new personalized applications, materials and printing technologies.

In 2025, we reached new levels of care by providing more than 18,000 personalized planning cases, boosting our total to over 400,000 patients. We provided over 260,000 customized patient implants, all of which required regulatory approval in the meeting of strict quality standards. And we raised our total FDA and CE Mark device count to over 100. We're very proud of this business and the impact it has on patients' quality of life each day. Our sustained growth in this segment is driven by our innovation and cost-effective personalization in craniomaxillofacial or CMF procedures through our partnership with Stryker. Typical applications here include jaw and cranial procedures as well as reconstruction in the head and neck regions utilizing our FDA-cleared titanium metal implants as well as our medical-grade PEEK material and implants. The latter innovation has opened an entire new set of applications due to PEEK's unique capability to offer bone-like properties, excellent biocompatibility and transparency to radiation, such as those needed for X-rays and for oncology treatment protocols.

Our ability to work directly with surgeons on all stages of treatment from planning and modeling of a surgical procedure to providing custom surgical guides to improve precision and speed of an operation to printing customized replacement segments of bone for long-term use in a patient's body has built an exceptional foundation for our expanding orthopedic business. We've evolved not only our printing technologies, but also our operational capabilities needed to expand our markets, which now include not only preplanned surgical procedures, but also rapid response trauma cases and highly complex oncology cases involving bone cancer and at times, a related need to treat the surrounding tissue.

To keep our focus on the leading edge of patient treatment, we've developed unique point-of-care embedded collaboration teams at numerous medical research hospitals in the U.S. and Europe. These teams are bringing our most advanced medical technology directly to surgeons for their integration in the most challenging new cases. This gives us direct insight into the value that our metal and polymer printing solutions can bring to future patient treatment and services that are needed to guide our future investments. We expect our strong pipeline of new applications and shortened response times to fuel continued growth in PHS in 2026 and beyond. As one example, we believe that our recently received FDA clearance for our VSP solutions for skeletally mature adolescents will help accelerate adoption in what was previously a case-by-case compassionate use protocol.

So now turning to Slide 11. In our dental business, we began shipments of our commercial NextDent jetted denture platform solution for the U.S. market in the fourth quarter. Our unique multi-material monolithic denture is not only a beautiful product, distinctive in its durability and wear resistant but is increasingly praised by patients for its comfort and fit, which not only improves the patient's quality of life, but also reduces chair time for the dentists and often a need for repeated visits to adjust the fit over time. Expanding upon our initial offering and just in February, we announced a broadened range of available gum shades to more accurately match the diversity of patients' natural gum colors in the U.S. population. Looking to the addressable market. In addition to FDA approval in the United States, we now have clearance in New Zealand, Colombia and Chile.

We expect to achieve full European clearance this summer with additional South American markets coming online in the second half of the year and most of our target markets in Asia next year. Many investors have asked about the size of this dental opportunity. So let me take a moment to speak to it. In the United States, approximately 32 million people wear dentures. That's about 10% of our population and roughly 12% get new dentures each year. Globally, more than 180 million people wear dentures and approximately 13.7 million denture sets are produced each year to address this market. Due to aging populations worldwide, this number is growing rapidly. The vast majority of these dentures are custom-made with slow analog processes and in large part by hand craftsmanship. With the advent of digital workflows and with our new jetting technology and ability to make beautiful, comfortable, custom single-piece dentures in a cost-effective manner close to the dentists and their patients, we believe over time, we'll convert the large majority of this manufacturing to 3D printing, just as it has with clear aligners today.

We also believe that this will result in annual recurring revenue opportunity of over $400 million globally for simply materials alone. From a competitive standpoint, our solution delivers an exceptional ROI for our customers, enabling faster production, a reduction in manual labor on the order of 40% to 70% and one-day turnaround compared to five days for traditional methods. This results in a faster, more cost-effective and highly scalable alternative to traditional denture fabrication, enabling both an outstanding patient experience and a strong return on investment for dental labs that provide these products to dental professionals each day. While still in its earliest stage, given the pace of adoption that's possible in the dental industry, I predict this will become one of the largest revenue streams in our company in the years ahead. It's simply a matter of adoption rate at this point. Moving to the next slide, Slide 12. In closing, the stabilization of our core markets, combined with our cost reduction efforts is enabling us to invest in new growth opportunities that are now opening before us, leaving us more excited about the year ahead than we have been in some time.

Moving to Slide 13. Before I turn it over to Phyllis for a recap of our financials, I want to take a moment to acknowledge our Founder and Chief Technology Officer, Chuck Hull, who was recently named by Forbes Magazine as one of America's top 250 greatest innovators. Chuck has been honored by countries and organizations around the world for his past accomplishments, and yet I believe his greatest achievements are still yet to come as he works closely with the visionary Dr. Martine Rothblatt of United Therapeutics to develop the world's first 3D-printed human lung. Two weeks ago, I had the honor of accompanying Chuck to the Lake Nona Impact Forum where he and Martine addressed a standing room-only crowd on the lung program. I, along with the rest of the audience, stood in admiration of the progress that's been made and the impact on the world that is anticipated when this is ultimately successful. On behalf of all of my colleagues at 3D Systems and those millions of people around the world that have been and will be impacted by Chuck's innovations, I want to say a heartfelt thank you to him for his dedication and his contributions to all mankind.

I look forward to the documentary on Chuck's life that will be selectively aired this summer and extended audiences everywhere in early 2027. So with that, I'll now turn it over to Phyllis.

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 by returning customer demand and our focus on priority markets that continue to accelerate the adoption of additive manufacturing.

With that summary, I will now walk through our sequential revenue growth for the quarter. Fourth quarter consolidated revenue increased 16% sequentially from the third quarter, driven by growth in new printer system sales and increased materials consumption. Within our segments, Industrial Solutions revenue was $55.8 million, an increase of 15% sequentially. This growth was driven by continued strength in aerospace and defense as well as higher new printer sales within our consumer end markets, including increasing demand for our new MJP printer for jewelry applications. Healthcare Solutions revenue of $50.5 million grew 18% sequentially. This increase was primarily driven by the strengthening of dental material sales within the quarter and the continued positive performance of our PHS business.

Now moving to Slide 17. In reviewing 2025 performance, the additive manufacturing industry faced strong macroeconomic headwinds impacting customer spending. As a result, we realized a decline in our year-over-year revenue. For the full year 2025, consolidated revenue was $387 million. When adjusting for the divestiture of Geomagic, revenue declined 7% year-over-year or 9% when adjusting for both Geomagic and the prior year regenerative medicine adjustment. Turning to Slide 18. For the fourth quarter, non-GAAP gross margin was 31%, up 3% when adjusting for Geomagic and down 2% when adjusting for both Geomagic and Regenerative Medicine. For full year 2025, non-GAAP gross margin was 34.3%, down 70 basis points when adjusting for Geomagic and down 2 percentage points when adjusting for both Geomagic and regenerative medicine. Non-GAAP gross margin decline over the prior periods was primarily driven by lower sales volume and less favorable product mix in the current quarter.

Moving to Slides 19 and 20. We continue to see the positive impact of our cost reduction initiatives, both in the fourth quarter and for the full year 2025. In the fourth quarter, non-GAAP operating expenses were $43 million, down 23% or $13 million from the prior year period when adjusting for Geomagic. For the full year, non-GAAP operating expenses were $196 million, a reduction of 19% or $46 million year-over-year when adjusting for Geomagic. We remain keenly focused on executing the cost reduction initiatives we have previously outlined. Actions already underway and that will be complete by the first half of 2026 include optimizing our organizational capacity, streamlining our facilities footprint and reducing expenses across our business. To date, our cost reduction and efficiency programs have delivered approximately $55 million in annualized savings completed in 2025, exceeding our target of $50 million.

Looking ahead to the first half of 2026, our cost savings initiatives will remain closely aligned with the company's 2026 priorities, ensuring we focus on investments on the products and markets with the strongest opportunity for both growth and profitability. Moving to Slide 21 to finalize the P&L. Adjusted EBITDA for the fourth quarter was negative $5.3 million, an improvement of $17 million compared to the prior year when adjusting for Geomagic. For the full year 2025, adjusted EBITDA was negative $45.4 million, an improvement of $31 million when adjusting for Geomagic. Adjusted EBITDA improvements were primarily driven by the company's cost reduction initiatives, which delivered meaningful expense reductions throughout 2025. Full year 2025 non-GAAP loss per share was $0.37, an improvement from a loss of $0.62 in the prior year period. Now moving to Slide 22 for a review of the balance sheet. We ended the quarter with $97.1 million in total cash, consisting of $95.6 million in cash and cash equivalents and $1.5 million in restricted cash.

During the quarter, we executed an equitization transaction to retire the majority of our debt scheduled to mature in the fourth quarter of 2026. As a result, only $3.9 million of that debt now remains outstanding with the remaining $92 million scheduled to mature in 2030. As we move to 2026, my priorities remain focused on continuing to optimize our cost structure while working closely with the business to prioritize the key growth markets. Lastly, I'll turn to Slide 23 for an update on the company's 2026 outlook. Given the current geopolitical environment and its potential impact on near-term macroeconomic conditions, we believe at this time, it is appropriate to limit financial guidance to the first quarter of 2026. We expect revenue to be in the range of $91 million to $94 million and adjusted EBITDA to be within the range of a loss of $5 million to a loss of $3 million for the quarter.

Key contributors to our first quarter performance include continued cost management discipline, consistent execution of our core business, strong performance in our priority markets and positive momentum in product sales driven by recent printer launches. We thank you for your time and continued support of 3D Systems. We will now open the line for questions.

Operator?

[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.

Greetings, and welcome to the 3D Systems Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]

It is now my pleasure to turn the call over to your host, [ Monica Gould ], Investor Relations for 3D Systems. Please go ahead, Monica.

Thank you. Hello, and welcome to the 3D Systems third quarter 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 the 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 the 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.

And with that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.

Thank you, Monica, and good morning, everyone. I'll start today with a brief recap of our third quarter results. I'll provide some commentary on the overall market and then focus the remainder of my comments on our strategy and growth initiatives. I'll then turn things over to our Interim CFO, Phyllis Nordstrom, to provide details on the quarter's financials. And we'll then open the call for Q&A.

So let's turn to Slide 5. I'll start by reviewing our third quarter results at a high level. The macro environment for our company and 3D printing OEMs broadly remains challenging. This can be seen in our third quarter revenue of $91.2 million, which was down 13.8% year-over-year, soft but consistent with our normal seasonality trends. As has been the case over the last several quarters, this overall softness continues to be driven by our customers' muted CapEx spending for new production capacity stemming from uncertainty around tariffs. As such, we've taken aggressive actions to adjust our cost structure while maintaining core R&D investments to position the company for long-term growth when market conditions improve.

As part of this effort, we've been rationalizing noncore assets, including the recently announced sale of Oqton and 3DXpert, which closed at the end of October. As you may know, these software platforms are not proprietary, but were designed to serve the entire industry. And while we will continue to remain very involved with the software, we believe that transitioning these solutions to an independent software developer will help drive them as the industry standard, which will help accelerate OEM adoption of additive manufacturing broadly. We expect the financial impact of this disposition on our fourth quarter results to be approximately $1.2 million in revenue and $1 million on gross margin. This impact is reflected in our guidance for Q4.

Turning to Slide 6. We remain very focused on our core assets and continue our strategic investments in metal and polymer printing technology with emphasis on R&D activities that will drive our future growth and profitability. During the quarter, we launched some very important new printer platforms derived in this case, from our expertise in photopolymer jetting technology. Jetting is a very special 3D printing technology that involves a simultaneous deposition of thousands of fine droplets of photopolymer. These droplets are cured by ultraviolet light as they're deposited onto the build platform. The process can be -- can simultaneously deposit multiple materials in a fast but precise pattern to create a monolithic structure, having distinct regions of coloration, geometry and mechanical performance.

It's a preferred approach where speed, precision, surface finish and multi-materials are required for an application. In the Industrial segment, we introduced the MJP 300W Plus at the Istanbul Jewelry Show in early October. This new generation of jetting technology prints extremely intricate wax patterns used for casting precious metal jewelry, improving productivity by 30% and reducing gold, silver or platinum waste by 20%. While the global jewelry market is competitive, it's transforming rapidly into a digital manufacturing ecosystem where a designer can embrace custom creativity without sacrificing cost competitiveness in the market.

Our advantage in this growing market is our recognized expertise in jetting technology, including both the printer itself and the custom wax materials that are essential for the post-print casting process as well as our expert channel partners that serve the thousands of local jewelry manufacturers around the world. Customer feedback on our new printing systems has been very positive, and we've already begun to accept orders for this new printer platform, which, given the size of this global market, we expect to accelerate rapidly in the quarters ahead. While fine jewelry is viewed broadly as a consumer business, it's embedded deeply in the culture of many countries around the world, which drives continuing demand growth and the uniqueness of our wax materials, combined with the high rate of their consumption and the casting process, continue to make it an attractive market for our company.

On to Slide 7. In applying jetting technology to the dental market, in the third quarter, we announced the full commercial release of our NextDent Jetted Denture Solution for the U.S. market. Our consistent investment in this revolutionary dental technology has culminated in a truly outstanding denture product with associated excellent economics for dental labs across the Americas, Europe and even in Asia. This first-to-market solution for jetted monolithic dentures utilizes multiple materials in a single printing process to deliver a durable, long-wear, aesthetically beautiful prosthetic to patients. This results in a faster, more cost-effective and highly scalable alternative to traditional denture manufacturing, enabling both an outstanding patient experience and a strong return on investment for dental labs that provide these products to local dentist -- dental professionals each day.

We've already placed these printers with a dozen of the leading U.S. dental labs that serve the American market and feedback has been excellent. We're building backlog for the fourth quarter and are very excited about this market opportunity, which we believe will reach $1 billion in industry revenue across the U.S. and Europe alone over the next several years as the market transitions to 3D printing and away from machining and hand assembly. Given the success that we've seen with our U.S. product launch in parallel with the European regulatory approval, which we're targeting for mid-2026, we continue to work aggressively through the regulatory process in other markets throughout Central and South America and in Asia, which we expect to follow rapidly. With the addition of our denture solution to our industry-leading positions in both aligner technology and our NextDent dental materials portfolio, we expect dentistry to be one of our single largest revenue streams in the years ahead, given the custom nature of the applications and the strict regulatory standards.

Turning to Slide 8. Another core area focus -- core area of focus for us is the MedTech half of our health care business. For 3D Systems, MedTech comprises our historical personalized health services business, our small but important point-of-care business, medical implants and traditional printer and consumable sales to medical OEMs. While we are most often prohibited from discussing details of our point-of-care efforts for long periods of time, these groups live within leading research and specialty hospitals around the world, focusing on new and highly [ innovated ] applications of our medical 3D printing technology, which are extraordinary in terms of patient impact and provide the best indicators of where 3D printing can bring the most value to patients and hospital systems in the future.

As these applications are successful, we're well positioned to gain any required regulatory approvals and then bring them to the market broadly. While there are quarter-to-quarter fluctuations in growth rates for MedTech, particularly driven by seasonality of preplanned orthopedic procedures, this business remains on track to grow at a double-digit rate once again this year.

To drive this consistent strong growth, we continue to build on our market-leading position with new applications, materials and printing technologies, the vast majority of which ultimately require regulatory approvals. This not only provides a strong pipeline of new patient indications that we can address, but also opens new markets for medical 3D printing, such as trauma, which is now the fastest-growing element of our PHS business.

A key area for focus for us in MedTech is accelerating the use of our printed medical-grade PEEK materials. That's Polyetheretherketone for short. These materials are biocompatible with properties very similar to native human bones and can be custom printed very quickly and economically. Importantly, they can complement titanium implants, which have similar strength and compatibility, but instead of blocking radiation used for imaging or the treatment of cancer, PEEK materials are transparent to it, allowing doctors to observe and treat the underlying tissue when required. These printed PEEK materials are now being used in real-life patient applications such as reconstruction of the face and skull from defects or injuries and even addressing post-cancer-related surgical procedures and even trauma cases.

An example of printed PEEK for a spinal application is shown on the right side of Slide 8. In this case, we printed a porous PEEK implant tailored for enhanced bone growth, the results of which can easily be seen in the x-rays. In addition to the patient benefits, our technology investments have brought the cost and response time down to the point where bones can be repaired in hours or days instead of weeks, further opening the range of cases that can be addressed from preplanned complex surgeries to rapid responses needed for trauma cases. We expect this trend to continue in the years ahead.

Now let's turn to Slide 9. In addition to new printer and materials technologies, we also recently announced several important milestones in our Saudi Arabian Growth Initiative. In 2022, we established the National Additive Manufacturing Innovation Company or NAMI for short through a partnership with the Saudi Arabian Industrial Investments Company. The goal of this venture was to enable Saudi Arabia's Vision 2030 program, which aims to create a strong local manufacturing base and enable the Kingdom to industrialize more rapidly through the adoption of industrial scale 3D printing. 3D Systems is the exclusive provider of printers and materials, both polymers and metals to the joint venture with NAMI providing local application expertise, service and support for customers.

Recently, we were proud to announce that the Saudi Electric Company or SEC for short, the Middle East's largest electricity producer, signed an agreement to make a strategic investment in NAMI, acquiring a 30% stake in the venture with the goal of reducing costs and lead times for high-demand spare parts through the creation of local manufacturing capability combined with advanced digital warehousing. This partnership strengthens NAMI while deepening collaboration with SEC to establish new workflows that accelerate the adoption of 3D printing for critical energy infrastructure applications and to develop a skilled national workforce.

Additionally, the Modern Isotopes Factory or MIF for short, a Saudi electric company -- a Saudi company established to support the expanding need for radioactive sources for industrial applications has signed a framework agreement of $26 million with NAMI for the manufacture of up to 2,000 tungsten core components used in nondestructive testing devices for pipelines and weldment inspection. And in the key market of defense and aerospace, Lockheed Martin recently announced a collaboration with NAMI to qualify and use additive manufacturing to develop critical military and aerospace components in Saudi Arabia, utilizing 3D Systems' Direct Metal Printing Technology. While it has taken time to establish the local capabilities needed to support these customers, we're very excited to see our efforts begin to bear fruit in what we believe will be an increasingly important element of our global growth strategy in high-reliability industrial markets in future years.

Turning to Slide 10, I'll briefly touch on additional critical market opportunities before turning the call over to Phyllis. AI infrastructure as shown on the left-hand side of Slide 10 and aerospace and defense highlighted on the right are 2 of the emerging growth opportunities that I'm most excited about, given the exceptional level of investments now being made in these areas. Starting with AI infrastructure, there are 3 key areas where we participate. These include semiconductor chip manufacturing, where our 3D metal printing capability provides critical componentry for chip fabrication equipment, data centers where our ability to print 3D -- 3D print copper-based heat transfer components to help keep these high-intensity computational units cool are increasingly valuable and for components used in gas turbine engines that are used to create the electricity that powers the data center.

These markets are beginning to receive enormous investments around the world, and we've been developing key applications for them for several years in anticipation of increasing demand. From an aerospace and defense standpoint, as printing technology has scaled and key materials for high-temperature and aggressive environment applications have come online, the applications for 3D printing have rapidly expanded. Our latest efforts, which range from rocketry to naval applications and from human systems to drones have shown great promise. These customers are not only working on a wide range of new applications of our technology, but encouraging us on a selective basis to support them from the developmental phase through initial component fabrication, particularly for low-volume challenging part types.

We select this work very carefully such that we can ultimately bridge the customer from limited part supply to full-scale production, either within their factories or the supplier of their choice. This business model is unique, and we believe will be a highly -- will be highly effective as we work hard to grow this portion of our business, both in the U.S. and in Europe from our regional locations in Colorado and in Leuven, Belgium.

So with that, I'd like to introduce Phyllis Nordstrom, our Interim CFO. I've had the pleasure of working with Phyllis in several capacities for many years, and I'm very pleased that she stepped into this important role at such a challenging time for our industry. Phyllis?

Thank you, Jeff. I appreciate everyone joining us today. I began at 3D Systems in 2021, serving as the Chief People Officer and then Chief Administrative Officer. In early September, I stepped into the role of Interim Chief Financial Officer. My background is in finance and accounting and throughout my career I've held a variety of roles within these areas. Most recently, I led audit and risk management teams at MTS Systems and PricewaterhouseCoopers, where I focused on advancing strategic priorities, driving operational excellence and strengthening discipline around risk and controls.

Before I begin a review of the third quarter results, I would like to remind you, we completed the divestiture of our Geomagic software business on April 1 of this year. As a result, throughout today's call, we will reference both reported results and adjusted comparisons that exclude our Geomagic business, allowing for an apples-to-apples comparison of our performance across periods.

With that, let's begin with a summary of our revenue, which you'll find on Slide 12. Third quarter consolidated revenue was $91.2 million, down 19% year-over-year or 14% when excluding Geomagic. Sequentially, revenue declined modestly, primarily reflecting typical third quarter seasonality and the absence of a Regenerative Medicine milestone that was recognized in the prior quarter.

Within our segments, Industrial Solutions revenue of $48 million declined 16% year-over-year or 4.5% excluding Geomagic. These declines were primarily driven by softness in our printers and materials sales in consumer-facing end markets. This was partially offset by continued momentum in aerospace and defense, which grew nearly 50% over the prior year. Healthcare Solutions revenue of $43 million decreased 22% from prior year, predominantly driven by lower sales within dental, with 2024 representing higher purchase volumes from a specific customer. Outside of our Dental business, MedTech delivered solid growth, up 8% from the prior year and slightly ahead of last quarter. Additionally, we continue to see momentum in our PHS business with year-to-date growth of 10% through Q3.

Now to Slide 13. For the third quarter, we reported a non-GAAP margin of 33% compared to 38% in the prior year and 34% when adjusted to exclude Geomagic. The year-over-year gross margin decline was modest, primarily driven by lower sales volume and reduced material sales. These impacts were partially offset by reduced inventory reserves compared to the prior year. Gross margin declined sequentially, reflecting the absence of the prior quarter's Regenerative Medicine milestone as previously discussed, as well as higher manufacturing variances in the period.

Turning to Slide 14 and 15. We continue to demonstrate strong cost management in the quarter with non-GAAP operating expenses of $44.7 million, down 24% year-over-year when adjusted to exclude Geomagic and down 4.5% sequentially. This improvement reflects the impact of our cost reduction initiatives, which run through the first half of 2026. Our cost actions are well underway and continue to focus on optimizing our organizational capacity, streamlining our facilities footprint and reducing expenses across the business.

Looking ahead, we expect continued reductions in expenses through the end of the year and are targeting fourth quarter operating expenses to be marginally below the current quarter. To date, we are on track to deliver over $50 million in annualized savings by year-end. As we look ahead to the fourth quarter and the first half of next year, our cost savings initiatives will be closely aligned to the company's strategic priorities for 2026, focusing our investments on the products and markets that offer the greatest opportunity, both for growth and profitability.

Turning now to Slide 16 to finalize the P&L. Adjusted EBITDA for the third quarter was negative $10.8 million, an improvement of $3.5 million compared to the prior year. We reported a GAAP net loss of $18 million for the quarter or a GAAP loss per share of $0.14, a meaningful improvement compared to the $1.35 loss per share in the prior year period. The improvement was primarily related to the absence of prior year asset impairment charges as well as lower amortization expense and lower operating expenses in the current quarter. On a non-GAAP basis, loss per share was $0.08, an improvement from $0.12 in the prior year period. This progress reflects our focus on cost reductions across the business.

Turning now to Slide 17 for a review of the balance sheet. We closed the quarter with $114 million in total cash, consisting of $95 million in cash and cash equivalents and $19 million in restricted cash. Total debt net of deferred financing costs was $123 million as of the end of the quarter. Of that total, $35 million is due in the fourth quarter of 2026, with the remaining balance due in 2030. We have successfully reduced cash usage over the past 2 quarters and expect continued improvement as we execute on our remaining cost savings actions through the first half of next year. As we enter the fourth quarter, my priorities remain focused on completing our cost reduction initiatives while working closely with the business to prioritize key markets, products, services and investments. These efforts are aimed at delivering meaningful impact, both in the near term and throughout 2026.

So with that, we thank you for your time and support of 3D Systems. We'll now open the line for questions. Operator?

[Operator Instructions] Our first question today is coming from Troy Jensen from Lake Street Capital Markets.

So a quick -- either one of you guys. Just gross margins kind of dropped a lot sequentially here. It looks like it was mainly in products, but maybe in both products and services. Can you just touch a little bit on the decline in gross margin?

Thanks, Troy. I think looking at gross margins quarter-over-quarter, there's really 2 main components as I highlighted. RegMed, we recognized a milestone under our lung program in the prior quarter. That was about $2 million of that total revenue that dropped down to the bottom line. We also had some manufacturing variances recognized in the quarter, which also had an impact to our margin. I don't think those will repeat going forward, but there was some scrap and some inventory reserves or some slower-moving inventory that we had that we cleaned up this quarter. So looking ahead, you can see that we said gross margin would be flat quarter-over-quarter. Again, Jeff will touch on some of that printer revenue that we're seeing with the new products that will come in next quarter as well.

So Troy, that explains Q3. If you look at going forward, there's offset -- there's offsetting factors. So on the positive side, volume is going up, the launch of our new products, we're selling more product, but it is concentrated in printers right now. Printers faster than materials. So it will be a mix effect going forward, offsetting the volume benefit through the factory. So that's largely it. We have a slight drag continuing on tariffs, but it's relatively constant. It's there. It's relatively constant quarter-by-quarter. That's it. It's pretty simple, pretty simple puts and takes.

All right. Understood. And then, Phyllis, this is for you, too, on -- just on the OpEx, I think I heard you say down slightly sequentially. But is there more to do on the cost cut efforts? I know you guys had some facility consolidations that were depending on timing. I guess what I'd ultimately like to get to is, is there a revenue level you think you guys need to hit once all these cost cuts are in place that will get us to a breakeven?

Troy, I'll start with the first part of your question, and I'll let Jeff handle the second part of your question. The first part of the question, there is still more to go get. We've taken a lot of the organizational capacity actions already. There's still a little bit left to do, but the vast majority of that is behind us. The facilities take a little longer. There's work to do. We've made, I think, significant strides in getting ourselves into a place where the facilities will be ready to be exited that we've identified. It's a timing issue just with the market and ensuring we can get those things closed out. So that will happen, I think, in the first part of next year. In terms of OpEx, you're going to see a continued decline through the first half of 2026. It will be a little bit of puts and takes in terms of timing to achieve our total cost savings objectives here. As far as revenue, I'll let Jeff sort of cover where our OpEx would need to be in terms of revenue outlook. It's something that we're doing right now as part of our 2026 budgeting.

And the frustrating part of what Phyllis just said, Troy, is the timing around facilities. We've exited 5 or 6 facilities, and they're on the market now. It's just a matter of timing to get them subleased or have the leases expire. So that will flow through over the next few quarters, we're estimating, but they're all in the market right now. Just look, the other question is, to me, very important is where does OpEx need to be in order to really drive profitability and positive cash flow for the business. It's highly dependent, obviously, on the gross margin that we derive from sales. So it will be sales volume dependent, gross margin dependent.

The good thing right now is we are selling a lot of high materials used printers. Our new products are largely focused on those. It's these jetting solutions consume a lot of materials in the markets they serve. The new SLA printers, we have the large SLA printers, the large SLS printer that we go to market with, those consume a lot of materials. So you'll continue to see us innovating on SLA and impacting all those product lines. They pull through a lot of materials. So there's a lag when you first sell the printer on gross margin, but we should see some nice continuous gross margin lift as they pull through materials. So the OpEx, you could argue it to a couple of different levels depending on sales volume for factory efficiencies and the gross margin we derive from those sales. So I'm not giving you a crisp answer.

Our original target of $70 million for these rounds of cost takeout we believe in a little bit more normalized environment, but not great environment, but in a little bit more normalized environment through our gross margin estimates, we believe that would get us to positive cash flow and profitability. I still believe that. It's all-in-all is dependent on the volume and mix that comes with increased sales. Good news is sales are picking up in Q4, as we've guided to, and we all fingers crossed for 2026 if the world continues to improve.

Good luck going forward.

Thanks, Troy.

Your next question is coming from Greg Palm from Craig-Hallum.

Perfect. This is Jackson Schroeder on for Greg Palm. Just kind of wanted to talk a little bit more about the -- what was press released last week with some of the new partnerships talking about with Lockheed Martin, some of the stuff out in the Middle East. Can you talk a little bit more about that, give some detail and maybe -- I mean, obviously, the end market in A&D, but also kind of the products and what you're working on with them?

Sure. Yes, absolutely. So we work with Lockheed Martin around the world. And obviously, in the U.S., they're a very big defense contractor. So very excited about business in the U.S. The unique thing about our Saudi initiative is when -- Saudi is a big consumer of American defense products, obviously, and with that consumption goes a commitment from OEMs generally to spend money in the Kingdom. And so it drives them to look for innovation and local manufacturing of products. So that is very consistent with why we set up our joint venture there in the first place.

A lot of the JV is directed at the local Saudi infrastructure like oil and gas and electricity, but defense does benefit it substantially because of the requirement of the global defense OEMs to spend money in the Kingdom. So it's very good for us. It helps build things. The part types that they're interested in are very specific to what they sell in that part of the world. And I can't comment on those. So -- but it's all the normal systems you would associate Lockheed with both aircraft and missile systems that you'd associate them with. Their activity is very focused and aggressive because they have these local sourcing requirements. So it's a great end with a terrific customer, and we're uniquely positioned to serve that.

Obviously, in the U.S., there's other folks that can serve them as well. But these relationships take a while to develop and the technology takes a while to prove. So whether we prove it in the U.S., we prove it in Europe or we prove it in Saudi Arabia, it all goes to the same endpoint. And in terms of the systems and applications, again, I shouldn't talk about that for any customer. But in that case, it's all the normal kind of flight systems you would expect and the things that propel those flight systems, engines and rocket motors, things like that are all fair game.

And then as an off-topic follow-up, maybe I missed this, talking about cash generation for next year. Can you touch more on CapEx expectations for that?

Yes. Our CapEx, we have -- we are now able to throttle back on CapEx pretty nicely because we've made some significant investments in past years. And our infrastructure needs don't evolve that quickly. We generally assemble products, we mix materials. They're not highly CapEx-intensive manufacturing processes. So that works in our favor. We have traditionally, if you draw a line through the past, said 4% of sales on CapEx is a good long-term average. But I would tell you over the next couple of years, the number can be meaningfully below that because we've spent pretty heavily in the last several years on building out what we needed in terms of building infrastructure, stuff like that. So 4% is a historic benchmark in a perfect world and everything is growing, that's probably the level to model us at.

But for the next couple of years, I would tell you we can get by with substantially less than that, probably less than half of that. We're still putting things together for 2026. But we can get by with substantially less than that because, again, the nature of our manufacturing operations, not very capital intensive.

[Operator Instructions] Our next question today is coming from Alek Valero from Loop Capital Markets.

So my first question is, I saw in the press release that you mentioned that the Dental business is seeing more stability. I wanted to ask what is driving the Dental business to stabilize? And I also wanted to ask on monolithic dentures. I want to see if you could speak to the opportunity there and when we can possibly see it become a meaningful part of revenue.

Yes. Two good questions. So on the first one, in terms of stabilization, obviously, there are several -- we have several revenue streams today in dentistry. One is our historic stream in materials to repair teeth, if you will, which is NextDent and Vertex. That market is consistent, okay? It runs pretty consistently, and we've got approvals in the U.S. and Europe for a long time. So that's a pretty consistent performer. The volatility revenue stream, which is great. We love it, but it's more volatile is the aligner revenue stream.

So that really -- you can follow that through public statements by the customers that we serve. That market fluctuates because in tougher economic times, some people -- consumers view those as luxury items and they don't spend as much money on them. There's also a number of different age groups that those OEMs try to serve from younger folks to middle-aged and older folks with the growth in video conferencing and stuff, straight teeth have become very popular. And it also varies by geography. So U.S., Europe, Asia. So we serve -- we're a big provider in that market. I think we're the leader in providing printing technology and materials in that market by far. And we kind of go -- we kind of live with the volatility that, that encounters.

So if you want to understand the driver of that, you can easily -- they're public companies, you can easily tie into their earnings calls. And I think what you would hear right now is that market has declined in the last couple of quarters, but is now stabilizing for them in terms of end product sales. So if you work back through the supply chain, you would -- it's consistent with our commentary on we see revenue stabilizing in that market. And it continues to be a great business. It's stable now. Love to see it return to faster growth, but we're -- we kind of live with that volatility in consumer spending.

The denture part of your question is very interesting. Dentures today are largely handmade products. I'm sure that patients -- the consumers of those products don't appreciate the labor content that goes into a denture historically. So you -- whether you make teeth by machining, which is the common way to do it or you print -- or you try to print them, the assembly of the product has historically up until now been very much a hand operation. If you walk through a dental lab, which is where these products are made, they're made regionally in the U.S. and Europe, and they serve all the dentists around the city.

If you walked into that lab, you would see a lot of people that are involved in some way in making and finishing dentures, okay? Because it's labor-intensive, some labs have chosen to ship the assembly operation to Asia to access lower-cost labor, but that's the way it's gone. That is all going to change now.

But with the digital dentistry, the scanners that dentists employ now are excellent. So you can get a good scan of someone's teeth or their needs from their jaw construction. You can send that image to a lab. But now instead of being made by hand, you can 3D print a denture. And you can print it in minutes and hours, not days, okay, and finish it. It is beautiful. It is durable. It in many cases matches or exceeds current product standards. And within a year or 2, it will be the full spectrum of colors, performance, everything that people expect today will be embodied in these dentures. So I'm thrilled with the product. I love the process because it takes enormous time and cost out of manufacturing. And what the patient experience is at the end when they buy the denture is excellent. So it wins on every front and the economics are absolutely compelling. So what is paced by -- and this is where the rubber hits the road for investors is, okay, you talk about a $1 billion market, what has to happen to make that happen?

We need to -- we've got full regulatory approval in the United States. We need now to mimic that in Europe, and we're working our way through. That will happen in '26. We need then to have these dental labs try the manufacturing process and accept it and phase it in. And that's -- I wish that process were faster, but it is becoming a very sticky product. They like the product. They're going to ring it out and try it and make sure their economics work. I'm very confident they do. And then we'll be selling a lot more machines. So our production rates are ramping. We brought in inventory to make the product and the materials are fantastic. So I expect revenues to continue to grow in that market. We want to access as much of that $1 billion market as we can because I think this beats any manufacturing process out there.

We are also because of requests now seeking regulatory approval in Central and South America. Several countries there would like to adopt the technology as well. Some of them use U.S. standards, some use European, some use a blend. Every country is different. It takes some time to get through those. But I have yet to see us ship a product to a lab and then say, wow, this does not work for me, okay? Everybody that tries it loves the output of it right now, right? And if there's any hesitations, it gets down to the details of the market they serve in terms of coloration, gums and teeth that varies by demographics, region of the world, all of that. So there's a little more work to do on some areas of the market, but fantastic acceptance.

We're excited about the growth, and now it's just working through there. So all in all, dentistry for us, I think, is going to be a great business. It already is. The repair materials will always be needed for caps and crowns and all of that. The aligner product is very well accepted. It may become a little bit more of a volatile market with consumer spending in some parts of the world, but it's great. It will continue to consume a lot of material and printer investment. It is the most -- it's the largest application for 3D printing today. Well over [ 1 million ] of those are made per day through 3D printing because they're all unique to each person's teeth. So materials will be strong. Aligners will be strong for us.

We're doing some really good work on night guards as well. And obviously, the -- and I would say, direct printing of aligners to change both the markets they serve and the way the product is manufactured. We're doing some good work there. And then, of course, dentures is our biggest new growth initiative. So thank you for the question. I'm super excited about the product and the process, the acceptance. Look forward to updating you more in the future.

I have a quick follow-up if that's okay.

Sure. I'll give you a short answer [indiscernible].

Now I was just going to ask on the denture opportunity, just digging a little deeper. So denture seems to be kind of like a more nondiscretionary product [ for that ], but if and when that initiative turns into revenue, would that become kind of like a more stable part of the dental revenue?

Yes, absolutely. And that's a very good question, absolutely. If you look at aligners, they truly -- for many people that buy them, they are discretionary. I mean a lot of people have very good teeth. They're discretionary objects. Although I would tell you, the applications are expanding for aligners into folks that need more manipulation of teeth and beyond cosmetics, so for actual functionality of chewing stuff. So that's -- so that market is continuing to expand. Dentures are exactly what you said. They are, in my mind, an essential item to people, particularly in the developed countries and even in the nondeveloped countries, it's one of the first things people want.

And life expectancies continue to expand. So you have an aging population. There's more demand, if you will, for teeth replacement. And this product wins both aesthetically and economically in addressing that need. So it should be a more stable revenue stream, a growing revenue stream as the manufacturing is converted and because of the aging population and growing demand profile. So we're thrilled by it. It's a great -- I think it will be a great business for us. And I think you'll see dentistry for us be neck and neck with our -- the balance of our health care business in orthopedics be 2 of our largest and most valuable revenue streams in the future.

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

So thank you all for calling this morning. We look forward to updating you again as we wrap up the year and report Q4 and full year results in the springtime. Thanks very much for the call.

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.

Greetings, and welcome to the 3D Systems Second Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to your host, Mick McCloskey, Treasurer, and Investor Relations. Please go ahead, Mick.

Hello, and welcome to 3D Systems Second 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 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. I'll start today with a brief recap of our second quarter results before reviewing in detail where we're at in our restructuring and efficiency initiatives. While much of our dialogue must center on getting our cost structure right for today's market conditions, given the value creation for our shareholders that's tied to long term growth, it's important to briefly mention the progress we're making against our key growth strategies as well. I'll then turn things over to our CFO, Jeff Creech, to provide details on the quarter's financials. We'll then open the calls for Q&A.

So let's turn to Slide 5. I'll start by stating the obvious. The macro environment for our company and 3D printing OEMs broadly remains challenging. You can see this very clearly simply by looking at our year-over-year revenue decline of 16%. As I've stated for the last several quarters, this is primarily attributable to a rapid drop in our customers' CapEx spending for new production capacity. This decline is clearly correlated to the uncertainty around tariffs, which has given our large OEM customers pause on where to invest their capital most economically. While we believe this is a transient effect, it's been protracted, and therefore, we're taking aggressive actions to adjust our cost structure to match this current reality. Fortunately, we've had the scale and balance sheet flexibility to navigate this large-scale restructuring while maintaining core R&D investments that are so essential for long-term growth. This is the balance we must continue to strike.

While our year-over-year revenue decline was significant, we were pleased to see the stabilization of these pressures in our sequential quarterly results. In fact, if you take away the impact of the software divestiture that we completed at the beginning of this quarter, which contributed roughly $7 million of revenue in Q1, our continuing operations grew 8% sequentially. While I don't want to overstate its significance, as I do expect continuing revenue volatility quarter-to-quarter until the tariff situation subsides, it was certainly a welcome outcome. We owe this success to our outstanding employees, who've maintained their focus throughout this tumultuous period, and to the strategic investments we've made over the past years in both in both metal and polymer 3D printing technology for critical markets such as MedTech and Aerospace and Defense.

As you'll hear from me later, these areas are growing rapidly and specifically for MedTech has now done so over multiple years. Importantly, these are soon to reach a point of critical mass that we believe will drive meaningful revenue growth in the years ahead. All of this is supplemented by a reinforced balance sheet following our Q2 transactions, which include the sale of our noncore Geomagic software platform, our June debt transaction and share repurchase. Taken in combination with our restructuring actions, we believe this places the company well on the path to sustainable profitability and long-term growth, but we still have much work to do.

Let's now move to Slide 6, and talk about our near-term priority, which we call profitability first. As I've shared before, we've identified actions across the entire organization to be executed through the first half of next year to drastically improve profitability. Our goal is to align our costs with the current market realities. These actions are designed to positively influence gross margins, leveraged by additional efficiencies we gained from our decision to in-source manufacturing 2 years ago. More significantly, they will unlock a material reduction in OpEx, targeting improvements in every single function and geography we operate in today.

In the aggregate, we plan to deliver over $85 million in annualized savings by mid-2026. Based on the $50 million wave we announced in March of this year, annualization of the roughly $20 million of in-year savings from incremental actions we began implementing when we spoke in May, following the broad announcements around tariffs.

While timing is always a risk, particularly when it comes to gross margins where there are so many dependencies, we're determined to move to positive cash flow even in the current market environment by restructuring our business and driving process improvements that translate to efficiency gains. We have the scale to do this, and it is our top priority.

To provide more perspective to items already actioned and those still in scope, the chart on this slide provides relative sizing of the broader market categories for our initiatives. Our organizational capacity alignment entails streamlining of our functions to efficiently match the needs of the business. R&D, for example, has historically operated at about 20% of revenues, a strategic decision we made for the last few years to ensure that our industry-leading portfolio of metal, polymer, and regenerative technologies remains at the forefront. This range of technology sets us apart from all others in the industry.

As we're now entering the next phase of commercialization of dozens of new products brought to market through this investment, we're positioning to capitalize on these prior investments, allowing us to bring R&D spending to levels that are strong but sustainable. Similarly, business and legal entity rationalization emphasizes the simplification and concentration of our efforts in core markets that will deliver not only significant value, but on an attractive time line. We're focusing on those that deliver the most compelling ROI that matches our internal mandate to return to profitability.

In critically evaluating the returns on our R&D investments, we've taken the hard decision to spin-off or mothball some exciting opportunities that simply had too long or too expensive a runway to fully commercialize. For example, in July, we made the difficult decision to curtail the level of investment in Systemic Bio, a truly incredible technology that we believe has the potential to ultimately transform the way in which new drugs are developed in the pharmaceutical industry.

This technology in which vascularized human tissue is printed on chips, allowing for new drugs to be tested in human relevant models in the lab simply had too long of a commercialization time line given the conservative nature of the pharmaceutical industry and adopting new test methods. So we put this effort on the shelf for now, having developed some unique IP, and we'll return to it in the future if the market dynamics become more favorable. This is the analysis we're undertaking with all of our long-term investments.

Now since I touched on an adjacent element of our Regenerative Medicine program, I'll take a moment to confirm that our core efforts to develop -- to deliver the first 3D-printed human lung in close partnership with United Therapeutics continues to progress very well, as evidenced in yesterday's announced technical milestone recognition. After updating the testing criteria for the program at the end of last year to incorporate human to seed testing protocols in order to accelerate full-scale testing of printed lungs, our technical milestones are reset to support this objective. Our milestone attainment in the second quarter marks a significant step forward in printing technology that underpins this incredible program, one that promises to change the lives of millions of people who are waiting for a lung transplant. I look forward to keeping you updated as frequently as possible on this exciting journey.

So moving back to cost efficiencies. Through actions taken to-date, we've already seen significant cost improvements driven by a reduction in contracted employee costs and professional services, enabled by upskilling the capabilities of our internal workforce. This activity alone represents our third largest opportunity for cost reductions and should drive a reduced OpEx footprint as we move forward.

The next step is to introduce more streamlined back-office processes and greater automation to improve both speed and efficiency in our support functions. We expect these efforts, combined with the focusing of our R&D investments to reduce OpEx spending materially in the coming quarters.

In addition to OpEx, our actions are also designed to positively impact gross margin performance. To do this, we'll leverage our prior strategic decision to in-source manufacturing and supply chain management as we consolidate our footprint globally. Starting at roughly 50 locations worldwide when I first joined the company 5 years ago, we're making solid progress on a path to integrate production and service capabilities to reduce this footprint by over 50% through mid-2026. The benefit from these last two pillars will come from reduced facilities costs, management costs as duplicate teams are consolidated and more efficient supply chain and logistics management.

From a working capital standpoint, consolidated operations and distribution centers are already improving inventory control and manufacturing efficiencies through our Lean and Six Sigma implementations. Notably, this structure also enables a more rapid introduction of new products into manufacturing, significantly improved control over product quality and a heightened level of agility with respect to navigating complex global supply chains that continue to be impacted by rapid tariff changes.

In the second quarter, the positive effect of these actions more than offset the rise in component costs from tariffs, and our goal is to continue on this trajectory. As you can see from our Q2 results, we're well on our way to deliver the benefits from our cost reduction plans. Margins for the quarter were more robust and OpEx was $47 million, a reduction of 27% year-over-year and 24% sequentially. With actions we've taken to-date and those in our plan for the balance of the year, we're targeting to exit Q4 with OpEx in the low $40 million range.

So to be very clear, our top priority is to align our costs with the current market conditions in order to move to positive cash flow in 2026. With that said, we must also emerge from this period with a strong portfolio of new products in markets that will drive sustainable growth and profitability in the years ahead.

So let's now shift to talk about some of our most important growth factors on Slide 7. I'll start with our healthcare business. For many years, we've spoken glowingly about the progress in our Personalized Health Services or PHS business, as it frequently grows at double-digit rates and did so again in Q2. However, as our PHS business has continued to expand and mature, our customers are increasingly asking for additional orthopedic-related products and services. These include a further expanded portfolio of FDA-cleared surgical guides and along with them medical implants for patients. In addition, there is an increasing call for point-of-care services in which we provide trained staff and advanced printing technology within the hospital itself.

Offering point-of-care services is unique to our company and offers us exceptional insights as we work shoulder to shoulder with surgeons to rapidly develop new applications for 3D printing. We piloted this program with the VA, and we've now expanded it to many of the leading research hospitals who are at the forefront of medical breakthroughs. Recent examples range from new ways to rapidly address trauma injuries to novel approaches to treat patients with bone cancer. We then use this knowledge to expand these applications to other hospitals that can benefit from the breakthroughs, which in turn drives growth in our business. This flywheel is in its earliest stage, but we can already see its potential.

Given this expanding business model, moving forward, we will refer to our combined orthopedic activities as our MedTech business, which is separate from our Dental and our Regenerative Medicine businesses, as you can see on Slide 8. These three businesses, which together make up our healthcare business unit, share a common foundation of outstanding quality and regulatory practices and in certain cases, common printing technologies. Supporting over 100 CE-marked and FDA-cleared devices all over the world, we've today brought relief to millions of patients globally.

For perspective, our MedTech business reached over $80 million in annual revenue last year. And this quarter, on trend grew 13% from prior year and 16% sequentially. Our expertise in MedTech is most prominent for personalized solutions targeted Above-the-neck. This area of the human body is our largest contributor to MedTech and has historically been the fastest growing, primarily due to patients' needs for highly customized craniomaxillofacial or CMF implants. Our printing technology has now reached the point where response times allow it to be increasingly used in trauma circumstances, which is a major focus for us over the next few years. Below-the-neck targets applications for areas such as spines, knees and hips. As you can imagine, there's great expansion potential in these areas with an addressable market size in 2024 of over $40 billion. We'll continue to build upon this excellent foundation in the years ahead.

Now turning to another important growth strategy element on Slide 9. An increasingly recognized differentiator for 3D Systems is our ability to help customers not only navigate early-stage process development, but then also scale it to a desired production output with additive manufacturing. In virtually all cases, this now translates to an evolution from process development to limited parts production and finally, to the sale of printers for larger volume production. We are uniquely positioned to support each stage of this customer evolution. Very simply, we call this market strategy the 3P's: process, parts, and printers.

We cover the spectrum from end-to-end, starting with initial exploration and ideation of the value proposition that only additive manufacturing can accomplish. Then migrating through the proof-of-concept to production of end-use parts in limited quantities and ultimately, the customers' capital investment in additive equipment and materials for integration into their production workflow. Each element has its own unique revenue stream, supported by the widest range of technologies in the industry, spanning both metal and polymer printing platforms and materials. And we can do so across the global manufacturing footprint, which reduces supply chain costs and risk to our customers.

To execute this unique business model, we leverage an industry-leading team of application engineers, which we refer to as our application innovation group, who then translate the desired application, which is the problem the customer wants to solve with additive into a fully functioning workflow or process. That process can then migrate into either of the following Ps, either parts or printers. And what we see in many cases, particularly relevant in today's economic climate, is a unique ability to serve as a bridge for them, smoothing the transition from low volume to high-volume production capability. The ability is unique in our industry today, and we increasingly are asked to provide it on a regional basis within the U.S. and within EMEA.

The appeal for parts manufacturing is well known to our industry and has long been a focus of our service bureau partners who are themselves some of our best customers. In that respect, let me be very clear to state that by no means do we have a desire to compete with a service bureau and participate in large quantity on-demand part manufacturing. On the contrary, for industries that require the highest level of complexity with limited quantities of parts that are vital to the customer and economically attractive to 3D Systems, we offer this as an added service, with the ultimate goal being the sale and service of printing systems to these customers.

In this period of time where tariffs are slowing the decision process in terms of CapEx investment in new production capacity, offering this capability to our customers allows them the time needed to fully assess their future needs. With rising demand, we continue to preferentially invest in our capacity to scale the entirety of this value chain.

Turning to Slide 10. We provide a relative overview of how this works within some of our most critical industrial markets. This model speaks to much of the success for our Aerospace business, which in Q2 nearly doubled revenues from last year. That performance represents the effectiveness of our 3P strategy applied to a vertical that now contributes over $30 million of revenue annually to the company. Growth in parts and process succeeded globally, with the U.S. Naval and Air Force wins serviced from our U.S. locations and similar success in EMEA service from our European locations.

From a technology standpoint, multiple wins for our SLS 380 polymer and DMP 350 triple laser metal system were the preferred choice for these applications. We'll continue this approach, particularly focusing on the high reliability markets such as aero and defense, AI infrastructure, oil and gas and power generation, where we believe can increasingly drive our growth moving forward.

Let's now flip to Slide 11 to finish my remarks with an update on Dental. 3D printing for dental has been core to this company for decades and will always be embedded in our DNA. Our leadership in orthodontics is well known and cemented by last year's milestone contract, providing a foundation for years to come. In the long term, this provides stability, it has occasionally resulted in year-over-year variations, which are reflected in the results for this year following a strong 2024. Our outlook in this respect is stable on a sequential basis going forward, and we've launched new products expected to drive growth in the quarters ahead.

Just a few weeks ago, we announced another major milestone in digital dentistry with the full commercial release of our new FDA-cleared NextDent Jetted Denture Solution for the U.S. market. This technology redefines dental prosthetics with revolutionary single-piece multi-material dentures, delivering a distinctive combination of exquisite aesthetics, comfort and outstanding resistance to breakage for an enhanced patient experience. Throughout our beta customer testing, it's been validated with strong endorsements, highlighting effortless usability, unmatched material properties and groundbreaking efficiency improvements of up to 300% versus traditional manufacturing methods.

With our beta testing now complete, we've entered full commercial production for the U.S. market significantly expanding our leading digital dentistry portfolio, which in total addresses straightening, protection, repair, and replacement of teeth. With this specific solution targeting a U.S. replacement addressable market, that we expect to reach $600 million by 2029.

In addition to shipping a few samples of these unbreakable and beautiful dentures to our shareholders, who started to appreciate the potential of this milestone for our business, more importantly, we've begun to ramp our production in the back half of this year for POs already received in the last few weeks.

So with that, I'll turn things over to Jeff Creech, our CFO. Jeff?

Thank you, Jeff, and good morning, everyone. Before I begin, I would remind you that we divested our Geomagic software business on April 1, 2025. Throughout today's call, in addition to comparisons to prior period results, we will also make specific reference to prior periods to exclude Geomagic operations for an apples-to-apples comparison.

With that, I'll begin with our revenue summary on Slide 13. Second quarter consolidated revenue was $95 million, down 16% year-over-year or 11% when excluding Geomagic. Sequentially, revenue was up modestly and when adjusting for Geomagic in Q1, we saw 8% growth. Within our segments, Industrial Solutions revenues of $50 million declined 23% or 13%, excluding Geomagic. This was primarily driven by printer and material softness in consumer-facing end markets. Encouragingly, as Jeff highlighted earlier, this was partially offset by tremendous momentum in Aerospace and Defense, nearly doubling revenues from last year and growing over 50% from the prior quarter.

Healthcare Solutions revenues of $45 million decreased 8% from the previous year, predominantly driven by Dental with 2024 representing a significant year of purchases by a specific customer, as earlier mentioned. Outside of Dental, MedTech delivered impressive growth, up 13% from last year and 16% from last quarter.

Now to Slide 14. For the second quarter, we reported non-GAAP margin of 39%, which compared to 41% in the prior year and 38% when adjusted to exclude Geomagic. Performance for the second quarter was very strong and also delivered a significant improvement on a sequential basis, primarily attributable to favorable manufacturing variances given higher volume and cost efficiencies. Additionally, gross margins include approximately $2 million of benefit associated with milestone recognition within our Regenerative Medicine business.

Now turning to Slide 15. In Q2, we delivered strong cost performance with non-GAAP operating expense of $47 million, down 27% year-over-year and 24% sequentially. This improvement reflects the impact of our restructuring actions, which drove meaningful efficiencies across nearly every function and geography, along with significantly reduced spend on external services. We also saw a benefit from a onetime compensation adjustment.

Looking ahead, we expect continued sequential reductions through the remainder of 2025, targeting OpEx in the low $40 million by year-end with the continued momentum we expect for our reduction initiatives.

Now turning to Slide 16 to finish up the P&L. For the second quarter, adjusted EBITDA of negative $5 million significantly improved from the prior year by $8 million and prior quarter by $19 million, a testament to our profitability first execution. As a result of gains related to our Geomagic asset sale and proactive debt repayment at a discount, we reported GAAP net income of $104 million for the quarter. This resulted in GAAP earnings per share of $0.57, up $0.78 per share from prior year. On a non-GAAP basis, loss per share was $0.07, also an improvement compared to $0.14 per share loss in the prior year.

Turning now to Slide 17 for our balance sheet. We closed the quarter with over $116 million in cash and cash equivalents and $17 million in restricted cash, which is predominantly related to the convertible note refinancing executed in June. Our expectation is that the majority of this restricted cash may be used to address about half of the remaining $35 million in debt due November 2026.

In the aggregate, cash and cash equivalents and restricted cash on our balance sheet totaled $134 million. This compared to $171 million at the end of last year with the decline in cash driven by $60 million used in operations, $113 million generated by investing activities, largely representing the proceeds from our asset sale and $97 million used in financing activities, which I'll expand on momentarily.

In late June, we took proactive action to strengthen our balance sheet, permanently retiring $88 million in outstanding debt at a meaningful discount to par, extending the due date on an overwhelming majority of our debt out into 2030, and repurchasing $8 million of our common shares to reduce dilution. The net result provides a very manageable convertible note maturity of approximately $35 million due in November 2026 and $92 million of senior secured convertible notes due 2030. The 2030 notes have a conversion price of approximately $2.24 per share, a 20% premium over our share price of $1.87 at the time of the transaction.

Looking forward, our improved profitability is already starting to have a positive impact on operations. At the beginning of August, we still held approximately $130 million in global cash and restricted cash and expect a more modest level of cash usage as a result of our cost improvements as we continue to execute against our plans to enable positive cash generation in 2026.

So with that, we thank you for your time and continued support of 3D Systems, and we'll now open the line for questions. Operator?

Our first question today is coming from Troy Jensen from Cantor Fitzgerald.

Congrats on all the improvements here. Jeff, a quick question for you or maybe either Jeff. $80 million you guys said for MedTech, can you just break that out between hardware versus kind of the customized healthcare services that come out of Littleton?

Yes. The vast majority of it is the latter, Troy. It's mainly the personalized health services we provide. We do sell printers, but the -- into that market as well. That's been a little bit influenced as well by the tariff situation because those sites are scattered with our customers around the world. And obviously, we have our own printing capacity in Littleton as well to make parts. So the sale of printers into that market is relatively modest. Most of it is services and parts.

Perfect. So then healthcare combined is MedTech, plus Dental, plus Lungs. Is that kind of how we think of it going forward?

Correct. That's the healthcare business, Troy, and we're just trying to -- because MedTech now encompasses more and more things under the orthopedic banner, we're trying to group that separate it from Dental and then -- and obviously, Regenerative is a new area. So all of that's embedded in healthcare.

Perfect. And then how about just quickly on Dental. I know that's been a vertical you guys have been really excited about with some of these new product launches. So the NextDent 300 is kind of next phase for you guys as far as kind of revenue milestones or products that will kind of start to really help. I just kind of get an update on kind of your Dental progress here.

Yes, Troy, we're still putting together the expected penetration rate of that market, but the economics are so favorable when you move to 3D printing of dentures that I think it will happen relatively fast. And we're not the only provider in that area, but obviously, I love our solution and feedback has been great. So we're hoping to have a meaningful share of that market.

Today, it's $400 million in the U.S., rough number and generally equivalent size in Europe, which requires separate certifications, but -- which are well underway for us. But the U.S. market alone is $400 million. The traditional way they make dentures through a lot of manual labor is expensive and slow. And 3D printing is a fantastic approach. The challenge has been what took us long to get there was multiple materials that you're 3D printing at the same time and getting the aesthetics right and the toughness right because, again, the common way these things fail is by people dropping them in the sink or on the floor that balance was tough to achieve, and we got there.

So I was very pleased we got there. We got FDA certification for it. And we've gone through this really protracted beta testing to prove both the viability of the product, but also the economics and they're excellent. So we'll start giving more color on that as we go into '26. I can tell you right now, folks have been waiting to place purchase orders and they're starting to come in. So we're ramping production here in the third and fourth quarter. And I would expect next year, it will be a material contributor to the Dental business.

Perfect. If I can sneak one last one in for Jeff Creech here. Just gross margins kind of ex-the revenue milestone, it looks like it's about 38%. And just kind of can you confirm that and thoughts on gross margins in the next couple of quarters?

So yes, that's exactly right, Troy. The milestone revenue falls directly to the bottom line. So it does have a very nice lift for us, and it did cause the spike in the margin in the second quarter. What we see for the balance of the year is something that's a little more normalized, something akin to what we started the year off with. So we're going to continue to pursue the manufacturing efficiencies and hopefully drive as much margin as we possibly can. But yes, for certain, the lift in the second quarter was significantly attributable to the milestone revenue.

Next question today is coming from Jim Ricchiuti from Needham & Company.

So I just want to make sure I'm clear on this. Your dental business, excluding the aligner business decline was down about 3%?

Yes. Well, including the drop in aligners, including the drop, which -- and that drop, Jim, to calibrate you, that was 19%, okay? So that was a major headwind. And in spite of that, we dropped -- in total for Dental, we dropped 3%. So we were very pleased with the remainder of the business. And the aligner business, clearly, it's been affected undoubtedly by the economy. Much of that we had anticipated and things that wasn't a surprise to us, but it was a major headwind.

Jeff, putting aside the aligner business, where we know what's happening with the large customer, you're seeing this kind of improvement in the broader dental business without the contribution that you're expecting on NextDent 300 looking out to '26?

Yes. That's exactly right, Jim. That's why this -- the dental industry in total is great for 3D printing and particularly for our company because we've been in it so long. And that's why I talk about all four elements. The straightening is one element that's been foundational for us, but the protection is new with nightguards. We're moving in that direction. We've got repair with our Vertex and NextDent materials, which we've been in for some time. Those continue to grow. And now we've got a brand-new market in dentures which is growing on top of that. So I'm super excited about dentistry. I think 3D printing in total is going to be great for it and 3D Systems will be at the front of that parade. We're very excited about it.

We expect to have the rest of our regulatory approvals around the world done over the next 12 to 18 months, which will, again, multiply the U.S. market by several times. So we are -- today, we've got a $400 million new market to go after with compelling economics and a great product. And then you double that with Europe and then you add on the rest of the world, it's an exciting horizon for us in dentistry.

When you talk about providing trained staff for point-of-care service for the personalized health portion of the business, is that something that's being done gradually? Do we have to think about that looking out next year, potentially layering in more of that and presumably that's going to be accompanied by revenues?

Yes. It is a paid for service, Jim. I don't look at it as a significant revenue generator. What I look at is it's an outstanding application developer. You're right at the front of how they want to use 3D printing in a hospital. And often, this is moving very rapidly. So somebody comes in with a trauma case and they say, can we perform the surgery or even do an implant rapidly to help this patient. And it's pulling us into brand-new applications, brand-new areas. We get paid along the way. It's a nice service, but I don't look at it as a meaningful revenue stream. I look at it as an application area that will move us into new markets. It's confirmed our move into trauma very significantly. So we see outstanding trauma applications coming from this in obviously, bone repair to the skeletal system. And now moving into cancer treatment for bones, it not only provides a lot of bone cancer is very tricky in the way the tumors grow into the bones. So surgical guides, FDA-approved surgical guides are an important element to help the surgeon remove the tumor, but then to help them repair the bone or support the bone in some way through an implant is a great extension for 3D printing technology.

So we've got the polymer and metal technology to apply. It's the knowledge of where to apply it. And that point-of-care service is the tip of the spear. That's really what leads us in these directions. And we're now embedded in most leading research hospitals.

Next question is coming from Greg Palm from Craig-Hallum.

I'm just curious maybe an update on just the broader macro, whether it's sales cycles, feedback activity, any change over the last 3, 4 months since we got our last update?

As I look back, Greg, I mean, clearly, before April, things were sluggish because people were worried about where interest rates were going to go. I mean I'm generalizing, but if I can speak for our customers, they were worried about interest rates, what it would do to the end demand and all that stuff. So there was already a drag on CapEx spending. After April and just the incredibly volatile tariff environment that emerged quickly and continues, customers just started really dragging their feet on CapEx saying they don't know where to put their new production capacity. And it's not that their end demand has been dramatically affected because they don't know where to make the product. So -- and most of these folks have plants all over the world.

So we're working with them. That's frustrating. But on the bright side, if there is a bright side to this, we see an increasing demand for short-term parts supply, limited quantity part production. And again, we're not going to move into the business of being a service bureau. But in terms of responding to a customer where they've proven the process, and this I could give you 100 examples of, especially in the metal arena, for these high-reliability markets, they say, look, we love 3D printing for this application. It's going to work. We don't know where to put our printers. So can you sell us 100 parts? Can you do something to bridge the period? And that's this gap that's opening up right now.

I think it's sustainable. I think we're in a great position to bridge people from process development through limited parts production into putting capacity in their plant with selling them 3D printers. So it's ongoing, Greg. It's not getting better or worse right now. It's pretty stable. I think everybody is just in a wait-and-see mode about where things really shake out in terms of tariffs. In the meantime, we have a new growth area for us in manufacturing parts, and we're going to take advantage of that.

Yes. That's good color. In terms of the dental opportunity, are you planning -- like is this mostly going to be a CapEx sale? Or are you planning on offering some sort of service just because where I'm going with this question is the same dynamics that have impacted the core business, macro, lack of CapEx, like what makes you confident that those same items aren't going to impact the dental opportunity if you're thinking this is going to be a significant contributor next year?

There's two reasons, Greg. Number one, people need teeth. So in terms of a predictable demand, it's highly sustainable in my opinion. So there's not much of an option. The question is how do they get them. And it's a completely different CapEx consideration here because these printers are relatively inexpensive. They're affordable by regional labs. I mean even a dentist office could get in the business if they really tried. So it is the overused word of democratization. It moves dentures from being a very difficult process that often involves overseas labor and all of that stuff to something that can be done locally, regionally, and it could be done nationally as well with preferred economics. But it is so much less expensive. The return on capital, first off, the CapEx spend is lower, much lower than these big metal printers or something that we're talking about for industrial applications. It's much lower. These are much more affordable, and I don't think it's a major impediment for any dental lab of size in the country to buy.

One of the parts of your question was, is it more of the traditional model that we followed, it is. We sell a printer, we sell consumables, we provide services to the printer. That's the model for us. And I'm convinced demand is out there and very sustainable. The price of entry for our customers is relatively low and most often probably do this regionally in laboratories. And the economics are so preferential that the return for them on the capital investment is extremely manageable. You're talking kind of 1-year or less return on capital investment for the printer itself and the post-print processing.

So the economics and the quality of the product, Greg, combined, I think it's going to be just an outstanding business. And not only for 3D Systems. I mean, I think it will be a great business for 3D printing in general, and I want to be at the front of that parade with our product.

Yes, makes sense. And then just last one on the cost reduction program. It felt like maybe you're running a little bit ahead of where you thought you were. So maybe you can just give us a little bit more color on where exactly we are. And just to confirm, I think last quarter, you were talking about being able to reach EBITDA profitability at the sort of mid-90s revenue level. Are you -- when you're sort of fully done, are you still as comfortable with that target, more comfortable, less comfortable? What's your thought there?

Yes, Greg. We're executing to plan. We're ahead of plan in some areas. We're executing to plan, though. And -- so yes, in terms of the ultimate targets, where we're going, absolutely. At this scale, we can be profitable and we can generate positive cash. We have the scale to do that. We've got the mass to basically restructure to do that at this revenue level. So I'm very comfortable with where we're going to get to. The problem is predicting timing. A lot of the headcount changes, if you will, we've done. Those are relatively fast to do, depending on geography, relatively fast. The trickier part is exiting complete facilities and worrying about subleases. Those things can take some time. So that means I have to be a little squishy about the ultimate timing because it depends on somebody subleasing and building in many cases. And those are big dollars for us.

We've got a lot of upside for reducing our footprint. In addition to efficiencies, just getting out of facilities and shedding fixed costs of leases and utilities and that stuff, but it requires somebody to sign a sublease. So we're trying to help them as much as we can and where it makes sense and get it done, but it just takes time. So to answer your question, I'm very comfortable with where we're going. The exact timing on getting there, I'm pleased to date that we're basically running on our plan. Things are going well. We've got some of the tougher things at the end with these facility subleases and stuff we've got to get done as well, okay?

Next question is coming from Trevor Sahr from William Blair.

This is Trevor on for Brian this morning. I just wanted to ask you guys a little bit about as it relates to the second half, some of the other markets like aerospace and defense and AI infrastructure. You guys have given a lot of great detail on Dental, but wondering if you could spend a minute on some of the other markets that are exciting to you right now?

Yes. Aerospace and defense will continue to be an exciting market for us. The only frustration, and it cuts both ways, is it is a slow market to move into. You got to really pay your dues. We've been working at it now for the last couple of years. We've targeted some of our metal printing technology at some nice applications in aerospace and defense around like naval applications. And obviously, there's a lot of flight systems, rockets, drones, things like that. We've targeted our metal printing technology to a lot of those. They take a lot of time, Trevor, to get into, which is why it's been a slower growth. But I don't -- I'm not sure that anybody realized how far we've come.

We're at about a $30 million trailing 12 months now, a little over $30 million of revenue on an annual basis. So it's starting to get up there to be one of our more significant markets. And on the bright side, it's a very sticky market. I mean once you're a reliable supplier to that market, it tends to be very sticky. You get qualified on an application and you've got a good position as long as you execute well, which we will.

So I love that market. AI infrastructure is obviously, that is just changing so rapidly. We've been working with the chip equipment manufacturers for some time now. And there's a lot of very good 3D printing applications in that manufacturing, particularly as it relates to heat management, thermal management of those systems is so critical. And you can do things with 3D printing in terms of the component geometry that you can't do any other way. And so it's a wonderful market. Those are very expensive machines.

So that's -- from our standpoint, they're high-value components, that's good. But in terms of volume, there isn't as many of them because they're very expensive, high productivity machines. Now the growth in chip usage is great for that business. So I love the position we've established. It's taken us over -- well over 3 years to earn that position with some of the semiconductor chip equipment manufacturers. So I like that.

What we're really looking at hard now is thermal management of data centers, and that's primarily around the printing of copper and other high conductivity materials to get heat out of GPUs. How do you best extract heat from a GPU because heat is a killer in terms of degrading chip performance and life. So when you hear people talk about power generation for data centers, a lot of that's around HVAC. A lot of it is around keeping the data center cool and the equipment inside cool. It's not so much around running the chips, which consume very little energy in total. It's around keeping the place cool. Well, if we can help extract heat better from GPUs, we can help make that cooling more efficient.

So that's an area we're exploring very heavily right now. And you can see from the chart, we've got a revenue stream developing there. It's still smaller, but it's exciting. So data center build-out, I think, is very good for us. And then obviously, aerospace and defense, which tends to be a regional business.

So we've got the U.S. OEMs that we've gotten the most traction with. We've also gotten customers developed in Europe that we service out of our Belgium facility for applications in aerospace and defense, which ranges from flight systems to ground and water systems to rocketry. So that's a little bit more color on those. Those are the -- what I would say -- are the two most exciting markets right now. Oil and gas, obviously, is up there, and it's going to continue. There's an emerging demand for customers in those types of industries to reduce working capital. So they want to reduce this billions of dollars of parts they have in warehouses to keep things like refineries and oil and gas pipelines running. So that inventory management is helped by on-demand 3D printing and metal components. We won't be in the business of making those components, but we will be in the business of providing printers to people that want to be in that business and making metal components to get that inventory down.

So a lot of our work in Saudi Arabia around their electrical system and around the oil and gas infrastructure there is geared towards that goal of helping them better manage working capital and improving their ability to respond to urgent needs in their infrastructure. So those are the types of markets we're going after. They have in common are high reliability, high-value components. And again, our approach is develop a process with the customer, do some limited part production as they ask and then as quickly as possible, sell them printers so they can build out their infrastructure to manufacture parts.

Just one more for me, that was a clarification question. Sorry if I misunderstood this, but when you were talking earlier in the call about R&D spend, did you say that you were intending on getting R&D spend down to a more manageable long term level? I interpreted that as we should expect that R&D spend might come down in the following quarters or next year.

Yes, I would tell you, Trevor, when -- if you turn the clock back 3 years, 3 to 4 years, my perception was our portfolio, we had the ability, if we invested heavily in R&D to have the most exciting portfolio of 3D printing products in the world. It was polymer and metal, okay, both. So we set out on that trend over 3 years ago.

We took R&D spending to 20% of sales, which is a big number, a big number. And we did it purposefully. We said, look, we're going to refresh our entire product line, metals and polymers. We can do so largely organically. We have all the seeds to do it from. We got to do that. So we invested. And it takes in this industry about 2 to 3 years to get a new printer out and then supporting materials, year-long kind of cycle times on materials, FDA approvals take another year. So we ramped up, and that includes application development, 20% of sales application development. But we ramped up our own spending to 20% of sales for 3 years. And I would tell you, the last year, that was hard because our sales were under pressure from inflation, rising interest rates, tariffs.

So I think it's a testament to alignment around our strategy that myself, the management team and our Board of Directors had around making sure we have market-leading products, we do. And those are entering commercialization now. So we can -- and I want to be clear about this. We can afford now to take our R&D spend to mid-teens, okay? And bring down that extra spending we were doing for 3 years to get into totally fresh. Now we have to maintain and refresh on a periodic basis, our products. So in total, we spend less money.

The other thing we're doing, Trevor, very deliberately is looking at our return on investment for R&D. I mentioned some of the offshoots of Regenerative Medicine. The technology we're developing for printing human tissue is phenomenal, okay? The Lung Program for us with United Therapeutics is core. We're going to continue investing in that. It's an outstanding program. The side benefit of it is it spins off a lot of really interesting regenerative technology for printing human tissue. We ran for 2 years on that with Systemic Bio to try to print human tissue for testing drugs. okay? We believe, and I believe it's absolutely true, you could test a drug faster and better and eliminate a high degree of animal testing by testing human tissue in the lab, the effect of new drugs.

The reality in that industry is they're slow adopters of new testing technology. And I think for good reason. Look, there are human lives at risk there. So they're very conservative. And reality was for a company our size, that time line just got too long. So we curtailed the effort. We may resurrect it someday, but we curtailed the effort. We put the IP on the shelf for now. But reality is we have the best printing technology for printing human tissue on chips of anybody in the world. It's just the market for that is too long for us right now.

So we are -- those areas of R&D, we are curtailing. The ones where we have clear line of sight and it's short enough to strong markets and we get a good ROI, we're investing in. And I'm confident we can stay ahead of that curve at a level of spending that's kind of mid-teens, okay? So a long-winded answer to your question, but I think it's an important one. So thanks for asking, Trevor.

Next question is coming from Alek Valero from Loop Capital Markets.

This is Alek on for Nanda. So you guys mentioned that tariffs are going to impact OpEx through the second half of the year. And I know you've also mentioned your efforts to fully in-source manufacturing and your supply chain operations. So my first question is, how is the progress going on the in-sourcing? And to what extent are those efforts curtailing further tariff impact?

Yes. So good question, Alek. Let me be very clear on this. So we in-sourced manufacturing and supply chain over the last 2 years. That's virtually complete, okay? We've got a few odds and ends that we're still insourcing, but it's firstly done. We did that for two reasons. Number one, and first and foremost, control the quality of the product for the customer. Our products are moving into production facilities around the world. Customers cannot have quality issues. And we found contract manufacturing just wasn't -- we couldn't command enough attention to ensure quality of our products. So we in-source it all. We have complete control, and I'm really pleased with what we can ship today. It had the added benefit of being more efficient.

So first of all, you're not paying somebody else's profit margin for outsourcing. And secondly, you can drive Six Sigma and Lean programs to get your own cost down. Those benefit COGS, okay? That benefits COGS and it contributes to gross margin, not so much OpEx, okay? It's COGS and gross margin.

So we are pushing hard on those efficiencies to offset tariff impacts on the cost of certain components that we still buy overseas. And obviously, we're trying to qualify onshore suppliers here and in Europe as much as possible. And we can actively work that because we control our own supply chain. So all of those things contribute to COGS and are an offset to tariffs.

On the OpEx side, it's much more around back-office efficiency. So automation of back-office operations, in-sourcing of things that were very expensive professional services that we had outsourced. We're in-sourcing those now to -- we build up our own expertise internally and it's lower cost. And so as we introduce automation, we'll take some of that cost out over the next few years. Those are all OpEx related. And then obviously, the R&D spending contributes to OpEx as well.

So those are the different elements of our cost reduction. Facilities closures and subleases largely contribute on the COGS side of the equation as we consolidate those fixed costs more in the business, okay?

Just a quick other question. Guys, any discussion with your customers around like buying your systems as a way to mitigate tariffs on their part?

Yes, Alek. It's a great thought. And they certainly are having that discussion with us more and more. The problem is where do they put it? So it can mitigate tariffs if you know where tariffs are going to be. The problem they face is the tariff landscape is a moving target. And so they don't know whether they need to do it in the States or overseas. Many of these customers have factories overseas that they're buying for, and they want to know where to put the capital.

So you are absolutely correct in saying that they want to have the discussion. The frustration I think they have is -- not to speak, but the frustration they have is where do they put it? Where are tariffs not going to impact their production. So if they're here in the states, like aerospace and defense, it's a pretty easy discussion. It's bring it onshore, do it here in the States as much as you can. If they have factories around the world, it's a little bit more complicated for them to know where to put it.

So that's the drag we're seeing on POs is them deciding where to put their capacity. And in the meantime, if they -- like in aerospace and defense and other high reliability markets, if they say, look, we see the advantage of 3D printing, sell us a few parts, sell us some parts. That's why we're -- we talk about the 3P's, process parts and printers is there is a bridge there we can supply until they make that CapEx decision. So that's what we're working on right now.

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

Thanks, Kevin, as always. And for everyone calling in, thank you for joining us today. We'll update you again in future quarters. We look forward to the discussion. Have a good 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.