3D Systems - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue declined 8% year over year to $94.5M, driven by dental aligner materials destocking; non-GAAP EPS was a loss of $0.21. The company missed Wall Street consensus on both revenue ($99.46M*) and EPS (-$0.145*).*
• Management withdrew full-year 2025 guidance amid a “virtually frozen” CapEx environment tied to tariff uncertainty, and announced incremental cost actions targeting $20M in-year savings (on top of $50M already in flight).
• Positive mix: second straight quarter of new printer sales growth (particularly next-gen metals), plus Healthcare strength (Personalized Healthcare +17% and medical parts manufacturing +18% YoY) despite macro headwinds.
• Margins compressed on lower volumes/unfavorable mix (GAAP gross margin 34.6% vs 39.8% YoY), and adjusted EBITDA widened to -$23.9M (vs -$20.1M YoY).
• Balance sheet flexibility improved post Geomagic sale proceeds; cash was ~$250M at April month-end and the company is net cash positive relative to remaining converts due Nov-2026, opening liability management options.

What Went Well and What Went Wrong

What Went Well

• New hardware momentum: “double-digit revenue growth” in metal printing platforms despite soft CapEx; wins across all three metal platforms and steady growth in Aerospace & Defense end-markets.
• Healthcare resilience: Personalized Healthcare +17% and FDA/CE-approved parts manufacturing +18% YoY; continued progress with point-of-care innovations (e.g., MDR-compliant PEEK facial implant in Basel).
• Cost discipline: Non-GAAP OpEx fell ~$5M YoY to $61.6M; cumulative savings plan expanded to at least $70M ($50M by mid-2026 plus $20M in-year 2025).

What Went Wrong

• Materials shortfall (dental aligners): materials revenue down 23% YoY with end-of-quarter shipments slipping, as customers lean inventories and move toward just-in-time sourcing, amplifying quarterly volatility.
• Margin pressure from lower volumes/unfavorable mix: GAAP gross margin fell to 34.6% (non-GAAP 35.0%), contributing to adjusted EBITDA of -$23.9M vs -$20.1M YoY.
• Guidance withdrawn and revenue miss vs consensus: Q1 revenue $94.54M vs $99.46M* estimate; non-GAAP EPS -$0.21 vs -$0.145* estimate; the company pulled FY25 guidance due to tariff-driven CapEx freezes.*

Transcript

Operator (participant)

Meetings. Welcome to 3D Systems' first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mick McCloskey, VP, Treasurer and Investor Relations. Thank you. You may begin.

Mick McCloskey (VP of Investor Relations)

Hello and welcome to 3D Systems' first quarter 2025 conference call. With me on today's call are Dr. Jeffrey Graves, President and CEO, and Jeff Creech, VP 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.

Jeffrey Graves (CEO)

Thank you, Mick, and good morning, everyone. As usual, I'll provide some opening comments on our current operating environment, our key initiatives and priorities, and then end with a few highlights of areas I think are important to investors for the future. I'll then hand off to our CFO, Jeff Creech, to provide details on the quarter's financial results. We'll then open up the call for Q&A. With that, let's move to slide five. Let me start by putting the current market dynamics in perspective. Our 3D printing industry broadly is pioneering a new, compelling method of manufacturing products that will take its place over time alongside traditional methods such as injection molding of polymers and casting of metals in factories around the world. This trend is exciting, and it's unstoppable.

These 3D printing technologies bring unique benefits to customers in terms of performance, cost, and dramatically shorten lead times. They also provide an effective means of reducing supply chain disruption risks as the world experienced during COVID, or even as we are going through now with the tariff landscape shifting dramatically and often on a daily basis. Just look at the last 36 hours. As such, each year, 3D printing is earning its way into factories around the world. If this trend is so prevalent, the obvious question is, why are sales weak? The simple answer is the capital spending by customers across most markets is virtually frozen, due in large part to the uncertainty around tariffs.

Speaking specifically for our customer base, with the exception of personalized healthcare, defense, and AI infrastructure to some extent, virtually all others are waiting to see what the future demand looks like and where they will need new capacity to meet this demand cost-effectively. It is that simple. Until this situation becomes clear, I believe CapEx investments will remain somewhat anemic. That means our sales will be impacted for some unknown period of time, and consequently, that we will need to prioritize cost reduction efforts as long as this environment persists. To be very transparent, at 3D Systems, we have resisted this pressure to some extent in order to complete our three-year journey to refresh our entire polymer and metal product lines and bring what I believe are industry-leading printing solutions to market. This is a journey we started in 2022, and we have seen it through.

Over this period, our R&D investment has been held at just over 20% of revenue, reflecting the breadth of our technology portfolio, whereas our competitors that are similar in size are well below this level and declining. This sustained focus in our development programs, combined with the insourcing of our manufacturing operations, which is now virtually complete, is a much different path than others in our industry have taken. I believe the benefits of it will be clear in the years ahead as the market ultimately rebounds. Our technology refresh has been dramatic in scope in that it has spanned all five of our major polymer printing platforms and, very importantly, our metal printing platform, which was at a critical crossroads just a few years ago.

While many companies would have, and many did, bail out on metal printing at that point, given the competitive landscape and the growing threat from the Chinese, 3D Systems did not. Because we did not, I can proudly say that our Gen 2 metal printing systems, which are just now entering the commercialization phase, offer an outstanding combination of performance, reliability, and cost that rivals any platform on the market today. Our focus for these metal systems is on markets that are most demanding, such as aerospace and defense and oil and gas, in addition to applications throughout the human body. Through these efforts, we have positioned ourselves to not only sell great printing systems, but to provide the industry's best application support, as well as the capability to produce limited quantities of parts for customers until they install their own printers or move to a contract manufacturer.

It is this combination of capabilities spanning process development to full production that is unique to our company. We provide these capabilities for mature facilities in the United States, in Europe, and now via our joint venture in Saudi Arabia, which you'll hear much more about in the future. It's a business model that we've successfully executed for years in our healthcare business in areas such as titanium spinal implants, and we're now expanding into specific high-reliability industrial markets. While it's always great to discuss our market-leading photopolymer printing systems because they're truly fantastic, I believe it's absolutely essential for a company in our industry to offer both polymer and metal printing solutions. This is needed in order to ultimately obtain the scale that's required to service key customers around the world as their production demands grow.

Those companies that do not have this capability will ultimately need to develop it or acquire it in order to be successful. This is why I would not trade our position in this industry for any others today, even in the face of a challenging end market. With these investments behind us and our insourcing near complete, it's time to focus on costs in this period of economic turbulence. Last quarter, we announced a new initiative to reduce our annualized costs by over $50 million over a six-quarter period. This involved primarily a consolidation of our operating footprint and a streamlining of our back-office operations. With ongoing sales pressures, however, we will now take the added step of aligning our overall organizational structure with the demand profile we experienced in the first quarter.

While we certainly hope that this market condition is short-lived, that the tariff situation is yet unresolved, it's prudent to assume that it will continue and to adjust our costs accordingly. These incremental cost actions, which will be completed over the next two months, will yield roughly $20 million of cost savings in the current year. Again, this is incremental to the $50 million of savings that is on track for completion by mid-2026, thus providing at least $70 million of cost savings in total. From a timing standpoint, our priority is to get to a positive EBITDA situation as quickly as possible, and then moving to positive operating and free cash flow performance. We believe this is highly attainable at the current sales levels once these programs are completed. With that introduction, let me move to a brief update on our key growth initiatives.

One of the most exciting markets now opening before us is dentistry, and I've spoken to you about this on several calls. When we last spoke, we identified a $1 billion total addressable market opportunity in the United States alone, with Europe and Asia more than doubling this number. We divide this market into four parts: straighten, protect, repair, and replace. The dental repair market, which we've not spoken a great deal about, has been foundational to us for many years, and one in which we have a leading brand in next-gen materials. These materials are FDA and CE approved for sale in all major markets, and they had a record sales performance in the fourth quarter of last year. While the first quarter was slightly softer, the trend is upward, and we expect it will continue, particularly as patient tooth repairs are typically not optional.

In addition to our next-gen materials for the repair of teeth, a significant contributor today to our dental business relates to the straighten market, namely aligners, an application that's been central to our success for decades. With last year's announced signing of the largest contract in our company's 40-year history, it'll remain foundational to our dental business going forward. However, of note, due to the very concentrated nature of this customer base, we can expect more pronounced volatility in the straighten segment as the key manufacturer of these products periodically adjusts their inventory levels and migrates over time to just-in-time material sourcing strategies to reduce overall inventory exposure. This will lead to some degree in quarter-to-quarter volatility in demand, as it did in Q1. Overall, this business remains on a solid growth curve as people around the world increase their use of aligners for teeth straightening.

Finally, as I've described before, an important and exciting milestone is rapidly approaching for our dental business, and that's the launch of our new NextDent 300 jetting system designed specifically for the printing of monolithic dentures. Having gained FDA approval for the dentures several months ago, the launch of the full printing platform is on schedule for full release this summer. It's already in beta testing, and customer feedback is very positive. This will give us full capability to address the U.S. dental market, which is estimated to be over $400 million. That's several times the size of the aligner market. European certification is expected to follow next year, which will significantly add to this market size. Now let's turn to some additional growth drivers and areas of strategic focus for the future.

Our growth in hardware systems and service revenues in this challenging economic climate provides important early feedback on our long-term growth strategy. As we've navigated through a challenging sales environment in recent quarters, we've continued to see demand for new customer application development and specialty parts manufacturing to increase. With respect to industrial companies, we view our Application Innovation Group, or AIG, as a unique enabler that allows us to aggressively address this growing customer need. In the first quarter, the effectiveness of our AIG group was demonstrated most tangibly through the double-digit revenue growth of our metal printing platforms that they enabled, even in the face of a soft CapEx spending environment. Metal parts that are of greatest interest to our customers are typically highly complex in their design and are commonly comprised of special metal alloys for use in high-temperature, corrosive, high-stress environments, which makes them expensive.

Our application engineers work with customers through the entire design and workflow optimization process, printing test parts for validation, and in some cases, manufacturing initial production volumes as a bridge to the ultimate purchase of metal printers, software, and supporting services. This model is proving very effective for us and one that we'll expand upon in the future. As an example of our technology advancement in metals that underpins this growth is the new DMP 350 triple laser metal printing system, which is now in full production. Over the last two years, we've made significant strides in application capability and machine productivity in the 350, culminating in the system's ability to print the highest quality metal parts, having very low oxygen contamination.

This capability, which was an outgrowth of our titanium printing requirements for human spinal implants, is attributable in part to the unique vacuum chamber design of the DMP Flex 350 printers. With this system, argon gas consumption is significantly reduced, which reduces operating costs while yielding best-in-class oxygen levels, less than 25 parts per million, resulting in exceptionally strong, high-quality, high-purity parts. In addition, we recently introduced a removable print module with a larger build volume, making the DMP the most compact system in this size category in the industry. The triple laser system, with its advanced optics, offers high energy input for greater throughput at a system cost that provides a compelling return on investment for our customers. Key markets for this system are defense and aerospace, as well as AI infrastructure applications, with sales spanning the U.S., Europe, the Middle East, and Asia.

A similar story will soon unfold for our DMP 500 Gen 2 system, which is now in operation within our AIG group and is expected to enter full commercial production in the near future. With its larger print volume and greatly enhanced laser system, it will open an even greater range of applications in the high-reliability markets around the world. Now turning to slide seven, our personalized healthcare and medical parts manufacturing business are also key areas of strategic focus for our future. As discussed previously, we're increasing our focus in these critical areas of our portfolio, and I'm pleased to share that medical parts manufacturing and personalized healthcare grew revenues 18% and 17% respectively in the quarter in a year-over-year comparison.

Led once again by our AIG expertise, we partner closely with leading medical device manufacturers, collaborating with them from concept to commercialization of 3D printed implants and instruments within a variety of surgical specialties. Based on the growing demand we see ahead, we've increased our ability to scale this business, unlocking double-digit momentum for our FDA and CE approved medical implants and surgical aids manufactured in our ISO 13485 certified factories in the U.S. and Europe. In our personalized healthcare business, we tailor specific patient-specific solutions, partnering with manufacturers and healthcare providers to transform surgical outcomes for both patients and surgeons. Our multifaceted offerings include advanced design and planning software, creating custom solutions that help translate virtual surgery into the OR, improving outcomes and the overall patient experience.

Our longstanding success in the cranial maxillofacial, or CMF, space was on display again in April when we announced our solutions enablement of the world's first facial implant manufactured at point of care within the hospital in collaboration with the University Hospital Basel. We're now expanding our focus to address new areas of the human body and into new geographies. Accelerants to our growth and the nearly 250,000 patients served through our personalized healthcare solutions business. Before I turn things over to Jeff Creech to discuss our financials in more detail, I'd like to conclude my remarks on slide eight. Given the continuation of economic and geopolitical instabilities and the rapidly shifting tariff landscape, which has so impacted our customer spending patterns, we've decided to approach our outlook for the remainder of 2025 with a conservative view.

This cautious approach, which we believe is prudent, considers the softer than expected start to the year, given the pause we saw in our customers' CapEx spending since early in the year. While we remain encouraged by the new printer and service sales growth during the first quarter, on balance, the year's off to a rough start, and we therefore need to take a more aggressive approach to reduce our cost structure. In order to do this, we'll now execute against two work streams, both focused on profitability improvements, as I've described. The first is our previously announced cost actions, which are on track to deliver over $50 million of annualized savings by the first half of next year. This is largely focused on footprint consolidation and back-office efficiency improvements.

In addition, we've decided to implement an incremental set of actions to deliver an additional $20 million of in-year savings for calendar 2025. This effort will focus on resetting our organizational structure to align it with the demand environment that we currently face. Our continuity in R&D investment over the last three years, combined with our insourcing and manufacturing and supply chain management, have given us a strong foundation to leverage as we now adjust our cost structure in the face of challenging market dynamics. We believe that these efforts will result in a structure and operating model that will deliver positive EBITDA performance and the cash generation levels that are needed to sustain long-term investment in the future.

While I do not like having to pull our 2025 guidance at this point, given the current volatility stemming from the fluid tariff situation, I see no option but to do so. Hopefully, this will resolve itself in the near future. Until it does, we'll be very prudent in our planning and focus on our costs such that we can be profitable at our current revenue levels when these actions are completed. Finally, on April 1st, we announced the completed sale of our Geomagic asset portfolio. The transaction delivered over $100 million of net proceeds to our balance sheet, leaving us in a strong net cash position as we now address our cost structure. As we move forward, our execution of these restructuring plans, combined with our current cash reserves, enable greater flexibility, positioning our leading portfolio of assets to transform manufacturing for a better future.

With that, I'll now turn things over to Jeff. Jeff,

Jeef Creech (CFO)

thank you, and good morning, everyone. I'll begin with our revenue summary on slide 10. For the first quarter, we reported consolidated revenues of $95 million, declining 8% from prior year as growth in services and hardware systems was offset by a decline in materials. Within our segment, industrial solutions declined 7% with revenues of $53 million, with the shortfall driven by material sales. Somewhat offsetting this was growth in printer sales and a continuation of success in aerospace and defense markets. Healthcare solutions revenues of $41 million decreased 9% from the previous year as growth in services was offset by a decline in materials and essentially flat printer sales. Materials performance was primarily driven by near-term inventory adjustments in the dental orthodontics market. However, customer commentary suggests more resilient patient demand to continue supporting the business.

Additionally, as Jeff mentioned earlier, personalized healthcare and parts manufacturing remain integral pieces of our strategy, and we're up 17% and 18% respectively. Now to gross margins on slide 10. For the first quarter, we reported non-GAAP gross profit margin of 35% compared to 40% in the prior year. This decline in period-over-period margin was primarily driven by lower volumes and unfavorable pricing mix. Longer term, we maintain the expectation to drive benefits to our margin profile by way of our announced cost initiatives focused on footprint consolidation, enhanced factory utilization, and inventory management, as well as logistics efficiencies. Let's look at slide 12 for operating expense. Non-GAAP operating expense for the first quarter was $61.6 million, a $5 million improvement from the prior year driven by our cost initiatives.

Looking ahead, we expect our cost management programs, inclusive of yesterday's announcement, to continue to drive a meaningful improvement in operating expense going forward. Turning to slide 13 to finish up the P&L. For the first quarter, adjusted EBITDA of negative $23.9 million declined from the prior year by $4 million, primarily driven by lower revenues and gross margin. Although we continued to maintain an elevated level of R&D investment in the quarter, we were pleased to see an improvement in overall operating expense driven by our cost actions. Non-GAAP loss per share was $0.21 compared to a loss per share of $0.17 in the prior year. Let's take a look at the balance sheet on slide 14. We closed the quarter with $135 million in cash and cash equivalents compared to $171 million at the end of last year, with the sequential decline in cash predominantly driven by operations.

However, first quarter performance includes approximately $10 million of payments to support items outside of normal quarterly operations, including examples such as accelerated inventory purchases in anticipation of potential tariff impacts, compliance requirements, and expenditures on facilities closures, among other things. Immediately following the end of the first quarter, we announced the closed divestiture of Geomagic software portfolio. Gross proceeds from the sale increased cash by nearly $120 million, and we expect to remit approximately $10million-$15 million in taxes associated with the transaction. Before turning to the next slide, I'd like to call out a few important items. As an interim update, accounting for the Geomagic sale proceeds and our April operations, our most recent month in global cash balance was approximately $250 million. We are currently in a net cash positive position in comparison to our outstanding unsecured convertible notes, which are due November 2026.

We are continuing to proactively analyze a range of scenarios to address this maturity that will come due in approximately 18 months. Given the prudent and opportunistic approach to materially reduce the overall balance of this maturity at a highly attractive discount over the last two years, we look forward to providing updates on our plans as we continue to move forward. For slide 15 and some closing remarks. As Jeff mentioned earlier, due to the risk of protracted weakness in customer capital investment spending, we are withdrawing our full-year guidance for 2025 as we continue to focus on delivering profitability at our current scale. We believe with our strong new product portfolio spanning all metal and polymer platforms that we are well positioned for accelerated growth and profitability when customers' spending on CapEx rebounds.

We thank you for your time this morning and your continued support of 3D Systems, and we'll now open the line for questions. Operator.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment for your first question. Our first questions come from the line of Troy Jensen with Cantor Fitzgerald. Please proceed with your questions.

Troy Jensen (Managing Director)

Hey, good morning, gentlemen. Thanks for taking my questions here. Let me start out with you, Dr. Graves.

Just to comment on aligner inventory and the movement to just-in-time, can you go into that a little bit more and just kind of let us know what you think kind of the current material inventory levels are in numbers of weeks or something?

Jeffrey Graves (CEO)

Yes. I'll take a shot at answering that, Troy, and it's great to hear your voice. In the aligner market, it continues to be a growth market all in all. If you listen to the commentary by the companies that are in that space, it continues to be a growth market. It may have moderated some, but it's still a growth market and moving global. As the dominant companies there have gotten more sophisticated and larger, and as their growth rates have slowed, they're just paying a lot more attention these days to inventory and working capital.

I think it's a common symptom of a maturing business where they have a more sophisticated infrastructure to manage their inventory, quite frankly. They can move to, if not a day-to-day process, a much more controlled environment. With factories around the world, the money they tie up in working capital is significant. It's a big payoff for them. As a supplier to them, what it means is, as they go through that transition, just a lot more volatility in forecasts and things to us. We have a great relationship with them. We talk to them on a daily or hourly basis about meeting their supply needs. It's clear that they're migrating to a more sophisticated approach to do it, and with that, they'll be closer in matching supply with demand.

In the past, when they were growing really fast, Troy, I think it was just, "Just make sure you never—you always had materials on supply," quite frankly. I am speaking for them, but the attitude they projected was very much, "Look, just make sure we have all the inventory we need to make sure we keep all the manufacturing running." Now, with a more volatile economy around the world, I think it is just a more prudent way they are managing their inventory reserves and their inventories. For us, that transition can be a little bit volatile. We had a very good year last year. We saw some softness in Q1, some of which was expected, some of which was a bit of a surprise. The public commentary is their business continues to grow. Obviously, as their key supplier of materials, our business will, over time, grow too.

I would not read too much into it. It is a symptom of growing up and becoming more sophisticated. As a supplier, it leads you to having to be a little bit more nimble. You can expect a little bit more volatility. We are in the early phases here of a multi-year contract. Long term, I do not worry about the business. I love it. I just want to focus on executing well. In the shorter term, there can be some quarter-to-quarter variations, which are always painful, but you just move on. That was the story of the first quarter. I would not read anything more into it than that. The aligner business is still a great one. There will be more and more customers in that field, by the way. I believe it is something people are using around the world.

So somewhere in there, did I answer your question, Troy?

Troy Jensen (Managing Director)

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

Jeffrey Graves (CEO)

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

Troy Jensen (Managing Director)

Perfect. Very helpful. All right. So then my follow-up question. With all the cost cuts going on, I've known over the past couple of years, you've entered some new markets via acquisitions and acquired new technology.

Does it make sense to maybe completely exit some of these new technology areas that just are nascent with respect to your revenues right now?

Jeffrey Graves (CEO)

Yeah, Troy, that's an excellent question to always ask, especially when sales are off. What can you, with greater assurance, really focus on? Some of the acquisitions that we did of new technologies bringing in and integrating, they're clearly winners. I love our extrusion technology with the Titan platform. We're fully integrating that. The Camovis acquisition for some of the cranial implants, great technology. We can fully integrate those, get cost out, and just keep running. Those are great. Some of the stuff that we've moved into in regenerative medicine, I'll be candid with you, our lung program with United Therapeutics is fantastic.

If I go back three years ago, it spawned some truly novel technology that we really wanted to explore and see what the potential was of it. Everything from printing other types of human tissue to looking at the pharmaceutical market and tissue printing for those, organ-on-a-chip printing, basically, for testing of drugs. Those were exploratory efforts. There were the R&D efforts to see how far we could carry the technology and to lock up some IP for the future, things like that. When sales are soft, you start looking really hard at those R&D investments and say, "Should I rein them back or even pause them for a while and let the world kind of stabilize?" That is very much the mode we're in right now. We are picking our priorities. Again, our organ program is fantastic.

The partnership with United Therapeutics, the lung work, there'll be, I think, revolutionary things that come out of that in a couple of years. The spinoffs of that technology are going to slow down, undoubtedly. The other benefit is we can carry some of that technology into our industrial printers. For example, very high-precision projection systems has been a real boon for the industrial space and things like electrical connectors and other applications. We are exploiting that now, putting some of that technology into our industrial printers. We'll continue doing that. We are going to focus, Troy, the mantra is focus on the markets that you're absolutely certain are moving in the right direction for 3D printing. For personalized healthcare, winter, it's core to our being. Both the design of surgical procedures, the surgical aids, and the parts, that's great. That's a fantastic business for us.

We'll continue expanding throughout the body there. On the industrial side, I think you'll see us moving from a broad-based supplier for all industries to, over time, to a more focused supplier to the high-reliability markets. Aerospace and defense, oil and gas, AI infrastructure is great for us, that kind of stuff. Those clearly benefit from 3D printing a lot. When we've got really good technology synergies with our healthcare business, you'll see us really focus on certain markets. I tried to say it in the opening script, our business model is going to migrate over time a little bit. What we're seeing from customers, Troy, is a demand not only to demonstrate that a part can be made, but to actually then make it in some limited quantities. We are not going to be a service bureau.

I will tell you, especially in metals, our ability to manufacture limited volumes of parts is going to grow for those high-reliability markets on a bespoke basis for certain customers to actually bridge them. Because these systems, all in all, are fairly expensive, these metal printing systems. Customers have to watch their CapEx spending. If you can bridge them to a period where they can either decide, "Okay, I'm going to buy printers or I'm going to outsource to a contract manufacturer," that's really valuable to them.

In our metals business, while you do not get a lot of the consumable pull-through, we are updating the model to say, "Yeah, we will demonstrate the process with your materials, which are often exotic, and we will do some limited part manufacturing for you in order to bridge you to a higher volume future." I think that combination is how we continue to drive gross margins up in the metals business versus the consumables, which have always been a big part of the polymer business. That is a long-winded answer to your question. I hope, again, somewhere I addressed it.

Troy Jensen (Managing Director)

Yeah. Thank you, Jeff. Good luck, guys, this year.

Jeffrey Graves (CEO)

Thanks.

Operator (participant)

Thank you. Our next questions come from the line of Greg Palm with Craig-Hallum Capital Group. Please proceed with your questions.

Greg Palm (Senior Research Analyst)

Hey. Good morning. Can we just maybe go back to the quarter and spend a couple of minutes?

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

Jeffrey Graves (CEO)

Fair question, Greg. So two factors, and they both relate to either POs or shipments. On the materials side, you're right. I mean, we were expecting that your magnitude was off, but I mean, you were right. We were expecting, as always, there's interquarter shipments for materials, particularly, frankly, in the aligner market. There's always plans for shipments at the end.

Some of those logistics, we do not control, and we do not have direct control of. Some of those, we prepare for and in good faith expect, but they can often slip into the new quarter. There is a bit of materials part of that. We have no real visibility of that until the last day of the quarter. It is often very back-end loaded. On the equipment side, it is a little bit more interesting answer, probably no more satisfying. On the equipment side, we are penetrating real production environments now, okay? Especially in metal systems or the big polymer systems where the ASPs are higher, a lot of those deals end up happening. Those POs will have the finished goods in stock and ready to go, and we are waiting on the PO to be issued.

We saw in Q1 a particular spike in POs that were relooked at, that were, I wouldn't say all even pushed out. I would say that's where my comments around customers revisiting how they're spending capital. There's a broad, I think most every company that has industrial exposure, there is a broad relook at where they want to put factories and where they want to put production capacity. We felt the brunt of that of people saying, "Hey, with good intention, we had you prepare this. We're not going to issue the PO right now." In many cases, it just slips into the next quarter. I think that trend will continue. In some cases, it's a, "Hey, they put it back in their pocket and say, 'I got to reevaluate where I want capacity. Do I want it in the U.S.?

Do I want it overseas? Some markets, much more predictable, like aerospace and defense, no doubt. A lot of that is headed toward the states and verticalizing their supply chain. That is great. We love those. Those we saw very little movement on at the end of the quarter. The closer you get to a consumer-driven good or something like that, and the more extended the supply chains, the more they are really looking at where they put their factory capacity. It is incredibly frustrating, I would tell you. I am sure it is frustrating for our investors. It is an embarrassment to miss revenue like that when you are so close to the end of a quarter. That is the reality right now, which is why we are just saying, "Look," we are kind of saying, "Look, the world is going to be volatile this year. We are going to focus on cost.

We're going to get our cost down. Let's assume the world doesn't get any kinder, and let's just get cost out of the business and kind of right-size it for the current demand environment. I wish we had been more accurate at the end of last quarter. I'd like to say it was out of our hands, but it sounds like an excuse. It's the reality of the world we live in right now. Frankly, Greg, it's why we pull guidance, because I don't want to put numbers out there that we can't hit.

Greg Palm (Senior Research Analyst)

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

Jeffrey Graves (CEO)

The material sales in Q1 in total? Is that the question?

Greg Palm (Senior Research Analyst)

The year-over-year revenue decline. Yeah. I mean.

Jeffrey Graves (CEO)

Yeah.

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

Jeef Creech (CFO)

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

Jeffrey Graves (CEO)

It's interesting, Greg, and I'll get off this question in a minute. When you look at the impact of tariffs, the bigger impact for us, and I think it's this way for a lot of companies, is not so much in the purchase components that come out of China or elsewhere. It's in logistics costs. Where are you shipping stuff on a transitory basis? Where are you warehousing things? Stuff like that. The desire to bring inventories down, it is a little counterintuitive. You would think people would lay in more inventory when there's a risk of tariff ahead. When you look at the logistics costs and the effect of tariffs when you ship to one warehouse and ship to another geography, it can be really significant.

When we talk to our customers about, "Hey, why would you bring your inventories down?" Certainly, the soft economy can do that. The unknown risk of tariffs, there's a big ripple effect on logistics costs, which companies are really starting to try to manage. To minimize that risk, they start bringing inventory levels down. I think that was a big part of what we saw even in the aligner market. Some of it was just, obviously, it was inventory adjustments. I think it wasn't all demand-related. A lot of it was interim cost-related as they ship materials around the world. I understand that. We go through the same analysis ourselves, and it's really maddening. Yep.

Greg Palm (Senior Research Analyst)

Understand. In terms of the path to profitability, I guess when these current cost savings programs are completed, do you have a break-even rate in mind?

I think you mentioned profitability at current revenue levels. That implies like $95 million. Is that the case, again, when you're sort of fully completed with the $70 million?

Jeffrey Graves (CEO)

Yeah. It's a rough number, Greg. Our goal right now is we're driving to be profitable at current revenue levels when you analyze that. That assumes we get all of our cost takeout finished up, and it's all flowing through. We're just making this macro assessment saying at the current revenue level, we need to be profitable and generate positive cash flow. Let's adjust our cost structure to get there. We've spent a lot of money in the last three years refreshing our portfolio and insourcing manufacturing. We're in a great position to do it. Let's focus on it and assume the world stays as it is.

If they get tariffs figured out and the world turns brighter, there will be just upside from that. That is our goal. We are not laying out a specific date, but what I will tell you is our cost actions we are taking right now are aimed to get us there when they are all implemented at the current kind of revenue levels we are seeing. Okay?

Greg Palm (Senior Research Analyst)

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

Jeffrey Graves (CEO)

Thanks, Greg.

Operator (participant)

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

Brian Drab (Equity Research Analyst)

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

I'm just wondering, what are the options as you view them?

Jeffrey Graves (CEO)

Hey, Bryce, good to hear your voice. Our current rate's zero. It's been great debt, actually. I mean, we went to market just at the right time a few years ago. That was great. Unfortunately, that will come to an end, and we'll do something. Whatever debt we have remaining undoubtedly will be at a higher interest rate. We're looking at all options, Brian. We'd love to have the cash and just pay it off. If the world looks tough and we want more cash on the balance sheet, we're looking at options to roll the debt forward. I'd say everything's on the table. We wanted to wait to get the Geomagic sale done and the cash in the bank, which we've done now.

Now we're going through a thoughtful process to say, "Okay, how do we want the balance sheet to look? How much debt do we want to have left?" To your point, it's going to carry some interest rate. How much of it can we just pay off? How much comfort do we have that the world's going to get kinder? How much cash do we want to have remaining? Those are the variables we're going through. We're marching down the path of assessing those options, reviewing them with the board, and we'll make a decision in the very near future about what we do.

Brian Drab (Equity Research Analyst)

Okay. Thanks.

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

Jeffrey Graves (CEO)

Yeah. Brian, I'll tell you, that's an absolutely great question because that's the debate you go through. We have stubbornly held on to our R&D spend, particularly for the last three years. We've been spending 20% of sales, and it's been very deliberate. Our competitors have all cut back. They've all throttled back. I understand why, because current demand is soft. I really believe, Brian, on the rebound, these new systems will sell very well.

I also believe, as I said very clearly, I think for a company to be successful, you're going to have to have polymers and metals both. You're going to have to have a range of polymer solutions because they're all good for different things. I love our portfolio. Unfortunately, it is expensive from an R&D standpoint to maintain it all. We had a big hill decline three years ago in refreshing the whole thing. We've done it. I mean, it's not all commercialized yet, but it's all past the point of intense spending for development. You can never stop, but you can throttle back on the rates and just kind of maintain momentum. Kind of like riding a bike up a hill. You got to work real hard to get near the summit.

You still got to pedal, but it takes less effort. You can afford to take some cost out at that point. We are to that point. I'd say the same thing with insource manufacturing. I think it's a strategic advantage for us to be able to make our own products because of the quality control and the mix that customers want. We directly do that now, predominantly here in South Carolina, and it's a great asset for us. The art of it now is picking what we maintain investments in for growth. I can tell you very clearly, Brian, healthcare is top of the list. We love that. It's great. Personalized healthcare, which are implants in the body, is great. The regenerative medicine program, fortunately, we have a great partnership on that that helps us bear the cost.

That's going to be an incredible business in a few years for us, I believe. The dental business, as you and your team saw at the lab day show in Chicago, the dental business is going to be a great one for us. I love it. It's a billion-dollar industry in the U.S., and we're well-positioned for it. Those all make the cut. On the industrial side, aerospace and defense is something we're focused more and more on. We get a lot of requests now for parts for the Navy and for the flying Air Force for a range of purposes. Some are lightweight, high-temperature materials. Some are for corrosion resistance. Lead times on these exotic system parts are outrageous through traditional means.

We've told a story a fair bit now, but one of the submarines in the U.S. fleet, we were able to turn parts around in days with a very exotic alloy that goes on a submarine. We were able to turn them around in days, and their lead time through traditional methods was over a year. Getting that sub out of dry dock and back to sea, those kind of benefits are real. They're extremely valuable. We're going to do more of that. Our metal printers have been designed for that. We're going to do more of it, and we're going to expand some part manufacturing to bridge customers until they buy systems. Because what we've been seeing, Brian, is people say, "Yeah, I love the process.

It'll take me a while to get my capital request through." You see a loss of months and months in a purchase order, but they still need parts. We're able to go into limited production. We are not going to be a service bureau, okay? When we've helped a customer develop a process, we're going to offer to make parts for them in certain cases up to a certain point where they can either buy a printer or they can move it to a contract manufacturer that they choose. We will help them with that. That's our business model, especially in metals. We will do it in aerospace and defense. We're already doing it in AI, in our AI infrastructure for data centers. We will do it in oil and gas. Our JV in Saudi Arabia is great for that.

It gives us great insights into the oil and gas industry. We are using that combined with our relationship with Baker Hughes and others to really drive penetration in those markets, those high-reliability markets. We will always continue to provide printers to our service bureaus and other more consumer-driven applications as needed. More and more, it will be a bespoke industry for us. In those high-reliability markets where we are so good, we will leverage what we have done in healthcare into the industrial space. Again, I apologize for the long-winded explanation, but you asked a very good question about focus, and I hope I have answered it in that little speech I gave you. Anything else, Brian? Okay.

Brian Drab (Equity Research Analyst)

Sorry, I did mute because I am outside and it is noisy. No, no. That was all very helpful.

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

Jeffrey Graves (CEO)

It's going to be a fairly evenly split between cost of goods and OpEx, Brian.

The devil's in the details there, as you pointed out. We'll come back to that in the future with you, okay?

Brian Drab (Equity Research Analyst)

Sounds good. Yeah. Thank you very much.

Jeffrey Graves (CEO)

Thanks.

Operator (participant)

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

Alek Valero (Equity Research Analyst)

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

Jeffrey Graves (CEO)

Yeah. There are two areas you can think of for AI infrastructure. Actually, three. One of them is in making chips, okay?

The semiconductor equipment manufacturers, the folks that make the equipment to print the chips, they're involved in that very expensive machinery for a very good reason. The precision in making a chip, it has to be extremely high, and the machine has to be extremely stable. One of the attributes of it is getting heat out of it and to make sure it's thermally stable, okay? Extremely, and obviously structurally stable. We can make basically collections of components that are normally bolted or welded together. We can make them in single printings. We can also make hollow structures that allow heat to be removed very quickly from the platform where the chip's printed on. In the end, we can make very stable platforms to print chips on and with fewer part counts. You get some cost out, you get higher performance.

It's perfect for 3D printing. We've been at that for several years to work our way in, and now's the time. I love that business. It's hard to work your way in, and we're there on the chip-making side. The interesting second area that's opening up right now is, as people are building these massive data centers, getting heat out of them is a huge challenge because of the electronics. Getting heat out is an enormous challenge. We can print pure copper or high-purity copper with some strengthening agents in order to, with exotic shapes, get heat out of a data center more effectively, very simply. Whether it's a GPU or the entire data center, we can get heat out much more effectively. You'll see copper printing primarily for that as a growth area for us in the future.

Then you've got the whole electricity supply question from people like General Electric and others that are having to put in capacity to supply the massive amounts of energy needed by data centers. 3D printing has a key role to play in those machines, those turbines, whether it's for turbine blades or other infrastructure in the turbine that has to be cooled. 3D printing has been there for some time and will continue to grow. There are three areas in AI infrastructure we're very excited about: chips, data centers, and energy production.

Alek Valero (Equity Research Analyst)

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

Jeffrey Graves (CEO)

The most stable areas are the most predictable. It's the best to be in right now. Aerospace and defense is great, okay?

We have historically had a smaller presence there. Metals for us has been instrumental in getting into that business in a bigger way. It will be an investment area for growth for us because we are a U.S. company. We have our full capability here in the States as we want to exercise it for the U.S. Defense Department and others. We also have facilities in Europe for the European aerospace business as well up in Belgium. We have great capability locally to handle sensitive data, to manufacture parts, develop processes, and ultimately to sell printers. Aerospace and defense is a big area. Again, AI infrastructure tends to be a very regional business when it comes to data centers and energy production. I like that area very much. It is good. Oil and gas, clearly, oil and gas needs are going to go on for decades to come.

We've made a lot of inroads there. Those industries aren't as affected by tariffs, and we like them very much. The same would apply to our polymer systems in those same industries. The closer you get to the consumer, the more extended you get on supply chains, those are less exciting right now because of the tariff volatility. We just have to see where people want to put capital. Once they make those decisions, they can be great markets. In the short term, many customers are pausing or reducing their CapEx spend, waiting to see where all this discussion goes in the world, okay?

Alek Valero (Equity Research Analyst)

That was really helpful. Thank you.

Jeffrey Graves (CEO)

Sure.

Operator (participant)

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

Jeffrey Graves (CEO)

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

Operator (participant)

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