In Q2 2025, 3D Systems reported consolidated revenue of $95 million, down 16% year-over-year (11% excluding the divested Geomagic software business), as tariff uncertainty continued to suppress customer CapEx spending on new production capacity; however, continuing operations grew 8% sequentially, which management viewed as a welcome stabilization. Aerospace and defense nearly doubled year-over-year and medtech grew 13%, partially offsetting weakness in industrial printers/materials and a 19% decline in aligners. The 'Profitability First' restructuring drove non-GAAP OpEx down 27% to $47 million and improved adjusted EBITDA to -$5 million, while the company strengthened its balance sheet by retiring ~$88M of debt at a discount, extending most maturities to 2030, and repurchasing $8M of shares. Management targeted over $85 million in annualized savings by mid-2026, low-$40-million OpEx by year-end, and positive cash generation in 2026, while highlighting the NextDent denture launch, aerospace/defense, AI-infrastructure thermal management, and parts-bridging as key growth avenues.
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 period of 2024. With that, I'll turn the call over to our CEO, Dr. Jeffrey 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. Let's turn to slide five. 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 medical 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 non-core Geomagic software platform, our June debt transaction, and share repurchase. Taken in combination with our restructuring actions, we believe this places the company well in the path to sustainable profitability and long-term growth. We still have much work to do. Let's now move to slide six 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 insource manufacturing two 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 timeline. We're focusing on those that deliver the most compelling ROI that matches our internal mandate to return to profitability. We're 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 timeline given the conservative nature of the pharmaceutical industry in adopting new test methods. 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've 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 continue 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 decedent 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. 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 insource manufacturing and supply chain management as we consolidate our footprint globally. Starting at roughly 50 locations worldwide when I first joined the company five 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-segment 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. 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. Let's now shift to talk about some of our most important growth vectors on slide seven. I'll start with our healthcare business. For many years, we've spoken glowingly about the progress in our personalized health services, or PHS, businesses as it frequently grows at double-digit rates and did so again in Q2.
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 a 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 in geography, along with significantly reduced spend on external services. We also saw a benefit from a one-time 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 -$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/share from prior year. On a non-GAAP basis, loss per share was $0.07, also an improvement compared to $0.14/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/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. We thank you for your time and continued support of 3D Systems, and we'll now open the line for questions. Operator?