3D SYSTEMS CORP Q3 2025 earnings call

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. With that, I 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. 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 non-core 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. 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 the 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 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 in 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 Solutions 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 of focus for us is the MedTech half of our healthcare 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 innovative 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, including 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 pre planned 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. The 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 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.

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 1st 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 material 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 facility 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 -$10.8 million and 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 two 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. We thank you for your time and support of 3D Systems. We'll now open the line for questions. Operator.