3D SYSTEMS CORP Q1 2026 earnings call

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 the 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. 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. Let's turn to slide five. The additive manufacturing industry is now beginning to emerge from a multi-year 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 five 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 derive the highest value from R&D investments, we focused them intensely on our three key growth markets: aerospace and defense, medtech, and dental. These markets in particular 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 six, our Q1 highlights tell a story. Solid growth in printer sales, increased momentum in part 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 seven. In medtech, 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 healthcare customer as they prepare to purchase printers and transition to high volume parts manufacturing, likely to complete in 2027. This example illustrates the three-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 eight, 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. 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-Dental and is now beginning to be reflected in our dental revenue performance. Turning to slide nine. As you know, we've been very excited about our new product launch in the denture market. Two quarters into 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 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 Laboratory 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 E.U. Phase IIA approval for our denture printing solution two months ahead of schedule.

With both U.S. and E.U. regulatory approvals now in place, we've significantly expanded our addressable market to more than 60 million edentulous patients, roughly one-third of the global market. This represents a multi-billion 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 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 five 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 and 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 two 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 sinter 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. 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, 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 the 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. Finally, turning to slide 12, aerospace and 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.

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 and defense, each achieving meaningful double-digit growth in the quarter. Performance within aerospace and 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 and 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 healthcare parts, particularly for orthopedic medical implants. 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. We continue to realize incremental savings from the cost reduction initiatives executed throughout last year.

Through the end of the first quarter, we have 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 six-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 300W 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. 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 OpEx 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-$95 million with an adjusted EBITDA loss in the range of $2 million-$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 two months ahead of plan. Our manufacturing capacity expansion in Littleton remains on track and will help support the growth of our aerospace and 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?