Q4 2020 3D Systems Corp Earnings Call
Okay.
Good afternoon, and welcome to three D systems Conference call and audio webcast to discuss the preliminary results of the fourth quarter and full year 'twenty 'twenty.
My name is Brock and I will facilitate the audio portion of today's interactive broadcast.
At this time all participants are in a listen only mode.
From an answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, the conference is being recorded at this time I would like to turn the call over to Melanie Solomon Investor Relations.
Thank you Brock good morning, and welcome to three D Systems Conference call with me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer, Jack turned a robust Chief Financial Officer, Andrew Johnson, Executive Vice President and Chief Legal Officer, and John Neitzel, Other Vice President and Treasurer.
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.
For those who have accessed the streaming portion of the webcast. Please be aware that there may be a few seconds delay and that you will not be able to pose questions via the web.
The following discussion and responses to your questions reflect management's view 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 last night's press release, and our filings with the SEC, including our most recent.
We'll 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, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.
Finally, unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2019.
Now I'm pleased to turn the call over to Jeff Graves, our CEO Jeff.
Thanks, Melanie and thank you all for joining our call. This morning.
Before we begin let me wish all of you are healthy and happy New year ahead, 2020 was an unprecedented year for everyone's dealing with the COVID-19 virus, but I'm happy to see improvements around the world is the new vaccines are being distributed in increasing numbers.
The 2021 will be a much better environment as we emerge from this crisis period.
Before discussing our progress in 2020, let me comment on the postponement of our 10-K filing.
As you know one of our key actions last year was to begin divesting assets that were not core to our additive manufacturing business. We quickly prioritize the sale of our two software businesses Gibbs Cam and Cimatron. There we're focused on subtractive machining technology.
This divestiture more complex to execute went very well and we closed at the end of the year, which allowed us to eliminate our debt and have cash on the balance sheet for future investment.
Well this was a great outcome auditing of the presentation of our cash flow statement proved more challenging than expected driven in part by the geographic diversity of the divested assets.
Our auditors have asked for a little more time to bring their work to a close we therefore file for an extension of our 10-K.
With that said, we were very pleased to be able to release, our Q4 and full year operational results last evening, which we have labeled as unaudited for clarity and to discuss them with you today.
With that let me now recap the progress we've made in our business and our view of the future.
For three systems 2020 presented both significant challenges and along with them clear opportunities for us to focus our company on what we believe will be an accelerating need for additive manufacturing across many industries moving forward.
Many of you may recall that one of my first actions upon joining the company last may was to clearly define our purpose statement that is to be the leader in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products.
Using this as our guidepost. We then developed a force stage plan to deliver increased value to both our customers and our shareholders.
Our full price plan was simple.
Reorganized into two business units healthcare and industrial solutions.
Restructure our operations to gain efficiencies divest non core assets and invest for accelerated profitable organic growth we.
We've set aggressive measurable goals and timelines and focused intensely on execution.
These efforts began bearing fruit quickly with a return to growth in Q3.
Rapidly building momentum on both our top and bottom line in Q4.
I am proud to review a few of the high points from our Q4 with you. This morning with <unk>, providing greater detail to you in a few moments.
From a top line perspective, the results really speak for themselves with our health care and industrial businesses delivered exceptional double digit revenue growth on a consecutive quarter basis with our health care business, even surpassing last year's pre COVID-19 performance by a significant margin.
From a bottom line perspective, the combination of volume growth and the increasing benefit from our restructuring efforts improved operating margins significantly returning the company to profitability and positive operating cash performance.
This was our first quarter of year over year revenue growth since 2018, and we delivered it while still battling the worst global pandemic in modern history, and while executing a massive top to bottom reorganization and restructuring of the company.
Could not be prouder of our leadership team and our tremendous employees worldwide, who never took their eye off meeting our customer commitments through all of this change.
This success has left us in a terrific position moving forward as the virus subsides and the world begins to recovering in earnest later this year.
With that quick summary, let me share a few highlights from each phase of our plan.
Let's begin with reorganization.
As a reminder, our company is focused on application specific solutions for our core vertical markets health care and industrial.
Over the second half of 2020, we reorganized our sales and marketing activities, combining our hardware materials software and services resources into a unified application oriented customer focused organization.
Rather than having multiple independent teams as in the past.
This reorganization not only improved our sales efficiencies. It also allowed us to work much more effectively with our customers on specific application solutions, which is a cornerstone of our strategy moving forward.
Within each of our two business units, we have market specific vertical leaders focused on key growth markets, such as dentistry personalized health services and medical devices within our health care business.
And aerospace automotive electronics and consumer products for our industrial business unit.
These business and market leaders determined both our go to market strategies, and our development priorities for new products and services, ensuring this specific customer application needs are kept at the forefront of our resource allocation process.
In addition to these changes in our sales structure. We also created a new group we call our customer success team. This.
This group ensures that our customer needs continue to be met after their initial purchase over the life of the system.
It includes servicing and upgrades of the equipment, providing our customers immediate access to our rapidly expanding materials portfolio and delivering software upgrades that drive improved efficiencies in their manufacturing environment. These.
These benefits ensure that the value our customers receive from their <unk> systems solution growth substantially over the life of their ownership, which can often exceed 15 years from the initial purchase.
A testament to our success in delivering this value as seen in our customers' operations around the world each day.
<unk> systems technology provides over a half million production parts every 24 hours 365 days a year.
Which is more than the rest of the industry combined.
And with the breadth of our additive technologies now spanning an enormous range of plastic and metal application solutions, we are well positioned to build upon this foundation at an even faster pace moving forward.
So with an understanding of how we're organized so let me comment briefly on our sales performance in the fourth quarter and the current market dynamics.
For our healthcare business, we delivered exceptional growth in Q4, and notably notably this growth was seen broadly in both dental and medical applications. The latter of which includes medical devices personalized healthcare simulation systems, and moving forward regenerative medicine or <unk> printing for short.
I'll comment further on this new area of the business in a few moments, but for now suffice it to say that our health care business exited the year following firing on all cylinders and we're very excited about the short and long term outlook for this business.
For our industrial business, while we are still in a recovery phase from the extreme softness we experienced in the middle of 2020 in Q4, we were pleased to build upon the positive momentum we have established in Q3, our industrial business growth reflected increased demand in markets like aerospace automotive and consumer applications as the industrial.
<unk> continued to slowly recover.
We expect this momentum to continue in 2021, however, the risks of Covid headwinds still linger until the vaccines are more widely distributed later this year. Once these pressures fully subside, we're very bullish on the outlook for this business.
Next I'll spend a few minutes summarizing our restructuring efforts.
Last summer, we announced the restructuring program that was designed to ultimately yield $100 million of run rate cost savings with $60 million to be achieved by the end of 2020.
I am pleased to say that we achieved our $60 million savings target by year end.
And that our efforts are continuing unabated looks.
Looking ahead, we have detailed plans within our core additive business to deliver an additional $20 million in savings this year.
The balance of the 100 million linked to our analysis of future divestitures.
As these efficiencies are realized we will make prudent investment decisions to support the increasing opportunities for growth and profitability that we see ahead for our company and for the additive manufacturing in fracturing industry in total.
Jack will talk more about this in a few minutes.
Moving next to our divestiture efforts, having defined our company focus last summer, we progressively evaluated all of our assets using this lens. It quickly became clear last year that certain of our businesses while good performers in their own right clearly did not fit well within our focus on additive manufacturing.
As such we began discussions with interested parties in several areas and successfully completed the sale of Cimatron and Gibbs Cam at the year end. These.
These two businesses were focused on digital machining technologies and as such were outside of our core completion of this sale broadest increased organizational focus while enabling us to eliminate our debt and add cash to our balance sheet for future investment. We will continue to evaluate assets for divestment consistent with our core strategy in the quarters ahead.
The fourth phase of our transformation process corresponds to investments for growth.
As we move into 2021, we see two significant drivers of accelerated demand.
One is the technical maturity of additive solutions on an industrial scale, which has now become increasingly clear to Oems worldwide.
The second is an accelerating cultural change in our customer base associated with the rise of a new generation of engineering design leadership, there was exposed from a young age to additive manufacturing.
These engineers, which began entering the workforce in large numbers over the last decade are embracing the benefits and design paradigms associated with additive manufacturing, which essentially decoupled component complexity from manufacturing cost.
This allows our customers to design products that have greatly enhanced performance and reliability, while avoiding cost penalties that would occur using traditional machining molding casting methods.
When combined with the new materials that are now available for printing. The result is a dramatic increase in demand for additive manufacturing solutions.
To be a leader in this exciting market, we believe that a company must have expertise in hardware and software with a strong portfolio of advanced materials to enable application solutions that are critical to our customers' product performance and cost objectives.
Solving for specific applications often requires a unique combination of these elements, which we bring together through our application engineering experts from.
Moreover, many customers have a strong need for both polymer and metal solutions, which is why we continue to invest systematically in both technology areas and leverage them as required to meet these rapidly evolving needs.
Looking ahead, we see significant growth opportunities in each of our core markets within healthcare. This includes dental applications as well as a rapidly growing range of medical device applications and the emerging field of personalized health services.
These services encompass both surgical AIDS that are custom created to match a patient specific procedure.
As well as implanted devices that AIDS in the patient's recovery or quality of life.
We anticipate all of these applications for which performance and quality are of Paramount importance to be both the near term and long term drivers of the business.
Adding additional exciting momentum to our health care business over the long term, meaning 2022 and beyond.
It will be our newest area of development regenerative medicine.
As we announced in mid January over the last three years, our Chief Technology Officer, and the inventor of the entire amount additive manufacturing industry, Chuck Hull and his team have been working very closely with our partner United Therapeutics to demonstrate the capability to actually print human organs.
In order to address the enormous need of transplant patients.
The first application selected for development was a fully functioning biocompatible human lung.
In December we created we reached a critical milestone in these efforts ensure.
In short we demonstrated the capability to reproduce simply prints extremely complex ultra thin walled structures using collagen based and other biocompatible materials.
These structures, which have the required balance of properties needed for Oregon application enable vascularization to support blood flow and thus the ability to sustain human life.
The printed structures or perfused with human cells, which can thrive and multiply which is why the team is named the process Princess perfusion.
While there's more work to do including completion of the required regulatory approvals. The printing technology that has now been demonstrated for the lung application can be taken in many additional directions.
Nearer term applications are numerous such as the creative creation of customized soft tissue implants for trauma patients or for Houston, Houston breast reconstruction following a mastectomy.
In the laboratory of the creation of test modules termed tissue on a chip could be used to better stimulate human response to new drug therapies, shortening the development time, and reducing or even eliminating the need for animal testing.
All of these applications and a host of others are now within reach which is why we've made the decision to increase our internal investments and to expand our application partnerships in regenerative medicine medicine in 2021.
So in short looking ahead for our health care business, we see an exciting year ahead as momentum continues to build with expanding applications and an even more exciting long term outlook as regenerative medicine opens entirely new and potentially significant markets for the company.
Turning to our industrial business, we see.
<unk> of recovery as the impact of Covid on the global industrial economies receipts.
We are particularly excited about our near term efforts in space systems were additive manufacturing of large complex metal components for rocket propulsion is helping build a foundation of experience for our newest generation of metal printers, which are particularly well suited to high temperature lightweight materials.
Automotive and semiconductor equipment applications are also offering near term growth potential as as electrical componentry applications, where customization is beneficial to performance.
Based upon our development pipeline. We also expect 2021 to be an exciting year for expansion of our materials portfolio, which is central to the benefits that our customers derive from the use of additive manufacturing.
The availability of these new materials in concert with our customer success team organizational change is intended to maximize the benefits we bring to our customers over the lifetime of their investment in our printing technology.
To end on an exciting note with regard to our industrial business. We were very pleased to announce last week, our brand new industrial product platform for <unk> systems, which we refer to as high speed fusion.
Our our Hs App technology.
This filament fusion process developed in conjunction with Jabil is specifically targeted at aerospace and automotive applications grew.
Growing out of a project, we referred to as Roadrunner. The printer itself is three times faster and more precise than competing systems in the market today.
It also has a significantly larger working volume and very high temperature printing capability that is essential to next generation polymer systems for the demanding aerospace and automotive applications.
The site speed and precision that exceeds any of the current market offerings.
Really important we will be offering a broad range of materials for this new platform, which should further accelerate its adoption in the market.
Based upon our initial analysis these new markets that Roadrunner will open for us are in excess of $400 million and we'll expand from there as the full capabilities of the new platform are adopted.
This development effort has been underway for over a year and we expect the platform to be fully available to the market in 2022.
This adds one more exciting dimension to our industrial business.
So let me conclude my introductory comments by saying simply that we're very pleased with our progress over the last six months, we look forward to building. Upon this momentum with a strong focus on growth in gross profit margin expansion in our core additive manufacturing business moving forward.
With a strong balance sheet, improving margins and exciting growth opportunities opening ahead of us we look forward to a terrific future for all of our stakeholders.
So with that let me turn the call over to Jack Taylor will now describe our results in more detail Schechter.
Thanks, Jeff Good morning, everyone.
Let me begin my commentary by reminding everyone that the financial data that we are discussing remains subject to final audit by our independent registered public accounting firm.
As a result, our actual results may differ from the anticipated results discussed.
Next I'd like to discuss the presentation of our numbers.
As Jeff discussed earlier in the fourth quarter, we achieved the development milestone in our regenerative medicine efforts.
This triggered a cash payment from one of our development partners related to this achievement.
Debt payment and our growing initiative and regenerative regenerative medicine prompted us to reevaluate our accounting methodology for this contract.
As a result of this analysis and our earnings release, we have recast numbers for prior periods to reflect this accounting change which is also reflected in my commentary on this call. However, it is important to note that this recasting has only a minor impact on the numbers and does not have any impact at all on our on our bottom line reported.
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In addition to be extremely clear when viewed in the context of our overall revenue growth from the fourth quarter. The impact of this payment was immaterial to our results even if the payment would have been entirely excluded we would still have seen year over year over year growth in the fourth quarter.
Now moving on to the numbers starting with the look at the full year 2020.
2020 revenue of $557 $2 million decreased 12, 4% compared to the prior year, primarily due to the impacts of COVID-19, the effects of which occurred most severely at the onset of the pandemic with a strong rebound in activity in the second half of the year.
As we discuss our results in the future it will be important to compare our growth to a baseline that excludes revenue from divestiture activities such as the divestitures that closed just after the new year.
This revenue will no longer be part of our operating model and we want to provide a clear baseline revenue for 2020 on which we intend to grow into.
Tend to grow organically in 2021.
As such excluding $44 $4 million of revenue from businesses that were divested last year or at the beginning of this year baseline 2020 revenue would've been approximately $512 8 million.
Our growth from this baseline provides a way to measure the performance of our additive manufacturing business in 2021.
Gross profit margin on a GAAP basis for the full year 2020 was $40 one compared to $44 one in the prior year net.
Non-GAAP gross profit margin was 42, 6% compared to 44, 8% in the prior year gross profit.
<unk> margin decreased primarily due to the under absorption of supply chain overhead, resulting from lower production and end of life inventory changes of $12 $4 million million and mix.
Operating expenses for the full year 2020 on a GAAP basis increased one 4% to $342 3 million.
Compared to the prior year.
On a non-GAAP basis operating expenses were $236 9 million.
A 16, 2% decrease from the prior year.
The lower non-GAAP operating expenses reflected savings achieved from cost restructuring activities as well as reduced hiring and lower travel expenses, resulting from the coronavirus pandemic.
Moving on to the specifics of the fourth quarter.
For the fourth quarter, we expect revenue of $172 7 million, an increase of two 6% compared to the fourth quarter of 2019, and an increase of 26, 8% compared to the third quarter of 2020, driven by growth in both healthcare and industrial.
We were quite pleased with this organic revenue growth, which we still delivered which we delivered while still facing headwinds from the pandemic that impacted our operations and those of our customers.
We expect a GAAP loss of 16% per share in the fourth quarter of 2020 compared to a GAAP loss of <unk> <unk> in the fourth quarter of 2019.
Turning to non-GAAP results, we expect a non-GAAP, we expect non-GAAP income of nine <unk> per share in the fourth quarter of 2020 compared to non-GAAP income of <unk> per share in the fourth quarter of 2019.
Consistent with our new strategic focus announced late last year. We are now discovering revenue discussing revenue by market healthcare and industrial.
Revenue from healthcare increased 48% year over year, and 42, 4% quarter over quarter to $86 6 million.
Driven by all parts of the healthcare business dental medical devices simulators and regenerative medicine.
Excluding dental applications revenue and the balance of the health care business, which we refer to broadly as medical applications increased 27, 7% year over year.
In short we were very pleased with both the magnitude and the breadth of the revenue growth in our health care business in the fourth quarter.
Industrial sales decreased 21, 6% year over year to $86 million as demand has not fully rebounded to pre pandemic levels on a sequential quarter over quarter basis, we saw broad based revenue improvement of approximately 14, 2% in our industrial business.
With no single customer or segment responsible for the improvement.
Now, we turn to gross profit margin, we expect gross profit margin of 42% in the fourth quarter of 2020 compared to 44, 1% in the fourth quarter of 2019.
Non-GAAP gross profit margin was 42, 9% compared to 44, 3% in the same period last year.
Gross profit declined year over year, primarily as a result of timing and the reallocation of costs from opex to cost of goods sold.
Looking forward and as mentioned previously our gross profit will be impacted by the sale of our Cimatron and Gibbs Cam software business, while revenue in these two businesses while revenue in these two businesses were expected to decline. There are divestitures is expected to negatively impact gross margins going forward by about 300 to 400 base.
This points, while our restructuring restructuring and transformation activities will benefit gross margins.
Net going forward in 2021, we expect non <unk> non-GAAP gross margin margins in a range of 40% to 44%.
Operating expenses for the fourth quarter were $71 $7 million on a GAAP basis, a decrease of nine 2% compared to the fourth quarter of 2019, including a 11, 2% decrease in SG&A expenses and a three 1% decrease in R&D.
Expenses.
Importantly, our non-GAAP operating expenses from the fourth quarter were $58 million or 15, 8% decrease from the fourth quarter of the prior year as we saw the benefits from our restructuring efforts.
Primary differences between GAAP and non-GAAP operating expenses are $6 1 million in restructuring charges as well as $4 million in amortization of intangibles and stock based compensation and $3 $7 million in legal and divestiture related charges consistent with our historical GAAP to non-GAAP adjustments.
Next I would like to briefly touch on our cost reduction activities.
Recall that in 2020, we announced a restructuring to reduce operating costs by $100 million per year with $60 million of annualized cost reduction by the end of 2020.
As Jeff mentioned, we were pleased that we delivered on our objective of $60 million cost reduction in 2020.
In addition, we have plans for an additional $20 million of cost reductions in 2021.
Additional cost reductions beyond what is currently planned for 2021 requires to streamline and integrate parts of our business that we may instead choose to divest.
Therefore, the plans to achieve the remaining $20 million towards our $100 million cost reduction plans will be achieved by divestitures or through further cost reductions that we will implement once we have finalized our divestiture analysis.
As we look forward in 2021, our operating expenses will be impacted by the sale of our Cimatron and Gibbs Cam business, our cost transformation activities and our investment decisions decisions that are expected to drive future growth.
We are excited about the opportunities in our markets and we'll continue to make investments in 2021 to position the company well for future growth.
This quarter, we are introducing adjusted EBITDA as a metric that we find useful in measuring the health of the business.
We focus on adjusted EBITDA as evidenced of the results of our strategy and restructuring actions and we believe as it is a helpful metric to use to compare to prior results.
Adjusted EBITDA defined as non-GAAP operating profit plus depreciation was $28 7 million.
Or five 2% of revenue in 2020 compared to $31 $2 million in 'twenty, one and 2019 or four 9% of revenue.
For the fourth quarter of 2020, adjusted EBITDA improved materially to $22 9 million.
Our 13, 2% of revenue compared to $12 9 million or seven 7% of revenue in the fourth quarter of 2019.
The improvement is the result of the business growth in the quarter as well as the results from our restructuring efforts, where we were pleased that we could grow adjusted EBITDA in Q4, despite the challenging economic environment.
Now, let's turn to the balance sheet.
We ended the quarter with $84 $7 million of cash on hand, including restricted restricted cash and cash and assets held for sale cash.
Cash on hand decreased $50 million since the beginning of 2020.
Importantly, our cash on hand increased $8 4 million.
From Q3 2020 to Q4 2020.
We did not issue any shares under our at the market equity program called the ATM program during the quarter.
Therefore, the increase in cash on hand reflects the improved operating performance of the company and the flow through of cost actions that we've taken.
Our term loan at the end of the year was $21 million, we have $100 million revolver that was undrawn as of December 31, 2020, and has approximately $62 million of availability based upon terms of the agreement.
Following the sale of our Cimatron and Gibbs Cam business, which officially closed at the beginning of January we used part of the proceeds to pay off the term loan, making us debt free and a net cash position as we moved into the new year.
Additionally, as previously discussed we terminated the ATM program.
As we look forward into 2021, we have greatly improved the operating efficiencies of our business and are continuing to do so.
We are focused heavily on reinvesting for growth based on the increasing opportunities we see for our core additive manufacturing business.
And we are continuing the evaluation of our portfolio with an eye towards the potential for divestitures and subsequent reinvestment of proceeds into our core business efforts.
We believe that our market opportunity with considerable growth potential we have made tremendous progress in cost reduction and operational efficiency and have chosen to reinvest portions of the savings back back into the business to drive future growth.
With that I'll turn the call back to Jeff Jeff.
Thanks J R.
In 2020, we completed the reorganization and restructuring of our company to drive growth in our core businesses successful successfully achieving our targeted cost savings, while focusing on delivering application solutions for our customers.
As a result, we are now a company with a strong focus on two key markets health care and industrial solutions.
And one that has a much more streamlined and efficient cost structure. We started 2021 by completing the sale of our Cimatron and Gibbs Cam software businesses, and we'll continue to see cost savings from our restructuring efforts throughout the year.
We will continue to explore divesting non core assets and look to grow our customer relationships through focusing on application solutions and our most exciting growth markets. We believe revenue in our core business centered around a solutions based approach to additive manufacturing will grow grow rapidly moving forward and we will select and selectively invest for growth.
<unk> like regenerative medicine materials development and ongoing improvement in our product lines.
Many may ask what rapidly means in terms of growth rates. All we can say today is that uncertainty remains around the pace at which COVID-19 impact will recede and the global global economies rebound, we're hopeful that the momentum continues to accelerate and with that we'll be able to deliver double digit growth rates in our core additive business in the year ahead.
But these next few months will ultimately determine this outcome.
What I can say with certainty is that our continued focus on operational execution.
We are very excited about the trajectory, we're on and the future value, we expect to bring to all other stakeholders in our company.
And with that we'll now open the floor for questions Brock.
Thank you at this time, we'll be conducting a question and answer session.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Also please ask one question and one follow up question and then re queue for any additional questions.
Our first question today is from Jim Ricchiuti of Needham <unk> Company. Please proceed with your question.
Hi, Thank you good morning.
Just a question I wonder.
If you could just.
Maybe give us a little bit of a sense as to how business is trending thus.
Thus far in the quarter, we've got about a month left and I guess, where I'm going with this is.
If you could talk perhaps to the seasonality Q4 to Q1, which in past years, we've seen declines anywhere in the high teens to I think it was 25% last year. So what I guess I'm asking is whether there was.
Perhaps unusual strength in Q4, maybe it medical debt might need some more seasonality in Q1 of this year, just trying to get a sense as to how that business is shaping up Q4 to Q1. Thank you.
Hey, good morning, Good morning, Jeff good to hear from you.
This kind of $1 million question as it is.
Our competition of factors out there right now so yes, we do expect kind of normal seasonality Q4 to Q1.
The real question is there is a rising tide of applications and I would tell you I'm, particularly excited around health care I think a lot of folks put off healthcare treatments in during the Covid period, and they've come back strongly in both dentistry and other medical applications and obviously the fourth quarter was just.
Tremendous.
And I would expect that health care momentum to continue provided hospital stay open and I am very encouraged about and you've probably read as much as I do about the the declining.
Certainly death rates, but even hospitalization rates from the from a recovery now with the combination of mass in vaccines. So that's really encouraging because hospitals can then.
Dressed this backlog of patients that need that need surgery need devices.
Dennis people that need work on their on their teeth or mouth. So those are all really good for our health care business I would expect that to continue to have a very strong look ahead again with just the distant caveat around around COVID-19 on that market.
And it's more of a short term concern and long term I think once we get through summertime unless these variance and the virus proved to be substantial it looks like that momentum will continue and just continue to accelerate as the world opens.
And probably at an even faster clip gem frankly, because there is a big backlog of demand on the industrial side, It's a little it's a little dicier in the short term.
Because it's spotty.
You run into countries and borders that shut periodically been especially around the variance in the virus youll get a local.
Youll get a customer in a locale, where they suddenly have to shut down for a few weeks or something like that it doesn't reduce the demand for our other product, but its certainly postpones the U.
You can postpone order placement is certainly postponed shipment and installation and some of these especially with regard to our metal printers.
Recognize some of the revenue until the projects completed and demonstrated in the customer factory. So that's been a real drag.
Pleased with the take up on our metal solutions and how people are embracing those.
The that installation piece and knowing that we can get out to service someone.
Net is the is the factor so I wish I could give you real numbers I.
I do expect the seasonality to be there and hopefully a more normal seasonality kind of kind of impact.
And then was last year, because I think in Q1 last year people were probably already starting to anticipate the virus. So maybe you know it should return to more normal levels, but I think we've always had significant seasonality in this company.
So that I don't expect that to ever go away.
But beyond that I see really strong demand for additive solutions in general for the whole industry and I think our technology in many many areas, we have leading technologies and particularly the combination of our product and software with our materials platform is really powerful we have an ability to get out there and address <unk>.
For customers very quickly without requiring them to go to and other materials manufacturer to to actually optimize the solution. So I'm really bullish once the virus lifts in the summer the question marks around Q1, and two and so far so good.
We just keep our fingers crossed each day.
Got it that's helpful on the Hiseq infusion just final question.
Interesting.
Now span that you made in I'm wondering if you could give us a better sense as to when it might be available in.
In 'twenty, two and how it is perhaps differentiated from your other polymer printing solutions.
Yes, certainly Jim.
On the launch date, we said, we've certainly demonstrated capability on the machine we have some more.
Some more normal industrialization and move into manufacturing, so I'll hedge a little bit on the exact launch date in 2022 I am confident we will have it out in the market in 2022, and it will be out there I think significantly.
Terms of the benefits of the product.
It's a fantastic product.
Are the numbers, we publicized or over three times faster than the current technology. That's on the market today being used and a much larger workspace and higher temperature capability, which really opens up a broad range of polymer solutions, particularly for aerospace and auto demanding automotive parts. So there.
As the existing market out there that is substantial and we estimate that over $400 million. Today I think this machine has a really good chance of.
Over time, taking a nice share of that business and then I think what people were actually measure the economics and the throughput it'll open up some new markets versus competing technologies. So we're very bullish.
I am thrilled to be able to offer a portfolio of materials. When we launched the platform. So there won't be much of a delay between launching the machine and launching materials for our customers to use which is kind of our trademark that's what we like to do.
And just like the old.
Old cartoon, we all grew up with where the road runner versus the Coyote I think I think this thing is going to get a run circles around it I am really really bullish on it Jim.
The next question is from Greg Palm of Craig Hallum Capital Group. Please proceed with your question.
Yeah, George or Jeff Thanks for taking the questions here just starting off.
You know the healthcare revenue I think was really eye opening and just kind of curious how much of the <unk>.
The upside to that was due to timing of large projects I don't know if that was a tailwind at all it sounds like dental was maybe an outsized driver, but just a little bit more color on health care, specifically for Q4.
Yes, Craig this is Jack here, so I wouldn't say it was any sort of timing of large projects.
We've talked about the milestone payment that we received.
In my prepared remarks that was.
Almost immaterial to our Q4 results.
Outside of that what we saw was.
Kind of normal course of business in both.
<unk> sales material sales advanced manufacturing and other parts of our of our health care business. We were very pleased with the broad based nature of it.
We saw very strong performance as you saw in dental, but we also saw very strong performance outside the dental business.
And none of that I would say was was kind of we have had large printer orders, but we also had good materials move in other parts of our business. So none of that I would say is kind of nonrecurring in nature.
Okay got it Greg.
I'll give you a little more color there.
If you picked up the numbers as we went through the script.
The overall health care business was up tremendously I mean, almost 50% year over year was it was great and what was encouraging is the breadth of demand the even the E&P separate out the dentistry applications from medical applications broadly medical applications grew 30% almost 30% in the year.
Year over year. So we are just thrilled this concept of <unk>.
Mass customization, where you can customize solutions for patients.
Is really catching on and it's a differentiator for additive manufacturing in general because we have.
Very strong apt.
Application facilities in advanced manufacturing facilities that are that are approved by FDA, we can access those.
Those applications.
Relatively quickly and we're really excited to see that.
Both the pent up demand being relieved as well as.
Strongly growing new demand new applications for the <unk> additive solutions. There. So we love the health care business in there, it's got many facets to it and.
And longer term the regenerative medicine, I don't want to oversell. It in the short term, but you fast forward a few years down the road.
This idea of implantable.
Biocompatible products for a long term Houston human body is amazing absolutely amazing So I love the business, we continue to invest in it heavily and we're excited about the growth.
Got it good color and then just as a follow up can you comment at all on consumable trends within the quarter.
Specifically returned to growth as well.
So.
Any sort of end markets or applications that drove that.
Yes, so consumables trended about like we have seen historically, we don't we don't break out specifics of our consumable numbers, but I will say that debt.
It did grow.
Year over year quarter over quarter.
I wouldn't say, there's any specific area that we saw consumable consumable growth healthcare was very good for us.
Line with the overall, the overall health care health care business excuse me.
Yeah.
It grew across all segments of our business.
No Greg I commented briefly in the prepared text.
Our our strong focus on supporting customers over the life of the product once they purchase it and certainly the consumable aspect of that is a big deal as is software upgrades.
Printers last generally over 15 years in many environments out there and we want to make sure we're delivering increasing value over the life of that machine. So they may make a capital purchase upfront, but we want them to get more and more use out of it over time. So we reorganized our go to market team to support that activity and what will fuel.
The growth there.
It is the software and materials that feed the system.
So we want them to optimize their printing platform every day and then obviously get the most value out of it in terms of printed parts and thats often with our own materials that we provide them and they have been optimized for printing. So we love that formula customers like it and that's more and more of our go to market strategy over the life of the machines.
The next question is from Brian Drab of William Blair. Please proceed with your question.
Hi, Thanks for taking my questions I'm looking at.
Gross margin for small you said kind of tranche B 300, 400 basis point headwind Thats, what islands and expecting.
The cost cutting program, though.
As it was laid out had me thinking that 40 $40 million or 100 million coming from the Cogs line.
And the commentary thus far.
Had me thinking that's about $30 million would be out of the 2021 numbers that should have a positive impact on gross margin about 600 basis points.
You did 43% gross margin this year when volume was down severely.
I don't think that baseline expectation based on information that analysts had without any volume recovery should have been about 46% for 2021 and I am wondering if you can just help me bridge from what I was thinking it was going to be closer to maybe 46% to 42% net point of view of the guidance.
Sure Brian.
Like I said in my in my prepared remarks, so the Cimatron Divesture was about call it three to 400.
Basis points drag on gross margins right now on the on the cost savings initiatives, we said $60 million we achieved in.
<unk>.
2020 about 30% of that I would say was on the Cogs line.
So that would give you about $18 million of flow through in 2021, some of the some of which was.
Actually recorded in Q3, and Q4 2020, right. We did achieve those numbers during the year. So the gross margin for the year that you're looking at includes a portion of that debt.
30% of the 60 day that was safe.
For 2021 as of now we're talking about $20 million additional savings.
Like I said pending the analysis divestiture again, I expect that split to roughly be.
30% of the gross margin line.
That will be achieved over the course of the year. So you would expect about half of that actually kind of show up as achieved during the year. So net.
Net debt all out that doesn't.
That doesn't get you back the 400 basis points of gross margin you loss, we expect it to be.
Somewhere in between and some of the uncertainty.
We will be dependent on growth of the business and the level of printer sales rate like we saw in Q4 printer sales were very strong.
<unk> lower gross margins than consumables that drags down our gross margin a little bit and so hence the range, we're providing for 2021.
Yes, Okay. That's helpful. Because I had 40% coming from Cogs line notes 30 versus 44.
433% more.
And costs.
Coming out of Cogs that I was assuming that.
That will help me get the Max strength.
Thank you and then one other question I think this is related to.
Divested businesses I'm, just trying to understand if there was something divested.
In the fourth quarter.
Revenue that was divesting that was not in the fourth quarter, but it wasn't a third corner because.
I'm just trying to reconcile that.
Seen in the press release right. The pre announcement that the industrial business was up more than 20% sequentially on an organic basis, but the slides today are showing that.
<unk> business was up 14%.
Those are those are yes.
Sorry, those are those are actually two different items, let me address both of them with regard to divestitures in the fourth quarter, we divested two small assets, one in China and ones in Australia too.
Small on demand printing facilities.
I would say the revenue loss from those from those in the quarter was relatively immaterial.
Regarding our pre announcement for industrial at 20% plus sequential growth versus the 14, 2%.
And our kind of actual announced that the difference there was frankly, just the miss characterization of some of our revenue from from health care to industrial in the pre announcement, we have some small health care customers smaller to think small hospitals and alike highly geographically dispersed.
Debt, we mischaracterized Unfortunately, as part of our industrial business. When we did our pre announcement, but then as we were filing our numbers, we realize that those were actually health care numbers and reflected.
Reflect that our health care total rather than our industrial total so thats what.
And that's what put that number.
So thank you Brian.
Previous.
Go ahead sorry.
It's a it's a detail, but it's one that with your following and the industry Youll understand it.
So when you have an emerging customer in healthcare, we often deal with those on a geographic basis through our channel through our channels some indirect some direct but through our channels.
Customers, we call on out of our health care business directly.
Or through a very dedicated healthcare channel.
Those are the ones that are easy to quantify it's the collection of geographically distributed ones that it took some refinement here at the end of the year it actually carve out and attribute those to the health care business. So there was some movement in revenue between the two business units as we clarified those small customers and there are potentially very important for the future.
We call on them initially from a geographic perspective.
Okay got it thank you.
The next question is from Ananda Baruah of loop capital. Please proceed with your question.
Hi, good morning, guys.
Thanks for thanks to growth.
The other classes.
Solid job guidance.
Five.
Yes.
Everything will be done.
Just real quick because our deal essentially this is tonya.
Yes, you had made net gain about sort of double digit revenue growth during the prepared remarks that particular context I'd just wondering.
Feel differently today.
Today than you did 90 days ago about the potential to be double digit revenue growth in those other module global started about the double digit revenue growth.
We're having a sense of what you guys spoke to potential to GAAP during Q this year.
<unk> looked at sales over the last 90 days a little one other quick follow up.
Yes, good morning, and thanks for the kind comments I had to chuckle, because I think views of the world change every 90 minutes down 90 days.
Theres so much short term volatility with the virus I am really pleased every announcement I see about vaccines and about just the.
The benefits of social distancing and mask wearing and the combined benefit I'm really pleased with that trend it is kind of like.
Going on a speed boat through choppy waters.
There is short term there is still short term issues that pop up geographically, which are frustrating around shipments around servicing and installing equipment all of that stuff.
So there'll be some short term noise, which is why we're really reluctant to ever comment on.
Our revenue in Q1 Q2, but behind that there is just tremendous growth in applications and I think any any company running itself well and it has some good good position in this industry. There is a really nice tailwind of application growth.
Available to folks.
<unk> I like our combination of technology is very much like our certainly like our installed base my goodness.
We are putting a half a million parts a day in our customer base and that builds up a wealth of experience you could draw on when you design new products and it certainly fosters customer relationships. So I am very bullish on the industry I'm very bullish on our company I think the double digit growth rate is perfectly attainable in our core business.
That view has not changed in the last 90 days to answer your question.
The.
The key for us there'll be there'll be some short term noise as we may or may not choose to divest some assets.
So you got always factor those out but when you look at our core additive manufacturing business I am very bullish on double digit growth and gross margin improvement, we've said kind of a goal for ourselves of being over 50% in gross margin in the coming years and.
He'll be supported by volume growth I think that'll be exciting.
Health care in general brings a bit higher gross margin on average than our than our industrial business.
And all have very big moats to entry the markets. We're targeting so it's high growth, it's sustainable growth and its expanding gross margins and the exact timeframe on getting to those parameters I can't be specific on.
Especially in the short term because of the COVID-19 situation, but but I would say gets better general each day and and we remain very very excited about the business. We are coming in excited and sprinting every single day and non day.
I have never never experienced before in my professional career, such an exciting dynamic environment and those are the folks we're attracting to our company as the customers, we're attracting to the business and its simply fabulous.
The next question is from Paul Coster of Jpmorgan. Please proceed with your question.
Yes, thanks very much for taking my question Jeff.
Indeed done a great job this last year bearing down on it.
Expenses in addition to everything else.
But I wonder if some of the applications that you're going after now are really quite hard at least that's my.
My impression.
And the R&D associated with them has potential to be.
Never ending I guess.
Is there a risk here.
I mean, I guess people are interested in the scalability of this business over the long haul and the application centric approach to it means a lot of R&D, just kind of accumulates and Ken can you scale on that R&D.
Part of that is a great question.
We have to you have to be really careful when you are surrounded by so many targets.
Exciting things to go do that you are disciplined about how you invest because you could you could Andrew you can see examples in this industry all around you people Chase a lot of a lot of different.
Directions, they spend a ton of R&D try to do it and we're trying to be a bit more selective than that and go after things. The application focus is is in general a high touch focus.
<unk>.
We spend our R&D to be clear, we spend our R&D on the underlying technology, so printers materials and software, that's where R&D spending is in SG&A. There is a chunk of that that goes to application demonstration and thats and thats exciting.
We have way too many applications coming in the door each day that all look interesting and we're getting more disciplined about saying okay. These select ones have really good return on the investment. So that's how we're going to spend our SG&A dollars R&D, we're just trying to drive.
<unk> and address the broadest range of applications, we can.
We're tying the development to specific applications, Paul wherever possible and we're not going to get out in front of our skis on on.
Frankly, overspending and losing money.
I think it drives a good discipline to say you want to be profitable and generating cash and use that cash prudently to invest for growth we have tons of opportunity for growth around us I am confident Paul we can deliver double digit organic top line growth over time and not spend ourselves into oblivion. So.
That's in general that's the direction I don't I don't believe I've answered your question very well, but if you. If you heard discipline out of that I hope because we're just not going to chase every rabbit that crosses the field in front of us.
Got you, Okay, and then the other thing which is kind of interesting I think.
For investors is just the proliferation of companies in this space right now it seems like it's a large market I'm sure. This white space out there, but to what extent are you going after the the white spaces, where no one else is playing versus head on competition and where there is head on competition do you see pricing.
Becoming.
Consideration, yet or is it still so a value sale.
Yes, no good good thoughtful questions Paul so in terms of white space, the white space Paul.
I'd characterize it yes, we're going after a lot of white space.
Related to new applications, where customers are coming in and saying Hey look ive always made this this very simple geometry by machining I'd like to make it out of additive, but it has to have very unique mechanical properties and in addition to a fancy geometry. Those are ones, we love because we're up against really no one.
Allison and we can bring our materials expertise to bear and our software and really really take our printing platforms and make the most of them customers then tend to run with those and I called out White space. There are applications that were not additive before and.
And across both healthcare and industrial Paul.
John to those Theres many many of those.
What I don't like is where you have a customer thats used additive for a long time. They are now trying to drive it to standard components and there is five different printer companies. They are competing and we're using a very standard off the shelf material. Those are not those are not great businesses for us.
So we tend to steer toward industries and applications to get the most bang out of additive and it's often with a unique and a very good printer itself, but a unique combination of software with that printer and materials that go through it Paul if you can bring those to bear in a unique way and the epitome Paul.
Luis was what we've seen in regenerative medicine, we just had a there was an article run on what we're doing in Forbes magazine.
So it is it is amazing the combination of materials software printing and.
And the application combination that's the white space that we love and we're going after there is increasing competition in simple printer techs.
Technology, because the components are becoming a bit more off the shelf so low end applications broad based.
Those are those are becoming commoditized and theyre just not our business, that's really not where we're going so we intend to develop more and more specialized specialized with significant market opportunity applications and the hardware software materials around it.
Does that does that all make sense to you.
It certainly does thank you very much Jeff.
Thanks, Paul.
The next question is from <unk> Mohan of Bofa Securities. Please proceed with your question.
Yes, thanks for fitting me in.
Clearly focused on health care and industrial I was wondering if you could maybe share how much of your baseline $5 $13 million of revenue does not fall into either of those categories and if all of that is up for divestiture.
Whats the sense of urgency around that.
You noted the day assets our go to in their own right, but just on non core to you.
Now that your balance sheets in a much better place.
It's going to be a quick process is it going to be a slow process any color there would be helpful.
Yes.
Those are really good questions.
In re I like to paint it as black and white in the core outside of the core because it's simple to think about it in reality there are assets that are in the in.
In a gray zone in between and that's those are tougher calls yet you really have to take a hard look and say how much what's what's best in terms of value creation and one of my acid test I always use is the business worthy of investing in is a good return on investment and if you own a business where we're the.
<unk> investment is does not have a good return there or it doesn't make it up your priority list and returns of other better things to do with your money those businesses generally you should feel.
A drive to.
Cell and let them be owned by someone else that will treat them as their highest priority.
We have some really exciting opportunities in additive manufacturing more and more than we can possibly run after every day and so non additives non additive technologies things that are even border line on that are of lower priority to us and when it's a lower priority I'm definitely have a mind to get rid of it not.
Because they are not good businesses I want to be clear they are really good but they need to be owned by somebody that will love them and nurture them and treat them as their highest investment priority.
So if it works its way down our list when we rank our priorities we tend to get rid of the ones that are lower on that list, it's better for the customers the employees and certainly our shareholders, we will reinvest that cash into our core business, where we have tremendous growth opportunities.
So Jeff what would you say of the $5 13, like how much it falls hull tired of health care and industrial.
Yes.
In general I would say it's.
By definition quite little but bear in mind industrial is a very broad word so how much of it are.
A key question is how much of it is additive how much of it is really integral to additive manufacturing and if you say it that way, we still own assets debt.
Our predominantly exposed to non additive markets and those are the ones, we really look at and there's two options, we either convert them increasingly to additive manufacturing and we hang onto them or we sell them and take the cash and invest in the core business.
Sure.
Faster growth in more in margin expansion. So conceptually, it's as simple as you have to find a buyer that really once the assets and because some of these are.
And this came up earlier about gross margin volatility. Some of these are really nice gross margin businesses is just under our ownership were not going to invest law for growth or a lower priority than they should be owned by someone else.
I can't give you a <unk>.
Hard to give you a percentage.
What is what is.
Not industrial or healthcare.
In terms of non additive it's not a very it's not an extremely high percentage, but we still have some assets that are not additive.
The next question is.
Go ahead, Brian.
The next question is from Noelle Dilts of Stifel. Please proceed with your question.
Thank you and John Congrats on good performance in a tough environment.
You've covered a lot of ground in the Q&A, but I guess I just wanted to go back to a couple of questions Andrew.
Just trying to get trying.
Alright, I guess asking in a slightly more granular way so first going back to Paul's question on.
On.
Right.
D investments.
You mentioned that Youll see disciplined there right now.
Your R&D is running I think it kind of at the lowest level since 2014, it makes sense to net.
Moving to environment do you think there is.
Are you looking moving forward at kind of scaling.
Do you think there's opportunity to kind of pull that back a little bit more on leverage that more or do you see that rebounding a little bit as we move into recovery in 2021.
Thanks, John and thank you for the kind comments I appreciate that.
In this industry I would just give you a bad debt very general comment. This industry I think you could spin nominally spend 10% of all.
Our revenue on R&D and deliver double digit growth, if you're running a good business good range of technologies and <unk>.
You can you can drive double digit organic growth in this industry I believe at a 10% kind of number now and there may be years, where you say gosh I have this really exciting opportunity two years, three years out and I'm going to spend an incremental one or 2% on that.
It's fine you can do stuff like that in the short term.
The discipline, we want to have.
As to just draw a line somewhere and say that's what we can afford to do.
And leave it at debt I do not believe in long term money, losing businesses I think.
It lacks discipline. So we don't come in have a mind every day to make sure we maximize D.
Daily profits, but at the same time, we're not going to get on disciplined in R&D spend and I think in the long term if we do it right 10% of sales as a fine number.
Now I say that I'm not sure how we will end up this year with their with the revenue with revenue.
Being impacted by Covid, often on and in a certain way, but but in general terms I would tell you that.
And that's why I think this industry can also be a strong cash generating business. I think are the reason, we're rolling out now adjusted EBITDA as a metric.
As I look at it we moved from from single to double digit EBITDA performance through.
Moving out of the business and are focusing of it I like that I think it's good I would like to see our gross margins get to 50 and above I think we can get double digit organic growth on 10% of our our spend on R&D.
And I think we will just be disciplined in our SG&A to drive that.
And then I think EBITDA margins moving from the mid teens into the 20 <unk> is perfectly doable in this industry.
It won't happen immediately but I think we can that we can get there if you run a good business you can get there in this industry.
And Thats, an exciting business, that's one that generates cash to reinvest.
And leaves you with excess cash on the balance sheet for opportunistic acquisitions in the future.
Okay, Great that's really helpful.
And then kind of taking that last point.
And also revisiting the question on <unk>.
Divestitures. So again as you as you look at this process. The divestiture process are you is there something that's ongoing that could kind of be a multiyear process or you're kind of looking to get the business to where you want it to be.
In 2021, and then as you as you do build cash on the balance sheet through those divestitures entered generation ultimately.
Some of the key areas that Youre really looking at in terms of investing through acquisition. Thanks.
Yes, great a good great question. Thank you.
So.
Inpatient by nature, I really like to move out on things when you when you see what can be better to get it done.
And we did that on Gibbs Cam and similar trend last year. It was a homerun.
We generate cash that's really strengthen our balance sheet and those assets ended up in the hands of owners that will really care for them and grow them in the way that they should be cared for.
Great businesses and day to day, just were not our businesses.
So when we look at our other assets there are some that we look at and say that's.
Thats closer to the core, but it's not quite there. So if we could generate enough value through a transaction and leave it in a better owner's hands, if you will for giving it a priority.
We would take that cash and redeploy it and so in parallel so we look at assets we can divest.
And increasingly we're looking at assets that we could invest in either partially or totally to own and add to the core business.
There are really great great opportunities, especially around technology company small technology companies and things.
Across our whole.
Technology portfolio printer, certainly that's the obviously when people jump too, but if you look at materials and you look at software.
We have a we have an outstanding suite of software today, and but more and more customers want.
Red button Green button kind of solutions for optimization.
And you can do there is there are software.
You can add on to make the make it increasingly user friendly for example materials same thing what customers really care about is a printed parts.
And the material it's made of is absolutely vital.
So we continually look at assets out there around materials can we partner with folks can we can we acquire folks or acquire partial ownership from people.
That are really going to be deliver some unique material for printing in the future very exciting I really exciting stuff. So so we're kind of running those processes in parallel what can we divest what can we invest in because this industry is going to go through a nice growth evolution and we believe with our platforms, we're beautifully positioned.
And we just want to enhance those.
That's what we're trying to do and will it happen in 'twenty one.
We'll make continued progress in 'twenty one.
Not driving ourselves to any specific timeline to get anything finish because you never really are.
But for example, this opportunity with to partner with Jabil on the Roadrunner.
Very excited really great stuff.
Fast high temperature large machine for printing industrial parts for really tough applications as those come up we want to have the cash to invest in them.
Does that help.
It does thank you that's great great detail appreciate that.
Thanks.
The next question comes from Sarkis <unk> of B Riley Securities. Please proceed with your question.
Hey, Thanks for taking my question here, Jeff and Jack I, just wanted to come back to the double digit organic growth commentary I think I just want to frame. This right. What's your organic sales growth expectation for fiscal 'twenty. One like how are you internally thinking about growing the top line and I have a follow up.
Yes.
The outside it's hard it's very installed this year is going to be a little tough to see because what we define and think of as are our core of core businesses.
We do believe those are going to grow really nicely. This year, and then unless COVID-19 really sets us back I believe theyre going to grow at double digit rates, while youll struggle with me outside as we still own some assets that we would consider potentially non core and.
They're not directly related additive in large part and they're not going to be growing so so that will certainly mute.
What's perceived as the overall growth rate of the business, but in our we are very impatient for growth in our core business of additive and I really believe.
Knock on wood, if the if the work day is getting better that will deliver double digit organic growth this year.
And we will explain in earnings calls what what the results were what they mean is going to remain a little bit more difficult from the outside to two.
To predict the parts because some won't be growing in some well.
Thanks, So I'm knocking on wood with you so looking to your EBITDA margin you delivered 13% this quarter.
You talked a little bit about mid teens to 20% doable in the industry.
In the near term, what's the business capable of and where do you specifically plan to take EBITDA margin state.
And the next three years or five years I would hope to be in over that goal in the next three years.
Thank you.
Yes.
Yes.
I never two years ago, who would have envisioned a pandemic so.
You always have to have that in the back of your mind, but the way I see this thing going is our health care businesses is really firing on all cylinders and we're going to continue to fuel that engine.
Add to it grow it it's.
Its terrific and it carries with a generally higher gross margins.
And exciting growth rates and a very sticky business say it all the way around now you have to be good to do it. So we're really focused on quality delivery a lot of the underlying operational metrics that are required.
They are just absolutely essential because it.
It's a direct customer impact direct patient impact oftentimes, an FDA regulated we want to do a really good job of debt. So so I would tell you the what will drive the EBITDA performance.
A couple of things overall volume growth and efficiencies there supply chain excellence, obviously, working right along with that to get to get cost and efficiencies in operations, what will really help it is business mix and Andrew.
So health care growth is really good in terms of driving margin improvements.
Any margin you want to talk about including EBITDA margins and then.
And then the mix in the aftermarket mix supporting our customers after they buy a printer with materials and software wherever we can add value to their purchase that's.
And that's really beneficial to us and it helps our customers a lot and it's very beneficial to our financial performance.
So we love the model, we're going to be investing heavily in the model, but with discipline and I would expect EBITDA margins to regularly climbed from from mid teens over 'twenty and gross margins I don't like the level they're at now.
So with that growth, we want to see gross margin lift and our real goal is to get those gross margins over 50 percentage it will not happen overnight.
But we but we will be on a steady trajectory of.
<unk> improvement.
Choppiness will only come from.
Unanticipated effects of Covid or <unk>.
Divestitures, which could in the short term impacting those parameters because they carry a higher gross margin.
Okay.
Okay.
Net debt, we should we should probably draw to a close we loved the time go a little long because we had no longer introduction, but very much appreciate everybody's every everybody's interest in the company and in our performance I appreciate the feedback as always and we're happy to follow up with you. After the call. So thanks very much for joining today and for your continued support.
Part of the company, we look forward to updating you again in the quarters and years ahead. Thanks everybody.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
Yes.
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Yes.
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