Q1 2021 3D Systems Corp Earnings Call
Hello, and welcome to the three D systems first quarter 2021 conference call and webcast. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad of question and answer session will follow the formal presentation. As a reminder, this conference is being.
Recorded it's now my pleasure to turn the call over the John My top of please go ahead.
Thank you, Kevin and 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 turn of ruler, Chief Financial Officer, and Andrew Johnson, Executive Vice President and Chief Legal 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 and wished to access the slide portion of this presentation and do so on the Investor Relations section of our website.
For those of of excess the streaming portion of the webcast. Please be aware that there may be of 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 views as of today only and will include forward looking statements as described on this slide.
Actual results may differ materially additional information.
Information about factors that could potentially impact our financial results is included in last Night's press release, and our filings 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 and 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.
Unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2020.
Now I am pleased to turn the call over to Jeff Graves, our CEO Jeff.
Good morning, everyone and thank you for joining our call today.
And nearly one year ago today, I joined <unk> systems, as Chief Executive Officer, My reasons for joining and we're very simple first I believe that this industry was beginning to enter and exciting growth phase driven by both the maturing of the technologies as well as the receptivity of the customer base to industrial scale additive manufacturing.
Second I saw the potential for <unk> systems to be a leader and the industry. One of the cannot only be at the forefront of this industrial Renaissance, but instrumental and making it happen.
And as excited as I was a year ago. When I arrived those feelings are dwarfed by the enthusiasm I feel today.
Rather than opening the call with a recap of our financial performance as I, usually do today and I'm simply going to let our Q1 results speak for themselves.
<unk> are providing more color for you and a few moments and.
Ted for today's call I want to start by offering our sincere thanks to our fantastic employees and our leadership team for their outstanding execution over the last year since my arrival.
Particularly I want to acknowledge the leaders of our two business units Richie puts and Vito who leads our industrial business and has been the chief architect of our sales transformation and Menno Ellis, who leads our health care business and has done an exceptional job of creating a true integrated approach to the medical market.
Having taken all of these responsibilities last summer they are performed magnificently, making significant changes and the organization and and the underlying processes that we follow and delivering for our customers each day.
And doing so while facing unprecedented headwinds from the ongoing COVID-19 crisis, the impact of which is still being felt today.
So given that this is my one year anniversary I think it's an appropriate time to ask how did we get here.
And much more importantly, how can we sustain this momentum going forward.
Our journey started last summer by first establishing a clear strategic purpose for the company, which is to be leaders and enabling additive manufacturing solutions for applications and growing markets the demand high reliability products.
We then laid out of simple four stage plan, which would allow us to live into this purpose. The began with reorganization of the company into two business units health care and industrial solutions. We then restructured operations to gain efficiencies and and began the process of divesting non core assets.
And then as these elements gained momentum we systematically increased our focus on investing for accelerated growth and profitability.
By focusing intensely on execution of our plan by the time, we entered the new year. We have returned to growth we were profitable and we were generating cash from operations and we're in and net cash position on the balance sheet.
And then the real fun begins as we began moving through Q1 the.
The us economy began to reopen our new products and applications gained momentum and our organic growth accelerated markedly and our profitability and cash from operations increased dramatically as we leveraged our streamline operations.
Based upon this progress and our long term outlook, we've set a goal of sustained double digit organic revenue growth.
And 50% gross margins and 20% of adjusted EBITDA margins all of which we think are attainable in the years ahead.
But in an increasingly competitive industry why should you believe and our future success.
Well in addition to delivering on our commitments, which I think we demonstrated again this quarter. What I can tell you is that there are three things that inspire my confidence and our future and.
And I believe they should inspire yours as well.
First we clearly by far have the broadest technology portfolio and the industry.
It includes a full range of metal and polymer printing systems and industry, leading software platforms and and outstanding portfolio of materials for both human and industrial system applications.
And these capabilities, which are so vital to our customers' success distinguish us from virtually all of our competitors and with our ongoing R&D investments they are stronger and better than ever.
Second I am convinced that we have the brightest and most creative application engineers and the industry.
This group of very talented people provide exceptional value to our customers as they work hand in hand introduced advanced systems and components the capitalize on additive manufacturing.
These applications range from unique medical devices, and personalized implants that are so vital to improving patient outcomes and health care.
The unique components that enable the newest generation of commercial rockets for space travel and <unk>.
Revolutionary equipment for the manufacturer of semiconductor chips, just to name a few and.
And that list of new applications is growing rapidly every day.
Third as one of the largest and most experienced companies and the industry, we have the scale and the infrastructure to not only support our customers' needs. When they initially implement additive manufacturing, but it's also sustain them over the lifetime of their equipment by providing key services and consumables that are vital to their ongoing business.
Success.
How do we know this formula works well as always the proofs and the numbers.
Today, our technologies are used to print of approximately three quarters of 1 million production components per day 365 days a year.
That equates to over 250 million components per year and climbing.
This experiences and valuable as we invest more than ever into our core technologies and drive relentlessly to enable our customer success.
And sure Yeah <unk> systems, our goal is to inspire your confidence and as each day first by delivering on our near term commitments on growth and profitability as demonstrated in our numbers today.
And while setting aggressive but realistic targets for the future.
As an investor you need that invest based solely on promises about next year's growth through the one thereafter the market for industrial scale additive manufacturing is here today it's.
It's real and it's growing at an exciting rate, particularly as the headwinds from COVID-19 recede. So.
As I said at the outset of the call I have never been more excited about our future than I am today.
Now before I hand off the Jag tar to talk about the quarter. Let me spend just a few minutes talking about the investments, we're making for growth some of which were described in our announcements last week.
First as you can see and our numbers for Q1, we're seeing rising demand for new applications, particularly in our healthcare business to meet this demand forecast, we are expanding our Denver, Colorado location by roughly 50%.
For more than a decade. This operation has supported a range of customers from large industry leading.
The customers to innovative startups and delivering a diverse portfolio of groundbreaking precision health care applications and medical technologies.
From this location, we have supported more than 100, CE, Mark and FDA cleared products. We've collaborated with surgeons to plan and guide more than 140000 patient specific procedures and.
And we've manufactured over 2 million medical device implants, and our advanced manufacturing group.
Through this next phase of investment, which includes putting in place some of our most advanced metal and polymer printing systems and software tools, we'll be able to reduce time to market for new medical applications continue expanding our product offerings and better support the holistic needs of our growing health care customer base the.
The scale, we have now obtained in our health care business and Denver provides a marvelous platform for growth, allowing us to maintain our industry, leading solution offerings of the target patient specific applications and growing markets like cranial maxillofacial surgical solutions and an expanding range of orthopedic surgical AIDS and implants.
In addition to supporting health care specific growth, our Denver investment will expand the overall capabilities and capacity of our application of innovation group.
As I discussed earlier this group of application engineers, and the central element of our solutions oriented approach to customers with deep expertise and hardware software and materials. This team of engineers helps customers not only demonstrate feasibility of new high value component solutions, but also device design, the overall workflows necessary to <unk>.
All of the date, the economics of the process.
And regulatory approvals and then move into full scale production.
And with expanded customer facing engineering resources armed with a broad array of technologies and supporting infrastructure. We are well positioned to continue the strong momentum and expanded application development and early stage manufacturing and our customers are seeking.
In addition to our Colorado investment plans next last week, we also announced the acquisition of two technology companies of Levy and additive works.
These acquisitions have an important role to play and meeting our current and future growth objectives.
Let me start with the added of works acquisition, they're a small but extremely talented group of German software engineers and physicists that of develop unique software. The simulates the key steps of the additive manufacturing workflow from setup during the component design phase through post print processing.
They're sophisticated physics based algorithms are extremely fast and effective and optimizing the part of orientation. The <unk>.
Of course structure and thermal conditions during printing.
The result is dramatically reduced setup times and post processing requirements and conjunction with improved product performance yield and yield.
Historically much of this optimization work was done empirically and.
Requiring highly skilled process engineers and operators to optimize the process for each new components.
The added of works simulation software reduces or even eliminates the need for this intensive effort, allowing for a much more rapid introduction of new components and improved economics performance and reliability of the resulting product.
The added of work software sold under the name of <unk> interfaces seamlessly with leading cash systems as well as our three D expert software platform and other major print platforms, which we will continue to support.
Integrating added of <unk> products and expertise into three D systems will further enhance our software portfolio and innovation capacity driving accelerated adoption of additive manufacturing across the industrial and healthcare markets that we serve.
We expect the deal to close by the third quarter paced by normal German regulatory requirements.
Moving then to one of the areas that I'm increasingly excited about the emerging field of regenerative medicine and I'll conclude my opening remarks today with a few comments on our acquisition of <unk>.
You weren't even may remember on our last earnings call, we talked about the incredible progress our development team under Chuck Hull working in close partnership with the wonderful folks of the United Therapeutics has made toward the printing of solid human organs.
While not yet of reality the promise of this technology is truly extraordinary offering the hope of meeting the needs for thousands of patients who are desperately waiting on the availability of new lungs, kidneys, and livers Hearts and other Oregon's our commitment to this effort with the United Therapeutics continues unabated.
As in our growth of this program, we also announced last quarter that given our strong technology Foundation and this emerging field, we would expand our efforts pursuing additional applications for the human body.
Such as the printing of bones arteries and soft tissue just to name a few.
We've increased the application support this year to pursue these partnerships and hoping the intermediate term debride and these extraordinary products to market.
In addition to these direct human applications and I'm very excited to announce a further expansion of our focus to include the rapidly emerging market for laboratory applications of bio printing technology.
The laboratory applications are being driven by two major objectives.
One is the study the study of regenerative medicine itself and our lab setting, which is increasingly of interest of researchers of major universities and renowned medical institutions around the world.
The other driver and one and we believe brings substantial growth opportunities for us is with pharmaceutical laboratories, who wish to utilize the unique three dimensional cellular structures produced by bio printing to accelerate the development of new drugs and drug therapies, and some of which may eventually be optimized to accommodate and individual's unique genetic.
Mark.
In addition to the drug development bio printing offers unique advantages and the development of cosmetics and other skin care treatments and the human interactions can be directly assess using three dimensional bio printed human tissue constructs instead of relying upon simulations or animal studies, which are often less effective and bring with them.
Difficult social issues.
And short bio printing for laboratory studies offers the potential for better faster and safer and more humane development paths for a wide range of human applications.
For all of these reasons, we are excited to expand our efforts to include these rapidly emerging laboratory applications, which we believe potentially represent a multibillion dollar market opportunity that will become available to us over the next several years.
In support of this effort to expand our regenerative medicine focus into the lab. We were very pleased last week to announce our acquisition of a levy of Philadelphia based developer of bio printing solutions, comprising bio printers bio materials also known as borrowings and specialized laboratory software.
<unk> has established a strong technology base brand and distribution network for this rapidly emerging market with a presence today and over 380 medical and pharmaceutical laboratories and over 40 countries as.
As a complete solutions provider of levies business model aligns well with <unk> systems and positions us to leverage the technology, we've developed for in vivo applications as well as leveraging the overall scale of our health care business to meet these emerging laboratory application needs.
And when viewed in totality.
And with the <unk> acquisition completed last week, we're now well positioned across a broad market spectrum, ranging from near term laboratory applications medium term human applications and longer term human solid organ applications and the exciting emerging field of regenerative medicine.
So to bring this full circle, let me end by saying, how very proud I am of our team's performance and the first quarter of the year as we've continued to execute on our four phase plan that we launched last summer and.
More than ever I believe that additive manufacturing will play a key role and transforming the way components can be designed and manufactured for critical applications ranging from complex space systems to the human body.
With our extensive portfolio of additive manufacturing systems materials science software and domain expertise and <unk> systems is uniquely positioned to help our customers benefit from this transformation.
With that let me turn the call over to Jack <unk> will now describe our first quarter results in more detail injector.
Thanks, Jeff Good morning, everyone.
For the first quarter, we reported revenue of $146 1 million.
And the increase of seven 7% compared to the first quarter of 2020.
And our organic revenue growth, which excludes businesses divested in 2020, and 2021 was 16, 6% and Q1 2021 versus Q1 2020.
We experienced strong product revenues across the portfolio, including printers, both plastics and metals materials and software. We believe this growth growth emphasizes the strategic nature of our portfolio of breath and validates our solution strategy.
We reported a GAAP income of 36 per share and the first quarter of 2021 compared to a GAAP loss of 17, and the first quarter of 2020.
Driving this improvement was of $32 $9 million gain from the sale of the Cimatron and Gibbs Cam software business as well as the tax benefit of $8 9 billion million.
As a result of the favorable ruling from the IRS regarding of Fin 48 reserve.
Turning to non-GAAP results, we reported non-GAAP income of <unk> 17 per share and the first quarter of 2021 compared to a non-GAAP loss of <unk> <unk> per share and the first quarter of 2020 the.
And the exceptional non-GAAP result reflects the strong revenue growth combined with the restructuring and cost optimization activities that we have previously announced.
Now, we will discuss revenue by market.
Our healthcare business had a strong quarter with the revenue growing 38, 7% year over year.
This growth was fueled by an increase in the hardware and materials sales and our dental business.
The large hardware hardware volume like we saw in Q1 may fluctuate on a quarterly basis, but drives the recurring higher margin material and services revenue, which is the focus of all of our long term financial goals, excluding dental applications revenue for medical applications grew by 9%.
As we continue to see increased demand for personalized health services and advanced manufacturing of medical devices.
We recently announced the planned expansion and Denver, Denver, Colorado that is intended in part to support the future growth of this business.
Revenue and our industrial segment, when we exclude the businesses divested in 2020 and 2021 was up approximately 1% year over year as compared to year over year declines and prior periods. The.
The revenue trend turnaround and our industrial segment was across our sub segments, such as jewelry and automotive with no single segment driving the results. This is a reflection of global economies continuing to recover, albeit at and inconsistent pace from the pandemic related shutdowns.
We expect this inconsistency to continue in 2021, so while we see a path to full year double digit organic revenue growth and our core business excluding businesses divested in 2020 and 2021.
Macro economic risks such as further COVID-19 impacts inflation concerns and supply chain shortages and certain critical components like semiconductor chips continue to create uncertainty.
Now we turn the gross margin let.
Let me start my commentary on gross margin with the statement on our presentation.
During the first quarter of 2021, we identified certain costs that have historically been shown as cost of products that actually related to cost of services.
Our reported gross margin gross profit margins reflect an update to properly present these costs.
While this resulted in the small movement of cost between products and services the change not affect our gross profit bottom line results consolidated balance sheets or statement of cash flow.
For Q1, 2020, one we reported gross profit margin of 44% and the first quarter of 2021 compared to 42, 1% and the first quarter of 2020.
Non-GAAP gross profit margin was 44% compared to 42, 7% and the same period last year.
Gross profit increased year over year as a result of higher sales volume mix, including software sales and the impact of our cost reduction activities.
We are quite pleased with our improved margin performance in Q1, especially when you consider that we divested of relatively high gross margin software business at the beginning of the year.
And our last earnings call. We said, we expect non-GAAP gross profit margins and the range of 40% to 44% for 2021, we continue to expect to be in that range on a full year basis.
Operating expenses for the quarter were 66, 2% on a GAAP basis, a decrease of 12, 1% compared to the first quarter of 2020, including the 11, 6% decrease in the SG&A expenses and a 13, 7% decrease and the R&D expenses.
Our non-GAAP operating expenses and the first quarter were $51 $2 million and.
And 18, 7% decrease from the first quarter of the prior year as we saw the benefits from our restructuring efforts as well as the impact of divested businesses the.
The primary differences between GAAP and non-GAAP operating and operating expenses are $13 4 million and amortization of intangibles and stock based compensation.
Continuing the theme of year over year improvement adjusted EBITDA defined as non-GAAP operating profit plus depreciation was $19 8 million.
Or 13, 6% of revenue compared to $2 $2 million or one 6% of revenue and the first quarter of 2020 the.
The improvement is due to stronger gross margins as well as the results from our restructuring efforts.
We are very pleased with the trend of our EBITDA margins over the past several quarters.
Driving improvements to margins adjusted EBITDA and revenue growth is the impetus behind targeted acquisitions like additive works and the levy, while they will not be materials 2021 results. These and future acquisitions will be a key component of our long term strategy to reach double digit revenue growth.
Gross profit margins of 50% and the adjusted EBITDA margins of 20%.
Now, let's turn to the GAAP cash flow statement and balance sheet.
Cash on hand increased $48 2 million during the first quarter. This increase was primarily driven by the net proceeds from divestitures of $54 7 million and cash generated from operations of $28 5 million of.
Offset by of debt repayment of $21 4 million and other financing and the.
Best and uses of cash including capital expenditures.
Note that our cash from operations of $28 $5 million and.
And included the use of approximately $6 6 million of cash for withholding taxes related to the <unk> sale when factored together. It is of note that we have substantially improved cash from operations compared to the $2 3 million of cash used in operations and Q1 2020.
We ended the quarter with a strengthened balance sheet with $133 million of cash and cash equivalents no debt and nearly full capacity on our $100 million.
Undrawn revolving credit facility.
As I and my prepared remarks, I would like to make a final comment about the quarter. We have made the very strong turnaround from this time last year <unk> systems is now growing profit of profitably generating cash and maintaining available liquidity.
The combination of growth and the profitability is unique to our industry and positions us well to continue to invest and high growth areas that will support our long term financial growth goals.
Our solid financial profile of mix as the partner of choice for customers that are considering a solutions provider for their most critical manufacturing processes.
We are excited about the opportunity for our business and our plans to deliver against our long term objectives.
The continued to provide more detail to the investment community on our strategy, we plan to hold an investor day, and the Denver, Colorado area on September nine and we will provide more details as we get closer to the event.
With that I'll turn the call back to Jeff Jeff.
Thanks J R.
And I just wanted to say how pleased I am with our results from a return to year over year of growth our continued profitability improvements and the strength of our balance sheet and our strong cash generation performance.
And with intentional actions taken on our four phase plan.
We're reinforcing our leadership and this exciting industry, we plan to continue looking for opportunities to optimize our resources divesting of our investing as needed to support of sustained exciting growth and profitability we.
We will now take your questions, Kevin Let's open it up.
Thank you and I'll be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on your telephone keypad. We ask that you. Please ask one question that we're trying to the queue. Once again Thats star one, replacing the question queue and we ask that you. Please ask one question. Our first question today is coming from Greg Palm from Craig.
How long of your line is that of life.
Hey, guys. This is actually Danny acreage on for Greg today, Thanks for taking the questions and congrats on the good results.
Thanks, Dan and thanks, Eric.
Obviously health care was really good.
And you mentioned and some smaller type of outsized growth and dental maybe.
Maybe just in terms of mix. There was this maybe you said theyre. Both strong was this mainly driven by better growth and printer sales or maybe the materials and how should we look of that going forward.
Yes, David this is Jack.
Good morning. So we did have very strong printer sales in the quarter I think I mentioned that in my prepared remarks.
We expect that to drive sort of the future of consumables services revenue that has high profit for us.
So we were pleased with the high printer sales, but we saw we saw increases in the printers and materials printers was this a little bit stronger.
Got it and then maybe if I can just get a quick one on maybe supply chain shorter day shortages and we've seen kind of the.
Semi chips and maybe even some summarized in chart age what kind of impacts are you seeing there.
Yes, Dan and good question, we got out in front of it early.
With the with the headlines is the 2020 closed we anticipated it and get out in front of it early but yes, there's no doubt it took a lot of work this quarter to keep it.
From the hitting us financially so we didn't lend the customers down we shipped everything that customers wanted to and wanted to take and the quarter, but it was a lot of work Danny I and we think it is it is of risk going forward.
And just availability supply chain logistics, you read about semiconductor chips, but really there is a lot of components that go into printers.
And fairly short supply. So it takes a lot of effort to stay on top of it and we're working real hard at it.
Got it I'll jump back in the queue for now thanks for taking the questions.
Thanks Danny.
Thank you. Our next question today is coming from Sarkis <unk> from B Riley FBR. Your line is that of life.
Hey, Thank you for taking my questions here just wanted to see if you can provide and update on the cost restructuring initiatives and how much is left to go and the interest savings program I think last quarter, you mentioned achieving of 60 million run rate cost savings. So just wanted to get a sense for where we stand today, how much is left to go and what's the timetable.
Well, we're right and we're right on track with where we thought we would be this year in terms of our of our cost takeout efforts. So what we said was with the divestitures, we would get another.
With the divestitures, having occurred right at the end of the year and beginning of this year.
The target now of the share was the $20 million incremental cost takeout.
On track with that is going very well the balance there is looking at investments for growth because the market is rebounding.
We're very pleased with the number of new applications customers want to pursue right now and on both the metals and plastics side. So we are funding that growth and so.
So in terms of seeing what youre seeing flow through this year as of net of those two factors, we'll get $20 million out of our cost structure and we will look to reinvest.
Summer potentially all of the savings back into the cost structure to fuel growth, but you should see it and you should see a nice.
The response in terms of revenue growth margin performance.
That's really the tradeoff that we're making there. So Jack are you of any more light you want to put on that no. I think you captured it well Jeff I think we are we are getting the $20 million out this year.
I would expect opex going through the course of the year because that'll be the next question.
To be.
In line or marginally upward, where we were in Q1 as we as we balance taking cost out with the interest in.
Initial investments of the opportunities, we're seeing and the market.
And I was very glad that we got the $60 million out of last year and got everything restructure because it really positioned as well as the market rebounds, now to leverage that reduced cost structure and now it's really a horse race between taking further cost out of the business and investing for growth.
And we are determined to grow profitably. So we're not going to overspend on that and get out in front of our skis, but we certainly are going to support the strong markets that we see right now ahead of us.
And just one follow up of quick one I think the healthcare business, it's pretty obvious performing pretty nicely. There just any comments or color you can provide on the industrial side, which end markets do you think.
There is a nice growth opportunity here and the near term to intermediate term, and then which might be giving you. Some trouble. Thank you.
And it's really interesting.
And if you could go through each market vertical and.
And and automotive.
But clearly the ignoring the semiconductor issues they have as a total industry there is clearly.
And kind of a megatrend headed toward electric vehicles. So we're really pleased with our exposure, there and and where that's going it's a it's a smaller business today, but clearly from everything you read it the and can tell publicly it's a it's a growing market and growing business and the.
The light weighting and strengthening of those cars, we think is real and the stories, we hear back from customers about their utilization of additive as areas really encouraging for that.
Aerospace clearly has lagged.
It was really impacted by COVID-19.
Nice to see more people flying now as the as the U S. At least opens up so you would expect aerospace to lag, but be a driver and the next couple of years.
Interestingly.
<unk> related to two key flow heat management thermal management are really exciting and I say of broadly like that because theres a lot of applications for for managing heat. When you think of data centers, how do you eliminate the heat and of one of the major expenditures any developed country has.
Well for energy usage is and datacenter cooling and it just shows you the impact of the magnitude of heat generated there and how the dissipated as the real issue additive manufacturing as great of debt and when you carry it down to a system level.
Things that are very temperature sensitive.
So I'll give you two extremes one is rocket rocket the travel space travel with rockets and you see that competition heating up now and the in the commercial realm, which is really exciting between.
A number of of public companies getting into the space race getting into the end of commercial space travel space travel has enabled the very nicely by additive manufacturing, both propulsion and the systems themselves and and another exciting application, we're finding a range of applications and the of semiconductor chip manufacturing.
The the when you start controlling.
Stereolithography and other other.
Activities to make modern semiconductor chips control of the thermal environment of temperature environment and our system is incredibly important and.
And the structures you can make with additive and very effective costs are remarkable absolutely remarkable. So we've been very pleased with the interest level and the growth and the business of the semiconductor equipment manufacturers. So I could go on and on but those are those are several that we think will both lead and trail.
And in the in the opening economy.
Thank you.
You are welcome.
Thank you. Our next question today is coming from Noelle Dilts from Stifel. Your line is now of life.
Hi, guys good morning, and congrats on the good quarter.
Morning.
I was hoping that you could stand extend a little bit on some of the our bio printing initiatives.
And you spoke to some of the opportunities and the near term around and cosmetics and.
I think printing on the on slides could you speak to how to think about the monetization of this over the next few years. When do you think it could kind of contributory and how.
To think about kind of the longer term.
Thinking about the longer term ramp of that type of business.
Thanks, John It's a great question and it's for an emerging industry, it's always tricky to predict the timing and I again.
No I don't want to I don't want to be too aggressive and telling stories, but I got to tell you.
And I am so excited about the progress that we've made technically and the way the markets are evolving.
Clearly we started on the on the very long term and of things and Thats the.
Our engagement with United Therapeutics, and the premium and Oregon, and Thats the long term effort.
And that will be measured in years not quarters and.
But doing that and setting that high bar really got us and involved and progressing the technology and as we did that we started opening up nearer term markets. So other parts of it sounds funny, even talking about the other parts of the human body. The you can print with bio printing and.
And and get into into the application. When you think about and everyones body is unique everyones body arteries and veins muscles tissues bones, and so it generically lends itself to additive manufacturing, where you print things that are that are specialized for each human body. So we were very happy as we enter 'twenty one day.
Say, hey, let's let's broaden our scope and go for some near term applications, which might be measured and fewer years, okay to get into so all of those are funded the.
That effort is all funded and internally and I would tell you that we model of nice return of investment, but it is still measured in years to get fully FDA qualified and all of that progress is remarkable but and but it still takes a lot of time, so with that we said well how do we run further and faster and shorter term and you look at the laboratory.
<unk> and then the <unk> acquisition came along as an opportunity for us.
We are able to day to print three dimensional tissue specimens and the lab for first of all for basic studies of regenerative medicine, and that's fine that's needed to progress the science, but I would tell you know what I'm really excited about are the applications and the pharmaceutical industry.
Because the testing of drugs and other skin therapies and treatments.
<unk> is really the ice on an enormous amount of computer simulation and then animal testing and.
And then they very very carefully go into and into real human testing.
As the regenerative medicine approach bio printing gives you an opportunity to really test the effects on human tissue, but in the lab setting and I would tell you no I believe that can be and exciting near term market for us.
And through a levy, we're now exposed to hundreds of research laboratories around the world. We can take the technology, we've developed for Oregon's and and other human applications and refine it to apply it to laboratory settings, leveraging with the Levy is done and their customer base. So I would tell you I think the pharmaceutics.
Industry and things like cosmetics, and other skin care I think thats that could very well be of revenue stream for us Thats mesh certainly measurable next year and could contribute in the in the long term to the business substantially.
It could be it can be and enormous business for us and it will be for someone and I feel good about our leadership role and that and that today, it's nascent it's evolving and we want to be on front, making it happen.
Thank you and the interest of time I'd like to remind everyone to please limit the limit themselves to one question the return to the queue.
Our next question today is coming from David Mizrahi, Quint and I remember your line is now live.
Hey, guys.
And <unk> got into the Capex of greater than the regimen and this year, while the <unk> is attract and roughly $150 million and part of this is going to support and your thoughts in Poland and can you can you just discuss the indications can you guys or any conversations you've had and I'll jump back of the Keith Thanks.
No, we really can't we really cash.
I would love to tell you about the conversations we have with individual customers, but we just can't go there.
I love, our customer base, and we have a terrific customer base and some very long term customers that have done very well and their industry, but we just can't talk about them other it's too sensitive to them.
And as much as I would love to talk about it ourselves and we didn't we just can't do that but we're excited and we clearly and medical and total is growing really nicely for us.
Across the range of big named healthcare companies and end market and end markets and users like surgeons and same with dental.
And the exciting business and the dynamic business and it is broader than you might think and and it's going very very well, but I just I just David can't really comment on individual customers I am sorry.
Thank you. Our next question today is coming from Paul Coster from Jpmorgan. Your line is now live.
Hi, This is all parts of hung on for <unk>. Thanks for taking my question. So I see that you are splitting out health care and industrial.
The operating profit and the <unk>.
Thank you.
Will you be kind of providing the historical data and.
How should we think about the margin performance.
Between the segments moving forward Theres kind of.
And it quite a discrepancy today.
Yes, Paul.
Unfortunately, we won't be providing historical data.
To provide that operating segment data, we as you know made of the.
The potential restructuring of our business last year into these and these two verticals healthcare and industrial that will require a pretty substantial rewiring of our financial systems to be able to now report by by segment down from just revenue not just revenue, but down to operating profit healthcare and.
The industrial and we did that on a prospective basis net of net of previous year basis. So.
And we don't have the ability other than kind of excel spreadsheets to report historical historical results going in to 2022, we'll have 2020 and result, one results of youll be able to see year over year impact. So that's our plan going forward.
And how does how does that margin performance evolved kind of through the year and into 'twenty two and.
And.
Getting to your goals longer term goals. Thank you.
Yes, I would expect that yes.
If you look at our business in totality I think as.
As we look at.
The EBITDA margins for the year I would expect.
Just looking at kind of where consensus revenue guidance is right now if I if I take consensus revenue guidance for the balance of the year.
The apply the midpoint of our gross margin guidance range, 40% to 44% and I say opex will be.
The about where we were in Q1, maybe maybe marginally up from the investments that we're making I think that gets us to <unk>.
Low single or low double digit adjusted EBITDA margins, and I think that'll be roughly split between healthcare and industrial and the way you saw in Q1.
Paul.
Just to add in terms of of our long term financial model for the company and we certainly see healthcare healthcare is a great future too and it's and it lends itself to kind of what's called mass customization through additives quite quite effectively both on the implant side and on the dental side and.
And really really well and it generally is growing faster and carries a higher margin.
And in terms of supporting our long term financial objectives, you can see the mix between the businesses that we would expect that trend to continue and that kind of supports our long and when you. When you extend out of that kind of supports our long longer range targets and we'll be talking more about that at our investor day and in September.
Thank you. My next question is coming from Brian Drab from William Blair. Your line is now live.
Hi, good morning, Thanks for taking my questions or question I should say and.
And I'm, sorry, I'm looking at the call. It simultaneously so im sorry, if you addressed this but are you hearing anything from your largest customer in terms of their planned capacity expansions and the requirements of <unk> systems and 2021.
Thanks.
Yes Bryan.
Again, we don't we don't want to we don't want to talk about individual customers. They really don't allow us to they don't want us to but I would tell you. We're very intimate with the number of our large customers and we I think we understand their growth plans themselves and what they what they would like us to be doing and investing for and we're excited about that so across the.
Our board I think all of the guys. We support are growing nicely and have exciting plans and I expect us if we execute our business will be a key part of it.
Okay. Thank you.
Brian.
Thank you. The next question today is coming from <unk> Mohan from Bank of America Securities. Your line is now live.
While the reporting lumpy on mute.
Hi, good morning, sorry.
Thanks for that and thanks for taking the question. Jeff You mentioned that you were excited about the reopening of the economy and the impact here of bedroom.
How should we think about the seasonality from here.
As we go through the course of the year I know John.
And I sort of the Opex side of the fed, but just from a revenue perspective.
Given the given the reopening and easy comps, especially the next quarter or any color around.
How we should think about the revenue trajectory and just a quick clarification on the re class of the segments. Historically, you just gave US Q1 of 'twenty numbers on a restated basis of Hawaii and unable to <unk> the other quarters for 2020.
Thank you.
Well, let me take the reopening question their logs and I'll, let Jack answer the.
Second question you had.
And in terms of revenue and expectations is it is the big question and the.
The struggle we have two struggles number one the world is much different and different locations in terms of rate of opening.
The U S is good systematic opening we see it's kind of becoming predictable now so you see customers behaving that way and ramping up their current capacity planning for new investments all of that and then you've got Europe being on the.
The extreme side, India, and where Europe is really not opening quickly they'll put it that way and in India is kind of ahead of the other way and you see and these these tragic headlines out of India. So and we do some business in the year. So you have to netted all out to look at revenue performance I want to be very careful and Q2 again I'm really pleased with.
The demand profile, we see out there and it's more of a pacing item how fast can we how fast our customers comfortable placing purchase orders and ramping up their capacity and the U S. I would tell you very confident and things look really good.
Europe is much more of a flip of the coin and then places like India are still going backwards. So it's it's tough and I think that should clear up nicely and the second half of the year, but predicting Q2 is a little hard which is why we're not giving guidance that I gave a guidance out there and on top of it you have logistics and each of the short term.
And I think short term.
Supply constraints, and we're managing our way through that fine, but its a week to week month to month.
The foot race to make sure we have all of the components, we needed to build products and ship it it's going well, but we just have to and this remains a risk factor for us going forward. So the.
The hardest thing frankly to predict right now is the short term and the long term and Jack is a range of your cost structure, that's pretty easy to predict but the longer term or the short term outlook on revenue is a little bit trickier. It's full it's more full of noise Jack.
<unk> you want to take the second half of it yes ill address the question I think volume. So you had was on our segment revenue reporting. So we did disclose obviously as you know Q1 healthcare versus industrial.
We do have the ability to do that for other quarters. When I was addressing and that prior question was was operating profit, but revenue. We certainly have and we can make that available most of this earnings call.
Okay. Thank you.
Thank you. Your next question today is coming from Ananda Baruah from loop capital markets. Your line is now of life.
Hey, Thanks, guys. Good morning. Thank.
Thanks for taking the class one congrats on the law.
Solid execution.
Hey, just real quick.
Should we think about the cadence we did the box.
The carriers going forward.
And non cash income level starting to collect thanks, that's it for me.
No great questions clearly.
We started down this path on divestitures, having having defined the purpose of the company we looked at what's outside the envelope and we did.
I felt great. We did a couple of them very late last year right as we round of the curve into 2021.
That work is still ongoing we're still considering what is what do we want to hang onto what do we wanted the vast what fits within that core package.
And I don't really want to talk more about it because it's obviously a very sensitive topic.
But yes, we're not finished and we continue to work on that Youll hear more about it and the coming months and quarters.
In terms of what we're going to do with the cash.
Great. We've got we've got a nice cash on the balance sheet. We are generating good operating cash flow. We've got no debt I feel really good about our investment opportunities now and they should continue to expand in terms of priorities clearly.
And we're now on the hunt for for Smart investments across our business. So it can be technology investments like we did last quarter that.
And make printing more efficient or move us into a new market with regenerative medicine and that was an example.
Would love to do more and healthcare would love to do more some more and our and our core technologies. Although I have to tell you. We're in really good shape organically on that as well. So I love. The additive works addition from a software standpoint. It was it was incremental to what we had the capability to do internally, which was great. Those are the kind of opportunities we look at.
They are they are small ish niche kind of technology opportunities that really don't shift and the needle and.
And a given year materially, but they make a huge difference and the long term. So they open up new markets. They bring new technology. So we will continue to look for those and fairly aggressively I would tell you there.
And there is no lack of opportunity you just have to look at getting a good return on the investment for our shareholders.
So John.
Yes ill just add all of our call on top of the potential use of cash and M&A, The just mentioned and technology investments.
I would also say youll see increased use of Capex I think our Capex has been light for the last year now.
We'll be increasing capex as we as we make investments and our business, we talked about the expansion in Denver that and other areas of investment, we'll get capex up closer to the four of 5% of revenue that we've talked about and the last earnings call.
We'll still have some cash for restructuring activities as we as we.
Continue to restructure of our business and reduce costs and then finally I would also say we will probably have some inventory builds going into Q2 and maybe later this year right. We are seeing increasing demand and we talked about supply chain concerns and and wanted to make sure that we had sort of out of either product or.
And our components to meet and demand. So we will probably be investing and inventory to the balance of the year.
Thanks, guys see per household.
Thank you as a reminder of that star one to be placed and the question queue. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
And gentlemen, congrats on the nice results.
Thanks Troy.
Hey, Jeff just a quick for you I guess one.
And trend we've seen is.
High temperature DLP.
You should think of Stratasys excuse me on the <unk> systems when it comes to the SLA and DLT technologies.
Could you just.
And his update us what your strategy is to do more and and high jump DLP and maybe.
And I just do more of it.
Well a number of number one Troy, we've really increased our investment internally and on new materials for both SLA and DLP and <unk>.
We were playing a bit of catch up there and we've got some really exciting materials coming out the share actually quite a lot. So so in terms of developing new materials for our current platforms and our next generation platform, which we haven't talked about yet but that will be coming soon.
And we want to make sure the materials pipeline is really strong and and it's really hard to start getting the payback on those platforms. As you know from your experience and it's really hard to get the payback on the platforms until you have good materials flow through of plus customer adoption has helped tremendously by having a good portfolio of materials.
So we're trying to get out in front of the materials question on those and we had didn't have some next generation platforms coming along and we will talk more about and the fall.
If I can piggyback of follow up.
On the trend of materials and welcome.
It's displacing metals and you're doing all of that and Laura can we expect to see more of that composite materials for me.
Yes, I think Troy I think I think composites have a really nice role to play and and we're looking at it from a number of angles, both the materials systems themselves and obviously the combination of matrix and fiber and what you do there.
As well as the printing technology and just the printing hardware, how do you print and how do you best print.
Positive structures.
And Theres a lot of exciting work going on and so we can progress some of it internally some of the we're looking at through partnerships and acquisitions, but I think you put your finger on it there's a really nice evolving niche between classical polymer technology and metals technology for lightweight strong stiff materials of composites. So.
It will be of factor and we're excited about it.
Alright, well good luck John.
Thanks, John Thanks, Derrick thank.
Thank you we've reached the end of our question and answer session I would like to turn the floor back over to John Eye-popper for any further of closing comments.
Thank you for joining us today and for your continued support of <unk> systems. A replay of this webcast will be available after the call on the Investor Relations section of our website have a good day.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.