Q4 2023 3D Systems Corp Earnings Call

Operator: Hello and welcome to the 3D Systems fourth quarter and full year 2024 earnings call-in webcast. If anyone should require operator assistance, please press star zero on your telephone.

Hello, and welcome to the <unk> systems fourth quarter, and full year 2024 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.

Operator: A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your... As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Mick McCloskey, Vice President and Vest. Go ahead, Mick. Good morning and welcome to the 3D Systems conference call to discuss the preliminary results of the fourth quarter and full year 2023. The financial results presented on today's call and included in our earnings release are unaudited.

A question and answer session will follow the formal presentation can you may be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to make Mccluskey Vice President of Investor Relations. Please go ahead Mike.

Good morning, and welcome to <unk> systems conference call to discuss the preliminary results of the fourth quarter and full year 2023.

Financial results presented on today's call and included in our earnings release are unaudited and the company is in the process of completing its quarterly and year end close process. Accordingly actual results may differ from anticipated results.

Michael McCloskey: The company is in the process of completing its quarterly and year-end close processes. Accordingly, actual results may differ from the anticipated results discussed today and shown in our earnings release. We're delaying the filing of our annual report on Form 10-K to the fiscal year ended December 31, 2023, and we'll file a Form 12-B-25 notification of late filing with the SEC to extend the deadline to file the Form 10-K. Our final audited financial results will be included in the Form 10-K once filed. With me on today's call are Dr. Jeffrey Graves, President and Chief Executive Officer, Jeff Creech, Executive Vice The webcast portion of this call includes a slide presentation that we will refer to during the call.

That's today and shown in our earnings release.

Delaying the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2023, and will file a form <unk> 25 notification of late filing with the SEC to extend the deadline to file the Form 10-K, our final audited financial results.

Included in our Form 10-K once filed.

With me on today's call are Dr. Jeffrey Graves, President and Chief Executive Officer, Jeff <unk> Executive Vice President and Chief Financial Officer, and Andrew Johnson, Executive Vice President Chief Legal Officer, and Chief Corporate Development Officer.

The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website.

Michael McCloskey: Those following along on the phone who wish to access the slide portion of this presentation may do so in the Investor Relations section of our website. 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. However, actual results may differ materially.

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 our latest press release and our filings with the SEC, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q during.

Michael McCloskey: Additional information about factors that could potentially impact our financial results is included in our latest press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this request webcast, you will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against the results for the comparable period of 2022. With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks. Thanks, Mick, and good morning, everyone.

During this call we will discuss certain non-GAAP financial measures in our press release and slides accompanying this request webcast you will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures.

Finally, unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2022 and with that I'll turn the call over to our CEO, Jeff grades for opening remarks.

Thanks, Mick and good morning, everyone.

Jeffrey A. Graves: I'll begin this morning with a brief reflection on 2023 performance. I'll then shift focus to 2024 and our path forward, discussing not only our restructuring initiative to take costs out of the business, but equally important, the areas that we are consciously choosing to continue to invest in for future growth. Finally, I'll wrap things up with some comments on our 2024 outlook before handing things off to our new CFO, Jeff Creech, for a deeper dive into the financials. As you may recall, Jeff joined the company in mid-December. He brings over 25 years of experience in finance leadership and business transformation and has already hit the ground running as he led us through the year in close. Welcome aboard, Jeff.

I'll begin this morning with a brief reflection on 2023 performance I'll, then shift focus to 2024 and our path forward discussing not only our restructuring initiative to take cost out of the business, but equally important the areas that we're consciously choosing to continue to invest for future growth.

Finally, I'll wrap things up with some comments on our 2024 outlook before handing things off to our new CFO, Jeff Creech for a deeper dive into the financials. As you may recall, Jeff joined the company in mid December He brings over 25 years of experience in finance leadership and business transformation and has already hit the ground running as he led us through the year end.

<unk> welcome aboard Jeff, It's great to have you with us.

Jeffrey A. Graves: It's great to have you with us. Before I begin discussing our recent results and forecast for the year, I think it's an important time to reflect on the state of the industry and where 3D Systems is positioned within it. I'm now on slide five.

Before I begin discussing our recent results and forecast for the year I think it's an important time to reflect on our state of the industry and were three D systems is positioned within it.

Now on slide five.

Jeffrey A. Graves: 3D printing has been around since our founder, Chuck Hall, invented the technology in the early 1980s. It very quickly proved useful as a prototyping technology, a role it continues to play today. However, the real value of additive manufacturing, as it's now more commonly called, is when it began to be used to manufacture real components, not just prototype parts. This evolution took over 20 years, and it required advancements in the printing hardware, the software for process control, and, most importantly, advancements in the materials that could be printed. Fast forward to today, and we have the technology to manufacture an incredible range of products, from orthopedic and dental implants for human beings to key components for aerospace, automotive, and many other industrial markets. This evolution has today provided companies with four key advantages that are not available through traditional manufacturing processes. The first is design flexibility, which means very simply that engineers can create much more complex shapes that can't be manufactured, even with the most advanced machining or casting technology.

Three D printing has been around since our founder Chuck Hall invented the technology in the early eighties. It very quickly prove useful as a prototyping technology rollout continues to play today.

However, the real value of additive manufacturing as it's now more commonly called is when it began to be used to manufacture real components not just prototype parts. This evolution took over 20 years and it required advancements in the printing hardware software for process control and most importantly advancements in the materials that can be printed.

Fast forward to today, we have the technology to manufacture an incredible range of products from orthopedic and dental implants for human beings to key components for aerospace automotive and many other industrial markets.

This evolution is today provided companies with four key advantages that are not available through traditional manufacturing processes.

The first is design flexibility, which means very simply the engineers can create much more complex shapes that cant be manufactured even with the most advanced machining you're casting technologies.

Jeffrey A. Graves: Importantly, these parts are made through additive techniques that are often less expensive and less wasteful than traditional methods, bringing costs down and reducing environmental impacts from manufacturing. The second key benefit and one that's bringing many large industrial companies into the market more recently is what we call mass customization. This means producing large quantities of parts, with each being slightly different from the prior one. This benefit has been enabled by the improving economics of 3D printing, enabled by increased printer size, speed, and reliability. We clearly see this in our healthcare business, where orthopedic implants and dental products can be customized for each person's needs. In fact, in the orthodontic area, our technology enables the manufacture of over a million customized clear aligners per day, and soon other products, such as custom printed dentures, will follow at a similar scale. On the industrial side, the same type of applications are now in focus, spanning both polymer and metal technology.

Importantly, these parts are made through additive techniques that are often less expensive and less wasteful than traditional methods, bringing cost down and reducing environmental impacts for manufacturing.

The second key benefits, one that's bringing many large industrial companies into the market more recently.

It's what we call mass customization.

This means producing large quantities of parts with each being slightly different from the prior one.

This benefit has been and has been enabled by the improving economics of three D printing enabled by increased printer size speed and reliability.

We clearly see this in our health care business, where orthopedic implants, and dental products can be customized for each person's need.

In fact in the orthodontic area, our technology enables a manufacturer of over 1 million customized clear liners per day.

And soon other products.

Such as custom printed dentures will follow with a similar scale.

On the industrial side the same type of applications are now on focus spanning both polymer and metal technologies.

Jeffrey A. Graves: The third benefit is low volume, high-complexity parts. Once again, printing speed combined with new materials that are designed to meet specific application needs are a key to success. Electronic components and those used in semiconductor equipment manufacturing are but two of many examples.

The third benefit is low volume high complexity parts once again printing speed combined with new materials that are designed to meet specific application needs are a key to success.

<unk> components and those used in semiconductor equipment manufacturing are but two of many examples.

Jeffrey A. Graves: And finally, greatly enhanced supply chain flexibility, enabling production where you need it, when you need it, is important, more important than ever, whether you're printing replacement parts for an oil refinery out in the desert or on a ship at sea, or you're reducing risk by moving production closer to the point of assembly operations. Many new customers in the post-COVID period are evaluating the capabilities and economics of additive manufacturing and are embracing this new technology. So what does all this translate to?

And finally greatly enhanced supply chain flexibility, enabling production, where you need it when you need it is important more important than ever.

Youre printing replacement parts for an oil refinery out in the desert or on a ship at sea or you're reducing risk by moving production closer to the point of Assembly operations. Many new customers in the post Covid period are evaluating the capabilities and economics of additive manufacturing and.

Are embracing this new technology.

So what does all of this translate too well.

Jeffrey A. Graves: Well, while recent macro factors have slowed investment for the entire industry in the short term, these fundamentals support an expectation of compounded annual growth of over 20%, which translates to an $80 billion market opportunity over the next five to seven years. So with all that as a backdrop, I was asked recently by one of our directors, "Is 3D printing a growth industry?". Well, given the expectation of market growth, an appropriate question to ask might be, why don't you as investors see it in the numbers? Well, there are two simple reasons.

While recent macro factors have slowed the investment for the entire industry in the short term. These fundamentals support an expectation of compounded annual growth, averaging over 20%, which translates to an $80 billion market opportunity over the next five years to seven years.

So with all that as backdrop I was asked recently by one of our directors is three D printing a growth industry.

Given the expectation of market growth and appropriate question to ask might be why don't you as investors see it in the numbers.

Well there are two simple reasons.

Jeffrey A. Graves: One is the recent economic conditions of impact and CapEx spending by our customers in the short term. This is expected to correct itself as interest rates ultimately decline and consumer demand becomes more predictable. The second is that new market entrants have emerged, particularly from China, in the hardware element of the business. This has created a very fragmented industry, but one that increasingly seeks to consolidate, creating the scale and breadth of technology needed to service our global customer base in their factories around the world. So with all of this, where does 3D Systems stand today? And why should an investor be interested in our company specifically? We're fundamentally in a growth industry. There are three reasons to invest in 3D systems.

One is the recent economic conditions are impacting capex spending by our customers in the short term. This is expected to correct itself as interest rates ultimately decline in consumer demand becomes more predictable.

The second is the new market entrants have emerged, particularly from China and the hardware element of the business.

This has created a very fragmented industry, but one that increasingly seeks to consolidate creating the scale and breadth of technology needed to service, our global customer base and their factories around the world.

So with all of this work is <unk> system stand today, and why shouldn't investors be interested in archive our company specifically.

We're fundamentally in a growth industry. There are three reasons to invest in three D systems first we have the scale needed to support our global customers from a sales and service standpoint, while driving the internal efficiencies needed to sustain the R&D spend to meet our customers' application needs at almost $500 million of revenue in 2010.

Jeffrey A. Graves: First, we have the scale needed to support our global customers from a sales and service standpoint, while driving the internal efficiencies needed to sustain the R&D spend to meet our customers' application needs. We're one of the largest companies in the industry, with strong gross margins that continue to improve, even in this difficult economic climate. Our R&D investments support the broadest range of additive technologies in the entire industry, bringing together metal and polymer hardware platforms in an exceptional materials portfolio with intelligent cloud-based software to deliver targeted application solutions to key customers around the world. We have the sales and service infrastructure to support our customers' manufacturing plants wherever in the world they choose, and we have experience to show that it works. In one instance, we have over 600 printers installed in plants in Central America, Eastern Europe, and Asia, all printing in harmony to deliver custom products every day of the year.

Three one of the largest companies in the industry with strong gross margins that continue to improve even in this difficult economic climate.

R&D investments support the broadest range of additive technologies in the entire industry.

Bringing together metal and polymer hardware platforms, and an exceptional materials portfolio with intelligent cloud based software to deliver targeted application solutions to key customers around the world.

We have the sales and service infrastructure to support our customers' manufacturing plants wherever in the world. They choose and we have experience to show that it works in one case, we have over 600 printers installed in plants in Central America, Eastern Europe, and Asia, all printing in harmony to deliver custom products every day.

Of the year.

Jeffrey A. Graves: Last year, this single customer delivered hundreds of millions of bespoke products successfully to customers on virtually every continent. And now we're expanding our technology base into regenerative medicine, an emerging market in which the ability to print vascularized human tissue will change health care forever. No one in the world is better positioned than we are to bring these solutions to the market, creating value for all of our stakeholders. In the short term, we have the flexibility to adapt to economic volatility by taking out costs, and to do so without stifling future growth investments needed to serve that $80 billion addressable market in the years ahead. Endorsed by a strong balance sheet with a healthy cash reserve, providing headroom to execute on a strategy that delivers substantial value creation for the horizon ahead.

Last year, the single customer delivered hundreds of millions of bespoke product successfully to.

Customers on virtually every continent.

And now we're expanding our technology base into regenerative medicine.

In emerging market, which the ability to print vascularized human tissue will change health care forever.

No one in the world is better positioned than we are to bring these solutions to the market, creating value for all of our stakeholders.

In the short term, we have the flexibility to adapt to economic volatility by taking out costs.

And to do so without stifling future growth investments needed to serve that $80 billion addressable market in the years ahead.

Endorsed by a strong balance sheet with a healthy cash reserve, providing headroom to execute on our strategy to deliver substantial value creation for the horizon ahead.

So with that backdrop in mind, let's turn to slide six.

Jeffrey A. Graves: Without question, 2023 proved to be a challenging year, and it all centered on revenue, which remained under significant pressure all year long. Far and away, the most significant impact on our year-over-year revenue decline was attributed to our dental orthodontics business. This was a headwind that we had begun to experience in 2022 when inflation first took its toll on consumer discretionary spending. This pressure built significantly in 2023 as demand in the orthodontic space tumbled and inventory spiked. In the end, our full-year dental orthodontics business declined 39%. Making matters worse from the demand perspective, last year was a year of broad-based macroeconomic and geopolitical uncertainties created in part by the rapid rise in interest rates used in an effort to dampen inflation. Clearly, this was necessary.

Without question 2023 proved to be a challenging year and it all centered on revenue, which remained under significant pressure all year long.

Far and away the most significant impact on our year over year revenue decline was attributed to our dental orthodontics business. This was a headwind that we had begun to experience in 2022 and inflation first took its toll on consumer discretionary spending.

This pressure build significantly in 2023 as demand in the orthodontic space tumbled in inventory spiked.

In the end, our full year dental orthodontics business declined 39%.

Making matters worse from a demand perspective last year was a broad based macroeconomic and geopolitical uncertainties created in part by the rapid rise in interest rates used in an effort to dampen inflation.

Clearly this was necessary this rise in rates caused many of our customers to slow their capital spending as they waited to see what the impact would be ultimately on consumer demand.

Jeffrey A. Graves: This rise in rates caused many of our customers to slow their capital spending as they waited to see what the impact would ultimately be on consumer demand. When we last spoke in November, our expectation was that this delay in capital deployment would moderate during the fourth quarter, following the usual seasonality patterns for our company. Unfortunately, this did not happen.

When we last spoke in November our expectation with this delay in capital deployment with moderate during the fourth quarter.

Following the usual seasonality patterns for our company and.

Unfortunately, this did not happen.

Jeffrey A. Graves: To be clear, this was a delay in placing orders with very few cancellations. However, our customers remain committed to additive manufacturing as incremental capacity is needed and new products are introduced. Given that these concerns continue in the new year, we're assuming this trend of slow rolling purchase orders continues in 2024. This may prove to be conservative, but for now, I think it's prudent.

To be clear this was a delay in placing orders with very few cancellations.

As our customers remain committed to additive manufacturing as incremental capacity as needed and new products are introduced.

Given that these concerns continue in the new year, we're assuming this trend of slow roll in purchase orders continues in 2020 for.

This may prove to be conservative, but for now I think it's prudent.

Jeffrey A. Graves: For this reason, we continue to take cost actions needed to drive near-term profitability and cash performance, even in a static sales environment. One thing to point out is that while navigating this challenging top-line environment, I was very proud of our team's ability to deliver improved gross margins in 2023. Having driven through selective price actions to recover inflationary costs early in the year, as the quarters passed, we continued to focus on our insourcing of manufacturing into our newly formed centers of production action and began optimization of our extended supply chain. This led to greater efficiencies for the business throughout 2023, as reflected in our rising growth margins, and we expect it to unlock even more benefits going forward. The last point I'd like to make is our EBITDA performance.

This reason, we continue to take cost actions needed to drive near term profitability and cash performance, even in a static sales environment.

One thing to point out while navigating this challenging top line environment.

I was very proud of our team's ability to deliver improved gross margins in 2023.

Having driven through selective price actions to recover inflationary costs early in the year as the quarters passed we continue to focus on our in sourcing of manufacturing into our newly formed centers with production excellence and to begin optimization of our extended supply chain.

The greater efficiencies from the business throughout 2023 as reflected in our rising gross margins and we expect it to unlock even more benefits going forward.

The last point I'd like to acknowledge that our EBITDA performance. When we first entered the year, we had a much different outlook for revenue and felt with the levels of around $560 million, we can deliver at least breakeven profitability.

Jeffrey A. Graves: When we first entered the year, we had a much different outlook for revenue and felt that at levels around $560 million, we could deliver at least breakeven profitability. In response to our more significant revenue challenges, we took extensive actions to remove operating costs from the business. As a result, we're seeing a reduction in core expenses, and we expect this to continue.

In response to a more significant revenue challenges, we took extensive actions to remove operating costs from the business.

As a result, we're seeing a reduction in core expenses and we expect this to continue.

Jeffrey A. Graves: Of note, these impacts were overshadowed in the fourth quarter by incremental investment in our regenerative medicine initiative and some higher than normal expenses near year end, which Jeff will detail later on. Setting this aside, expectations for 2024 are for reductions in OPEX and continued improvement in gross margin performance, both of which lead to improved EBITDA realization. Let's turn to slide seven to delve deeper into our restructuring initiative. Like many of our industry peers, pressure on revenue growth in 2023 prompted significant cost reductions as a response. While we've implemented cost actions of our own, I'd argue our philosophy and strategy for doing so are fundamentally different.

Of note. These impacts were overshadowed in the fourth quarter by incremental investment in our regenerative medicine initiative and some higher than normal expenses near year end, which Jeff will detail later on.

Setting this aside expectations for 2020 for further reductions in Opex and continued improvement in gross margin performance, both of which lead to improve the EBITDA realization.

Let's turn to slide seven to delve deeper into our restructuring initiatives.

Like many of our industry peers pressure on revenue growth in 2023 prompted significant cost reductions as a response.

While we've implemented cost actions of our own I'd argue our philosophy and strategy for doing so is fundamentally different.

Jeffrey A. Graves: As a starting point, you just heard me talk about our strong balance sheet. With healthy cash reserves and an opportunity to drive considerable improvements in working capital through inventory reduction in the year ahead, we have the ability to be very methodical and deliberate in our restructuring efforts. Balancing the Need for Improved Operating Efficiencies with Support for Critical R&D Investments needed to deliver the growth we see ahead. In short, we're eliminating a substantial amount of cost to better reflect the current revenue environment, but we'll never do so at the expense of starving future growth initiatives that we deem to be critical to long-term value creation. That said, more simplistically, we're responding to our environment in order to thrive, not just survive.

As a starting point you just heard me talk about our strong balance sheet with healthy cash reserves and an opportunity to drive considerable improvements in working capital through inventory reduction in the year ahead, we have an ability to be very methodical and deliberate in our restructuring efforts balancing the need for improved operating efficiencies with support for critical R&D investments.

<unk> needed to deliver the growth we see ahead.

In short, we're eliminating a substantial amount of cost to better reflect the current revenue environment.

I'll never do so at the expense of starving future growth initiatives that we deem to be critical to long term value creation.

That said more simplistically.

We're responding to our environment in order to thrive not just survive.

Jeffrey A. Graves: Our focus is not just on preserving this year ahead, but doing so in a fashion that still unlocks enormous potential for the years ahead. So to summarize, at the midpoint of our revenue range, you'll see us pointing to a flattish performance as the economy finds its footing. Our efficiency programs and cost actions should deliver continued improvements in gross margins while decreasing our overall OPEX costs.

Our focus is not just on preserving this year ahead, but doing so in a fashion that's still unlocks enormous potential for the years ahead.

So to summarize at the midpoint of our revenue range, you'll see is pointing to a flattish performance as the economy finds its footing our.

Our efficiency programs and cost actions should deliver continued improvements in gross margins, while decreasing our overall opex costs.

Jeffrey A. Graves: We believe this combination will result in a positive EVADOT performance this year, while maintaining our critical investments for growth. A key enabler of this strategy is a keen focus on portfolio optimization, which will be an ongoing effort for us. The result may include decreasing investments in certain areas that no longer provide an acceptable return on capital, which may result in the disposal of non-core assets or the establishment of partnerships in certain areas, while increasing investments in more attractive parts of our extensive portfolio.

We believe this combination will result in a positive EBITDA performance this year, while maintaining our critical investments for growth.

An enabler of this strategy is a keen focus on portfolio optimization, which will be an ongoing effort for us.

The result may include decreasing investments in certain areas that no longer provide an acceptable return on capital.

Which may result in disposal of noncore assets or establishment of partnerships in certain areas.

While increasing investments in more attractive parts of our extensive portfolio.

Jeffrey A. Graves: I'd like to give you an idea of some of the areas we find particularly exciting at this juncture. On slide 8, you'll see our offering of end-to-end solutions to address the orthopedic device market. We have manufactured millions of medical devices within our own facilities and to a far greater extent by our customers leveraging our printers, materials, and software in their own facilities. For example, in the $2 billion market for CMF, or cranial maxillofacial bone structures, we're among the leaders when it comes to supporting the full ecosystem of surgical planning, guides, and implants. This market is growing for us as we now expand from oncology and other planned surgeries to increasingly support trauma patients using both metal and polymeric solutions. In the $10 billion spinal market, we have the highest adoption rate of our DMP-300 metal printing technology to produce spinal cages. Surgeons are increasingly taking advantage of additive design capability to provide enhanced patient success. Building on the learnings from our CMF and spinal capability

I'd like to give you an idea of some of the areas, we find particularly exciting at this juncture.

On slide eight you'll see our offering of Indian solutions to address the orthopedic device markets.

We have manufactured millions of medical devices within our own facilities.

And a far greater magnitude produced by our customers leveraging our printers materials and software in their own facilities.

And the $2 billion market for CMS for cranial maxillofacial loan structures.

We are among the leaders when it comes to supporting the full ecosystem of surgical planning guides and implants.

This market is growing for us as we now expand from oncology and other planned surgeries to increasingly support trauma patients using both metal and polymeric solutions.

And the $10 billion spinal market, we have the highest adoption rate of our D. N. P 300 metal printing technology to produce final cages and surgeons are increasingly taking advantage of additive design capability to provide enhanced patient success.

Building on the learnings from our <unk> and spinal capability.

Jeffrey A. Graves: We're now making significant inroads into the fast-growing foot and ankle market space, which is valued at almost $4 billion today, by supporting commercialization of several total ankle applications. Having now expanded our metals technology from titanium to cobalt chrome, we have the added capability to support replacement and repair of moving joints that are exposed to higher levels of fatigue over time. This is essential as we penetrate the foot and ankle market and then expand into the $20 billion hip and knee market, which will leverage our new triple laser metal printing system. Even in the difficult revenue environment of 2023. Personalized healthcare was a positive outlier, if you flip to slide nine, delivering double-digit growth year over year, and we expect this trend to continue.

Now, making significant inroads into the fast growing foot and ankle market space, which is valued at almost $4 billion today by supporting commercialization of several total ankle applications.

Having now expanded our metals technology from titanium cobalt chrome we have the added capability to support replacement and repair of moving joints that are exposed to higher levels of fatigue over time.

This is essential as we penetrate the foot and ankle market and then expand into the $20 billion hip and knee market, which will leverage our new triple laser metal printing system.

Even in the difficult revenue environment of 2023.

Personalized healthcare was a positive outlier if you flip to slide nine delivering double digit growth year over year, and we expect this trend to continue.

Jeffrey A. Graves: While a significant element of growth will be expanded indications that I've just reviewed for you, another portion will be driven by geographic expansion beyond our core markets of North America, broadening our reach to more surgeons and patients across the globe. In the aggregate, we view the opportunities in the personalized medicine space and our aggressive investments in this business to yield a tripling of revenue over the next five years. The second element of our health care business is dental. Historically, our largest revenue stream in this business has been from orthodontics, where we pioneered the 3D printing technology for clear aligners over 20 years ago. Now, with the mass adoption of digital imaging advancements and advancements in materials and printing technology, we see continued opportunity to open new dental markets for additive manufacturing. A major market is for dentures, which until now have been manufactured through machining and hand assembly. For this reason, much of the manufacturing base moved to Asia to access lower labor costs, and lead times extended accordingly.

While significant element of growth will be expanded indications that I've just reviewed for you. Another portion will be driven by geographic expansion beyond our core markets of North America, broadening our reach to more surgeons and patients across the globe.

In the aggregate, we view the opportunities in personalized medicine space.

Aggressive investments in this business to yield a tripling of revenue over the next five years.

The second element of our health care business is dental.

<unk>, our largest revenue stream in this business has been orthodontics, where we pioneered the three D printing technology for clear Aligner has over 20 years ago.

Now with the mass adoption of debit digital imaging advancements in and advancements in materials and printing technology, we see continued opportunity to open new dental markets for additive manufacturing.

Our major market is for dentures, which until now have been manufactured through machining and hand Assembly.

For this reason much the manufacturing base moved to Asia to access lower labor cost and lead times extended accordingly.

Jeffrey A. Graves: However, just last week, we announced the introduction of the industry's first multi-material, one-piece jet adventure solution. By adopting additive manufacturing, production cycle time, and, even more importantly, the labor content for digital fabrication is dramatically reduced. This allows the process to be moved closer to patients and delivered faster and at a lower cost than ever before. With the addressable denture market expected to exceed $2 billion by 2028, this presents a tremendous opportunity for our jetted denture solution. This denture combines our next-dent jetted denture teeth and base materials in one printing operation, delivering not only beautiful aesthetics but exceptional break resistance, a combination never before attained in a printed single-piece denture.

However, just last week, we announced the introduction of the industry's first multi material one piece jetted denture solution.

By adopting additive manufacturing production cycle time, and even more importantly, the labor content for denture fabrication is dramatically reduced.

It allows the process to move closer to patients and delivered faster and lower cost than ever before.

With the addressable denture market expected to exceed $2 billion by 2028. This presents a tremendous opportunity for our jet a denture solution. This denture combines our next inkjet adventure teeth and base materials in one printing operation delivering not only beautiful aesthetics, but exceptional break resistance.

The combination never before attained in a printed single piece denture.

Jeffrey A. Graves: Combining our materials with the speed of our jetting printer technology drastically accelerates production rates to deliver these visually beautiful and extremely durable products to patients in a much shorter time frame. When we introduced this product last week at the Annual Dental Show in Chicago, Blydwell, a longtime 3D Systems customer and the world's largest producer of restorative dental devices, commented specifically on it, citing its superior durability and aesthetic. As one of our key launch customers, we're proud to have Glidewell's endorsement and enthusiastic embrace of this new technology as we anticipate 510K clearance from the FDA in the second half of this year. Turning now to slide 11.

Combining our materials with the speed of our jetting printer technology drastically accelerates production rates to deliver these versus visually beautiful and extremely durable products to patients in a much shorter timeframe.

When we introduced this product last week at the annual dental show in Chicago, Glidewell, a longtime <unk> systems customer in the world's largest producer of restorative dental devices commented specifically on it.

It's superior durability and aesthetics.

One of our key launch customers, we're proud to have wide wells endorsement and enthusiastic embracing this new technology as we anticipate five 10-K clearance from the FDA in the second half of this year.

Turning now to slide 11.

And offering the broadest range of technologies, we're concentrating heavily on our innovation in metals.

Jeffrey A. Graves: Offering the broadest range of technologies, we're concentrating heavily on our innovation in metals. Despite pressures in other industrial markets during the year, we delivered solid growth from both semiconductor capital equipment and aerospace and defense markets. We see additive continuing to generate momentum in these industries and others, such as shipbuilding, going forward. On the right-hand side of 11, you'll see a sample of some of the many proven solutions for different materials and applications we offer in key industries.

Despite pressures and other industrial markets during the year, we delivered solid growth from both semiconductor capital equipment, and aerospace and defense markets, we see additive continuing to generate momentum in these industries and others such as shipbuilding going forward.

On the right hand side of 11, Youll see a sample of some of the many proven solutions for different materials and applications, we offer in key industries.

Technology enables the consolidation of parts accelerating time to market for our customers industrial with improved performance facilitated by freedom of design.

It's an overall continuation of the important contributions we can make in mitigating supply chain disruptions.

Jeffrey A. Graves: Our technology enables the consolidation of parts, accelerates Time-to-Market for our Customers, and does so with improved performance facilitated by Freedom of Design. It's an overall continuation of the important contributions we can make in mitigating supply chain disruption. Returning to slide 12.

Turning to slide 212.

Since joining <unk> systems in the summer of 2020.

We've had an intense focus on new products, while a few of these have come to market through acquisition most are being developed through our R&D investments.

So the typical three year development cycle for a new platform. We're now beginning to see the fruits of our investment which will continue to gain momentum over the next 18 months.

Jeffrey A. Graves: Since joining 3D Systems in the summer of 2020, we've had an intense focus on new products. While a few of these have come to market through acquisition, most are being developed through our R&D investment. The typical three-year development cycle for a new platform, we're now beginning to see the fruits of our investment, which will continue to gain momentum over the next 18 months. During the fourth quarter alone, we delivered nine new products, five new materials, three printer upgrades, and one key accessory. More recently, we shipped our first MJP300W jetting system, the first of our new generation of jetting printer technology.

During the fourth quarter alone, we delivered nine new products five new materials, three printer upgrades and one key accessory.

More recently, we shipped our first M. J P 300 W.

Getting system, the first of our new generation of Jetting printer technology, we completed validation of testing on our <unk> 300 machine and are now ramping production as we move towards the second quarter of this year.

Additionally, we are on track to deliver on our commitments for our newest metal printer.

The DNP $3 50 triple laser system.

As well as our revolutionary PSL, a $2 70, which combines the benefits of SLA with a high speed projection technology and Leverages the materials developed for our figure four printing system.

Jeffrey A. Graves: We completed validation of testing on our SLS-300 machine and are now ramping production as we move toward the second quarter of this year. Additionally, we're on track to deliver on our commitments for our newest metal printer, the DMP-350 triple laser system, as well as our revolutionary PSLA-270, which combines the benefits of SLA with a high-speed projection technology and leverages the materials developed for our figure-four printing system. This new printing solution set was introduced in concept at the 2023 Formix show and was met with great enthusiasm by our customers.

This new printing solutions said was introduced in concept at the at the 2023 form next show and was met with great enthusiasm by our customers.

Looking ahead, we are continuing to work tirelessly in the development of nearly 40, new product releases by the end of 2024, which will be a refresh of virtually our entire product portfolio of printing technology setting the stage for an exciting 2025 and beyond.

And finally, let's turn to our regenerative medicine initiative on slide 13.

Jeffrey A. Graves: Looking ahead, we are continuing to work tirelessly in the development of nearly 40 new product releases by the end of 2024, which will be a refresh of virtually our entire product portfolio of printing technology, setting the stage for an exciting 2025 and beyond. As you've heard from me multiple times over the last few years, our Regenerative Medicine Initiative is an unparalleled strategic differentiator with technology that may not only deliver transformational growth and shareholder value for a company but importantly, profoundly change the future of health care. Leveraging our 3D printing technology leadership, regenerative medicine is structured into three distinct opportunities: human organs, Non-Organ Tissue, and Drug Development. In December, we announced that Harris Curie would join 3D Systems in the newly created role of president of Regenerative Medicine for us. Harris will draw from his 30 years of experience in executive leadership with a focus on building emerging businesses.

As you've heard from me multiple times over the last few years, our regenerative Medicine initiative is unparalleled strategic differentiator with technology that may not only deliver transformational growth and shareholder value for our company, but importantly, profoundly change the future of health care.

Leveraging our three D printing technology leadership regenerative medicine is structured into three distinct opportunities human organs, non organ tissue and drug development in.

In December we announced that Harriss Curie with joined <unk> systems in the newly created role as president of regenerative medicine for us.

Harriss will draw from his 30 years of experience in executive leadership with a focus on building emerging businesses prior to joining us Harris with senior Vice President and CFO for Illumina <unk> Corporation spending over two decades with the biotech company, helping lead their growth from a startup to more than $500 million in revenue during his tenure.

The creation of his role reflects the increasing maturation of our exciting new technology as we move from early stage conceptual development towards commercial application.

Jeffrey A. Graves: Prior to joining us, Harris was senior vice president and CFO for Luminex Corporation, spending over two decades with the biotech company, helping lead their growth from a startup to more than $500 million in revenue during his tenure. The creation of his role reflects the increasing maturation of our exciting new technology as we move from early stage conceptual development toward commercial application. Specific to our work on organs and our outstanding partnership with United Therapeutics, we're working vigorously to produce the most complex product ever printed, the human lung. Something that once began as a dream is now well underway and continues to track toward our goal of human trials for 2027. Looking back on last year, we eclipsed a critical point in lung development during the third quarter.

Specific to our work on Oregon's and our outstanding partnership with United Therapeutics, We're working vigorously to produce the most complex product ever printed the human lung.

Something that once began as a dream.

Is now well underway and continues to track toward our goal of human trials for 2027.

Looking back on last year, we eclipsed a critical point in lung development during the third quarter, our progress validated with recognition of a four and a half a million dollars milestone payment for the program and moving it yet another year closer to our target for human trials.

On the drug development front, we're making great progress in our wholly owned subsidiary of systemic bio formed in 2022 and you'll see this on slide 14.

H vials are proprietary organ on a chip platform as a novel application sets, which allows pharmaceutical companies to test their drugs on Vascularized cellular is tissue chips with mimic human response to drug therapies at scale in the laboratory.

Jeffrey A. Graves: Our progress was validated with recognition of a $4.5 million milestone payment for the program and moving yet another year closer to our target for human trials. On the drug development front, we're making great progress on our wholly owned subsidiary systemic bio formed in 2022, and you'll see this on slide 14. HVIOS, our proprietary organ-on-a-chip platform, is a novel application set that allows pharmaceutical companies to test their drugs on vascularized, cellularized tissue chips that mimic human response to drug therapies at scale in the laboratory. We believe Systemics' HBIOS platform has the potential to dramatically improve the drug discovery and development timeline.

We believe systemic <unk> platform has the potential to dramatically improve the drug discovery and development timeline, particularly important considering market research indicates that nine out of 10 drugs fail in clinical clinical trials.

Leading to an average of $2 $6 billion invested by pharma companies per drug approved with over a 12 year time horizon to establish FDA approval for each drug introduced to the market.

To this end, we've gained significant momentum and validation of our technology and I'm pleased to announce that before the end of last year systemic bio successfully closed our second contract with another large pharmaceutical company in.

Jeffrey A. Graves: Particularly important considering market research indicates that 9 out of 10 drugs fail in clinical trials, leading to an average of $2.6 billion invested by pharma companies per drug approved, with over a 12-year time horizon to establish FDA approval for each drug introduced to the market. To this end, we've gained significant momentum and validation of our technology, and I'm pleased to announce that before the end of last year, Systemic Bio successfully closed its second contract with another large pharmaceutical company. In total, this represents collaborative contracts now with two of the top four largest pharmaceutical companies in the world and an impressive pipeline of future opportunities ahead. Based on the extraordinary progress made to date, and in order to propel this business forward, we're leveraging the strength of our core business, as well as our balance sheet, to invest in continued progress in regenerative medicine.

In total this represents collaborative contracts now with two of the top four largest pharmaceutical companies in the world.

And an impressive pipeline of future opportunities ahead.

Based on the extraordinary progress made to date and in order to propel this business forward, we're leveraging the strength of our core business as well as our balance sheet to invest for continued progress in regenerative medicine for.

For 2024, we expect to invest in key regenerative products to continue our momentum and maintain the unrivaled lead we have over any three D printing competitor in our space.

While this is still a highly developmental area and undoubtedly some avenues will advance more quickly than others. We continue to believe that regenerative medicine offers tremendous value creation in the future.

Jeffrey A. Graves: For 2024, we expect to invest in key regenerative products to continue our momentum and maintain the unrivaled lead we have over any 3D printing competitor in our space. While this is still a highly developing area, and undoubtedly some avenues will advance more quickly than others, we continue to believe that regenerative medicine offers tremendous value creation in the future. We'll be proud to update you on our progress throughout the year. So with that, I'll finish on slide 15.

We'll be proud to update you on our progress throughout the year.

So with that I'll finish on slide 15.

So to recap what you've heard from me this morning.

Given the current economic environment, we expect our full year revenues for 2024 to be relatively flat given the softness experienced throughout the year last year.

We would hope that this is a conservative position to take that it remains prudent to say so at this time.

Our in sourcing supply chain and restructuring work to date has provided a strong foundation for gross margin improvement and we expect that to continue even in a static sales environment.

Jeffrey A. Graves: So to recap what you've heard from me this morning, given the current economic environment, we expect our full-year revenues for 2024 to be relatively flat, given the softness experienced throughout the year last year. We would hope that this is a conservative position to take, that it remains prudent to say so at this time. Our insourcing, supply chain, and restructuring work to date has provided a strong foundation for gross margin improvement, and we expect that to continue even in a static sales environment. Any volume leverage on revenue upside would further enhance this performance. And finally, with stable revenue performance, expanded gross margins, and carefully managed OPEX at reduced levels from 2023, we're committed to delivering positive adjusted EBITDA performance and operating cash flow for 2024. We believe that with prudent R&D investments and our highest priority customer initiatives, we can deliver on exciting top-line growth and sustained profitability in the years ahead. So with that, I'll now turn things over to Jeff. Jeff, thank you very much.

Any volume leverage on revenue upside with further enhanced this performance.

And finally with stable revenue performance expanded gross margins and carefully managed opex at reduced levels from 2023, we're committed to deliver positive adjusted EBITDA performance in operating cash flow for 2024.

Prudent R&D investments in our highest priority customer initiatives. We believe we can deliver on an exciting top line growth and sustained profitability in the years ahead.

So with that I'll now turn things over to Jeff Jeff.

Jeff. Thank you very much and I appreciate the warm welcome and good morning to everyone on the call have already met many of you on the conference Circuit in January I look forward to meeting more of our investor and analyst community in the very near future.

I'll begin with slide excuse me slide 17, with our revenue summary.

For the full year 2023, we reported consolidated revenues of $488 million down 9% from the prior year.

Year over year results were primarily impacted by a headwind in our dental orthodontics business further amplified by broader macro weakness pressuring most other markets, which was most accurately reflected in printer sales.

Jeffrey Creech: And I appreciate the warm welcome and good morning to everyone on the call. While I've already met many of you on the conference circuit in January, I look forward to meeting more of our investor and analyst community in the near future. I'll begin with slide, excuse me, slide 17 with our revenue summary. For the full year 2023, we reported consolidated revenues of $488 million, down 9% from the prior year. Year-over-year results were primarily impacted by headwinds in our dental orthodontics business, further amplified by broader macro-weakness pressure in most other markets, which was most accurately reflected in printer sales.

From a segment perspective revenues in industrial solutions, mostly held firm at $275 million with full year performance declining about 1%, despite a tougher economic backdrop.

And then industrial I haven't heard headwinds from the prior year and more price conscious markets such as jewelry were largely offset by continued momentum and growth in areas, such as transportation and Motorsports semiconductors, and aerospace and defense.

Jeffrey Creech: From a segment perspective, revenues in industrial solutions mostly held firm at $275 million, with four-year performance declining about 1% despite a tougher economic backdrop. Within industrial, their headwinds from the prior year in more price-conscious markets, such as jewelry, were largely offset by continued momentum and growth in areas such as transportation and motorsports, semiconductors, and aerospace and defense. Healthcare Solutions delivered full-year revenues of $213 million, declining approximately 18% from the prior year.

Healthcare solutions delivered full year revenues of $213 million declining approximately 18% from the prior year with.

The full year's performance was most heavily influenced by the decline in our dental orthodontics business down roughly 39% from 2022.

While the remainder of our healthcare segment was essentially flat.

Although embedded in this with full year growth of 12% for our personalized health care business.

Shifting to our fourth quarter performance on Slide 18, we reported consolidated revenues of $114 8 million declining approximately 14% from the fourth quarter of 2022.

Jeffrey Creech: The full year's performance was most heavily influenced by the decline in our dental orthodontics business, down roughly 39% from 2022, while the remainder of our healthcare segment was essentially flat, although embedded in this was full year growth of 12% for our personalized healthcare business. Shifting to our fourth quarter performance on slide 18, we reported consolidated revenues of 114.8 million, declining approximately 14% from the fourth quarter of 2022. Our materials and services performed well in the quarter, growing from the prior year; it simply was not enough to offset weakness in printer sales, again most significant in dental, but also felt more broadly across our remaining business. From a segment perspective, Industrial Solutions reported fourth-quarter revenues of approximately $64 million, a 12% decline from the prior year. Similar to the four-year trends just mentioned within industrial, strength in markets such as aerospace and defense and semiconductor was more than offset by broader printer weakness in most other industrial end markets. Healthcare Solutions reported fourth-quarter revenues of $51 million, down approximately 16% from the prior year and across most markets.

Raw materials and services performed well in the quarter growing from prior year. Its simply was not enough to offset weakness in printer sales again, most significant in dental but also felt more broadly across our remaining businesses.

From a segment perspective, the industrial solutions reported fourth quarter revenues of approximately 64, million% to 12% decline from prior year.

Similar to the full year trends just mentioned within industrial strength in markets, such as aerospace and defense and semiconductor was more than offset by broader printer weakness and most other industrial end markets.

Care solutions reported fourth quarter revenues of $51 million down approximately 16% from prior year and across most markets.

A notable exception to this was again the personalized health care delivering double digit growth compared to last year's fourth quarter.

Now to slide 19 for a look at our gross margins for the full year 2023, we reported gross profit margin of 47% on this slide you'll find non-GAAP gross margin.

Jeffrey Creech: A notable exception to this was, again, personalized healthcare, delivering double-digit growth compared to last year's fourth quarter. Now to slide 19 for a look at our gross margin. For the full year 2023, we reported a gross profit margin of 40.7%. On this slide, you'll find non-GAAP gross margin. Ungapped gross margin for the year was 41.1%, a 130 basis point improvement over the prior year and primarily driven by favorable mix, operating efficiencies, and the positive impact of price increases to offset inflationary pressure.

non-GAAP gross margin for the year was 41, 1%, a 130 basis point improvement over the prior year, and primarily driven by favorable mix operating efficiencies and the positive impact of price increases to offset inflationary pressures.

Specific to the fourth quarter gross margin and non-GAAP gross margin were 44% and 41, 9% respectively with the improvement in non-GAAP margins for the quarter largely driven by mix.

It's important to note that while the favorable impact of mix is more indicative of the associated short term pressures on customer capex deployments for printers, we are increasingly encouraged by our in sourcing and efficiency efforts and the positive impact we expect them to drive on longer term margin expansion.

Jeffrey Creech: Specific to the fourth quarter, gross margin and non-GAAP gross margin were 40.4% and 41.9%, respectively, with the improvement in non-GAAP margins for the quarter largely driven by... It's important to note that while the favorable impact of MIX is more indicative of the associated short-term pressures on customer CapEx deployments for printers, we're increasingly encouraged by our insourcing and efficiency efforts and the positive impact we expect them to drive on longer-term margin expansion. Coupled with our technology roadmap for new product introductions expected throughout 2024 and beyond, it's reasonable to expect continued improvement in gross margin performance on a year-over-year basis going forward. Now, let's turn to slide 20 to finish the P&L. Before I begin our usual readout on metrics for the year and for the quarter, I want to call your attention to a specific accounting-related charge or charges to GAAP in operating expenses that we took during the year and quarter during the fourth quarter, as these are non-cash impacts and excluded from our non-GAAP metrics. In the aggregate, these losses were approximately $313 million for the full year and $298 million for the fourth quarter related to the impairment of goodwill and other assets.

Coupled with our technology roadmap for new product introduction expected throughout 2024 and beyond.

It's reasonable to expect continued improvement in gross margin performance on a year over year basis going forward.

Now, let's turn to slide 20 to finish up the P&L.

Before I begin our usual readout on our metrics for the year and for the quarter I want to call your attention for a specific accounting related charge or charges to GAAP and operating expenses.

That we took during year end quarter during the fourth quarter as these are noncash impacts and excluded from our non-GAAP metrics.

In the aggregate these were approximately $313 million for the full year and $298 million for the fourth quarter.

Related to the impairment of goodwill and other assets. Additionally.

We realized a $32 $2 million gain on our repurchase of 2026 convertible notes at a discount and Thats also excluded from our non-GAAP metrics.

For the full year 2023, adjusted EBITDA of negative $24 5 million declined from the prior year by $18 7 million.

Jeffrey Creech: Additionally... We realized a $32.2 million gain on our repurchase of 2026 convertible notes at a discount, and that's also excluded from our non-GAAP metric. For the full year 2023, adjusted EBITDA of negative $24.5 million declined from the prior year by $18.7 million. The decline was primarily driven by lower revenues and increased operating expenses; for the year, non-GAAP OPEX was $246.6 million. For the fourth quarter of 2023, adjusted EBITDA of negative $12.3 million declined from the prior year by $7.5 million, primarily driven by the same factors as noted above. For the quarter, non-GAAP OPEX was $66.1 million.

The decline was primarily driven by lower revenues and increased operating expenses.

For the year non-GAAP Opex was $246 6 million.

For the fourth quarter 2023, adjusted EBITDA of negative $12 $3 million declined from the prior year by $7 5 million, primarily driven by the same factors as noted above for.

For the quarter non-GAAP Opex was $66 1 million.

While we have taken considerable restructuring actions throughout 2023.

Additional items in place from our November initiatives.

Impact to operating expense was offset by four very distinct events or circumstances.

Jeffrey Creech: We have taken considerable restructuring actions throughout 2023, and have additional items in place from our November initiative; their impact on operating expense was offset by four very distinct events or circumstances, and we experienced increases in our regenerative medicine R&D activities. We experienced higher than normal or temporary external support fees associated with our year-end audit and, frankly, my transition. We had an accelerated investment in our IT infrastructure for modernization and systems enhancement for cybersecurity, and we felt this was very important as the world gets scarier and scarier. As you're all aware, cybersecurity is a key issue for everyone.

We had increases in our regenerative medicine R&D staff.

We experienced.

Higher than normal or temporary external support fees associated with our year end audit and frankly my transition.

We had an accelerated investment in our it infrastructure for modernization of the systems enhancement for cyber security and we felt this was very important as the world gets scarier and scarier as Youre all aware cyber security is a key issue for us.

Everyone and finally, we incurred advisory and legal fees in association.

With December's convertible note repurchase it's important to note as we consider where we stand going into 2020 for one of the.

Jeffrey Creech: And finally, we incurred advisory and legal fees and association costs associated with December's convertible note repurchase. It's important to note, as we consider where we stand going into 2024, One of the key costs that we incurred as part of my transition were some accelerated fees, or rather larger than normal fees associated with our year-end audit. We're currently transitioning to a big four due to the increasing complexity associated with our business. I mention these items specifically to clarify that we view them as temporary and Specific Operating Expenses and reiterate our expectation to reduce operating expenses in 2024 based on the Restructuring Act, previously announced. Earnings per share for the year 2023 resulted in a fully diluted loss per share of $2.85 compared to a loss per share of 96 cents for 2022, excluding stock-based compensation and other non-recurring charges detailed in our appendix. This resulted in a non-GAAP loss per share of $0.26 compared to $0.23 for the prior year. For the fourth quarter, we reported a fully diluted loss per share of $2.30 in 2023, compared to a loss per share of 20 cents in 2022. Non-GAAP loss per share was $0.1123 compared to a loss per share of $0.0626.

One of the key cost that we incurred as part of my transition, where some accelerated fees or rather.

Larger than normal fees associated with our year end audit. We're currently transitioning to a big four due to our increasing complexity associated with our business.

I mentioned these items, specifically to clarify that we view them as temporary.

And specific operating expenses and reiterate our expectation to reduce operating expenses in 2024 based on the restructuring actions previously announced.

Earnings per share full year 2023 resulted in a fully diluted loss per share of $2 85, compared to a loss per share of <unk> 96 for 2022.

Excluding stock based compensation and other nonrecurring charges detailed in our appendix. This resulted in non-GAAP loss per share of 26 <unk>.

Compared to 23 for the prior year.

For the fourth quarter.

Reported fully diluted loss per share of $2 30 in 2023.

Compared to a loss per share of <unk> 20 in 2022.

non-GAAP loss per share was <unk> 11, and 23 compared to a loss per share of <unk> <unk> and 'twenty two.

Jeffrey Creech: Now let's turn to slide 21 for the balance. We close the year with $331.5 million of cash and cash equivalents on our balance sheet with no short-term investments, compared to a total of $568.7 million of these same items at the end of 2022. The year-over-year decrease was primarily driven by cash used in operations of $80.7 million, acquisitions and other investments of $29.2 million, and capital expenditures of $27.2

Now, let's turn to slide 21 for the balance sheet.

We closed the year with $331 $5 million of cash and cash equivalents on our balance sheet with no short term investments compared to a total of $568 7 million of these same items at the end of 2022 a.

The year over year decrease was primarily driven by cash used in operations of $87 million acquisitions, and other investments of $29 2 million and capital expenditures of $27 2 million.

Jeffrey Creech: Additionally, this also reflects slightly over 100 million used in the repurchase of the company's 0% 2026 convertible note. Announced in December, we opportunistically repurchased $135.1 million in notional value at a significant discount. The transaction strengthened our overall balance sheet with the extinguishment of nearly 30% of the outstanding maturity while leaving healthy cash reserves to invest in future growth funds, core operations, and strategic optionality. Looking forward, we maintain the expectation that our insourcing actions taken over the past two years will deliver a significant return in the form of increased gross margin and generating cash from inventory. Our expectation of improved profitability would also return us on the path to be a more regular generator of cash flow. That said, as Jeff and I mentioned throughout this morning's call, we view 2024 as a year of continued investment, and we'll continue to evaluate strategic opportunities through R&D and capital expenditures to fund our most critical growth program.

Additionally, this also reflects slightly over $100 million used in the repurchase of the Companys zero percent 2026 convertible notes announced.

Announced in December we Opportunistically repurchased $135 1 million notional value at a significant discount transaction strengthened our overall balance sheet with the extinguishment of nearly 30% of the outstanding maturity, while leaving healthy cash reserves to invest in future growth.

On core operations and strategic Optionality.

Looking forward, we maintain the expectation that our in sourcing actions taken over the past two years will deliver a significant return in the form of increased gross margin and generating cash from inventory.

Our expectation of improved profitability would also return us on the path to be annual regular generator of cash flow.

That said as Jeff and I mentioned throughout this morning's call. We view 2024 as a year of continued investment and we'll continue to evaluate strategic opportunities through R&D and capital expenditures to fund our most critical growth programs.

Jeffrey Creech: We'll be doing this while keeping a very close eye on cash usage across the system and throughout the year. I'll conclude now on slide 22 with our 2024 outlook. As you've heard from us this morning, in the current economic conditions, we view 2024 as a year of driving improved profitability while continuing to fund growth in a relatively flat revenue environment. In that regard, we expect four-year revenues in the range of $475 to $505 million, and to aid with modeling, we expect a seasonally soft start to the first quarter with revenues down sequentially and year-over-year, but consistent sequential improvement each quarter throughout 20 Non-GAAP operating expense in the range of $223 to $238 million, reflecting a reduction in cost from our previously announced restructuring activities and including incremental offsets and critical growth programs, discussed throughout this morning's call.

We'll be doing this while keeping a very close eye on cash usage across the system and throughout the year.

I'll conclude now on slide 22, with our 2020 for outlook.

As you've heard from us this morning.

Then current economic conditions, we be 'twenty 'twenty four is a year of driving improved profitability, while continuing to fund growth in a relatively flat revenue environment.

In that regard, we expect full year revenues in the range of $475 million to $505 million.

And to aid with modeling, we expect a seasonally soft start to the first quarter with revenues down sequentially and year over year, However, consistent sequential improvement each quarter throughout 2024.

non-GAAP gross margins in the range of 42% to 44% as a result of our ongoing operational efficiencies and with particular strength in the second half of 'twenty four.

non-GAAP operating expense in the range of 223 to 238 million, reflecting a reduction in cost from our previously announced restructuring activities and including incremental offsets in critical growth programs.

Just throughout this morning's call.

Finally, adjusted EBITDA for the full year is expected to be breakeven or better as the efforts in our proved margin profile.

Jeffrey Creech: Finally, adjusted EBITDA for the school year is expected to be break-even or better, as the efforts in our approved margin profile and Cost Reductions could drive substantial improvement to consistent profitability without the expectation of top-line growth at the midpoint of our guide. We thank you for your time and continued support of 3D Systems, and will now open the line for questions. Operator, please. Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question. You may press star 2 if you'd like to remove your... For participants, using speaker equipment, it may be necessary to pick up your handset before pressing star 1.

And cost reductions should drive substantial improvement to consistent profitability without the expectation of top line growth at the midpoint of our guide.

We thank you for your time and continued support of <unk> systems, and we will now open the line for questions operator. Please.

You will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.

Pressing star one one moment. Please poll for questions. Our first question today is coming from Troy Jensen from Cantor Fitzgerald. Your line is now live.

Operator: One moment, please, while we poll for questions. Our first question today is coming from Troy Jensen. [inaudible] Hey, gentlemen, thanks for taking my question and Jeff, welcome to the team. Um, I guess first, thank you. I guess the first thing I want to ask is just dental all in.

Hey, gentlemen, thanks for taking my question and Jeff welcome to the team.

Thank you I guess first yep. Thank you.

I guess first thing I want to ask is that just.

<unk> dental all in a spectrum that's to grow here in 2024.

Troy Donavon Jensen: I expect us to grow here in 2020. Yeah, Troy, it's certainly in the process of bottoming out. The, if you know, if you look at, we've got pretty good visibility to the ultimate customer in the end market. So clearly, demand is rising. The, the complexity as 23 takes by was the clearing of inventory in the supply chain. So there was a lot of work done last year to clear that inventory. So I would tell you it's pretty much cleared.

Yes, Troy, it's it's certainly in the process of bottoming.

If you look at you know, we've got pretty good visibility to the ultimate customer and the end market. So clearly demand is rising.

The complexity is 23 takes by was the clearing of inventory in the supply chain. So there was a lot of work done last year to clear that inventory. So I would tell you it's pretty much cleared and so were I would call Q1 here bottoming and then we should see a lift going forward after that primarily.

Jeffrey A. Graves: And so we're, I would call Q1 here bottoming, and then we should see a lift going forward after that, primarily in, you know, materials and services for that business. They, they, I believe there's plenty of printing, and printing hardware capacity in that supply chain. It's more materials consumption rising now to meet rising demand. So I think you'll see it kind of bottom out here, whether it was, whether it bottomed at Q4, whether it's bottoming at Q1, it's kind of hard to tell, but it's clearly in the process of turning. Okay, perfect.

In materials and services for that for that business. They believe theres plenty of printing printing hardware capacity in that in that supply chain. It's more materials consumption rising now to meet rising demand. So I think you'll see it kind of bottom out or whether it was whether it bottomed in Q4 is bottoming in Q1.

One is kind of hard to tell but it's in the process clearly attorney.

Okay perfect.

And then sticking in dental here I know you said you expect to get FDA approval for next Dent later this year.

Jeffrey A. Graves: And then sticking in dental here, I know you expect to get FDA approval for next dent later this year. Are there also insurance qualifications you guys need before it kind of can really take off? Now we're good. We're good.

Is there also insurance qualifications, you guys need to be core tenancy really take off.

Now we're good we're good we're good to go with the as soon as we get the five 10-K approval, we're going to go choice.

In fact, we're putting in printing capacity to handle printing that product now so we're really bullish on that new product.

Jeffrey A. Graves: We're good to go as soon as we get the 510k approval. It's a, you know, in fact, we're putting in printing capacity to handle printing that product now. So we're really bullish on that new product. It's a terrific looking and performing product.

Terrific looking at performing product.

<unk> got.

As always work our way through the FDA regulatory approvals, but we view that as very manageable and we should have it in the market later in the year.

Okay, perfect and last question and I'll cede the floor here can you remind us what your spending quarterly and regenerative.

What we are spending quarterly on regenerative.

Jeffrey A. Graves: We've got to, as always, work our way through the FDA regulatory approvals, but we view that as very manageable. And we should have it on the market later in the year. Okay, perfect. And last question. I'll see the floor here.

And I'm not trying to hedge choice, it's a bit complicated because.

We spend a certain amount and we get some of that reimbursed from the United Therapeutics Theres. Some things, we do on our own especially around pharma.

Jeffrey A. Graves: Can you remind us what you're spending quarterly on regenerative medicine? What we're spending quarterly on regenerative medicine, it's, and I'm not trying to hedge, Troy, it's a bit complicated, because we spend a certain amount, and we get some of that reimbursed from United Therapeutics. There are some things we do on our own, especially around pharma, but a lot of the organ work, obviously, is reimburse

But a lot of the Oregon work, obviously is reimbursed.

No.

We spent about $10 million last year of our own money. If you. If you take away all the noise. We spent about $10 million last year of our own money on regenerative medicine. Okay is it primarily the pursue the pharmaceutical market.

Jeffrey A. Graves: So, we spent about $10 million last year on our own money. If you take away all the noise, we spent about $10 million last year of our own money on regenerative medicine, okay, primarily to pursue the pharmaceutical market, and, you know, we continue to look at the range of applications. We could be chasing dozens of them.

You know we continue to look at the range of applications, we could be chasing dozens of them. We're trying to be very disciplined about what we actually chase and our highest priority with our own internal funding is the pharmaceutical pursuit, okay, because if the pay off to making progress against the drug interaction timelines is enormous so.

Jeffrey A. Graves: We're trying to be very disciplined about what we actually chase, and our highest priority with our own internal funding is the pharmaceutical pursuit because the payoff to making progress against the drug introduction timelines is enormous. The receptivity of the pharma companies has been really encouraging. So, I, you know, we landed our second contract late last year, as I mentioned, we've got a really nice pipeline of interest coming forward, especially after the J.P. Morgan Healthcare Conference. So things are, things are looking very promising for the pharma pursuit. So we're clearly giving priority to that right now. And then obviously, the lung work with United Therapeutics is an extremely high priority as well for the longer term. All right, understood. Well, good luck going forward, and a special shout out here to Andrew. Yeah, thanks for that as well. Thank you, Troy, for doing such a great job covering us.

And the receptivity of the pharma companies has been really encouraging.

So.

We landed our second contract late last year as I mentioned, we've got it we've got a really nice pipeline of interest coming forward, especially after the Jpmorgan health care conference. So things are things are looking very promising for the pharma pursued so we're clearly giving priority to that right now and then obviously the long worked with United therapy.

<unk> is an extremely high priority as well for the longer term.

Yep understood well, good luck going forward and Thats, a shout out here to Andrew Thanks, Renata Greco views.

Thanks for that as well and thank you Troy for for doing such a great job covering us we really appreciate it.

Thank you. Our next question is coming from Greg Palm from Craig Hallum. Your line is now live.

Okay.

Hey, good morning, everybody.

Just thinking back to Q4, it sounds like the vast majority of.

Troy Donavon Jensen: We really appreciate it. Your next question is coming from Greg Palm on behalf of Craig Hallam. Your line is now live. Hey, morning, everybody.

The shortfall was more system base capex driven than anything.

Gregory William Palm: I guess, picking up where we left off, for it sounds like the vast majority of the shortfall was more, you know, system-based CapEx driven than anything. Do you have the growth rates? [inaudible] Yeah, we'll see if we can dig up a number. But qualitatively, it, Greg, it, you know, the equipment was really tough last year with CapEx spending being down. We were quite surprised in Q4 to not see the normal seasonal lift, especially because customers, customer engagement, and sales have been very high, and we have this advanced applications group in our sales organization. And they're bursting at the seams with work to do for customers, new customer applications. So we were very surprised to not see that flow through them as it usually does seasonally at the end of the year.

Do you have the growth rates in systems versus consumables for the quarter and any sort of general sense on how that trended for the full year as well.

I will see if we can dig up a number I can tell you qualitatively it Greg.

The equipment was really tough last year with Capex spending being down we were we were quite surprised in Q4 did not see the normal seasonal lift, especially because customers customer engagement in sales has been very high.

This advanced applications group and our sales organization and there there are bursting at the seams with work to do for customer new customer applications.

We were very surprised to not see that flow through it as it usually does seasonally at the end of the year, but I think it just reflects customers nervousness about what the rising interest rates will do to end demand.

Jeffrey A. Graves: But I think it just reflects customers' nervousness about what the rising interest rates will do to end demand. There is no lack of interest, which is the encouraging thing. I think it's more of a timing issue.

No lack of interest which is encouraging thing I think it's more of a timing issue problem being in their 24 guidance was you know, it's very hard to say when does that nervousness subside and so we've modeled it as a pretty flat year this year and I hope that's conservative.

Jeffrey A. Graves: The problem in our 24 guidance was, you know, it's very hard to say when that nervousness will subside. And so we've modeled it as a pretty flat year this year. And I hope that's conservative. Did we come up with an actual number for Greg? We don't normally break that out.

Come up with an actual number for Greg.

We don't we don't normally break that out but I can tell you Greg just qualitatively.

Jeffrey A. Graves: But I can tell you, Greg, just qualitatively, if our shortfall in revenue was hardware-driven, not materials and services. Materials usage was actually pretty darn strong all year long. It's just people weren't adding incremental capacity. Yep, makes sense. You know, specific to the Decline, back a long time and unable to really see that sort of.

Our shortfall in revenue was hardware driven not materials and services materials usage was actually pretty darn strong all year long, it's just people weren't adding incremental capacity.

Yep.

Makes sense.

Specific to the Q4 decline.

Going back a long time and unable to really see that sort of sequential decline usually this is sort of the opposite but just the confidence level around that.

Jeffrey A. Graves: It wasn't a competitive loss, it wasn't a share loss, it was more timing, maybe going a little bit more retail on. We've got, it was a big question internally that I had, Greg, and I can tell you we chased it to the ground. And we've got a line of sight to almost every printer hardware sales significance, and it has not lost market share. It was not a drop in customer interest. It was strictly a slow rolling purchase order. What I would call it on their part is, "Look, can we, and it's not that they're short of cash." I mean, most of the people we sell to are fine from a cash perspective, a balance sheet, very, very credit worthy, big customers.

It wasn't competitive loss it wasn't share loss. It was more timing can you just maybe going a little bit now we go on.

We've got you sketch.

It was a big question internally that I had Greg and I can tell you we chased it to ground and we've got line of sight to almost every printer hardware self significance and it was not lost market share. It was not a drop in customer interest. It was strictly a slow rolling purchase orders is what I would call it on their on their part.

Is looking in his talk that they're short of cash I mean, most of the people we sell to are fine from a cash perspective balance sheet very very credit worthy big customers.

Jeffrey A. Graves: It's more they weren't certain they needed the incremental capacity, given where interest rates had gone. I think everybody just wanted to see the year's turnover and how demand affected their business. That's as much as I can tell you.

It's more that they werent certain they needed the incremental capacity, given where interest rates had gone.

Everybody just wanted to see the year turnover and how in demand affected their business.

Jeffrey A. Graves: But I don't, I truly don't believe there was any share loss. And I think it was strictly slow rolling purchase orders on our customer's part, by and large. Got it.

That's as much I can tell you, but I don't I truly don't believe there was any share loss and I think it was strictly slow rolling purchase orders on our customer sparked by and large.

Jeffrey Creech: Okay. And then last question, Jeff, did you say, did you give a non-GAAP op? I did.

Got it Okay and then last question Jeff did you say did you give a non-GAAP operating expense number from the quarter.

Jeffrey Creech: Non-GAAP OPEX was about $66 million for the quarter. [inaudible] strikes me as being up quite a bit relative to the levels that you saw throughout, although obviously, it should have maybe taken into account a little bit of the restructuring and announced in October. So is that right? And I guess what, I just want to be clear about the restructuring you announced in October. Can you just remind us of the timeline and how much is off X versus gross margin? Very logical question, Greg. It's a good one. So there were four items in OPEX in Q4, which we did not take out, we did not exclude, to get to a non-GAAP number because they truly, by definition, weren't strictly one-time, but I would tell you, they were very short-term investments focused in Q4. Why don't you run through those, Jeff, real quickly?

I did non-GAAP Opex was about 66 million for the quarter.

Okay.

Hi.

It.

Strikes me as being up quite a bit relative to the levels that you saw.

Throughout the year and obviously.

Should have maybe take into account a little bit on the restructuring.

That's an October so is that right and I guess whats.

Yeah, just to be clear that restructuring you announced in October can you just remind us just timeline and how much is opex versus gross margin.

So very logical question, Greg it's a good once there were there were four there were four items in Opex in Q4, which we did not take out we did not exclude get to a non-GAAP number.

Because they truly by definition work a strictly one time, but I would tell you that they were they were they will show very short term investments focused in Q4, why don't you run through those Jeff real quickly so again.

Jeffrey Creech: Sure will. So again, what we saw in the fourth quarter were spikes higher than normal expenses in our external support fees. And again, this consists of audit fees and external consulting fees that we had to make a very intentional investment in to get us to the end of the year and, quite frankly, to provide some added assistance in the CFO and internally at a CAO transition level. So those were very intentional for us.

We saw in the fourth quarter.

Spikes higher than normal expenses, and our external support fees and again. This consists of audit fees and external consulting fees that we had to make a very intentional investment in to get us to the end of the year and quite frankly to provide some to provide some added.

Systems, and the CFO and internally at a CEO transition levels. So those were very intentional for us.

Jeffrey Creech: We did make some accelerated investments in our IT infrastructure and really around this concept of cybersecurity. We've had a lot of conversation internally about cybersecurity exposure. We know that it's a very scary world out there, and we know that we, in a technology business, maintaining intellectual and proprietary information is extremely important to us. We need to be cognizant of what those threats are.

We did make some accelerated investments in our it infrastructure and really around.

Again this concept of cyber security, we've had a lot of conversation internally about cyber security exposure, we know that it's a very scary world out there and we know that.

And our technology business, we're maintaining maintaining intellectual.

Proprietary information is extremely important to us we need to be cognizant of what those threats are so we accelerated some of our investments in that area. We of course had the very distinct legal and advisory services associated with our debt repurchase and those expenses hit in the fourth quarter and again.

Jeffrey Creech: So we accelerated some of our investments in that area. We, of course, had the very distinct legal and advisory services associated with our debt we purchased, and those expenses hit in the fourth quarter. And again, as I mentioned, some increases in our regenerative medicine R&D. So all four of those things were higher than normal, and with the exception of RegMed, would be considered temporary in nature, and we would expect to see them go to more moderate levels and, in some cases, be eliminated altogether. Yeah, I got to get to what...

And as I've mentioned, some increases in our regenerative medicine R&D. So all four of those things.

<unk> were higher than normal and with the exception of Reg Mad.

Would be considered temporary in nature, and we would expect to see them go to more moderate and in some cases be eliminated altogether.

Yeah got it.

Jeffrey Creech: Okay, good. If that took care of it, and we're happy to follow up with you, Greg, on those details. But thanks for the question. That's a good one.

Okay. Good.

So care of it and we're happy to follow up with you Greg on those details, but thanks for the question. It's a good one.

Gregory William Palm: The next question is coming from Brian Drab of William Blair. Your line is now live. Hi, thank you. I just wanted to clarify one thing first that when you say dental orthodontics was down 39%, is that a different number than dental overall, or is that? It is a different number than dental overall. But it is the predominance of dental if you look at it today, Brian. So it was the big driver.

Thank you. Our next question is coming from Brian Drab from William Blair. Your line is now live.

Hi, Thank you.

I just wanted to clarify one thing for us that we see.

The dental orthodontics was down 39% is that a different number than dental overall or is that that's a number for dental.

It is a different number than dental overall.

But it is the predominance of dental of dental if you look at it today, Brian. So it was the big driver there where the rest of dental did not suffer the same kind of impacts because the rest of dental is much more reconstructive work.

Jeffrey A. Graves: The rest of dental did not suffer the same kind of impact because the rest of dental is much more reconstructive work. We do in the mouth, but that's really not optional spending. It's back to the orthodontic work that we're involved with. It's a big number. And, obviously, it's discretionary.

We do in the mouth, but that's really not optional spending it's backed orthodontic work that we're involved with its a big number and obviously, it's discretionary so when when consumed when it plays when inflation spikes consumers just put off buying them.

Jeffrey A. Graves: So when when when inflation spikes, consumers just put off buying them. And I think you can see that. And I'm very pleased with the commentary around it. Hey, people are buying more of them now. It's coming back, blah, blah, blah.

I think you can see that and I am very pleased with the commentary around hey people are buying more of them now it's coming back, but there was a lot of excess excess supply chain inventory to work down.

Jeffrey A. Graves: But there was a lot of excess supply chain inventory to work down, and we worked through that largely in twenty three. I'm just curious, I think that you've been giving the dental number, past, right, the decline or increase in the dental business overall. I don't know if you have that potentially at your fingertips for, but I'd just be curious what 2023 looked like for dental and for the fourth quarter for dental overall, just given that that something I think a lot of people have been tracking. Yeah, so what about performance for dental overall and 23, It was down 32%, all of dental. And then we gave you the orthodontics number was down. What did we say? 39.

And we worked through that largely in 'twenty three.

I'm just curious I think that you have been giving the dental number in the past right the decline or increase in the dental business overall I don't know if you have that potentially.

At your fingertips for.

I'd just be curious what 2023.

It looked like for dental and for the fourth quarter for dental overall, just given that something I think a lot of people have been tracking.

Yeah, so performance.

Performance for dental overall in 'twenty three.

2%.

It was down 30%, 32% of dental all of that all of dental was down 32%.

And then we gave you the orthodontic number was down more than what we see 30 39. So yeah. So the so the rest of it was up and I'm glad you watch the rest of our Brian because as we as as dentistry now converts to three D printing.

Jeffrey A. Graves: So yeah, so the rest of it was up. And I'm glad you're watching the rest of it, Brian, because as dentistry now converts to 3D printing, and I was at this dental show last week, it's remarkable, as dentures and other reconstructive items in dentistry go. I think you'll see a much, much of a broadening in that market away from orthodontics. Just orthodontics will grow. But the rest of it, I think has enormous growth coming. And We're really excited about it.

Dental show last week, it's remarkable.

Dentures and other reconstructive items in dental go I think youll see a much much of a broadening in that market away from orthodontics, just worth of Onyx Orthodox will grow but the rest of it I think has enormous growth coming and we're really excited about that's why our focus has brought is very broad in dentistry right now.

Jeffrey A. Graves: That's why our focus is very broad on dentistry right now. And overall, dental is probably down less than 32% in the fourth quarter, I imagine. Yes, Moderator.

And overall dental, it's probably down less than 32% in the fourth quarter I imagine right.

The decline is moderating.

Operator: Yes, correct. Okay, I'll follow up more on that later. One other question I want to ask at the moment, though, is, I noticed, you know, inventories and accounts receivable remained somewhat elevated going into the end of the year. I mean, I guess the main driver of that is a discrepancy between your expectation and actual sales, but could you comment on that? And then also, I'm just curious if the elevated inventory potentially weighs gross margin in the near future. Yeah, so actually a simple answer on the inventory part of that, Brian, was we completed our in-sourcing activity last year. We were really aggressive about in-sourcing our manufacturing. We started it in 22, and we completed it in 23.

Yes, correct, Okay I'll follow up more on that later.

One other question wanted to ask at the moment, though is it.

I noticed in inventories and accounts receivables remained somewhat elevated going into the end of the year I mean I guess.

The main driver of that is discrepancy between your expectation and.

And actual sales, but could you comment on that and then also I'm just curious if the elevated inventory potentially weighs on gross.

Gross margin in the near term.

Yeah. So so actually a simple answer on the inventory part of that Brian was we completed our in sourcing activity last year, we were really aggressive about in sourcing or manufacturing that we started in 'twenty. Two we completed it in 'twenty three with that in sourcing from contract manufacturers you'd have to pick up the inventory they had on hand, so that big.

Jeffrey A. Graves: With that in-sourcing from contract manufacturers, you'd have to pick up the inventory they had on hand. So that big spike in inventory from last year was the taking on of their inventory that we now have to burn down. The AP and AR balance, we generally were able to hold pricing in the marketplace. We did have to extend some credit terms to some folks, especially smaller customers.

Spike in inventory from last year.

<unk> was taking on of their inventory that we now have to burn down the AP and AR balance.

We generally we're able to hold pricing in the marketplace. We did have to extend some credit terms to some folks.

Especially smaller smaller customers and we've been a good payer of suppliers, particularly since COVID-19 to make sure we had adequate supplies. So we're working on all elements of working capital clearly theres, a theres, a really nice ability to generate cash from net working capital this year and we're working that aggressively so we're done with the inventory.

Jeffrey A. Graves: And we've been a good payer of suppliers, particularly since COVID, to make sure we have adequate supplies. So we're working on all elements of working capital. Clearly, there's a really nice ability to generate cash from that working capital this year, and we're using it aggressively. So we're done with the inventory purchases from contract manufacturers, and we're burning it down now. And just the last question on that topic is, you know, you said EBITDA breakeven is a target for the year. Is it logical to make the?

Purchases from contract manufacturers, when we bring it down now.

And just the last question on that topic is you said EBITDA breakeven as a target for for the year.

Is it logical to make the conclusion that you'd also expect to be cash flow breakeven in 2024.

Jeffrey A. Graves: Inclusion that you'd also expect to be cash flow breakeven in 2024. We'll generate, we'll be positive in operating cash flow, and the free cash question is just how much we end up spending on CapEx. We do; we have our normal CapEx required for maintenance, and there are some factory improvements with the insourcing we have to do. There's a couple of extraordinary growth areas that we have to put capital in in 24 to grow in 25. They're not huge numbers, but they will put pressure on CapEx. So you'll probably see a, you'll see positive operating cash flow this year. You'll see a slightly negative, my guess is a slightly negative free cash flow as we invest in CapEx, and we'll update you on that throughout the year. Okay, thank you very much.

We will generate will be positive and operating cash flow and the free cash question is just how much we end up spending on Capex. We do we have our normal capex required for for maintenance and there's some factory improvements with the in sourcing we have to do that there's a couple of extraordinary growth areas that we have to put capital in in 'twenty four.

<unk> to grow in 'twenty, five they're not huge numbers, but it will it will put pressure on capex. So youll, probably see up youll see positive operating cash flow. This year Youll see a slightly negative my guess is just slightly negative.

Free cash flow as we invest capex and we will update you on that throughout the year.

Okay. Thank you very much.

Jeffrey A. Graves: Thanks, Brian. Your next question is coming from Jacob Stephan from Lake Street. Your line is now live.

Thanks, Brian.

Thank you next question is coming from Jacobs <unk> from Lake Street. Your line is now live.

Yeah. Good morning, guys. Thanks for taking my question.

Jacob Michael Stephan: Yeah, good morning, guys. Thank you for taking my question. I just want to focus on the industrial side. Yeah, yeah, I just want to focus on the industrial side and more, and the kind of the aerospace market. So what kind of investments are you making?

I just wanted to focus more on industrial side.

Yes, I just want to focus on the industrial side of the business.

We've seen more investments in kind of the aerospace market. So what what kind of investments are you, making there if any.

Jeffrey A. Graves: So in terms of investments, I would tell you that the primary investment there, you'd say, really is in our cost of sales, and it's our application engineers. What we see from Aerospace right now is they really do embrace polymer processing a lot, but a lot of their interest is in metal processing and the use of proven but new materials with additives. So I'd say they're not as far along as developing a lot of new materials, brand new chemistries for additive manufacturing as the polymer site is, but they're deeply in the process of evaluating existing materials on 3D printers. So we spend a lot of investment money on our application engineers, working with customers on specific applications. And it's very interesting, the driver of that. There are two camps.

So and so in terms of investments I would tell you that the primary investments there you'd you'd say really is in our cost of sales.

And it's our application engineers.

What we see from aerospace right now is they they really they like they really do embrace polymer processing a lot, but a lot of their interest is in metal processing and the use of proven but new materials with additive. So I'd say there they're not as far along as developing a lot of new materials brand new Chemistries for added.

Give us the polymer side is but they're deeply in the process of evaluating existing materials on three D. Printers. So we spend a lot of investment money on our application engineers working with customers on specific applications and it's very interesting the driver of that Theres two two camps one.

Jeffrey A. Graves: One of them is improved performance. They want to design a part that can't be machined, at least not easily. So there are performance-driven designers, and then we're seeing an increase in those that are motivated by risk reduction for their existing infrastructure. So, like oil and gas, we have a lot of interest in oil and gas because, oftentimes, those oil rigs or refineries are in very difficult parts of the world, and so the customers are forced to hold huge amounts of inventory to make sure they stay up and running. They're really interested in localized manufacturing that could do just-in-time production of spare parts. So we're pursuing a lot of that for electrical infrastructure, for oil and gas. So if you look at investments, that don't require us to build new plants and things. There's not a lot of investment except in sales for application development for those folks. So if you see increased spending, it's around sales costs for those new industrial markets. Does that make sense? Yeah, yeah, that's all. Um, and then.

Of them is improved performance they want to design a product that can't be machines at least not easily. So there's the there's a performance driven designers and then we're seeing an increase in those that are motivated by risk reduction for their existing infrastructure. So like oil and gas. We have we have a lot of interest in oil and gas because oftentimes.

Those oil rigs or refineries are in very difficult parts of the world and so their customers are forced to hold huge amounts of inventory to make sure. They stay up and running they are really interested in localized manufacturing that can do just in time production of spare parts.

We're pursuing a lot of that for the electrical infrastructure for oil and gas. So if you look at investments that doesn't require us to build new plants and things theres not a lot of investment acceptance sales for application development for those for those folks.

If you see an increased spending its around sales costs for those new industrial markets does that makes sense.

Yeah.

Yes, yes, that's helpful.

And then.

Jeffrey A. Graves: You notice that. Sorry, you had said that you were in Source Initiative as one in 2023. But maybe just kind of an overall plan, the Restructuring Initiative. They'll expect the majority to be completed by Q1. Yeah, I'd say I would say mid-mid year more than Q1. But so there's there's a different there's three, three legs in the stool are restructuring their straight headcount reductions. And of course, you got to look at North America versus Europe in terms of timing there. All of the North American actions have virtually been completed, while the European stuff's in progress.

You noticed that your.

Sorry.

That said that your in source initiative is when completed in 2023, but maybe just kind of give us some overall progress update.

The restructuring initiatives.

I would expect the majority to be completed by Q1.

Yeah, I'd say I would say mid mid year more than Q1, but so there is different there is three to three legs of the stool of our restructuring there straight head count reductions and of course, you've got to look at North America versus Europe in terms of timing there.

All of the North American actions virtually were completed the European stuffs and progress you've got for US you've got site closures were closing 20 or 50 sites and these are these are ACA.

Jeffrey A. Graves: You've got for us, you've got site closures; we're closing 20 or 50 sites. And these are acquisitions that were done years ago, largely, that had remaining small groups of people that we're now able to get efficiencies by closing those and consolidating the hubs, if you will, for design and manufacturing. You've got a lot of that work going on this year.

Acquisitions that were done years ago, largely that had remaining small groups of people that we're now able to get efficiencies by closing those and consolidated into hubs. If you will for design and manufacturing you've got a lot of that were going on this year.

Jeffrey A. Graves: And the tricky part of that is, when do the accounting regulations allow you to recognize the savings? So we're driving to specific dates this year on these site closures, which are all underway. All 20 of the 50 are underway. It's a matter of when are they completed from an accounting standpoint, and what credit can you take in the year?

The tricky part of that is when does the when do the accounting regulations allow you to recognize the savings. So we're driving the specific dates this year on the site closures, which are all underway.

All 20 of the 50 are underway, it's a matter of when do they when do they completed from an accounting standpoint, and what credit can you take in the year. That's why there's a range on our restructuring savings frankly, because those accounting rules are really complicated. So we're just driving to get them closed get them done and get it finished and consolidated.

Jeffrey A. Graves: That's why there's a range on our restructuring savings, frankly, because those accounting rules are really complicated. So we're just driving to get them closed, get them done, get it finished and consolidated. And then, of course, we have the efficiency gains from insourcing. So driving operational efficiencies all the way through the supply chain now that it's insourced. We recognized a little bit of that in Q4 and last year, but there's a lot more to come this year as we go forward. So those hit both the OPEX line and the restructuring hits both the OPEX line and the COGS line, especially in manufacturing. So that's why we see a lift this year in our gross margin of 24. And we'll get, obviously, a big swing in EBITDA by bringing OPEX down. So, that, qualitatively, that's in those three buckets, and you'll, that's why you'll see the lift in both gross and EBITDA margins, even in a flat sales environment. Okay, thank you. Okay.

And then of course, we have the efficiency gains from in sourcing so driving driving operational efficiencies all the way through the supply chain now theres been sourced we recognized a little bit of that in Q4 and last year, but there's a lot more to come this year as we go forward. So so those hit both the Opex line.

And the restructuring his both Opex line and the Cogs line, especially in manufacturing.

That's why we see a lift this year in our gross margin in 'twenty, four and we'll get obviously, a big swing in EBITDA by bring Opex down.

That that qualitatively that's it's in those three buckets and Thats why youll see the lift in both gross and EBITDA margins, even in a flat sales environment.

Oh.

Okay. Thank you I'll turn it over.

Ananda Prosad Baruah: Your next question is coming from Ananda Baruah from Loop Capital Markets. Your line is now live. Yeah, thanks, guys. Good morning.

Okay.

Thank you. Your next question is coming from Ananda Baruah from loop capital markets. Your line is now live.

Yeah. Thanks, guys. Good morning, Thanks for taking the questions and yes, Andy also really enjoyed working with you over the years.

Jeffrey A. Graves: Thanks for taking the questions. And yeah, Andy also really wants to, (inaudible) share. Thank you. Jeff, could you, uh..., put a little context around the remarks about the China competition when you started the call, what do you see there and what's the rate? Yeah, the industry is very interesting. The industry is really changing. We've got our traditional competitors in the industry, and there are smaller companies and then, obviously, some bigger companies, and some of them, the bigger ones, are owned by very large industrial companies. So you've got that historic competitive base, but increasingly, we see the emergence of Chinese players.

Best of luck on everything sure. Thank you.

100%.

Jeff could you.

I guess maybe.

It put a little context around the remarks, you made about the China competition. When you started the call.

Yeah, you're seeing there in Sydney.

Yeah, I know the industry is.

It's very interesting the industry is really changing.

We've got our traditional competitors in the industry and there are smaller companies and then obviously some bigger companies and some of them and the bigger ones are owned by.

Very large industrial companies, so you've got that historic competitor base, but increasingly we see the emergence of Chinese players.

Ananda Prosad Baruah: And it's very interesting because you can buy a lot of the key components on the market, and what we see them coming into the market primarily on the hardware side, not as much on materials and certainly not as much on software. But in terms of just raw hardware design and sales, they're moving into the markets. They're moving into Europe. They're moving into the States.

It's very interesting because you can you can buy a lot of the key components on the market and what we see them coming into the market from primarily is on the hardware side not as much on materials and certainly not as much on software, but but in terms of just raw hardware design in and sales.

They are moving into the markets Theyre moving into Europe, they're moving into the states it's definitely happening.

Jeffrey A. Graves: It's definitely happening, and they're just like, and not to generalize too much, but they're competing on price with hardware. The way, strategically, the way we compete with that is not only the hardware technology, but bringing it together with materials and software and servicing the customer well because they often struggle with that. So broad-based, we're seeing a lot more competition from China on the hardware side, and it does make it a challenge when you strictly look at the hardware itself. So, part of the pressure on R&D spend is to make sure that, technologically, we stay ahead in our core markets. I'm not talking about regenerative medicine.

And then just like and Thats not to generalize too much but they are competing on price with hardware.

The way the strategically the way we compete with that is not only the hardware technology, but bringing it together with materials and software and servicing the customer well because they they often struggle with that so so broad based we're seeing a lot more entrants from China.

On the hardware side and it you know and it does make it a challenge when you're strictly look at the Hartford where itself.

So part of the pressure on our R&D spend is to make sure that technologically we stay ahead.

In our core markets and we stay ahead and I'm not talking about regenerative medicine, clearly, we're having that but it is our core industrial and even health care markets make sure. We stay ahead on hardware software and materials and then make sure. We are we have the scale enough to service customers from our sales and service standpoint, so while I.

Ananda Prosad Baruah: Clearly, we're ahead on that, but it's our core industrial and even healthcare markets. We need to stay ahead on hardware, software, and materials, and then make sure we have the scale enough to service customers from a sales and service standpoint. So, while I will comment that we have the sufficient scale to do it, we spend a lot of money servicing customers. And that's where, when you talk about consolidation in the industry, scale helps. It really helps you more economically spread the costs. So that's the full landscape around China.

I will comment that.

We have sufficient scale to do it.

Spend a lot of money servicing customers and that's where when you're talking about consolidation in the industry scale helps it really helps you more economically spread the boss. So so that's the full landscape around China I am glad you asked the question.

Jeffrey A. Graves: I'm glad you asked the question. Yeah, and I'll say just a quick follow up there. So they've, they've sort of been present, in the way that you've described it, you know, in the past, all at the same time. A 3D kind of approach.

Yes.

Just a quick follow up there.

They've been present.

In the way that you described.

In the past.

All of that the consumer has slashed workshop level.

Same kind of approach is it now you're seeing it and then move up and down.

Ananda Prosad Baruah: Is it now you're seeing it kind of move up into? and sort of into the bread and butter market, I guess. One more question asked out of the station: is it in both prototyping and production, you know, and I guess where we're like, God, thank you. Oh, yeah, sure. No, all good questions.

Okay sort of inside the bread and butter of markets and I guess one more.

Questions asking kind of a distinction.

It hit both prototyping and production.

Oh, and I guess just.

Like context around that question would be great. Thanks.

Yeah sure no. It all good questions. So so clearly it's more industrial and health care.

Jeffrey A. Graves: So, clearly, it's more industrial and health care. And I'm very glad we have a health care business, because with all the regulatory environment and quality concerns, everything else, health care is the most difficult market for them to penetrate, as is aerospace and defense. So I think those are probably the last markets at a production level that would be exposed to that. Again, talking about production applications, they're going to work in their way. And again, I'm sorry for the broad brush kind of commentary, but they are working their way into other industrial markets. Particularly industries that produce consumer products, you know, where, you know, quality is important, but it's not a differentiator, things like that.

I'm very glad to have a health care business, because with all the regulatory environment and a quality concerns everything else health care is the most difficult market for them to penetrate as it is aerospace and defense. So I think those are probably the last markets at a production level that would be exposed to that.

Again talking about production applications, they're going to work in their way and again I'm sorry for the broad brush commentary, but working their way into the other industrial markets.

Particularly industries.

Consumer products.

We were you know.

Quality is important but it started it's not a differentiator or things like that they are working oriented into those kind of consumer driven markets, which again, we have lighter exposure on broadly, but it's still important because that that trend will continue and it's one we have to set ourselves up for.

Ananda Prosad Baruah: They're working their way into those kind of consumer-driven markets, which, again, we have lighter exposure on, broadly, but it's still important because, you know, that trend will continue, and it's one we have to set ourselves up for. Initially prototyping, clearly an easier market, a lower risk for them to get into, but it is, it's definitely, they're definitely working on the industrial markets now, beginning with the easier ones and working their way up to the harder ones. So hopefully, it answers both parts of your question. Yeah, yeah, absolutely. [inaudible] See, uh, leave it there.

Initial prototyping clearly easier market lower risk for them to get into but it is it's definitely they are definitely working on the industrial markets now.

Beginning with the easier ones are working their way up to the harder ones.

So hopefully that answers both parts of your question.

Yes, I actually appreciate the context.

The denial on behalf.

Leave it there.

You guys on the pocket. So we'll look forward to talking to you not as always thanks.

Jeffrey A. Graves: We look forward to talking to you, Ananda, as always. Your next question is coming from James Ricchiuti for Needleman Company. Your line is now live. All right, good morning, and I just wanted to follow up to see if I can get a little bit more color on the decline in the industrial www.3d.com.au, Aerospace Defense, SEMI. But yeah, what what area? Reporter, and did that, was it pronounced in any one geography?

Thank you. Your next question is coming from James Ricchiuti from Needham <unk> Company. Your line is now live.

Hi, good morning, most of my questions.

Mark.

But just wanted to follow up to see if I can get a little bit more color on the decline in the industrial business, which.

Quarterly level, it looks like the lowest quarter of the year and you talked about areas, where the business has held up better I think aerospace defense semi but yeah, what what areas or any particular weak in the <unk>.

In the quarter and did that was it more pronounced in any one geography.

James Andrew Ricchiuti: No, Jim, I'll try to answer all of those. It was pretty equal between the U.S. and Europe. Most of our sales are in the U.S. and Europe, so it was pretty equally split there. And because central banks in both parts of the world have been raising interest rates, it was much more consumer market-driven, consumer in-market driven. So if you look at all of our customers, industrial customers, big industrial customers on the industrial side, but some of them serve consumer markets, and I think the concern, Jim, that they all had was with this rapid rise in interest rates, were consumers going to be able to buy as much, and did they need the capacity? So it's not like they canceled orders, but they just, again, I keep using the phrase, they slow-rolled the POs. So, you know, you call them and say, "Where's the PO?". Yeah, next week, next week, next week, it's coming.

No. It was Jim I'll try to answer all of those it was pretty equal.

In Europe, where most of our sales are in U S and Europe. So it was pretty equally split there.

And because the central banks in both parts of the world have been raising interest rates. It was much more consumer market driven consumer end market driven so if you look at all of our customers and industrial customers Big industrial companies customers on the industrial side, but some of them serve consumer markets and I think the concerns yet they all.

Had was with this rapid rise in interest rates, where consumer is going to be able to buy as much and do they need the capacity. So it's not like they canceled orders, but they just again I keep using the phrase a slow roll.

So.

You call out and say where is the Pls next week next week next week as Kevin So they weren't canceled.

Jeffrey A. Graves: So they weren't canceled, and I believe they are all coming. I believe we'll continue to see a slow roll until they're convinced that the consumer isn't going to go away. And the closer you get to specialized equipment, like semiconductor equipment manufacturers, it is very strong for us. We've been working in that market for a long time. So people that are putting in semiconductor equipment, heavy industrial equipment, that business remains strong; no doubt about it. Defense and aerospace remain strong.

They are all coming I believe we'll continue to see a slow roll until.

They are convinced that the consumers aren't going to go away.

And the closer you get to specialized equipment like semiconductor equipment manufacturer very strong for us we've been working in that market for a long time. So people that are putting in semiconductor equipment heavy industrial equipment is that.

That business remains strong no doubt about it defense and aerospace remains strong. It was as you go closer to companies that make consumer products. Those are the ones that were hesitant on the capex spend and with all of that said you know industrial hung in there better than health care last year.

Jeffrey A. Graves: It was, as you go closer to companies that make consumer products, those are the ones that were hesitant on the CapEx spend. And with all of that said, you know, industrial hung in there better than healthcare last year. But again, healthcare was dominated by dental being off due to orthodontics. And then again, they had a lot of capacity in printers themselves.

But again healthcare was dominated by <unk>.

By dental being off due to work with bionics and then again they had they had a lot of capacity in printers themselves. So you saw some roll off in printers, even in health care.

Jeffrey A. Graves: So you saw some roll-off in printers, even in healthcare. But in industrial, we almost offset the decline by new customers coming in. So while we didn't see an uptick, we didn't see as much of a decline on the industrial side either. So if there's a ray of sunshine in there somewhere, it's probably that. My disappointment was Q4 is usually a very strong quarter, and clearly it was not. We did not see the lift.

But industrial we've almost offset the decline by new customers coming in so while.

While we didn't see an uptick we didn't see as much of a decline on the industrial side, either so if theres a ray of Sunshine in there somewhere it's probably that might disappoint was Q4 is usually a very strong quarter and clearly it was not we did not see the lift we usually see people just hung onto their purchase orders.

Jeffrey A. Graves: We usually see people just hanging on to their purchase orders, you know. And just last question for me is just on the non-GAAP OPEX, to what you're guiding for. 4 That would seem to suggest a pretty healthy step down in Q1, but I don't know if that's going to be more back-end loaded with some of the restructuring action. Yeah, Jim, I would say it's probably a little bit more back

Got it and just last question for me is just on the non-GAAP Opex.

What you are guiding for in 2004 that would seem to suggest a pretty healthy step down in Q1, but I don't know if thats going to be more backend loaded with some of the restructuring actions you're taking.

Yes, Jim I would say, it's probably a little bit more backend loaded we took a lot of action quickly in North America. When we launched this in terms of the head count component. The tricky part is now the site closures, which again are split between U S and Europe. The site closures take a little bit more time, and then the accounting resolution isn't.

Jeffrey A. Graves: We took a lot of action quickly in North America when we launched this in terms of the headcount component. Now, the tricky part is the site closures, which are again split between the U.S. and Europe. The site closures take a little bit more time, and then the accounting resolution isn't done until you're out of the facility, basically.

It isn't done until Youre out of the facility basically so so we've got to be a little careful so you see a range of opex.

Jeffrey A. Graves: So we've got to be a little careful. So you see a range of OPEX in our guidance. And again, I'd like to think we'll do better than that, but we tried to be realistic about timing, because I do think you'll see a big hit in the first half, which is good, but a lot of the benefits don't start flowing through until the second half. Thank you. Thanks, Jim. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Dr. Graves.

Our guidance and again I'd like to think we'll do better than that but it's we tried to be realistic about timing because I do think you'll see a big a big hit in the first half which is good but a lot of the benefits don't start flowing through until the second half.

Got it thank you.

Thanks, Jim.

Thank you we've reached end of our question and answer session I would like to turn the floor back over to Dr. Graves for any further closing comments.

Jeffrey A. Graves: Thanks, Kevin. Listen, I thank you all very much. I know we went beyond time, but I wanted to field questions because I know it's a volatile time for our company and the industry. So thank you very much for hanging in there and asking the questions you did. I appreciate you joining us. We are cautiously optimistic about 24. We look forward to the year ahead, and we'll look forward to updating you each quarter on progress. Thanks very much for calling. Thank you. That does conclude today's teleconference and webcast. Connect your line at this time and have a wonderful day.

Thanks, Kevin Wilson. Thank you all very much I know, we went beyond time, but I wanted to field questions. Because I know, it's a volatile time for our company and for the industry. So thank you very much for hanging in there and they are asking the questions. You did I appreciate you joining.

We are cautiously optimistic about 'twenty four we look forward to the year ahead, we will look forward to updating you each quarter on progress thanks very much for calling.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.