Good afternoon and welcome to 3D Systems’ Conference Call and Audio Webcast to discuss the preliminary results of the fourth quarter and full year 2020. My name is Brock and I will facilitate the audio portion of the day’s interactive broadcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Thank you, Brock. Good morning and welcome to 3D Systems’ Conference Call. With me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer; Jagtar Narula, Chief Financial Officer; Andrew Johnson, Executive Vice President and Chief Legal Officer and John Nypaver, Vice President and Treasurer. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. For those who have accessed the streaming portion of the webcast, please be aware that there may be a few second delay and that you will not be able to pose questions via the web. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2019. Now, I'm pleased to turn the call over to Jeff Graves, our CEO. Jeff?

Thanks, Melanie. And thank you all for joining our call this morning. Before we begin, let me wish all of you a healthy and happy new year ahead. 2020 was an unprecedented year for everyone dealing with the COVID virus. But I'm happy to see improvements around the world as the new vaccines are being distributed in increasing numbers. I trust that 2021 will be a much better environment as we emerge from this crisis period. Before discussing our progress in 2020, let me comment on the postponement of our 10-K filing. As you know, one of our key actions last year was to begin divesting assets that were not core to our additive manufacturing business. We quickly prioritized the sale of our two software businesses, GibbsCAM and Cimatron that were focused on subtractive or machining technology. This divestiture while complex to execute went very well and we closed at the end of the year, which allowed us to eliminate our debt and have cash on the balance sheet for future investment.

Thanks, Jeff. Good morning, everyone. Let me begin my commentary by reminding everyone that the financial data that we are discussing remains subject to final audit by our independent registered public accounting firm. As a result, our actual results may differ from the anticipated results discussed. Next, I'd like to discuss the presentation of our numbers. As Jeff discussed earlier, in the fourth quarter, we achieved a development milestone in our regenerative medicine efforts. This triggered a cash payment from one of our development partners related to this achievement. That payment and our growing initiative in regenerative medicine prompted us to re-evaluate our accounting methodology for this contract. As a result of this analysis in our earnings release, we have recast numbers for prior periods to reflect this accounting change, which is also reflected in my commentary on this call. However, it is important to note that this recasting has only a minor impact on the numbers and does not have any impact at all on our bottom line reported results. In addition to being extremely clear, when viewed in the context of our overall revenue growth in the fourth quarter, the impact of this payment was immaterial to our results even if the payment would have been entirely excluded. We would still have seen year-over-year growth in the fourth quarter. Now moving on to the numbers, starting with a look at the full year 2020. 2020 revenue of $557.2 million decreased 12.4% compared to the prior year, primarily due to the impacts of COVID-19, the effects of which occurred most severely at the onset of the pandemic, with a strong rebound in activity in the second half of the year. As we discuss our results in the future, it will be important to compare our growth to a baseline that excludes revenue from divestiture activities, such as the divestitures that closed just after the New Year. This revenue will no longer be part of our operating model and we want to provide a clear baseline revenue for 2020 on which we intend to grow organically in 2021. As such, excluding $44.4 million of revenue from businesses that were divested last year or at the beginning of this year, baseline 2020 revenue would have been approximately $512.8 million. Our growth from this baseline provides a way to measure the performance of our additive manufacturing business in 2021. Gross profit margin on a GAAP basis for the full year 2020 was 40.1% compared to 44.1% in the prior year. Non-GAAP gross profit margin was 42.6% compared to 44.8% in the prior year. Gross profit margin decreased primarily due to the under absorption of supply chain overhead resulting from lower production and end-of-life inventory changes of $12.4 million in mix. Operating expenses for the full year 2020 on a GAAP basis increased 1.4% to $342.3 million compared to the prior year. On a non-GAAP basis, operating expenses were $236.9 million, a 16.2% decrease from the prior year. The lower non-GAAP operating expenses reflected savings achieved from cost restructuring activities, as well as reduced hiring and lower travel expenses resulting from the coronavirus pandemic. Moving on to the specifics of the fourth quarter. For the fourth quarter, we expect revenue of $172.7 million, an increase of 2.6% compared to the fourth quarter of 2019 and an increase of 26.8% compared to the third quarter of 2020, driven by growth in both healthcare and industrial. We were quite pleased with this organic revenue growth which we still delivered while still facing health headwinds in the pandemic that impacted our operations and those of our customers. We expect a GAAP loss of 16% per share in the fourth quarter of 2020 compared to a GAAP loss of $0.04 in the fourth quarter of 2019. Turning to non-GAAP results, we expect a non-GAAP income of $0.09 per share in the fourth quarter of 2020 compared to non-GAAP income of $0.05 per share in the fourth quarter of 2019. Consistent with our new strategic focus announced late last year, we are now discussing revenue by market, healthcare and industrial. Revenue from healthcare increased 48% year-over-year and 42.4% quarter-over-quarter to $86.6 million driven by all parts of the healthcare business, dental, medical devices, simulators, and regenerative medicine. Excluding dental application, revenue and the balance of the healthcare business which we refer to broadly as medical applications increased 27.7% year-over-year. In short, we were very pleased with both the magnitude and the breadth of the revenue growth in our healthcare business in the fourth quarter. Industrial sales decreased 21.6% year-over-year to $86 million as demand has not fully rebounded to pre-pandemic levels. On a sequential quarter-over-quarter basis, we saw broad-based revenue improvement of approximately 14.2% in our industrial business with no single customer or segment responsible for the improvement. Now we turn to gross profit margin. We expect gross profit margin of 42% in the fourth quarter of 2020 compared to 44.1% in the fourth quarter of 2019. Non-GAAP gross profit margin was 42.9% compared to 44.3% in the same period last year. Gross Profit declined year-over-year, primarily as a result of timing and the reallocation of costs from OpEx to cost of goods sold. Looking forward, and as mentioned previously, our gross profit will be impacted by the sale of our Cimatron and GibbsCAM software business. While revenue in these two businesses were expected to decline, their divestiture is expected to negatively impact gross margins going forward by about 300 basis points to 400 basis points while our restructuring and transformation activities will benefit gross margins. Net going forward in 2021, we expect non-GAAP gross margins in a range of 40% to 44%. Operating expenses for the fourth quarter were $71.7 million on a GAAP basis, a decrease of 9.2% compared to the fourth quarter of 2019, including an 11.2% decrease in SG&A expenses and a 3.1% decrease in R&D expenses. Importantly, our non-GAAP operating expenses in the fourth quarter were $58 million, a 15.8% decrease from the fourth quarter of the prior year, as we saw the benefits from our restructuring efforts. The primary differences between GAAP and non-GAAP operating expenses are $6.1 million in restructuring charges, as well as $4 million in amortization of intangibles and stock-based compensation and $3.7 million in legal and divestiture related charges, consistent with our historical GAAP to non-GAAP adjustments. Next, I would like to briefly touch on our cost reduction activities. Recall that in 2020, we announced a restructuring to reduce operating costs by $100 million per year, with $60 million of annualized cost reduction by the end of 2020. As Jeff mentioned, we were pleased that we delivered on our objective of $60 million cost reduction in 2020. In addition, we have plans for an additional $20 million of cost reductions in 2021. Additional cost reductions beyond what is currently planned for 2021 require us to streamline and integrate parts of our business that we may instead choose to divest. Therefore, the plans to achieve the remaining $20 million towards our $100 million cost reduction plans will be achieved by divestitures or through further cost reductions that we will implement once we have finalized our divestiture analysis. As we look forward in 2021, our operating expenses will be impacted by the sale of our Cimatron and GibbsCAM business, our cost transformation activities and our investment decisions that are expected to drive future growth. We are excited about the opportunities in our market and will continue to make investments in 2021 to position the company well for future growth. This quarter, we are introducing adjusted EBITDA as a metric that we find useful in measuring the health of the business. We focus on adjusted EBITDA as evidence of the results of our strategy and restructuring actions, and we believe it is a helpful metric to use to compare to prior results. Adjusted EBITDA, defined as non-GAAP operating profit plus depreciation was $28.7 million, or 5.2% of revenue in 2020, compared to $31.2 million in 2019, or 4.9% of revenue. For the fourth quarter of 2020, adjusted EBITDA improved materially to $22.9 million, or 13.2% of revenue, compared to $12.9 million, or 7.7% of revenue in the fourth quarter of 2019. The improvement is the result of the business growth in the quarter, as well as the results from our restructuring efforts, where we were pleased that we could grow adjusted EBITDA in Q4 despite the challenging economic environment. Now, let's turn to the balance sheet. We ended the quarter with $84.7 million of cash on hand, including restricted cash and assets held for sale. Cash on hand decreased $50 million since the beginning of 2020. Importantly, our cash on hand increased $8.4 million from Q3 2020 to Q4 2020. We did not issue any shares and had the market equity program called the ATM program during the quarter. Therefore, the increase in cash on hand reflects the improved operating performance of the company and the flow through of cost actions that we have taken. Our term loan at the end of the year was $21 million. We have a $100 million revolver that was undrawn as of December 31, 2020, and has approximately $62 million of availability based on terms of the agreement. Selling the sale of our Cimatron and GibbsCAM business, which officially closed at the beginning of January, we will use part of the proceeds to pay off the term loan, making us debt free and in a net cash position as we moved into the New Year. Additionally, as previously discussed, we terminated the ATM program. As we look forward into 2021, we have greatly improved the operating efficiencies of our business and are continuing to do so. We are focused heavily on reinvesting for growth based on the increasing opportunities we see for our core additive manufacturing business and we are continuing the evaluation of our portfolio with an eye towards the potential for divestitures and subsequent reinvestment of proceeds into our core business efforts.

Thanks, Jagtar. In 2020, we completed the reorganization and restructuring of our company to drive growth in our core businesses, successfully achieving our targeted cost savings while focusing on delivering application solutions for our customers. As a result, we're now a company with a strong focus on two key markets, healthcare and industrial solutions, and one that has a much more streamlined and efficient cost structure. We started 2021 by completing the sale of our Cimatron and GibbsCAM software businesses and we'll continue to see cost savings from our restructuring efforts throughout the year. We'll continue to explore divesting non-core assets and look to grow our customer relationships through focusing on application solutions and our most exciting growth markets. We believe revenue in our core business centered around a solutions-based approach to additive manufacturing will grow rapidly moving forward. And we'll selectively invest for growth opportunities, like regenerative medicine, materials development, and ongoing improvement in our product lines. Many may ask what rapidly means in terms of growth rates. All we can say today is that uncertainty remains around the pace at which COVID impact will recede and the global economies rebound. We're hopeful that the momentum continues to accelerate and with that, we'll be able to deliver double-digit growth rates in our core additive business in the year ahead. But these next few months will ultimately determine this outcome. What I can say with certainty is that our continued focus on operational execution, and we are very excited about the trajectory we're on and the future value we expect to bring to all of the stakeholders in our company. And with that, we'll now open the floor for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question today is from Jim Ricchiuti of Needham & Company. Please proceed with your question.

Thank you. Good morning. Just a question, I wonder if you could Jeff maybe give us a little bit of a sense as to how business is trending thus far in the quarter. We've got about a month left. And I guess where I'm going with this is, if you could talk perhaps to the seasonality Q4 to Q1 which in past years, we've seen declines. And we're in the high teens to I think it was 25% last year. So what I guess I'm asking is whether there was, perhaps unusual strength in Q4, maybe in medical that might lead to more seasonality in Q1 of this year, just trying to get a sense as to how the business is shaping up Q4 to Q1. Thank you.

Hey, good morning. Good to hear from you, Jim. Yes, that's kind of has a million dollar question. It's a competition of factors out there right now. So yes, we do expect kind of normal seasonality Q4 to Q1. The real question is, there is a rising tide of applications. And I would tell you, I'm particularly excited around healthcare. I think a lot of folks put off healthcare treatments during the COVID period. And they've come back strongly in both dentistry and other medical applications and obviously the fourth quarter was just tremendous. And I would expect that healthcare momentum to continue provided hospitals stay open. I'm very encouraged about the, and you probably read as much as I do about the declining certainly death rates but even hospitalization rates from the recovery now with the combination of masks and vaccines. So that's really encouraging because hospitals can then address this backlog of patients that need surgery, need devices, dentists, people that need work on their teeth or mouth. So those are all really good for our healthcare business. I would expect that to continue to have a very strong look ahead, again, with just a distant caveat around COVID on that market. And it's more of a short-term concern than long term, I think, once we get through summer time, unless these variants in the virus prove to be substantial, it looks like that momentum will continue and just continue to accelerate as the world opens. And probably at an even faster clip Jim, frankly because there's a big backlog of demand. On the industrial side, it's a little, it's a little dicey in the short term, because it's spotty. You run into countries and borders that shut periodically, then especially around the variants in the virus, you get a local low, you'll get a customer in a locale where they suddenly have to shut down for a few weeks or something like that. It doesn't reduce the demand for the product. But it certainly postpones the, you can postpone order placement, it certainly postponed shipping and installation. And some of these, especially with regard to our metal printers, you don't recognize some of the revenue until the project is completed and demonstrated in the customer factory. So that's been a real drag. I'm really pleased with the take-up on our metal solutions, and how people are embracing those, if that installation piece, and knowing that we can get out to service someone that is the factor. So I wish I could give you real numbers. I do expect the seasonality to be there. And hopefully a more normal seasonality kind of kind of impact than was last year, because I think in mid Q1 last year, people were probably already starting to anticipate the virus. So maybe, it should return to more normal levels. But I think we've always had significant seasonality in this company. So that I don't expect that to ever go away. But beyond that, I see really strong demand for additive solutions in general for the whole industry. And I think our technology in many, many areas, we have leading technologies, and particularly the combination of our product and software with our materials platform is really powerful. We have an ability to get out there and address solutions for customers very quickly, without requiring them to go to another materials manufacturer to actually optimize a solution. So I'm really bullish, you know, once the virus lifts in the summer, the question marks around Q1 and Q2. And so far so good. We just keep our fingers crossed each day.

Got it. That's helpful. On the high-speed fusion, just final question, interesting announcement that you made. And I wonder if you could give us a better sense as to when it might be available in 2022. And, how it is perhaps differentiated from your other polymer printing solutions?

Yes, certainly, Jim. And I, on the launch day, we said, we've certainly demonstrated capability on the machine. We have some more, it's more normal industrialization and move into manufacturing. So I'll hedge a little bit on the exact launch date in 2022. I'm confident we'll have it out in the market in 2022. And it'll be out there, I think, significantly, in terms of the benefits of the product, Jim. It's a fantastic product. The numbers we've publicized are over three times faster than the current technology that's on the market today being used, and a much larger workspace and higher temperature capability, which really opens up a broad range of polymer solutions, particularly for aerospace and auto demanding automotive parts. So we there is an existing market out there that's substantial. And we estimate that at over $400 million today, I think this machine has a really good chance of over time, taking a nice share of that business. And then I think when people will actually measure the economics and the throughput, it'll open up some new markets versus competing technologies. So we're very bullish. I am thrilled to be able to offer a portfolio of materials when we launch the platform. So there won't be much of a delay between launching the machine and launching materials for our customers to use, which is kind of our trademark, that's what we like to do. And just like the old cartoon we all grew up with Roadrunner versus the Coyote. I think this thing's going to run circles around it. I'm really, really bullish on it Jim.

Yes, Jagtar, Jeff. Thanks for taking the questions here. Just starting off, the healthcare revenue, I think was really eye-opening and just kind of curious how much of the, maybe the upside to that was, due to timing of large projects? I don't know if that was a tailwind at all, it sounds like, dental was maybe an outside driver, but just a little bit more color on healthcare specifically for Q4.

Yes, Greg, this is Jagtar. So, I wouldn't say it was any sort of timing of large projects. I mean, we talked about the milestone payments that we received in my prepared remarks. That was almost immaterial to our Q4 results. So outside of that, what we saw was kind of normal course of business and above printer sales, material sales, advanced manufacturing, and other parts of our healthcare business. We were very pleased with the broad based nature of it. We saw very strong performance, as you saw in dental, but we also saw very strong performance outside the dental business. And none of that I would say was, was kind of. We had large printer orders, but we also had good materials movement and other parts of our business. So none of that I would say is, is kind of non-recurring in nature.

Greg, I'll just, I'll give you a little more color there. If you pick up the numbers as we went through the script, the overall healthcare business was up tremendously. I mean, almost 50%, year-over-year, it was great. And what was encouraging is the breadth of demand. That even though if you separate out the dentistry applications, from the medical applications, broadly, medical applications grew 30%, almost 30%, and that, year-over-year. So we are just thrilled. This concept of mass customization, where you can customize solutions for patients is really catching on. And it's a differentiator for additive manufacturing, in general, because we have very strong application facilities and advanced manufacturing facilities that are approved by the FDA. We can access those applications relatively quickly. And we're really excited to see both the pent-up demand being relieved, as well as strongly growing new demands, new applications for additive solutions there. So we love the healthcare business. And there, it's got many facets to it. And longer term, regenerative medicine, I don't want to oversell it in the short term. But you fast forward a few years down the road, this idea of implantable biocompatible products for long term use in the human body is amazing, absolutely amazing. So, love the business, we continue to invest in it heavily. And we're excited about the growth.

Got it? Good color. And then just as a follow-up, can you comment at all on consumable trends within the quarter? Did that specifically return to growth as well? And if so, any sort of end markets or applications that drove that?

Yes. So, consumable trends, like we have seen historically. We don't break out specifics of our consumable numbers. But I'll say that it did grow, year-over-year, quarter-over-quarter. I wouldn't say there's a specific area that we saw consumable growth. Healthcare was very good with it for us, in line with the overall healthcare business. But it grew across all segments of our business.

Now, Greg, I commented briefly in the prepared text, about our, our strong focus on supporting customers over the life of the product once they purchase it. And certainly the consumable aspect of that is a big deal, as is software upgrades. Our printers last generally over 15 years in many environments out there. And we want to make sure we're delivering increasing value over the life of that machine. So they may make a capital purchase up front, but we want them to get more and more use out of it over time. So we reorganized our go-to-market team to support that activity. And what will fuel the growth there is the software and materials that feed the system. So we want them to optimize their printing platform every day, and then obviously get the most value out of it in terms of printed parts. And that's often with our own materials that we provide them, and they've been optimized for printing. So we love that formula, customers like it. And that's more and more our go-to-market strategy over the life of the machines.

Hi, thanks for taking my questions. I'm looking at the gross margin, first of all, and you said some of the tranche should be 300 400 basis point headwind that's what I was expecting. The cost cutting program, though, as it was laid out, had me thinking that, 40 million of the 100 million coming from the cost line. And the commentary thus far, have me thinking that's about 30 million would be out of the 2021 numbers. And that should have a positive impact on gross margin about 600 basis points. You did 43% gross margin this year when volume was down severely. So I would think that baseline expectation based on information that analysts had without any volume recovery, should have been about 46% for 2021. And more, if you just helped me bridge from what I was thinking was going to be closer to maybe 46% to the 42% midpoint of the guidance.

Sure. Brian, like I said, in my prepared remarks. So the Cimatron divestiture was about a call it 300 basis points to 400 basis points drag on gross margins. Right. Now on the cost savings initiatives, we said, $16 million we achieved in 2020. About 30% of that I would say was on the COGS line. So that would give you about $18 million of flow through in 2021, some of which was actually recorded in Q3 and Q4 2020. Right, we did achieve those numbers during the year. So the gross margin for the year that you're looking at includes a portion of that, that 30% of the 60, that was saved. For 2021 as of now we're talking about $20 million additional savings, pending like I said, the analysis to that year. Again, I expect that split to roughly be 30% of the gross margin line, that will be achieved over the course of the year. So you'd expect about half of that to actually kind of show up as achieved during the year. So you net that all out, that doesn't that get you back to 400 basis points of gross margin, you lost we expected to be, somewhere in between. And, and some of the uncertainty, will be dependent on growth of business and the level of the printer sales, right? Like we like we saw in Q4, printer sales were very strong printers, lower gross margins than consumables that drags down our gross margin a little bit. And so hence, that's the range we're providing for 2021.

Yes, okay, that's helpful because I had 40%, coming from COGS. And I noticed 30 versus 42, for 33% more in costs coming out of COGS than I was assuming. So that'll help me get the math straight. Thank you. And then one other question. I think this is related to divested businesses. I'm just trying to understand if there was something divested in the fourth quarter, or revenue that was divested that was not in the fourth quarter, but was in the third quarter, because just trying to reconcile that I had seen in the press release, the pre-announcement that the industrial business was up more than 20% sequentially, on an organic basis. But the slides today are showing that industrial business was up 14%.

Yes, those are actually two different items. Let me address both of them. In the fourth quarter, we divested two small assets, one in China and one in Australia, which were minor on-demand printing facilities. The revenue loss from these divestitures in the quarter was relatively immaterial. Regarding our pre-announcement for industrial growth at over 20% sequentially compared to the 14.2% in our actual announcement, the difference was due to a mischaracterization of some of our revenue from healthcare to industrial in the pre-announcement. We had some small healthcare customers, like small hospitals, that were geographically dispersed, which we mistakenly classified as part of our industrial business when we made our pre-announcement. Upon refining our numbers, we realized those figures belonged to healthcare and adjusted them accordingly in our healthcare totals rather than in our industrial totals. That's the reason for the discrepancy.

Right? Is the previous perhaps… sorry.

It's a detail, but it's one that, you know, with your following in the industry, you'll understand it. So when you have an emerging customer in healthcare, we often deal with those on a geographic basis through our channels, some indirect, some direct, but it's through our channels. And the customers we call on out of our healthcare business directly, or through a very dedicated healthcare channel. Those are the ones that are easy to quantify. It's the collection of geographically distributed ones, that it took some refinement here at the end of the year to actually carve out and attribute those to the healthcare business. So there was some movement in revenue between the two business units. As we clarified those small customers. And they are, they're potentially very important for the future, but we call on them initially from a geographic perspective.

Hi, good morning, guys. Yes, Jagtar and Jeff, thanks for taking the question. And solid job guys so far. Yes, nice job with everything you've done. Just real quick, because I'll be a little sensitive of time here. Jeff, you had made mention about sort of double-digit revenue growth during the prepared remarks. In that particular context, I’m just wondering, do you feel any differently today than you did 90 days ago about the potential to do double-digit revenue growth, and there's nothing magical, per se about the double-digit revenue growth? I think, just having a sense of what you guys think the potential trajectory through this year is? And if that's changed over the last 90 days, and then we'll have a quick follow-up?

Yes, good morning. And Ananda, thanks for the kind comments. I had to chuckle because I think views of the world change every 90 minutes, not 90 days. There's just so much short-term volatility with the virus. I am really pleased, with every announcement I see about vaccines and about just the benefits of social distancing and mask wearing and the combined benefits, I'm really pleased with that strand. It's, it's kind of like, going on a speedboat through choppy waters, there are still short-term issues that pop up geographically, which are frustrating around shipments around servicing, and installing equipment, all that stuff. So there'll be some short-term noise, which is why we're really reluctant to ever comment on revenue in Q1 and Q2, but behind that, there is just tremendous growth in applications. And I think, for any company running itself well, and it has some good position in this industry. There is a really nice tailwind of application growth that's available to folks. I like our combination of technologies very much. I like our certainly like our installed base, my goodness, we're printing a half a million parts a day in our customer base and I that builds up a wealth of experience you can draw on when you design new products, and it certainly fosters customer relationships. So I am very bullish on the industry. I'm very bullish on our company. I think the double-digit growth rate is perfectly attainable in our core business. That view has not changed in the last 90 days to answer your question.

Yes. Thanks very much for taking my question. Jeff, you have indeed done a great job this last year of bearing down on expenses, in addition to everything else. But I wonder some of the applications that you're going after now are already quite hard, at least, that's my impression. And the R&D associated with them has potential to be sort of never-ending, I guess. Is there a risk here that you? I mean, I guess people are interested in the scalability of this business over the long haul. And the application-centric approach to it means a lot of R&D just kind of accumulating. Can you scale on that R&D?

You know, Coster, that is a great question. We have to, you have to be really careful when you're surrounded by so many targets of exciting things to go do that you're disciplined about how you invest? Because you could, and you can see examples in this industry all around. People chase a lot of different directions, they spend a ton of R&D, try to do it. And we're trying to be a bit more selective than that. And go after things, the application focus is, is in general, a high touch focus. It's a, we spend our R&D to be clear. We spend our R&D on the underlying technology. So printers, materials and software, that's where our R&D spending is. In SG&A there's a chunk of that that goes to application demonstration. And that's and that's exciting. We, we have way too many applications coming in the door each day, that all look interesting, and that we're getting more disciplined about saying, Okay, these select ones have really good return on investment. So that's how we're going to spend our SG&A dollars. R&D, we're just trying to drive efficiencies and, and address the broadest range of applications we can. We're tying that development to specific applications, Paul, wherever possible, and we're not going to get out in front of our skis on frankly, overspending and losing money. It's, I think it drives a good discipline to say you want to be profitable, and generating cash, and use that cash prudently to invest for growth. We have tons of opportunity for growth around us. I'm confident Paul we can deliver double-digit organic top line growth over time and not spend ourselves into oblivion. So that's in general, that's the direction I don't I don't believe I've answered your question very well. But if you heard discipline out of that, I hope, because we're just not going to chase every rabbit that crosses the field in front of us.

Got you. Okay. And then the other thing, which is kind of interesting, I think for investors is just the proliferation of companies in the space right. Now, it seems like it's a large market. I'm sure there's white space out there. But to what extent are you going after the white spaces where no one else is playing versus head-on competition? And where there is head-on competition? Do you see pricing becoming a consideration yet? Or is it still a sort of value so?

Yes, no, good tough questions, Paul. So in terms of whitespace, the white space, Paul, and I would characterize it, yes, we're going after a lot of white space related to new applications, where customers are coming in and saying, hey, look, I've always made this very simple geometry by machining. I'd like to make it out of additive. But it has to have very unique mechanical properties. And in addition to a fancy geometry, those are ones we love, because we're up against really no one else. And we can bring our materials expertise to bear and our software, and really, really take our printing platforms and make the most of them. Customers then tend to run with those. And I call that white space. They're applications that were not additive before. And across both healthcare and industrial Paul, there's, there's tons of those, there's many, many of those. What I don't like is where you have a customer that's used additive for a long time. They're now trying to drive it's a standard components. And there's five different printer companies, they're competing with me using a very standard off the shelf material. Those are not great businesses for us. So we tend to steer toward industries and applications that get the most bang out of additive. And it's often with a unique of a very good printer itself. But a unique combination of software with that printer and materials that go through that Paul. If you can bring those to bear in a unique way. The epitome Paul was, was what we've seen in regenerative medicine. We just had a there was an article run on what we're doing in Forbes magazine a few weeks ago. It is amazing, a combination of materials, software printing and the application combination. That's the white space that we love. And we're going after it. There is increasing competition in simple printer technology because the components are becoming a bit more off the shelf. So low-end applications broad based, those are becoming commoditized. And they're just not our business. That's really not where we're going. So we tend to develop more and more specialized, specialized with significant market opportunity applications and hardware software materials around it. Does that? Does that all make sense to you?

Yes, thanks for putting me in. You're purely focused on healthcare and industrial. I was wondering if you could maybe share how much of your baseline $513 million of revenue does not fall into either of those categories? And if all of that is up for divestiture, and what's the sense of urgency around that? You noted that the assets are good in their own right, but just don't not core to you, now that your balance sheet is in a much better place? Is this going to be a quick process, or is it going to be a slow process? Any holiday would be helpful?

Yes, those are really good questions. This – anyway I like to paint it as black and white, in the core outside the core, it's simple to think about. In reality, there are assets that are in a grey zone in between. And that's so those are tougher calls. Yet, you'd really have to take a hard look and say, how much what's best in terms of value creation. And one of my acid test I always use is, is the business worthy of investing in, is there a good return on investment? And if you own a business where the incremental investment is, it does not have a good return, or it doesn't make it up your priority list in returns, you have better things to do with your money. Those businesses, generally you should feel a drive to sell and let them be owned by someone else that will treat them as their highest priority. We have some really exciting opportunities in additive manufacturing, more and more than we can possibly run after every day. So non-additive technologies, things that are even borderline on that are of lower priority to us. When it's a lower priority, I'm definitely have a mind to get rid of it. Not because they're not good businesses, I want to be clear, they're really good. But they need to be owned by somebody that will love them and nurture them and treat them as their highest investment priority. So if it works this way down our list, when we rank our priorities, we tend to get rid of the ones that are lower on that list. It's better for the customers, the employees, and certainly our shareholders. We’ll reinvest that cash into our core business where we have tremendous growth opportunities.

So Jeff, what do you say off the 513? Like how much it falls out of healthcare in a nutshell?

Yes, in general, I would say it's, by definition, quite little. But in bear in mind, industrial is a very broad word. So how much of it? The key question is, how much of it is additive? How much of it is really integral to additive manufacturing. If you say it that way, we still own assets that are predominantly exposed to non-additive markets. And those are the ones we really look at. There are two options, we either convert them increasingly to additive manufacturing, and we hang on to them, or we sell them and take the cash and invest in the core business for faster growth and margin expansion. So conceptually, it's that simple. But you have to find a buyer that really wants the assets. Some of these are, in this came up earlier about gross margin volatility, some of these are really nice, gross margin businesses. It's just under our ownership, we're not going to invest a lot for growth or they're a lower priority and they should be owned by someone else. I can't give you a percentage of what is not industrial or healthcare. In terms of non-additive, it's not an extremely high percentage, but we still have some assets that are not additive.

Thank you. And again, congrats on good performance in a tough environment. You covered a lot of ground in the Q&A, but first, I just want to go back to a couple of questions and just try to get to, I guess, ask them in a slightly more granular way. So first, going back to Paul's question on R&D investments, you mentioned you'll see discipline there. That right now your R&D is running, I think it kind of the lowest level since 2014, makes sense in a COVID environment. Do you think there's, are you looking moving forward at kind of scaling? Do you think there's opportunity to kind of pull that back a little bit more and leverage that more? Or do you see that rebounding a little bit as we move into recovery in 2021? Thanks.

Thanks. Thank you for the kind comments, I appreciate that. In this industry, I would just give you a very general comment. This industry, I think you can spend, nominally spend 10% of revenue on R&D, and deliver double-digit growth. If you're running a good business, you have a good range of technologies. You can drive double-digit organic growth in this industry, I believe, at a 10% kind of number. Now, there may be years where you say, gosh, I have this really exciting opportunity two years or three years out, and I'm going to spend an incremental 1% or 2% on that. That's fine. I, you can do stuff like that, in the short term, the discipline we want to have is to just draw a line somewhere and say, that's what we can afford to do. And leave it at that. I do not believe in long-term money losing businesses, I think it's a, it lacks discipline. So we don't, come in and have a mind every day to make sure we maximize daily profits. But at the same time, we're not going to get undisciplined in R&D spend. I think in the long term, if we do it right, 10% of sales is a fine number. Now, I say that I’m not sure how we'll end up this year with the revenue, with revenue being impacted by COVID off and on, and I'm not certain way. But in general terms, I would tell you that that's why I think this industry can also be a strong cash generating business. I think the reason we're rolling out now adjusted EBITDA as a metric, is I look at, we moved from single to double-digit EBITDA performance through leading out of the business and a focusing of it. I like that. I think it's good. I'd like to see our gross margins get to 50% and above. I think we can get double-digit organic growth on 10% of our spend on R&D. And I think we'll just be disciplined in our SG&A to drive that. And then I think EBITDA margins, moving from the mid-teens into the 20s is perfectly doable in this industry. It won't happen immediately. But I think we can get there. If you run a good business you get there in this industry. That's an exciting business. That's one that generates cash to reinvest and leaves you with excess cash on the balance sheet for opportunistic acquisitions in the future.

That's very helpful. Regarding the divestiture process, is this something that is ongoing and could take several years? Are you aiming to get the business to the desired state by 2021? As you accumulate cash through these divestitures and from overall generation, what key areas are you considering for investment through acquisitions? Thanks.

Yes, great, great question. Thank you. So I'm impatient by nature. I really like to move out on things when you see what can be better to get it done. We did that on GibbsCAM and Cimatron last year. It was a home run. I mean, we generated cash that really strengthened our balance sheet and those assets ended up in the hands of owners that will really care for them and grow them in the way that they should be cared for. They were great businesses, and they just were not our businesses. So when we look at our other assets, there, there are some that we look at and say, you know that's closer to the core, but it's not quite there. If we can generate enough value through a transaction and leave it in a better owner's hands, if you will, for giving it a priority. We would take that cash and redeploy it. So in parallel, we look at assets we can divest and increasingly we're looking at assets that we could invest in, either partially or totally to own and add to the core business. There are really great opportunities, especially around technology companies, small technology companies and things across our technology portfolio. Printer certainly, that's the obvious one people jump to. But if you look at materials and you look at software, we have an outstanding suite of software today, but more and more customers want red button, green button kind of solutions for optimization. And you can either as their software you can add on to make the make it increasingly user-friendly, for example. Material, same thing. But what customers really care about is printed parts, and the material is made of is absolutely vital. So we continually look at assets out there around materials, can we partner with folks? Can we acquire folks or acquire partial ownership in people that are really going to be deliver some unique material for printing in the future very exciting, really exciting stuff. So we're kind of running those processes in parallel, what can we divest what we invest in, because this industry is going to go through a nice growth evolution. We believe, with our platforms were beautifully positioned, and we just want to enhance those. That's what we're trying to do. And will it happen in 2021? I will make continued progress in 2021. We're not driving ourselves to any specific timeline to get anything finished because you never really are. But just for example, this opportunity would to partner with Jabil on the Road runner, very excited, really great stuff. Fast, high temperature, large machine for printing industrial parts, for really tough applications. As those come up, we want to have the cash to invest in them. Does that help?

It does. Thank you. Yes, that's great, great detail. Appreciate that.

Hey, thanks for taking my question here. Jeff and Jagtar, I just wanted to come back to the double-digit organic growth commentary. I think I just want to frame this right. What's your organic sales growth expectation for fiscal 2021? Like, how are you internally thinking about growing this offline? And I have a follow up.

Yes, it’s challenging to assess from the outside. This year might be tough to evaluate because what we view as our core businesses could show nice growth. Unless COVID significantly impacts us, I expect them to grow at double-digit rates. However, we still have some assets that we consider non-core, which are not directly linked to our additive business and aren't expected to grow. This will likely affect the perceived overall growth rate of the business. We are eager for growth in our core additive business, and I really believe that if conditions improve, we can achieve double-digit organic growth this year. We will clarify the results in our earnings calls, but it may still be challenging to predict which parts will grow and which will not.

Thanks, I'm knocking on wood with you. So look into your EBITDA margin, you delivered 13%, this quarter. You talked a little bit about mid-teens to 20s doable in the industry. I guess in the near term what's the business capable of and where do you specifically plan to take EBITDA margin, say, in the next three years or five years?

Well, I would hope to be over that goal in the next three years. I said, I think unless again, I never, two years ago, who would have envisioned a pandemic. So, you always have to have that in the back of your mind. But the way I see this thing going is, our healthcare business is, is really firing on all cylinders and I and we're going to continue to fuel that engine add to it, grow it, it’s terrific. It carries with a generally higher gross margins, and exciting growth rates, and very sticky business all the way around. Now, you have to be good to do it. So we're really focused on quality delivery, a lot of the underlying operational metrics that are required, and they are just absolutely essential. Because it's direct customer impact, direct patient impact, oftentimes, and FDA regulated we want to do a really good job at that. So I would tell you that what will drive the EBITDA performance are a couple of things. Overall volume growth and efficiency is there, supply chain excellence, obviously working right along with that. Yet to get costs and efficiencies and operations, what will really help it is business mix. And, and so healthcare growth is really good in terms of driving margin improvements. In any margin you want to talk about, including EBITDA margins, and then the mix, the aftermarket mix, supporting our customers after they buy a printer, with materials and software wherever we can add value to their purchase. That's really beneficial to us. It helps the customers a lot. It’s very beneficial to our financial performance. So we love the model, we're going to be investing heavily in the model. We're going to be on a steady trajectory of improvement. The choppiness will only come from unanticipated effects of COVID or divestitures, which could in the short term impact those parameters because they carry a higher gross margin. One that we should probably draw to a close, we let the time go a little long because we had a longer introduction, but very much appreciate everybody's interest in the company, and our performance. Appreciate the feedback as always, and we're happy to follow up with you after the call. So thanks very much for joining today and for your continued support of the company. We look forward to updating you again in the quarters and years ahead. Thanks, everybody.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.