Hello, and welcome to the 3D Systems First Half 2024 Conference Call and Webcast. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Mick McCloskey, Vice President, Investor Relations. Please go ahead, Mick.

Hello, and welcome to 3D Systems' first half 2024 conference call. With me on today's call are Dr. Jeffrey Graves, President and CEO, and Jeff Creech, EVP and CFO. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on 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 this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, you'll 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 periods of 2023. With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.

Thanks, Mick, and good evening, everyone. With our 2023 10-K filing and our 2024 earnings releases for Q1 and Q2 now complete, we're hosting today's call to discuss our results for the first half and our outlook for the rest of the year. Following my opening comments, I'll turn the call over to our CFO, Jeff Creech, to take a deeper dive into the first half financials. We'll then wrap up our prepared remarks and open the call for questions. As a backdrop to our discussion today, I'll comment briefly on our delayed 2023 annual report filing. On December 4th of last year, we announced that following a comprehensive months-long proposal and evaluation process, that our audit committee had ultimately decided to dismiss the company's independent auditor following the 2023 year-end audit and moved to a Big 4 audit firm beginning in 2024. This decision was made based upon many factors, including an assessment of each firm's capabilities in the context of our growing size and complexity as a company. Having informed all parties of our decision last December, the 2023 audit ultimately took much longer than anticipated and with significantly higher costs incurred. These costs, which we view as transitory, had a significant impact on our OpEx costs in the first half trailing into Q3. However, they're expected to return to historically normal levels in Q4. Moving forward, we do anticipate realizing greater efficiencies in the years ahead. When we last spoke in February, we mentioned the weakness we were seeing in our end markets with respect to customer CapEx spending. We believe then and now that this was driven largely by a high level of uncertainty on the part of our customers in forecasting consumer demand in the face of high inflation and rising interest rates, combined with a tense geopolitical environment in Europe, Asia, and the Middle East. These uncertainties translate into softer sales of printer hardware across virtually all of our major end markets, with sales reaching a near nadir for our company in the first quarter. While indices that track consumer sentiment remain relatively weak in August with inflation rates now trending downward and interest rates poised to follow, our opportunity pipeline has consistently strengthened since it bottomed down in Q1. This translated to meaningful sales growth in the second quarter, with revenues up 10% on a sequential basis. Provided this environment and CapEx spending trends continues, we expect continued sales growth in Q3 and Q4. While we won't fully make up for the weakness of Q1, the trends are clearly moving in our favor. From an industry perspective, given the scale of our company across multiple end markets and the breadth of our polymer and metal technology offerings, I believe we have a unique perspective on the trends in the adoption of production scale additive manufacturing. These trends can best be seen through the backlog of new application development requests we're receiving from our customers. This backlog has never been higher, driven by both existing customers and new customers who see increasing benefits from the adoption of 3D printing on an industrial scale. I believe this rise in customer interest can be explained very simply. The versatility, quality, and cost of producing components with additive technology, including both metal and engineered polymers, has become economically compelling. This is true for our entire industry and across all markets. What does vary is the way in which adoption occurs. Each market has a unique balance of needs. Markets that derive the greatest benefit from an ability to produce novel component designs, often only available with additive techniques, are the first and fastest to adopt this new manufacturing technology. This is certainly the case for healthcare as we see in both our dental and orthopedic markets, as well as semiconductor equipment manufacturing, aerospace and defense, and our industrial markets just to name a few. But even industries that manufacture billions of parts a day, such as electrical and automotive markets, often have a significant number of SKUs that are lower volume and higher complexity, increasing the value they derive from additive manufacturing. These higher complexity component volumes can, in some cases, rise into the tens or even hundreds of millions in total demand, dwarfing even the largest current production levels for the entire industry combined. In addition, a little recognized but significant trend is to use additive manufacturing to replace key process steps within an existing manufacturing process. For example, a terrific but little recognized market for our company is the application of polymer printing methods to produce cores for metal castings. For decades, cores have been a difficult high-value element of the casting process. With our newest production printers and materials, we're able to produce complex cores for casting at a very attractive cost, on demand to match the casting production rates. If we counted this in the metals technology category, the volumes would dwarf even the largest direct metal printing applications today, even that it serves a multibillion dollar market, highly distributed around the world. This method, first demonstrated by the aircraft engine industry and more recently in large-scale commercial rocketry, has now become a standard element in the factory workflow for these systems. With advancements in technology to reduce costs, it's now being adopted in even higher-volume production applications, such as automobiles and heavy construction equipment. So, with the continued march of the additive adoption, what's been missing in recent quarters is simply the confidence of our customers that they need to have in their end market demand to warrant new CapEx investments in their plants. It's really that simple. As we now enter a period of lower inflation and lower interest rates, and as the world becomes increasingly risky for extended supply chains, we would anticipate a rapid rise in printer demand, and along with it, the strong pull on consumables and services. This is why we've been consistent in our R&D initiatives and customer application support over this difficult period. With our global scale and an exceptional new product pipeline, we're well positioned to benefit from this acceleration when it occurs. While overall printer demand was weak in the first half, consumables were resilient and services strengthened. Particularly in the healthcare space, materials and services grew significantly over the prior year. This helped offset weakness in printer hardware sales to some extent. Specific to the dental market, with the completion of our new long-term supply agreement in the clear aligner market, we expect year-over-year comparisons will turn positive beginning in Q3. Another bright spot in the first half of the year was our growth in services, which was up 6% year-over-year for the first half. Services are critical to our customers in two capacities. One is taking care of our installed base of production printers, which is the largest in the world today. But a key second services element is the development of new component applications with our customers. This not only provides immediate revenue, but also supports a growing pipeline of printer and consumable sales for the future. Finally, it's worth mentioning our continued success in the medical device area, which is primarily focused on orthopedic applications. For many years, we've been a leader in supporting surgeons and their planning and execution of craniomaxillofacial procedures. Over the years, we supported thousands of surgeries by participating not only in the planning of restorative and reconstructive procedures, but also providing surgical guides and critical implants that are used to help sustain and restore our patients' quality of life. Over the last few years, as our technology has evolved, we've extended this expertise to not only other parts of the human skeleton but also into trauma environments, a new element of the market where both quality and response time are extremely important to patient outcomes. These are the areas we commonly refer to as personalized healthcare, as the solution we provide is custom tailored to a patient's specific needs. First half revenues for personalized healthcare were up over 12% from the prior year and over 54% from the first half of 2021. This marks the tenth consecutive quarter of annual growth for this business. With multibillion dollar markets opening up before us in orthopedics, we're extremely excited about the future. Given all these factors from a timing standpoint, we would expect full company revenues to grow at mid-single-digit rates on a consecutive quarter basis in Q3 and once again in Q4, bringing our revenue to roughly $450 million to $460 million for the full year 2024. Gross margins for the first two quarters continued their trends of improvement even in the face of volume weakness. This is primarily attributable to an improving mix of consumables and services and benefits of our manufacturing and sourcing. Looking ahead, we continue to see continued room for gross margin expansion as printer volumes begin to recover and we do expect margins to strengthen from the low 40% range. Moving to our OpEx expenses. In the first half, as I mentioned earlier, our G&A was significantly impacted by the extended close of our 2023 audit. Setting this aside, we executed well on our restructuring efforts that were announced in Q4 of last year. As a part of this effort, we closed and consolidated over 15 sites around the world and reduced our non-finance-related workforce cost significantly while maintaining our most critical investments in R&D and sales. These savings will become apparent when the cost associated with the 2023 close abate in Q4. We expect to deliver operating expense under $60 million for that quarter. With the transient cost and G&A receding in the second half, we would now expect to approach adjusted EBITDA breakeven levels for Q4. And finally, over the last several months, we've taken decisive action to derisk our balance sheet. We've reduced our long-term debt by over 50%, opportunistically buying back our convertible notes at a substantial discount. We continue to have one of the strongest cash reserves in our industry, enabling us to face uncertain economic times with the confidence of continuity in our most critical investment areas. This strength, coupled with the widest range of additive solutions across the industry and our global sales and service infrastructure, inspires confidence in our customers that we'll be there to support their long-term growth needs. From this position, we are now intensely focused on enhancing profitability without any compromise to mission-critical growth R&D and services investments in order to maximize shareholder value. Let's now shift to some of our key announcements from the first half that are important drivers to continuing our positive momentum in the quarters ahead. Within our healthcare markets, 3D Systems leverages a culture of innovation that was born when our Chief Technology Officer, Chuck Hull, invented 3D printing and founded the company over four decades ago. This pioneering work, which was recognized last year by President Biden when he presented Mr. Hull the National Medal of Innovation and Technology, would later span the entire additive manufacturing industry. From these roots, our healthcare business has emerged with two strong cornerstones today, dental and medical devices. For the dental side of our healthcare business, 2024 has already been an exciting year. In June, we unveiled a significant expansion of our market-leading technology portfolio, which will now target all four major facets of dentistry, including alignment, protection, repair, and replacement of teeth. In conjunction with this strategy update, we were proud to announce the award of the largest contract in our company's history with an estimated value approaching $0.25 billion. This five-year agreement positions us as a key supplier for the indirect manufacturing of clear aligners for years to come. Building upon this 20-year heritage in the aligner market, for the last several years, we've been pursuing the next wave of innovation in orthodontics, which is the direct printing of clear aligners. We believe this technology will expand the market for clear polymeric aligners, allowing full customization of the product to enhance effectiveness and positioning of teeth while opening new options for the delivery of the products to the patient. We've made significant progress in this area and are targeting commercial introduction in late 2025. From a teeth protection standpoint, we're in the final stages of developing an advanced direct printed night guard solution to be launched through our expanding partnership with Glidewell, a recognized global leader in the supply of advanced dental technologies. For teeth repair, we're building upon the outstanding materials portfolio of our NextDent products, which are increasingly being adopted by customers utilizing a broadening range of printing techniques. And lastly, we're extremely excited about our first-to-market solution for single teeth, multi-material jetted dentures, for which we anticipate regulatory clearance later this year. Our denture technology, which will be the first introduced to the market with our launch partner, Glidewell, offers a unique combination of great aesthetics with outstanding performance, including the critical characteristic of durability, which we believe sets a new standard for the dental industry. This comprehensive approach to the dental market, which builds upon the technologies we pioneered over the last 20 years, positions the company for significant growth and value creation in a global dental 3D printing market estimated at over $15 billion by 2032. On the medical device side of our healthcare business, our primary focus is orthopedic applications as I described previously. Our ability to offer the full orthopedic treatment workflow to surgeons in the US and Europe spanning from the digital image to the supply of custom finished hardware for the patient, combined with our quality focus and regulatory expertise, is unique in our industry. It enables us to thrive in the complex healthcare environment of today, offering products and services that support improved patient outcomes while complying fully with the ever-changing regulatory requirements of individual countries around the world. In an exciting development, last April, we announced FDA clearance for the world's first 3D-printed PEEK cranial implants. PEEK, more formally known as polyetheretherketone, is an engineered medical polymer that has performance characteristics very similar in many ways to human bone, while being transparent to X-rays and having excellent biocompatibility. These characteristics make it ideal for craniomaxillofacial reconstruction applications, a market that's anticipated to exceed $2 billion by the end of 2030. While PEEK itself has been in the market for some time, the ability to 3D-print custom PEEK implants using our self-contained cleanroom environment EXT 220 printing technology is unique. By directly printing custom 3D PEEK implants, lead times for the product are reduced, and there is a cost savings of up to 85% versus traditional manufacturing methods. Additionally, with a cleanroom-based printer architecture and simplified post-processing operations, it's now even possible to execute this entire workflow within the hospital itself, further reducing response time for the implant and opening the application window to even include trauma situations, where response time is so very important to a patient's recovery. Since our first demonstration of this technology last year, it's been used successfully in multiple cranioplasties throughout Europe. And now with FDA clearance secured earlier this year in the US, we're excited to now bring this exceptional orthopedic technology to the United States. Turning to our industrial solutions, they cater to a wide breadth of markets with tremendous potential to adopt additive manufacturing into their production workflow. Our team of over 80 application-focused engineers are partnering with customers in key industries, such as aerospace, transportation, semiconductor, energy, jewelry, academics, and service bureaus to deliver value-added innovations to the manufacturing floor. Just last month, we were pleased to announce a strategic partnership with Precision Resource to advance metal additive manufacturing initiatives. Precision Resources is a leader in the production of critical components for the automotive, heavy-duty, aerospace, and medical device industries, a perfect match for our broad portfolio catering to both industrial and healthcare applications. With Precision's purchase of two of our metal DMP Flex 350 Dual laser systems, they're receiving best-in-class environmental control and delivering exceptionally high-quality parts with unmatched accuracy. Also in July, the metal DMP Factory 500 and the DMP Flex 350 Dual printing systems, along with our Polymer SLS 380 solution, were purchased by the National Additive Manufacturing & Innovation Company, also referred to as NAMI, in Saudi Arabia. NAMI's mission is to bring additive manufacturing technology to the Saudi Kingdom, localizing the manufacture of critical components for a broad range of industrial markets. As an example, NAMI will use 3D printing systems to produce critical components for the Saudi Electric Company, with the overall objective of building an increasingly resilient supply chain architecture for this critical infrastructure. Not only does this example speak to additive's increased role in the energy sector, which is expected to grow to $17 billion by 2032, it also demonstrates the positive effects of localization and accessibility for additive to continue catalyzing innovation. The announcement also lends credence to our joint venture with the Saudi Arabian Industrial Investments Company and its pivotal role in realizing Saudi Arabia's Vision 2030, which aims in part to bring additive manufacturing production capability to key industries throughout the kingdom.

Jeff, thank you, and good evening, everyone. I'll begin our revenue summary. For the first half revenues of $216 million, we see a decline of 13% from prior year, almost entirely driven by software printer sales with materials largely flat and a partial offset in services growth. However, when unpacking the individual quarters of 2024, revenues grew sequentially from Q1 to Q2 by over 10% and across printers, materials and services, as well as across both healthcare and industrial business. Within healthcare, total first half revenues of $94 million declined 14% from prior year. While healthcare materials and services performed very well in the first half, this was more than offset by a decline in printer sales, as Jeff referred to previously. For our industrial markets, first half revenues of $122 million declined 13% from the prior year, driven by declines in both printers and materials, again with a partial offset from services growth. Within industrial submarkets, we saw strong first half growth in key areas such as semiconductors, aerospace, and defense. However, this was more than offset by weakness broadly throughout most other major end markets. Now turning to gross profit. Non-GAAP gross margin for the first quarter was 40.1%, improving 110 basis points from the prior year. Second quarter non-GAAP gross margin of 40.9% improved 200 basis points from the prior year. Collectively, for the first half, this resulted in margins of 40.5%, a nearly 160 basis point improvement from the first half of last year. Margin performance was primarily driven by favorable mix in materials and services and benefits from our in-sourcing activities, but was partially offset by unfavorable absorption given our lower sales volumes. I would also add that gross margin includes the negative impact associated with an increase in inventory obsolescence reserves taken in first quarter of this year, representing approximately $2.8 million. On Slide 11, you'll find an overview of our operating expense. Non-GAAP operating expense for the first quarter was $66.3 million, increasing $3.6 million from the prior year. For the second quarter, this was $64.2 million, a $2.1 million increase from the prior year. Relative to our initial expectations, external audit fees and outside services related to the 2023 audit were approximately $5 million and $2 million higher, respectively, than originally planned in Q1 and Q2. As previously mentioned, while its impact is declining, we also expect the extended audit to create a headwind to operating expenses in the third quarter, albeit to a much smaller extent. And as Jeff mentioned earlier, we expect fourth quarter OpEx to more meaningfully represent the impacts of our previously announced restructuring initiatives and we're targeting to deliver OpEx below $60 million for Q4. Now, I'll speak to the P&L. We reported adjusted EBITDA of negative $20.1 million for the first quarter and negative $12.9 million for the second quarter, declines of $10 million and $6 million, respectively, from the same periods of 2023. Declines in adjusted EBITDA primarily reflect lower sales volume and the increases in operating expenses just discussed. In line with my commentary on expected OpEx savings and sequential revenue improvement throughout the year, we are expecting a significant improvement in adjusted EBITDA in the second half of the year as it compares to the first, with the expectation for continued sequential improvement moving forward. Factoring in these cost improvements, we should approach breakeven on an adjusted EBITDA basis. For the first quarter, we reported a fully diluted loss per share of $0.12 compared to a loss per share of $0.23 in the prior year. Non-GAAP loss per share was $0.17 compared to a loss per share of $0.09 in the prior year. For the second quarter, we reported a fully diluted loss per share of $0.21 compared to a loss per share of $0.22 in the prior year. Non-GAAP loss per share was $0.14 compared to a loss per share of $0.07 in the prior year. Now to Slide 13 for our balance sheet. We closed the quarter with $193 million in cash and cash equivalents compared to $332 million at the end of last year. The decline included a roughly $87 million payment for the repurchase of $110 million of our 2026 convertible notes. In the aggregate, on March 24 and December 2023 note repurchases reduced our debt by over 50%, delivering attractive yields while further derisking our balance sheet. Those transactions position us to support critical R&D investments for new product releases that we believe are essential as the market begins to strengthen in the months ahead. Looking forward, we continue to see inventory as a strategic source of cash and expect to drive positive working capital performance over the second half.

Thanks very much, Jeff. So, I'll conclude with our remarks. While the broader economic climate remains challenging, our businesses started to sequentially recover, and we're encouraged by the view ahead. Sales pipelines are increasingly robust and the growth in services from our applications lays a healthy groundwork for expected new customer growth ahead. We continue to launch new product innovations such as our EXT 800 Titan Pellet Printer in June, with more staged for release in the near future to meet a rising demand. From a cost standpoint, we have a clear path for operating cost reduction going forward and options for significant organizational optimization in the future. Within our software portfolio, we are now concentrating our Oqton platform exclusively on the industrial markets that place a high value on quality and assurance of supply, many of which have a regulatory element as well. We have key commercialization efforts in place such as last year's announced development agreement with Baker Hughes, which is designed to accelerate innovation in the energy sector with the Oqton industrial MOS system. In our regenerative medicine initiative, we remain tremendously excited about our partnership with United Therapeutics, and specifically our lung development program. This program not only is opening an entirely new market, but is also spawning incredible technology innovations that will impact our company and the world for years to follow. From a 2024 perspective, considering the weak start to the year, there was evidence of strengthening in the second half. We are updating our full year 2024 revenue projections in the range of $450 million to $460 million. With this revenue outlook, we anticipate non-GAAP gross margins of 40% to 42%. Given the effect of our restructuring efforts and declining G&A costs related to the 2023 audit, we now expect full year OpEx to be in the range of $248 million to $253 million, and adjusted EBITDA improving such that Q4 approaches breakeven performance. We thank you for joining the call today, and we'll now open the line up for questions.

Certainly. We'll now be conducting a question-and-answer session. Our first question today is coming from Troy Jensen from Cantor Fitzgerald. Your line is now live.

Hey, gentlemen. Thanks for the time. I'm excited to talk to you. It's been a while.

Thanks, Troy.

I just want to say the results were decent given what we kind of knew. So, congrats on what you could do. But quickly, there’s challenge a little bit on dental, I guess. I've heard more questions about the direct printing of aligners and it has more to do with the cost of materials, so how does the total cost reflect versus vacuum casting? But thoughts on that. And just kind of rank order in dental, is it dentures, night guards, or are these direct printing of aligners that you're most excited about?

Thank you for your questions, Troy. I'll address them in the order you provided. The direct printing method has faced some challenges, which is why its development has taken a couple of years. I believe it will find a niche in the market by enabling more effective movement of teeth, which could expand the market for clear aligners. By collaborating with a leader in the clear aligner field, we've managed to reduce costs consistently over the years, creating a significant barrier for the direct printing method. However, we are discovering that direct printed aligners can address more complex cases and create additional market channels. With smaller printers, we could strategically place them in major cities or even in dental offices, allowing for faster delivery to patients. I think the technology holds promise for moving teeth effectively and introduces a different cost structure. We are excited about this technology and anticipate commercialization by late 2025. While it will be challenging to replace the indirect method, I believe it will establish a place in the market. I wouldn't expect it to become our top revenue-generating product in dentistry, but it certainly has its value. As for the denture products, we are really enthusiastic about them. They are produced using a fast jetting method, the aesthetics are impressive, and the material durability we can achieve is exceptional. So, if you put yourself in a patient’s shoes, you can treat these dentures exactly like you treat traditional dentures. You can drop them or fling them across the room, and they hold together and are beautiful. They're actually quite attractive. I believe they're going to be very cost-effective. If you look in, there's roughly 4 million dentures sold a year in the United States, if I remember the number right. So, there is a big market. 3D printing is a great way to go because it eliminates a lot of difficult manual labor that today is largely sent overseas for execution. You've got long lead times and a big labor component. 3D printing is an excellent way to make teeth. So, I'm truly excited. We're working with Glidewell, who is a fantastic technology leader. They do a great job and have a big distribution network. So, we're excited to have them as a partner, and we'll open up the rest of the market over time. I'm really optimistic.

Could you provide more details on the pipeline? I've mentioned before that during downturns, the pipeline often appears strong. You're managing some existing projects and bringing in new ones, which means the pipeline is expanding. However, what has changed in the pipeline? Is it primarily driven by defense needs? Any insights on recent developments would be appreciated.

Certainly, Troy. You've been observing our industry for quite a while. We're working on improving how we quantify our pipeline, but qualitatively, it has never been larger. It's been growing in recent years due to the increasing value of the parts we can produce using more specialized materials. Recently, we delivered a part for a naval application that performs well in saltwater, utilizing a unique yet accepted material for the US Navy. The key advantage of this component is that it allows for a quicker return to the ocean, compared to traditional casting methods, which would have resulted in a production lead time of over 400 days. We managed to deliver it in just four days. This illustrates our capabilities. I believe our pipeline for defense applications is very robust, and we're really enthusiastic about it. There's also considerable exploratory work in the semiconductor industry related to metals for semiconductor fabrication. The manufacturers of this high-cost, complex equipment realize significant benefits from 3D printing, particularly in product design and cost efficiency. Typically, these components are assembled, but now we can create smaller components that can be combined into assemblies. We are excited about the opportunities in defense and semiconductor sectors, and we also see many polymer applications within our material portfolio. We have flame-retardant materials that are UL certified and ready for market, opening up exciting opportunities in electronics for industries that require flame-retardants, such as industrial markets, defense, and specialized sectors like semiconductors. We're increasingly addressing industries with numerous SKUs, many of which have long tail components totaling in the hundreds. These can be produced more cost-effectively using 3D printing once we refine the process and material. We're engaged in numerous conversations with electronics and automotive sectors regarding specialty components, particularly for hotter environments. Additionally, aerospace and semiconductor industries present significant opportunities in metal applications. We're eager to prioritize our work; our team of 80 applications engineers is actively engaged every day, as companies recognize the economic advantages of 3D printing. While they aren't purchasing many machines yet, once the capital expenditure environment improves, I believe these companies will be ready to invest in printers and materials. It's a leading indicator, and I am very excited about the potential.

Okay, awesome. Guys, I wish you the best. Good luck.

Thanks, Troy.

Thank you. Next question is coming from Greg Palm from Craig-Hallum. Your line is now live.

Thanks. This is Danny Eggerichs on for Greg today. Appreciate the comments on the pipeline and just being that the pipeline has strengthened and it sounds like momentum kind of built in Q2 and is expected to for the second half as well. Just kind of curious if you feel like visibility has improved as well or just for pipeline conversion or just being cognizant of overall macro, do you feel like maybe it's still kind of too early and you're glad that interest is coming back, but it's still kind of a wait-and-see game?

Yeah, Danny, first of all, it's good to hear your voice as well. Thanks for the question. It's probably more of the latter, Danny. I mean, I'm really encouraged that customers are bringing it out and modeling the economics, looking at the part quality of the parts, all of that. The proof in the pudding will be then placing orders for equipment which requires them to up their CapEx budget. I wouldn't get exuberant about it. I mean, we're projecting, as we said, continued growth from Q2 to Q3 to Q4, and we put that kind of at the mid-single-digit levels, which we're happy to see the trend. Maybe we'll do better than that, but it largely depends on the outlook our customers have for end demand. Hopefully, the world will see continued inflation coming down. I've been encouraged by the Fed's comments about lower interest rates. I think that will be a strong push for more demand for our customers and more CapEx spending in their plants. When that happens, you should see a direct flow through to our business. So that's what we're waiting on. You see the same public metrics that I do. So, you kind of get to hold your breath. And then, we're coming into an election and we're in a volatile world. All those caveats, but I'm encouraged with the trend. It is a big pickup in interest from Q1 to Q2, but very pleased with that. We'll see where Q3 and Q4 go, but right now, it looks positive.

Okay, understood. Then maybe on dental and maybe more specifically this large aligner contract, the simple math implies kind of like a $50 million average annual value. Is that the right way to think about it, or is there a way to think about maybe the cadence of that throughout its lifetime? And just being that average annual value is quite a bit lower than maybe that business has historically done, is it safe to say all the things you're doing elsewhere in dental are kind of aimed at filling that hole?

I might express that a bit differently, but yes, we're excited about the dental industry's shift towards 3D printing overall. That’s why we implemented our strategy to engage in all four fundamental aspects of the market. Predicting the year-to-year fluctuations in that contract is quite challenging, but the overall value of the contract represents our best estimate of what it will be. If you knew nothing, you could draw a line through the points and say that’s where it's going. I guarantee you that won't be right; it will fluctuate from that. You can listen to the public players that talk about end demand and you can get a sense for how that demand flows through to us. It's hard to be precise in modeling; we haven't attempted that. We've just set a cumulative value over the five years, and we have no real further insight than that. I think it's a safe bet; it'll be in that total range, but the timing will depend on end demand. That's driven in part, Danny, by the inflation pressures consumers are feeling. They don't tend to buy as many aligners when food is expensive, and gas is up. Hopefully, that's all coming down and you see that rise. The other markets for dental, you can view it as filling the gap, but in their own right, they're very exciting. I mean dentures have been made largely by hand to-date, so you'll see a complete conversion to 3D printing in the over the next several years. And it's a big market, not only in the US, but in Europe and even parts of Asia. So, we're thrilled to be in it. We're committed to it. It looks great. Night guard, we are still gauging the size of that market. The performance requirements are a little less than having to straighten teeth, but there are some interesting works going on to improve the intelligence if you will, of aligners or night guards to help with sleep apnea and other issues. I don't know where that will take the market, but certainly, it lends itself to 3D printing. And then finally, you have tooth repair, the standard tooth repair that we’ve been in that business for a long time.

Okay, great. Excited to see all that take hold. I will leave it there. Thanks.

Thanks so much, Danny.

Thank you. Our next question is coming from Jim Ricchiuti from Needham & Company. Your line is now live.

Hi, thanks. Good afternoon.

Hey, Jim.

Sequential growth, you're anticipating Q3 and Q4. Talk to us a little bit about how you might see that playing out in both healthcare and industrial? Are you anticipating growth in both those sectors sequentially in the second half?

Yes, we are, Jim. We should see growth in both of them. The sustainability of growth in healthcare looks very high, and so I'm very pleased about that. Again, there was a drop off in printer sales in healthcare, where we're selling printers to like contract manufacturers that are making implants, things like that, that was soft, again driven by CapEx. But the rest of healthcare was, if you will, very healthy. We saw growth there and expect that to continue. We expect to see some rebound on the industrial side, primarily from recovery of printers with CapEx spending boosting up over the rest of the year.

Okay. And that ties into the next question, Jeff, just in terms of how we're thinking about Q3 and Q4. Is it going to be driven more by sequential growth? How much of a recovery are you anticipating in systems, or is this materials and services that's driving some of this improvement?

Yeah, I would expect both, but the biggest recovery, Jim, are probably in printers. Again, that's really what's held us back. That's what bottomed out in Q1. And Q1 was a tough quarter, and Q2 was up 10%. Most of that was driven by improving printer sales, and I would expect the rest of the year will be that too. But the installed capacity, it's being worked pretty hard. So, material pull-through in services should be good. And remember, part of services are our application engineers that are doing new product development with customers as a part of our sales process. So, those 80 engineers are very busy. We include that in the services number, and I would expect it to continue to grow.

Got it. Thanks a lot.

Thanks, Jim.

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

Hey, thanks for taking my questions. This is Tyler on for Brian. I was just wondering if you could give some direction on how dental sales performed in the first and second quarter? And then, I'll have a follow-up.

Overall, dental sales, particularly materials for dental sales, strengthened throughout the quarter. We saw an increase in materials utilization, and the aligner market, which is significant for us, showed growth as well. The rest of the market reflected similar trends, especially in printer demand. Q1 was weak, but Q2 showed improvement in line with the broader market, and we expect this trend to continue. Materials pull-through should remain strong for the rest of the year and is expected to grow. With increasing printer sales, we anticipate these factors will drive the performance of dental for the remainder of the year.

Okay. Thanks, Jeff. And just kind of wanted to touch on the night guard situation a little more. I think you mentioned that this will be a direct print. Was it made by hand before or was it kind of made with a mold that you could 3D print as well? Just kind of like the opportunity there. I know you said you guys are observing what the op may be, and I've also heard about it a lot too. It just assists with sleep apnea, et cetera. So, it's a pretty interesting device to get into. So just any more details you have there?

Yes, Tyler, there are two main benefits to 3D printing them. Currently, they are produced through a formal process over a mold. Since you’re not trying to move teeth at night but simply protect them, the costs for standard mouth guards can be quite low. 3D printing enables you to create more complex aligners if you want to address issues like straightening or sleep apnea, providing greater design flexibility. Additionally, it allows for the use of dual materials. This means you can have a hard surface for the part of the guard that contacts the teeth and a soft surface around the gums for comfort. The capability of 3D printing to create dual materials is a significant advantage. For consumers who are looking for a better night's sleep and prefer not to wear traditional night guards, this represents an intriguing expansion of the market. This is actually our newest segment in the dental industry. We're still exploring the market potential with Glidewell, but we have an enthusiastic partner, and we will see how quickly we can progress.

Yeah, just kind of following up really quick on that. Does that kind of fall into like the discretionary bucket just like aligners would, or is this more of a need for patients?

Tyler, it's amusing to think that 20 years ago, aligners weren't seen as essential, yet now people prioritize having straight teeth highly. They have certainly risen in importance. Night guards are quite similar; many people grind their teeth at night, and I suggest you ask your dentist about how many night guards they are selling. A significant portion of people are now purchasing them. Overall, the use of night guards is greater than that of dentures, largely because people are living longer, which leads to more wear on their teeth at night due to grinding, alongside the use of aligners.

Great. I appreciate answering my questions. I'll pass it along.

Okay. Thanks, Tyler. Take care.

Thank you. Next question is coming from Ananda Baruah from Loop Capital Markets. Your line is now live.

Yeah, guys. Welcome back. Good to see you back online with you guys again.

Yeah, good to hear your voice, Ananda. Thank you.

I apologize if you've already covered this. I joined when the Q&A started because there are a few other calls happening tonight. But Jeff, did you mention where in the portfolio you're observing improvements in the pipeline?

Ananda, the market that really needs 3D printing includes military and defense as well as aerospace, which are both strong sectors for us. In specialty markets like semiconductor equipment, we've been working diligently for years and are finally seeing positive results. There is significant interest in metal parts for the semiconductor equipment industry, especially with the CHIPS Act driving manufacturing initiatives. We're eager about this opportunity because we can help them save money by reducing the number of assemblies into fewer parts, while also providing higher-performing components in critical systems. Manufacturing semiconductor equipment can be extremely challenging, and 3D printing offers superior solutions compared to other methods. Consequently, we are experiencing a considerable demand in these areas, particularly for equipment. On the medical side, orthopedics is really doing well. Our personalized self-service is doing very well. We're bringing the cost down with very good reliability and quality in a regulated situation for patients. People are going through bone repairs for either cancer treatments or damage to bones, and it's becoming very economically viable to make those implants with 3D printing now. So, we've been in that market for a long time with modeling first years ago, the surgical aids for surgery, and now the implants; all of those are growing nicely for us. So very pleased with that. And then, dental has been off to a slow start at the beginning of the year, but it's increasingly interesting to people. We're doing a lot of trials with new materials things like that. So, we're broad-based both industrial and healthcare.

Okay, cool. That's super helpful. I appreciate the context. And a quick follow-up. Do you by any chance have any sense for the apples-to-apples installed base, or maybe the apples-to-apples incremental kind of revenue dollar looks like relative to 2020 when the revenue bottomed out? I'm just trying to get a sense of where it is today relative to that if there is any useful context you guys have?

Sure. No, Ananda, I apologize. I don't have any numbers at hand, but it's a great question. I'm sure the installed base has grown. I know for us, it's grown meaningfully. I would expect that's true for the whole industry. So, that's a good point. We'll see if we can come back with some numbers for you. I don't have them sitting here today, but I'm sure it is up, and obviously, I'm optimistic for the future, and it will continue to rise.

All right. That's helpful. Thanks, Jeff. Good to connect with you.

All right, Ananda. Yeah, good to hear your voice, buddy. Take care.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thanks, Kevin. And listen, thanks to everybody on the call and web cast. I appreciate your time and interest. We look forward to updating you on schedule after our third quarter earnings release, and we'll give you a feel for both the market and our performance. Thanks so much. Take care.

Thank you. That does conclude today's webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.