Greetings. Welcome to 3D Systems' First Quarter 2025 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the following presentation. Please note this conference is being recorded. I will now turn the conference over to your host Mick McCloskey, VP, Treasurer, Investor Relations. Thank you. You may begin.

Hello and welcome to 3D Systems' First Quarter 2025 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 on 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 will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable periods of 2024. With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.

Thank you, Mick, and good morning, everyone. As usual, I'll provide some opening comments on our current operating environment, our key initiatives and priorities, and then end with a few highlights of areas I think are important to investors for the future. I'll then hand off to our CFO, Jeff Creech, to provide details on the quarter's financial results. And we'll then open up the call for Q&A. So with that, let's move to Slide 5. Let me start by putting the current market dynamics in perspective. Our 3D printing industry broadly is pioneering a new compelling method of manufacturing products that will take its place over time alongside traditional methods such as injection molding of polymers and casting of metals in factories around the world. This trend is exciting and it's unstoppable. These 3D printing technologies bring unique benefits to customers in terms of performance, cost and dramatically shortened lead times. They also provide an effective means of reducing supply chain disruption risks as the world experienced during COVID or even as we are going through now with the tariff landscape shifting dramatically and often on a daily basis. Just look at the last 36 hours. As such each year, 3D printing is earning its way into factories around the world. So, if this trend is so prevalent, the obvious question is why are sales weak? Well, the simple answer is the capital spending by customers across most markets is virtually frozen due in large part to the uncertainty around tariffs. Speaking specifically for our customer base, with the exception of personalized healthcare, defense and AI infrastructure to some extent, virtually all others are waiting to see what the future demand looks like and where they will need new capacity to meet this demand cost-effectively. It's that simple. And until the situation becomes clear, I believe CapEx investments will remain somewhat anemic. So that means our sales will be impacted for some unknown period of time and consequently that we'll need to prioritize cost reduction efforts as long as this environment persists. To be very transparent, at 3D Systems, we've resisted this pressure to some extent in order to complete our three-year journey to refresh our entire polymer and metal product lines and bring what I believe are industry-leading printing solutions to market. This is a journey we started in 2022 and we've seen it through. Over this period, our R&D investment has been held at just over 20% of revenue, reflecting the breadth of our technology portfolio, whereas our competitors that are similar in size are well below this level and declining. This sustained focus in our development programs combined with the insourcing of our manufacturing operations, which is now virtually complete, is a much different path than others in our industry have taken. And I believe the benefits of it will be clear in the years ahead as the market ultimately rebounds. Our technology refresh has been dramatic in scope and that it has spanned all five of our major polymer printing platforms and very importantly, our metal printing platform, which was at a critical crossroads just a few years ago. While many companies would have and many did, bail out on metal printing at that point, given the competitive landscape and the growing threat from the Chinese, 3D Systems did not. And because we didn't, I can proudly say that our generation two metal printing systems, which are just now entering the commercialization phase, offer an outstanding combination of performance, reliability and cost that rivals any platform on the market today. Our focus for these metal systems is on markets that are most demanding, such as aerospace and defense and oil and gas, in addition to applications throughout the human body. Through these efforts, we positioned ourselves to not only sell great printing systems, but to provide the industry's best application support, as well as the capability to produce limited quantities of parts for customers until they install their own printers or move to a contract manufacturer. It is this combination of capabilities spanning process development to full production that is unique to our company. We provide these capabilities for mature facilities in the United States, in Europe and now via our joint venture in Saudi Arabia, which you'll hear much more about in the future. It's a business model that we've successfully executed for years in our healthcare business in areas such as titanium spinal implants and we're now expanding into specific high reliability industrial markets. So while it's always great to discuss our market-leading photopolymer printing systems because they're truly fantastic, I believe it's absolutely essential for a company in our industry to offer both polymer and metal printing solutions. This is needed in order to ultimately obtain the scale that's required to service key customers around the world as their production demands grow. Those companies that do not have this capability will ultimately need to develop it or acquire it in order to be successful. This is why I would not trade our position in this industry for any others today, even in the face of a challenging end market. So with these investments behind us and our insourcing near complete, it's time to focus on cost in this period of economic turbulence. Last quarter, we announced a new initiative to reduce our annualized costs by over $50 million over a six-quarter period. This involved primarily a consolidation of our operating footprint and a streamlining of our back office operations. With ongoing sales pressures, however, we will now take the added step of aligning our overall organizational structure with the demand profile we experienced in the first quarter. While we certainly hope that this market condition is short-lived, with the tariff situation yet unresolved, it's prudent to assume that it will continue and to adjust our costs accordingly. These incremental cost actions, which will be completed over the next two months will yield roughly $20 million of cost savings in the current year. Again, this is incremental to the $50 million of savings that is on track for completion by mid-2026, thus providing at least $70 million of cost savings in total. From a timing standpoint, our priority is to get to a positive EBITDA situation as quickly as possible and then moving to positive operating and free cash flow performance. We believe this is highly attainable at the current sales levels once these programs are completed. With that introduction, let me move to a brief update on our key growth initiatives. One of the most exciting markets now opening before us is dentistry and I've spoken to you about this on several calls. When we last spoke, we identified $1 billion of total addressable market opportunity in the United States alone with Europe and Asia more than doubling this number. We divide this market into four parts: straightened, protect, repair, and replace. The dental repair market which we've not spoken a great deal about has been foundational to us for many years and one in which we have a leading brand in NextDent materials. These materials are FDA and CE approved for sale in all major markets and they had a record sales performance in the fourth quarter of last year. While the first quarter was slightly softer, the trend is upward and we expect it will continue, particularly as patient tooth repairs are typically not optional. In addition to our NextDent materials for the repair of teeth, a significant contributor today to our dental business relates to the straightened market, namely aligners, an application that's been central to our success for decades. And with last year's announced signing of the largest contract in our company's 40-year history, it will remain foundational to our dental business going forward. However, of note, due to the very concentrated nature of this customer base, we can expect more pronounced volatility in the straightened segment as the key manufacturer of these products periodically adjust their inventory levels and migrates over time to just-in-time material sourcing strategies to reduce overall inventory exposure. This will lead to some degree of quarter-to-quarter volatility and demand as it did in Q1. But overall, this business remains on a solid growth curve as people around the world increase their use of aligners for teeth straightening. And finally, as I've described before, an important and exciting milestone is rapidly approaching for our dental business and that's the launch of our new NextDent 300 jetting system, designed specifically for the printing of monolithic dentures. Having gained FDA approval for the dentures several months ago, the launch of the full printing platform is on schedule for full release this summer. It's already in beta testing and customer feedback is very positive. This will give us full capability to address the US Dental market, which is estimated to be over $400 million at several times the size of the aligner market. European certification is expected to follow next year, which will significantly add to this market size. Now let's turn to some additional growth drivers in areas of strategic focus for the future. Our growth in hardware systems and service revenues in this challenging economic climate provides important early feedback on our long-term growth strategy. As we've navigated through a challenging sales environment in recent quarters, we've continued to see demand for new customer application development and specialty parts manufacturing to increase. With respect to industrial companies, we view our Application Innovation Group or AIG as a unique enabler that allows us to aggressively address this growing customer need. In the first quarter, the effectiveness of our AIG Group was demonstrated most tangibly through the double-digit revenue growth of our metal printing platforms that they enabled, even in the face of a soft CapEx spending environment. Metal parts that are of greatest interest to our customers are typically highly complex in their design and are commonly comprised of special metal alloys for use in high temperature, corrosive, high-stress environments, which makes them expensive. Our application engineers work with customers through the entire design and workflow optimization process, printing test parts for validation and in some cases manufacturing initial production volumes as a bridge to the ultimate purchase of metal printers, software, and supporting services. This model is proving very effective for us and one that will expand upon in the future. As an example of our technology advancement in metals that underpins this growth is the new DMP 350 triple laser metal printing system, which is now in full production. Over the last two years, we've made significant strides in application capability and machine productivity in the 350, culminating in the system's ability to print the highest quality metal parts having very low oxygen contamination. This capability which was an outgrowth of our titanium printing requirements for human spinal implants is attributable in part to the unique vacuum chamber design of the DMP Flex 350 printers. With this system, argon gas consumption is significantly reduced, which reduces operating costs, while yielding best-in-class oxygen levels less than 25 parts per million, resulting in an exceptionally strong high quality high purity parts. In addition, we recently introduced a removable print module with a larger build volume making the DMP the most compact system in this size category in the industry. The triple laser system with its advanced optics offers high energy input for greater throughput as system costs that provide a compelling return on investment for our customers. Key markets for this system are defense and aerospace, as well as AI infrastructure applications with sales spanning the US, Europe, the Middle East, and Asia. A similar story will soon unfold for our DMP 500 gen two system, which is now in operation within our AIG Group and is expected to enter full commercial production in the near future. With this larger print volume and greatly enhanced laser system, it will open an even greater range of applications in the higher reliability markets around the world. Now turning to Slide 7, our personalized healthcare and medical parts manufacturing business are also key areas of strategic focus for our future. As discussed previously, we are increasing our focus in these critical areas of our portfolio and I'm pleased to share that medical parts manufacturing and personalized healthcare grew revenues 18% and 17% respectively in the quarter in a year-over-year comparison. Led once again by our AIG expertise, we partner closely with leading medical device manufacturers, collaborating with them from concept to commercialization of 3D printed implants and instruments within a variety of surgical specialties. Based on the growing demand we see ahead, we've increased our ability to scale this business, unlocking double-digit momentum for our FDA and CE approved medical implants and surgical aids manufactured in our ISO 13,485 certified factories in the US and Europe. In our personalized healthcare business, we tailor specific patient-specific solutions partnering with manufacturers and healthcare providers to transform surgical outcomes for both patients and surgeons. Our multifaceted offerings include advanced design and planning software, creating custom solutions that help translate virtual surgery into the OR, improving outcomes and the overall patient experience. Our longstanding success in the craniomaxillofacial or CMF space was on display again in April, when we announced our solutions enablement of the world's first facial implant manufactured at point-of-care within the hospital in collaboration with the University Hospital at Basel. We're now expanding our focus to address new areas of the human body and into new geographies. Accelerants to our growth in the nearly 250,000 patients served through our personalized healthcare solutions business. So before I turn things over to Jeff Creech to discuss our financials in more detail, I'd like to conclude my remarks on Slide 8. Given the continuation of economic and geopolitical instabilities and the rapidly shifting tariff landscape, which has so impacted our customer spending patterns, we decided to approach our outlook for the remainder of 2025 with a conservative view. This cautious approach, which we believe is prudent, considers the softer than expected start to the year, given the pause we saw in our customers' CapEx spending since early in the year. While we remain encouraged by the new printer and service sales growth during the first quarter, unbalanced the years off to a rough start and we therefore need to take a more aggressive approach to reduce our cost structure. In order to do this, we'll now execute against two work streams, both focused on profitability improvements as I've described. The first is our previously announced cost actions, which are on track to deliver over $50 million of annualized savings by the first half of next year. This is largely focused on footprint consolidation and back office efficiency improvements. In addition, we've decided to implement an incremental set of actions to deliver an additional $20 million of in-year savings for calendar 2025. This effort will focus on resetting our organizational structure through alignment with the demand environment that we currently face. Our continuity in R&D investment over the last three years combined with our insourcing of manufacturing and supply chain management have given us strong foundation to leverage as we now adjust our cost structure in the face of challenging market dynamics. We believe that these efforts will result in a structure and operating model that will deliver positive EBITDA performance and the cash generation levels that are needed to sustain long-term investment in the future. While I do not like having to pull our 2025 guidance at this point, given the current volatility stemming from the fluid tariff situation, I see no option but to do so. Hopefully, this will resolve itself in the near future. But until it does, we'll be very prudent in our planning and focus on our costs, so that we can be profitable at our current revenue levels when these actions are completed. Finally, on April 1st, we announced the completed sale of our Geomagic asset portfolio. The transaction delivered over $100 million of net proceeds to our balance sheet, leaving us in a strong net cash position as we now address our cost structure. As we move forward, our execution of these restructuring plans combined with our current cash reserves enables greater flexibility, positioning our leading portfolio of assets to transform manufacturing for a better future. And with that, I'll now turn things over to Jeff.

Thank you, Jeff, and good morning, everyone. I'll begin with our revenue summary on Slide 10. For the first quarter, we reported consolidated revenues of $95 million declining 8% from prior year as growth in services and hardware systems was offset by a decline in materials. Within our segments, industrial solutions declined 7% with revenues of $53 million with the shortfall driven by material sales. Somewhat offsetting this was growth in printer sales and a continuation of success in aerospace and defense end markets. Healthcare solutions revenues of $41 million decreased 9% from the previous year as growth in services was offset by a decline in materials and essentially flat printer sales. Materials performance was primarily driven by near-term inventory adjustments in the dental orthodontics market. However, customer commentary suggests more resilient patient demand to continue supporting the business. Additionally, as Jeff mentioned earlier, personalized healthcare and parts manufacturing remain integral pieces of our strategy and were up 17% and 18%, respectively. Now to gross margins on Slide 10. For the first quarter, we reported non-GAAP gross profit margin of 35% compared to 40% in the prior year. This decline in period-over-period margin was primarily driven by lower volumes and unfavorable price and mix. Longer term, we maintain the expectation to drive benefits to our margin profile by way of our announced cost initiatives, focused on footprint consolidation, enhanced factory utilization and inventory management as well as logistics efficiencies. Let's look at Slide 12 for operating expense. Non-GAAP operating expense for the first quarter was $61.6 million, a $5 million improvement from the prior year driven by our cost initiatives. Looking ahead, we expect our cost management programs, inclusive of yesterday's announcement, to continue to drive a meaningful improvement in operating expense going forward. Turning to Slide 13 to finish up the P&L. For the first quarter, adjusted EBITDA of negative $23.9 million declined from the prior year by $4 million primarily driven by lower revenues and gross margin. Although, we continued to maintain an elevated level of R&D investment in the quarter, we were pleased to see an improvement in overall operating expense driven by our cost actions. Non-GAAP loss per share was $0.21 compared to a loss per share of $0.17 in the prior year. Let's take a look at the balance sheet on Slide 14. We closed the quarter with $135 million in cash and cash equivalents compared to $171 million at the end of last year with the sequential decline in cash predominantly driven by operations. However, first quarter performance includes approximately $10 million of payments to support items outside of normal quarterly operations, including examples such as accelerated inventory purchases in anticipation of potential tariff impacts, compliance requirements and expenditures on facilities closures among other things. Immediately following the end of the first quarter, we announced the closed divestiture of the Geomagic software portfolio. Gross proceeds from the sale increased cash by nearly $120 million and we expect to remit approximately $10 million to $15 million in taxes associated with the transaction. Before turning to the next slide, I'd like to call out a few important items. As an interim update, accounting for the Geomagic sale proceeds and our April operation, our most recent month-end global cash balance was approximately $250 million. We are currently in a net cash positive position in comparison to our outstanding unsecured convertible notes, which are due November 2026. We are continuing to proactively analyze a range of scenarios to address this maturity that will come due in approximately 18 months. Given the prudent and opportunistic approach to materially reduce the overall balance of this maturity at a highly attractive discount over the last two years, we look forward to providing updates on our plans as we continue to move forward. For Slide 15 and some closing remarks. As Jeff mentioned earlier, due to the risk of protracted weakness in customer capital investment spending, we are withdrawing our full year guidance for 2025 as we continue to focus on delivering profitability at our current scale. We believe with our strong new product portfolio spanning all metal and polymer platforms that we are well positioned for accelerated growth and profitability when customer spending on CapEx rebounds. We thank you for your time this morning and your continued support of 3D Systems and we'll now open the line for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Troy Jensen with Cantor Fitzgerald. Please proceed with your questions.

Hey. Good morning, gentlemen. Thanks for taking my questions here. Let me start out with you, Dr. Graves. Just to comment on aligner inventory and the movement to just-in-time, can you go into that a little bit more and just kind of let us know what you think kind of the current material inventory levels are in numbers of weeks or something?

Certainly, Troy. It's great to hear from you. The aligner market continues to show growth overall. Companies in this sector are still experiencing growth, although it might have slowed somewhat. As the leading firms have become larger and more experienced, they're paying closer attention to their inventory and working capital due to their maturing business. They now have a more sophisticated infrastructure for managing inventory, allowing for a more controlled approach. With factories located globally, the capital tied up in inventory is substantial, which benefits them significantly. As their supplier, this transition results in increased volatility in forecasts for us. We maintain a strong relationship, communicating with them frequently to meet their supply needs. They are clearly moving towards a more sophisticated way of managing their inventory, aiming to align supply with demand more effectively. In the past, their approach was simply to ensure they had sufficient materials to maintain manufacturing operations. However, with today's more volatile global economy, they are managing their inventory reserves more prudently, which can lead to some fluctuations for us. We had a successful year previously but experienced some softness in the first quarter, including some expected and some unexpected factors. Nonetheless, public commentary indicates their business remains on a growth trajectory, which means our business will also grow over time as one of their key material suppliers. I wouldn't overanalyze the minor fluctuations; they are simply a part of growing and becoming more sophisticated. As a supplier, we must remain agile and anticipate some level of volatility. We're in the early stages of a multi-year contract, so I have confidence about the long-term business outlook. My focus is on executing well. While short-term variances can be challenging to navigate, we will continue to move forward. So, that summarizes our situation in the first quarter. Overall, the aligner business is still strong, and more customers will likely enter the market. Did I address your question, Troy?

Number of weeks of inventory, but that's okay. I'll go on to the next one here. Perfect. Very helpful. All right. So then my follow-up question, with all the cost cuts going on, I've known over the past couple of years you've been in some new markets with via acquisitions and acquired new technology. Does it make sense to like maybe completely exit some of these new technology areas that just are nascent with respect to your revenues right now?

Yes, Troy, it's an excellent question to always ask, especially when sales are off. What can you with greater assurance really focus on? Some of the acquisitions that we did of new technology bringing in and integrating, they're clearly winners. I love our extrusion technology with the Titan platform. We're fully integrating that. The Kumovis acquisition for some of the cranial implants, great technology. We can fully integrate those, get cost out and just keep running. Those are great. Some of the stuff that we've moved into in regenerative medicine, I'll be candid with you. Our lung program with United Therapeutics is fantastic. And if I go back three years ago, it spawned some truly novel technology that we really wanted to explore and see what the potential was of it. So, everything from printing other types of human tissue to looking at the pharmaceutical market and tissue printing for those organ-on-a-chip printing basically for testing of drugs. So those were exploratory efforts, largely R&D efforts to see how far we could carry the technology and to lock up some IP for the future, things like that. When sales are soft, you start looking really hard at those R&D investments and say, should I bring them back or even pause them for a while and let the world kind of stabilize. That's very much the mode we're in right now. So, we're picking our priorities. Again, our organ program is fantastic. The partnership with United Therapeutics, the lung work, there'll be, I think, revolutionary things that come out of that in a couple of years. The spin-offs of that technology are going to slow down undoubtedly. And then, the other benefit is, we can carry some of that technology into our industrial printers. For example, very high precision projection systems have been a real boom for the industrial space and things like electrical connectors and other applications. So, we're exploiting that now, putting some of that technology into our industrial printers, we'll continue doing that. But we're going to focus, Troy, the mantra is focus on the markets that you're absolutely certain are moving in the right direction for 3D Printing. So, for personalized healthcare, winner is core to our being and both the design of surgical procedures, the surgical aids and the parts, that's great. That's fantastic business for us. We'll continue expanding throughout the body there. On the industrial side, I think you'll see us moving from a broad-based supplier for all industries to over time to a more focused supplier to the high reliability markets. So aerospace and defense, oil and gas, AI infrastructure is great for us, that kind of stuff. So those clearly benefit from 3D Printing a lot. And when we've got really good technology synergies with our healthcare business. So you'll see us really focus on certain markets. And I tried to say it in the opening script, our business model is going to migrate over time a little bit. What we're seeing from customers, Troy, is a demand not only to demonstrate that a part can be made, but to actually then make it in some limited quantities. So, we are not going to be a service bureau, but I will tell you our especially in metals, our ability to manufacture limited volumes of parts is going to grow for those high reliability markets on a bespoke basis for certain customers to actually bridge them because these systems all-in-all are fairly expensive, these metal printing systems. So customers have to watch their CapEx spending. So if you can bridge them to a period where they can either decide, okay, I'm going to buy printers or I'm going to outsource to a contract manufacturer, that's really valuable to them. So in our metals business, while you don't get a lot of the consumable pull through, we're updating the model to say, yes, we'll demonstrate the process with your materials, which are often exotic, and we'll do some limited part manufacturing for you in order to bridge you to a higher volume future. And I think that combination is how we continue to drive gross margins up in the metals business versus the consumables, which have always been a big part of the polymer business. So a long-winded answer to your question. So, I hope again somewhere I addressed it.

Yes. Thank you, Jeff, and good luck guys this year.

Thank you. Our next question comes from the line of Greg Palm with Craig Hallum. Please proceed with your questions.

Hey, good morning. Can we just maybe go back to the quarter and spend a couple of minutes? I'm still a little confused because you held your Q4 earnings call on March 27th, so you had just a handful of days left in the quarter. And you guided for flattish revenues at that point, call it $103 million which means you missed by like $9 million. I mean, are you able to break that out? I mean, were you expecting like a $9 million consumable shipment rate at the end of the quarter or what exactly sort of caused the shortfall?

That's a fair question, Greg. There are two main factors related to either purchase orders or shipments. Regarding materials, we anticipated end-of-quarter shipments, especially in the aligner market. While some logistics are out of our control, we prepare and expect these shipments in good faith, but they can shift into the next quarter. We often lack clarity on this until the last day of the quarter, and it's frequently backend loaded. The equipment side has a more complex answer. We're now penetrating real production environments, particularly with metal and large polymer systems where the average selling prices are higher. Many of these deals have finished goods ready, but we’re waiting for the purchase orders to be issued. In Q1, we observed a notable increase in purchase orders being reconsidered, which reflects customers re-evaluating their capital spending. This has caused delays as companies reassess where they want to establish factories and production capacity. For industrial businesses, there's a broad reevaluation on where to allocate resources. We experienced customers telling us that although they had good intentions, they are postponing issuing purchase orders. Often, this results in delays into the next quarter. Some companies decide to hold off entirely as they reassess their capacity needs, including whether to invest domestically or overseas. Certain sectors like aerospace and defense are more predictable, with a trend toward domestic sourcing and vertical supply chains. These experienced little movement at the end of the quarter. However, the closer we get to consumer-driven goods and longer supply chains, the more scrutiny companies are applying to their production capacity. This has been incredibly frustrating for us, and I understand it’s equally frustrating for our investors. It’s disappointing to miss revenue so close to the end of the quarter. This reality is why we are communicating that we expect volatility this year and are focusing on reducing costs to adjust to the current demand environment. I wish we had been more accurate last quarter. While I would like to say it was beyond our control, it reflects the dynamics of our current situation. This uncertainty is also the reason we withdrew our guidance, as I don't want to provide numbers that we might not be able to achieve.

Are you able to quantify what the consumable or material sales were on a year-over-year basis in Q1?

The materials were actually down 23% period over period and we've spoken to that, Jeff did and I did as well in our comments. We did experience a fair amount of material decline in the period over period comparison, which was propped up in the services and printers area. And again this gets back to the comments that Jeff made just a moment ago, right? The predictability of these sales in the markets that are becoming increasingly more unpredictable. So, and again, back to the dental materials area, continued inventory management that caused those numbers to go down.

It's interesting, Greg, and I'll get off this question in a minute. But when you look at the impact of tariffs, it's the bigger impact for us and I think it's this way for a lot of companies is not so much in the purchase components that come out of China or elsewhere. It's in logistics costs, where are you shipping stuff on a transitory basis, where are you warehousing things, stuff like that. So the desire to bring inventories down, it is a little counterintuitive. You would think people would lay in more inventory when there's a risk of tariff ahead. But when you look at the logistics costs and the effect of tariffs when you ship to one warehouse and ship to another geography, it can be really significant. So, when we talk to our customers about, hey, why would you bring your inventories down, certainly, the soft economy can do that. But the unknown risk of tariffs, there's a big ripple effect on logistics costs, which companies are really starting to try to manage. So to minimize that risk, they start bringing inventory levels down. And I think that was a big part of what we saw even in the aligner market. Some of it was just was inventory obviously, it was inventory adjustments. But I think it wasn't all demand-related. A lot of it was interim cost-related as they ship materials around the world. So, I understand that. We go through the same analysis ourselves and it's really maddening.

Yes, understand. In terms of the path to profitability, I guess, when these current cost savings programs are completed, do you have a breakeven rate in mind? I think you mentioned profitability at current revenue levels. So that implies like $95 million. But is that the case, again, when you're sort of fully completed with the $70 million?

Yes. It's a rough estimate, Greg, but our current goal is to achieve profitability at our existing revenue levels. This assumes we complete all our cost reduction efforts and that everything is properly aligned. We're evaluating the situation and aiming to be profitable and generate positive cash flow at our current revenue. Therefore, we need to adjust our cost structure to achieve this. We have invested significantly over the past three years in refreshing our portfolio and bringing manufacturing in-house, which positions us well. So, let's concentrate on this and proceed under the assumption that the current conditions remain stable. If tariffs are resolved and circumstances improve, we will see additional benefits from that. While we are not specifying a particular timeline, I can assure you that the cost measures we are implementing now are intended to enable us to reach our profitability goal based on our current revenue levels.

Yes. Okay. I will leave it there. Thanks.

Thanks, Greg.

Thank you. Our next question comes from the line of Brian Drab with William Blair. Please proceed with your questions.

Hi. Good morning. Thanks for taking my questions. I wanted to just start by asking, what are the options as you view them as you steer down that debt maturity 18 months from now? Obviously, it's going to be a higher rate environment than you like. I'm just wondering what are the options as you view them?

It's great to hear from you, Brian. Currently, our debt interest rate is zero, which has been beneficial since we entered the market at an advantageous time a few years ago. However, this situation will eventually change, and any remaining debt will likely come with a higher interest rate. We are considering all options, and ideally, we would like to have enough cash to pay it off. If the economic climate appears challenging, we may want to preserve cash on our balance sheet, so we are looking into possibilities to extend the debt. Everything is on the table at this point. We needed to complete the Geomagic sale and secure the cash, which we've now accomplished. We're now carefully evaluating how we want our balance sheet to appear, how much debt we want to retain, and considering the interest rates that will apply. We're assessing how much of the debt we can pay off and how much cash we wish to keep. These are the variables we're examining as we move forward, and we will review our options with the Board and make a decision soon.

Okay. Thanks. And then can you just talk a little bit about the areas where you're going to cut costs with and I'm speaking of the incremental plans to cut costs, and how that could or just the concern is that it could affect your growth and then it kind of relates to my first question because you need a I think these are probably the two biggest questions that you're thinking about.

Yes. That's Brian, I'll tell you that's an absolutely great question, because that's the debate you go through. And we have stubbornly held on to our R&D spend particularly for the last three years. We've been spending 20% of sales and that has been very deliberate and our competitors have all cut back, they've all throttled back and I understand why, because current demand is soft. But I really believe, Brian, on the rebound, these new systems will sell very well. And I also believe, as I said very clearly, I think for a company to be successful, you're going to have to have polymers and metals, both. And you're going to have to have a range of polymer solutions because they're all good for different things. So I love our portfolio. Unfortunately, it is expensive from an R&D standpoint to maintain it all and we had a big hill decline three years ago in refreshing the whole thing and we've done it. I mean, it's not all commercialized yet, but it's all past the point of intense spending for development. And you can never stop, but you can throttle back on the rates and just kind of maintain momentum, kind of like riding a bike up a hill. You got to work real hard till you get near the summit. And then you still got to pedal, but it takes less effort. So you can afford to take some cost out at that point. We're to that point. I'd say the same thing with insourcing manufacturing. I think it's a strategic advantage for us to be able to make our own products because of the quality control and the mix that customers want. We directly do that now, predominantly here in South Carolina and it's a great asset for us. So the art of it now is picking what we maintain investments in for growth. And I can tell you very clearly, Brian, healthcare is top of the list. We love that. It's great. It's a fantastic business for us. We'll continue expanding throughout the body there. On the industrial side, I think you'll see us moving from a broad-based supplier for all industries to over time to a more focused supplier to the high reliability markets. So aerospace and defense, oil and gas, AI infrastructure is great for us, that kind of stuff. So those clearly benefit from 3D Printing a lot. And when we've got really good technology synergies with our healthcare business. So you'll see us really focus on certain markets. And I tried to say it in the opening script, our business model is going to migrate over time a little bit. What we're seeing from customers, Troy, is a demand not only to demonstrate that a part can be made, but to actually then make it in some limited quantities. So, we are not going to be a service bureau. But I will tell you our especially in metals, our ability to manufacture limited volumes of parts is going to grow for those high reliability markets on a bespoke basis for certain customers to actually bridge them because these systems all-in-all are fairly expensive, these metal printing systems. So customers have to watch their CapEx spending. So if you can bridge them to a period where they can either decide, okay, I'm going to buy printers or I'm going to outsource to a contract manufacturer, that's really valuable to them. So in our metals business, while you don't get a lot of the consumable pull through, we're updating the model to say, yes, we'll demonstrate the process with your materials, which are often exotic, and we'll do some limited part manufacturing for you in order to bridge you to a higher volume future. And I think that combination is how we continue to drive gross margins up in the metals business versus the consumables, which have always been a big part of the polymer business. So a long-winded answer to your question. So, I hope again somewhere I addressed it.

Thank you.

Thank you. Our next question has come from the line of Alek Valero with Loop Capital Markets. Please proceed with your questions.

Hey, guys. Thank you for taking my question. This is Alek on for Ananda. So you mentioned AI infrastructure. Can you elaborate what areas you are currently involved in? And can you provide any color on any potential future AI infrastructure areas where you think you can play a meaningful role?

Yes. So there's two areas you can think of for AI infrastructure, well, actually three. One of them is in making chips, okay. So the semiconductor equipment manufacturers, so the folks that make the equipment to print the chips, they're involved in that very expensive machinery and for a very good reason. The precision in making a chip, it has to be extremely high and the machine has to be extremely stable. And so, one of the attributes of it is getting heat out of it and to make sure it's thermally stable, okay, extremely and obviously structurally stable. So we can make basically collections of components that are normally bolted or welded together. We can make them in single printings. We can also make hollow structures that allow heat to be removed very quickly from the platform where the chip is printed on. So, in the end, we can make very stable platforms to print chips on, and with fewer part counts, so you get some cost out, you get higher performance, it's a perfect for 3D Printing. We've been at that for several years to work our way in and now is the time. So I love that business. It's hard to work your way in and we're there on the chip making side. The interesting second area that's opening up right now is as people are building these massive data centers, getting heat out of them is a huge challenge because of the electronics. Getting heat out is an enormous challenge. We can print pure copper or high purity copper with some strengthening agents in order to with exotic shapes to get heat out of the data center more effectively, very simply. So whether it's a GPU or the entire data center, we can get heat out much more effectively. So you'll see copper printing primarily for that as a growth area for us in the future. And then you've got the whole electricity supply question from people like General Electric and others that are having to put in capacity to supply the massive amounts of energy needed by data centers, 3D Printing has a key role to play in those machines, those turbines, whether it's for turbine blades or other infrastructure in the turbine that has to be cooled. 3D Printing has been there for some time and will continue to grow. So there's three areas in AI. Infrastructure, we're very excited about, chips, data centers and energy production.

Really helpful. Just a quick follow-up. Just kind of on a similar note removing the impact of macro, what areas would you identify as being the greatest opportunity for you at the moment?

The most stable areas tend to be the most predictive, making them the best to be in right now. Aerospace and defense are particularly promising, although we've historically had a smaller presence there. Our involvement in metals has been key to expanding our business in that sector, and it will be a focus for growth since we are a US company. We intend to utilize our full capabilities in the United States for the US Defense Department and others. Additionally, we have facilities in Europe for the aerospace business, specifically in Belgium. Our local capabilities enable us to manage sensitive data, manufacture parts, develop processes, and ultimately sell printers, particularly in aerospace and defense. The AI infrastructure sector is quite regional, especially concerning data centers and energy production, and I view it positively. Oil and gas requirements are expected to persist for decades, and we have made significant progress in that area. These industries are less influenced by tariffs, which is beneficial for us. Our polymer systems also apply similarly in these sectors. Conversely, as we move closer to the consumer and extend supply chains, those areas are currently less appealing due to tariff volatility. We need to observe where companies will invest their capital. Once those decisions are made, those markets can become very attractive. In the short term, many customers are hesitating or cutting back on capital expenditures while they await clarity on the global situation.

That was really helpful. Thank you.

I just want to thank you all for participating in the call today and we look forward to updating you once again at the close of the second quarter. Thanks, operator and that will be the end.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.