Hello, and welcome to the 3 d Systems First Quarter 2021 Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to John Neipauver.
Please go ahead.
Thank you, Kevin. Good morning, and welcome to 3 d Systems' conference call. With me on the call are Doctor. Jeffrey Graves, our President and Chief Executive Officer Jagtarnarula, Chief Financial Officer and Andrew Johnson, Executive Vice President and Chief Legal Officer. The webcast portion of this call contains a slide presentation that we will refer to during the call.
Those following along on the phone who wish to access the slide portion of this Presentation may do so on the Investor Relations section of our website. For those who have accessed the streaming portion of the webcast, Please be aware that there may be a few seconds delay and that you will not be able to pose questions via the web. The following discussion and responses 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 last night's press release and our filings with the SEC, including our most recent Annual Report on Form 10 ks and Quarterly Reports on Form 10 Q.
During this call, we will discuss certain non GAAP financial measures. In our press release and slides accompanying this webcast, which are both available on our Investor Relations website. You will find additional disclosures regarding these non GAAP measures, including reconciliations of these measures with Unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2020. Now, I am pleased to turn the call over to Jeff Graves, our CEO. Jeff?
Good morning, everyone, and thank you for joining our call today. Nearly 1 year ago today, I joined 3 d Systems as Chief Executive Officer. My reasons for joining were very simple. First, I believe that this industry was beginning to enter an exciting growth phase, Driven by both maturing of the technologies as well as receptivity of the customer base to industrial scale additive manufacturing. 2nd, I saw the potential for 3 d Systems to be a leader in the industry, one that could not only be at the forefront of this industrial renaissance, but instrumental in making it happen.
As excited as I was a year ago when I arrived, those feelings are dwarfed by the enthusiasm I feel today. Rather than opening the call with a recap of our financial performance as I usually do, today I'm simply going to let our Q1 results speak for themselves, With Jackdar providing more color for you in a few moments. Instead, for today's call, I want to start by offering a sincere thanks to our fantastic employees And our leadership team for their outstanding execution over the last year since my arrival. I particularly want to acknowledge the leaders of our 2 business units, Reggie Puthanvidal, who leads our industrial business and has been the Chief Architect of our sales transformation and Minoellis, who leads our healthcare business And has done an exceptional job of creating a true integrated approach to the medical market. Having taken on these responsibilities last summer, they have performed magnificently, Making significant changes in the organization and in the underlying processes that we follow in delivering for our customers each day And doing so while facing unprecedented headwinds from the ongoing COVID crisis, the impact of which is still being felt today.
So given that this
is my 1 year anniversary, I think it's an appropriate time to ask how did we get here? And much more importantly, how will we sustain this momentum going forward? Our journey started last summer by first establishing a clear strategic purpose for the company, which is to be leaders in enabling additive manufacturing solutions For applications in growing markets that demand high reliability products. We then laid out a simple 4 stage plan, which would allow us to live into this purpose. It began with reorganization of the company into 2 business units, Healthcare and Industrial Solutions.
We then restructured operations to gain efficiencies and began the process of divesting non core assets. Then as these elements gain momentum, we systematically increased our focus on investing for accelerated growth and profitability. By focusing intensely on execution of our plan, by the time we entered the New Year, we had returned to growth, we were profitable, We were generating cash from operations and we're in a net cash position on the balance sheet. And then the real fund began, as we began moving through Q1, The U. S.
Economy began to reopen, our new products and applications gained momentum, and our organic growth accelerated markedly. Our profitability and cash from operations increased dramatically as we leveraged our streamline operations. Based upon this progress and our long term outlook, We've set a goal of sustained double digit organic revenue growth, 50% gross margins and 20% adjusted EBITDA margins, All of which we think are attainable in the years ahead. But in an increasingly competitive industry, why should you believe in our future success? Well, in addition to delivering on our commitments, which I think we demonstrated again this quarter, what I can tell you is that there are 3 things that inspire my confidence in our future, And I believe they should inspire yours as well.
First, we clearly by far have the broadest technology portfolio in the industry. It includes a full range of metal and polymer printing systems, industry leading software platforms and an outstanding portfolio of materials for both Human and industrial system applications. These capabilities, which are so vital to our customer success, Distinguish us from virtually all of our competitors. And with our ongoing R and D investments, they're stronger and better than ever. 2nd, I'm convinced that we have the brightest and most creative application engineers in the industry.
This group of very talented people provide exceptional value to our customers as they work hand in hand to introduce advanced systems and components that capitalize on additive manufacturing. These applications range from unique medical devices and personalized implants that are so vital to improving patient outcomes in healthcare To unique components that enable the newest generation of commercial rockets for space travel, a revolutionary equipment for the manufacturer of semiconductor chips, Just to name a few, and that list of new applications is growing rapidly every day. 3rd, as one of the largest and most experienced companies in the industry, we have the scale and the infrastructure To not only support our customers' needs when they initially implement additive manufacturing, but to also sustain them over the life time of their equipment by providing key services and consumables that are vital to their ongoing business success. How do we know this formula works? Well, as always, the proof is in the numbers.
Today, our technologies are used to print approximately 3 1,000,000 production components per day, 3 65 days a year. That equates to over 250,000,000 components per year and climbing. This experience is invaluable as we invest more than ever into our core technologies and drive relentlessly to enable our customer success. In short, at 3 d Systems, our goal is to inspire your confidence in us each day, first by delivering on our near term commitments on growth and profitability, As demonstrated in our numbers today, while setting aggressive, but realistic targets for the future. As an investor, you need not invest based solely on Promises about next year's growth through the one thereafter.
The market for industrial scale additive manufacturing is here today. It's real And it's growing at an exciting rate, particularly as the headwinds from COVID recede. So as I said at the outset of the call, I have never been more excited about our future than I am today. Now before I hand off to JAGTAR to talk about the quarter, let me spend just a few minutes talking about the investments we're making for growth, some of which were described in our announcements last week. First, as you can see in our numbers for Q1, we're seeing rising demand for new applications, particularly in our healthcare To meet this demand forecast, we are expanding our Denver, Colorado location by roughly 50%.
For more than a decade, this operation has Supported a range of customers from large industry leading customers to innovative startups and delivering a diverse portfolio of groundbreaking Precision Healthcare Applications and Medical Technologies. From this location, we have supported more than 100 CE Marked and FDA cleared products. We've collaborated with surgeons to plan and guide more than 140,000 patient specific procedures. And we've manufactured over 2,000,000 medical device implants in our Advanced Manufacturing Group. Through this next phase of investment, which includes putting in place some of our most advanced metal and polymer printing systems and software tools, We'll be able to reduce time to market for new medical applications, continue expanding our product offerings and better support the holistic needs of our growing healthcare customer base.
The scale we have now attained in our healthcare business in Denver provides a marvelous platform for growth, Allowing us to maintain our industry leading solution offerings that target patient specific applications in growing markets like craniomaxiofacial surgical solutions And an expanding range of orthopedic surgical aids and implants. In addition to supporting healthcare specific growth, Our Denver investment will expand the overall capabilities and capacity of our application innovation group. As I discussed earlier, this group of application engineers is an central element of our solutions oriented approach to customers. With deep expertise in hardware, software and materials, This team of engineers helps customers not only demonstrate feasibility of new high value component solutions, but also design the overall workflows necessary to validate the economics of the process, gain regulatory approvals and then move into full scale production. With expanded customer facing engineering resources, armed with a broad array of technologies and supporting infrastructure, we are well positioned to continue the strong momentum and In addition to our Colorado investment plans, last week, we also announced the acquisition of 2 technology companies, Aleve and Additive Works.
These acquisitions have an important role to play in meeting our current and future growth objectives. Let me start with the AdditiveWorks acquisition. They are a small but extremely talented group of German software engineers and physicists that have developed unique software that simulates The key steps of the additive manufacturing workflow from setup during the component design phase through post print processing. Their sophisticated physics based algorithms are extremely fast and effective in optimizing the part orientation, support structure And thermal conditions during printing. The result is dramatically reduced setup times and post processing requirements In conjunction with improved product performance, yield and yield.
Historically, much of this optimization work was done empirically Requiring highly skilled process engineers and operators to optimize the process for each new component. The additive work simulation The software reduces or even eliminates the need for this intensive effort, allowing for a much more rapid introduction of new components and improved economics, Performance and reliability of the resulting product. The additive works software sold under the name Amphion Interfaces seamlessly with leading CAD systems as well as our 3dXpert software platform and other major print platforms, which we will continue to support. Integrating AdditiveWorks products and expertise into 3 d Systems will further enhance our software portfolio and innovation capacity, Driving accelerated adoption of additive manufacturing across the industrial and healthcare markets that we serve. We expect the deal to close by the 3rd quarter, Paced by normal German regulatory requirements.
Moving then to one of the areas that I'm increasingly excited about, the emerging field of regenerative medicine. I'll conclude my opening remarks today with a few comments on our acquisition of Aleve. You may remember on our last earnings call, we talked about the incredible progress Our development team under Chuck Hull, working in close partnership with the wonderful folks at United Therapeutics has made toward the printing of solid human organs. While not yet a reality, the promise of this technology is truly extraordinary, offering the hope of meeting the needs for thousands of patients We're desperately waiting on the availability of new lungs, kidneys, livers, hearts and other organs. Our commitment to this effort with United Therapeutics continues unabated.
As an outgrowth of this program, we also announced last quarter that given our strong technology foundation in this emerging field, We would expand our efforts pursuing additional applications for the human body, such as the printing of bones, arteries and soft tissue, just to name a few. We've increased application support this year to pursue these partnerships and hope in the intermediate term to bring these extraordinary products to market. In addition to these direct human applications, I'm very excited to announce a further expansion of our focus to include the rapidly emerging market for laboratory applications of bioprinting technology. These laboratory applications are being driven by 2 major objectives. 1 is to study the study of regenerative medicine itself In a lab setting, which is increasingly of interest to researchers at major universities and renowned medical institutions around the world.
The other driver and one that we believe brings substantial growth opportunities for us is with pharmaceutical laboratories We wish to utilize the unique three-dimensional cellular structures produced by bioprinting to accelerate the development of new drugs and drug therapies, some of which may eventually be optimized to accommodate an individual's unique genetic framework. In addition to drug development, Bioprinting offers unique advantages in the development of cosmetics and other skin care treatments and that human interactions Can be directly assessed using 3-dimensional bio printed human tissue constructs instead of relying upon simulations or animal studies, which are often less effective and bring with them difficult social issues. In short, bioprinting for laboratory studies offers the potential for better, Faster and safer and more humane development paths for a wide range of human applications. For all of these reasons, we are excited to expand our efforts to include these rapidly emerging laboratory applications, which we believe potentially represent a $1,000,000,000 market opportunity that will become available to us over the next several years. In support of this effort to expand our regenerative medicine Into the lab, we were very pleased last week to announce our acquisition of Alebi, a Philadelphia based developer of bioprinting solutions, comprising bioprinters, Biomaterials, also known as BioInks and specialized laboratory software.
Halevi has established a strong technology base, brand And distribution network for this rapidly emerging market with a presence today in over 380 medical and pharmaceutical laboratories In over 40 countries. As a complete solutions provider, Aleve's business model aligns well with 3 d systems And positions us to leverage the technology we've developed for in vivo applications, as well as leveraging the overall scale of our healthcare business to meet these emerging laboratory application needs. When viewed in totality, with the Alevea acquisition completed last week, We're now well positioned across a broad market spectrum ranging from near term laboratory applications, medium term human applications And longer term human solid organ applications in the exciting emerging field of regenerative medicine. So to bring this full circle, let me end by saying how very proud I am of our team's performance in the Q1 of the year as we continue to execute on our 4 phase plan that we launched last summer. More than ever, I believe that additive manufacturing will play a key role in transforming the way components can be designed and manufactured Critical applications ranging from complex space systems to the human body.
With our extensive portfolio of additive manufacturing systems, Material science, software and domain expertise, 3 d Systems is uniquely positioned to help our customers benefit from this transformation. With that, let me turn the call over to Jagtar, who will now describe our Q1 results in more detail.
Jagtar? Thanks, Jeff. Good morning, everyone. For the Q1, we reported revenue of $146,100,000 An increase of 7.7% compared to the Q1 of 2020. Our organic revenue growth, which Excludes businesses divested in 2020 2021 was 16.6% in Q1 2021 Versus Q1 2020, we experienced strong product revenues across the portfolio, including printers, both plastics and metals, Materials and software.
We believe this growth emphasizes the strategic nature of our portfolio breadth and validates our solution strategy. We reported a GAAP income of $0.36 per share in the Q1 of 2021 compared to a GAAP loss of $0.17 in the Q1 of 2020. Driving this improvement was a $32,900,000 gain from the sale of the Simitron and Gibbscam Software Business, As well as a tax benefit of $8,900,000 as a result of the favorable ruling from the IRS regarding a FIN 48 reserve. Turning to non GAAP results. We reported non GAAP income of $0.17 per share in the Q1 of 2021 Compared to a non GAAP loss of $0.04 per share in the Q1 of 2020, the exceptional non GAAP result reflects our strong revenue growth combined with the restructuring and cost optimization activities that we have previously announced.
Now, we will discuss revenue by market. Our healthcare business had a strong quarter with revenue growing 38.7% year over year. This growth was fueled by an increase in hardware and material sales in our dental business. The large hardware volume like we saw in Q1 May fluctuate on a quarterly basis, but drives the recurring higher margin material and services revenue, which is a focus of our long term financial goals. Excluding dental applications, revenue from medical applications grew by 9% as we continue to see increased demand For personalized health services and advanced manufacturing of medical devices, we recently announced a planned expansion in Denver, Colorado that is intended in part to support the future growth of this business.
Revenue in our Industrial segment, When we exclude the businesses divested in 2020 2021, was up approximately 1% year over year as compared to year over year declines in prior periods. The revenue trend turnaround in our Industrial segment was across our sub segments such as jewelry and automotive with no single segment driving the results. This is a reflection of global economies continuing to recover, albeit at an inconsistent pace from the pandemic related shutdowns. We expect this inconsistency to continue in 2021. So while we see a path to full year double digit organic revenue growth in our core business, excluding businesses divested in 2020 2021, Macroeconomic risks such as further COVID-nineteen impacts, inflation concerns and supply chain Shortages in certain critical components like semiconductor chips continue to create uncertainty.
Now we turn to gross margin. Let me start my commentary on gross margin with a statement on our presentation. During the Q1 of 2021, we identified certain costs that have Historically been shown as cost of products that actually related to cost of services. Our reported Gross profit margins reflect an update to properly present these costs. While this resulted in a small movement of costs between products and services, The change did not affect our gross profit, bottom line results, consolidated balance sheets or statement of cash flow.
For Q1 2021, we reported gross profit margin of 44% in the Q1 of 2021 Compared to 42.1 percent in the Q1 of 2020, non GAAP gross profit margin was 44% compared to 42 point 7% in the same period last year. Gross profit increased year over year as a result of higher sales volume, Mix, including software sales and the impact of our cost reduction activities. We are quite pleased with our improved margin performance in Q1, Especially when you consider that we divested a relatively high gross margin software business at the beginning of the year. In our last earnings call, we said we expect non GAAP gross profit margins in the range of 40% to 44% for 2021. We continue to expect to be in that range on a full year basis.
Operating expenses for the quarter were 66.2% On a GAAP basis, a decrease of 12.1% compared to the Q1 of 2020, including a 11.6% decrease in SG and expenses and a 13.7% decrease in R and D expenses. Our non GAAP operating Expenses in the Q1 were $51,200,000 an 18.7% decrease from the Q1 of the prior year Between GAAP and non GAAP operating expenses are $13,400,000 in amortization of intangibles and stock based compensation. Continuing the theme of year over year improvement, adjusted EBITDA defined as non GAAP operating profit plus depreciation Was $19,800,000 or 13.6 percent of revenue compared to $2,200,000 or 1 point percent of revenue in the Q1 of 2020. The improvement is due to stronger gross margins as well as the results from our restructuring efforts. We are very pleased with the trend of our EBITDA margins over the past several quarters.
Driving improvements to margins, adjusted EBITDA and revenue growth Is the impetus behind targeted acquisitions like Additive Works and Aleve. While they will not be material to 2021 results, These and future acquisitions will be a key component of our long term strategy to reach double digit revenue growth, Gross profit margins of 50% and adjusted EBITDA margins of 20%. Now let's turn to the cash flow statement and balance sheet. Cash on hand increased $48,200,000 during the Q1. This increase was primarily driven by the net proceeds from divestitures of $54,700,000 in cash generated from operations of $28,500,000 offset by a debt repayment of $21,400,000 and other financing and investing uses of cash including capital expenditures.
Note that our cash from operations of $28,500,000 included the use of approximately $6,600,000 of cash for withholding taxes related to the Symitron sale. When factored together, it is of note that we have substantially improved cash from operations Compared to the $2,300,000 of cash used in operations in Q1 2020, we ended the quarter with a strengthened balance sheet With $133,000,000 of cash and cash equivalents, no debt and nearly full capacity on our $100,000,000 undrawn revolving credit As I end my prepared remarks, I would like to make a final comment about the quarter. We have made a very strong turnaround from this time last year. 3 d Systems is now growing profitably, Generating cash and maintaining available liquidity. Our combination of growth and profitability is unique to our industry and positions us well to continue to invest in high growth areas that will support our long term financial goals.
Our solid financial profile makes us the partner of choice for customers that are considering a solutions provider for their most critical manufacturing processes. We are excited about the opportunity for our business and our plans to deliver against our long term objectives. To continue to provide more detail to the investment community on our strategy, we plan to hold an Investor Day In the Denver, Colorado area on September 9th, we will provide more details as we get closer to the event. With that, I'll turn the call back to Jeff. Jeff?
Thanks, Jai Tarr. Again, I just want to say how pleased I am with our results I'll return to year over year growth, our continued profitability improvements, the strength of our balance sheet and our strong cash generation performance. With intentional action taken on our 4 phase plan, we're reinforcing our leadership in this exciting industry. We plan to continue looking for opportunities to optimize our resources, divesting or investing as needed to support sustained exciting growth and profitability. We'll now take your questions.
Kevin, let's open it up.
Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Greg Palm
Hi, guys. This is actually Danny Eggerich on for Greg today. Thanks for taking the questions and congrats on
the good results. Thanks, Danny. Thanks, David.
Obviously, healthcare It was really good. I think you mentioned some outsized growth in dental. Maybe just in terms of mix There was this maybe you said they're both strong. Was this maybe driven by better growth in printer sales or maybe materials? And how should we look at that going forward?
Yes, Danny, this is Jack Turk. Good morning. So we did have very strong printer sales in the quarter. I think I mentioned that in my prepared remarks. We expect that to drive sort of the future consumable services revenue that is high profit for us.
But so we were pleased with the high printer sales, but we saw increases in both printers and materials. Printers was just a little bit stronger.
Got it. Then maybe if I could just get a quick one on maybe supply chain shortages. We've seen Kind of the semi chips and maybe even some resin shortage, what kind of impacts are you seeing there?
Yes, Danny, good question. We got out in front of it early. With the headlines as 2020 closed, we anticipated it and got in front of it early. But yes, there's no doubt. It took a lot of work this quarter To keep it from hitting us financially, so we didn't let any customers down.
We shipped everything that customers wanted to take in the quarter, It was a lot of work, Danny. And we think it is a risk going forward, just availability, supply chain, logistics. You read about semiconductor chips, but really there's a lot of components that go into printers that are in fairly short supply. So It takes a lot of effort to stay on top of it and we're working real hard at it.
Got it. I'll jump back in the queue for now. Thanks for taking the questions.
Thanks, Jamie.
Thank you. Our next question today is coming from Sarkis Sherbetchyan from B. Riley FBR. Your line is now live.
Hey, thank you for taking my questions here. Just wanted to see if you can provide an update on the cost restructuring initiatives. Now how much is left to go in the savings program? I think last quarter you mentioned achieving a $60,000,000 run rate cost savings. So just want to get a sense for where we stand today, How much is left to go and what's the timetable?
Well, we're right on track with where we thought we would be this year in terms of our Takeout efforts. So what we said was with the divestitures, we would get another with the divestitures having occurred right at the end of the year and beginning of this year, The target now this year was a $20,000,000 incremental cost takeout. We're on track with that. It's going very well. The balance there is looking at investments for growth Because the market is rebounding, we're very pleased with the number of new applications customers want to pursue right now Yes, on both the metals and plastics side, so we are funding that growth.
And so it's a so in terms of seeing what you're Seeing flow through this year is a net of those two factors. We'll get $20,000,000 out of our cost structure and we'll look to reinvest Yes. Some are potentially all that savings back into the cost structure to fuel growth, but you should see it and you should see a nice Response in terms of revenue growth, margin performance, that's really the trade off that we're making there. So, Jack, do you have any more lights you want
to put on that? No, I think you captured it well, Jeff. I think we are getting the $20,000,000 out this year. I would expect OpEx going through the course of the year, because that will be the next question, to be In line or marginally up with where we were in Q1 as we balance taking cost out with the initial investment for the opportunities we're seeing in
the market. I was very glad that we got the $60,000,000 out last year and got everything restructured because it really positioned us well as the market rebounds now to leverage that reduced cost structure. And now it's really a horse race between taking further cost out of the business and investing for growth. We are determined to grow profitably. So we're not going to overspend on that and get out in front of our skis, but we certainly are going to support the strong markets that we see right now ahead of us.
Fantastic. Just one follow-up, a quick one. I think the healthcare business is pretty obvious, performing pretty nicely there. Just any comments or color you can provide On the industrial side, which end markets do you think there's a nice growth opportunity here in the near term to intermediate And then which might be giving you some trouble? Thank you.
Yes, it's really interesting. There's if you go through each market vertical. And In automotive, clearly ignoring the semiconductor issues they have as a total industry, There's clearly a kind of a megatrend headed toward electric vehicles. So, we're really pleased with our exposure there and where that's going. It's a smaller business Today, but clearly from everything you read it, you can tell publicly, it's a growing market, a growing business.
And the light weighting and strengthening of those cars we think is real and the stories we hear back from customers about their utilization of additive It's really encouraging for that. Aerospace clearly has lagged. It's it was really impacted by COVID. It's nice to see more people flying now as the U. S.
At least opens up. So you would expect aerospace to lag, but be a driver in the next Couple of years. Interestingly, applications related to heat flow, heat management, thermal management Are really exciting. And I say it broadly like that because there's a lot of applications for managing heat. When you think of data centers, how do you eliminate the heat?
One of the major expenditures any developed country has For energy usage is in data center cooling, and it just shows you the impact in magnitude of heat generated there and how to dissipate it is a real issue. Additive manufacturing is great at that. And when you carry it down to a system level, things that are very temperature sensitive. So, I'll give you 2 extremes. 1 is rocket travel, space travel with rockets.
You see that Competition heating up now in the commercial realm, which is really exciting between a number of public companies Getting into the space race, getting into commercial space travel, well, space travel is enabled very nicely by additive manufacturing, Both propulsion and the systems themselves. And another exciting application we're finding a range of applications in is semiconductor chip manufacturing. When you start controlling, stereo lithography and other activities to make modern Semiconductor chips, control of the thermal environment, the temperature environment in a system is incredibly important. And the structures you can make with additive at very effective costs are remarkable, absolutely remarkable. So We've been very pleased with the interest level and the growth in the business of the semiconductor equipment manufacturers.
So I could go on and on, but Those are several that we think will both lead and trail in the opening economy. Thank you. You're welcome.
Thank you. Our next question today is coming from Noelle Dilts from Stifel. Your line is now live.
Hi, guys. Good morning and congrats on a good quarter.
Good morning, Noelle.
I was hoping that you could expand a little bit on Some of your bioprinting initiatives and you spoke to some of the opportunities in the near term around cosmetics and I think printing On slides, could you speak to how to think about the monetization of this over the next few years, when you think it could become contributory And how to think about kind of the longer term how you're thinking about the longer term ramp of that side of the business? Thanks.
Thanks, Noah. It's a great question. And it's for an emerging industry, it's always tricky to predict the timing. And I again, I don't want I don't want to be too aggressive in TeleStories, but I got to tell you, I am so excited about the progress that we've made Technically and the way the markets are evolving, clearly we started on the very long term end of things and that's the Our engagement with United Therapeutics on the perineum human organs, that's a long term effort that will be measured in years, not quarters. But doing that and setting that high bar really got us involved in progressing the technology.
And as we did that, we start opening up near term markets. So other parts of it sounds funny even talking about it, other parts of the human body that you can print with bioprinting And get into application, when you think about it, everyone's body is unique, everyone's body, arteries, veins, muscles, tissues, Bones. And so it generically lends itself to additive manufacturing where you print things that are specialized for each human body. So we were very happy as we entered 'twenty one to say, hey, let's broaden our scope and go for some nearer term applications, Which might be measured in fewer years, okay, to get into. So all of those are funded, that effort is all funded internally.
And I would tell you, We model a nice return on investment, but it's still measured in years to get fully FDA qualified and all of that. Progress is remarkable, But it still takes a lot of time. So with that, we said, well, how do we run further and faster and shorter term? And you look at the laboratory applications and then the Alevea acquisition came along as an opportunity for us. We are able today to print Three-dimensional tissue specimens in the lab for 1st of all, for basic studies of regenerative medicine and that's fine.
That's needed to progress the science. But I would tell you, Noah, what I'm really excited about are the applications in the pharmaceutical industry, because The testing of drugs and other skin therapies and treatments is relies on an enormous amount of computer simulation And then animal testing. And then they very, very carefully go into real human testing. The regenerative medicine approach, bioprinting gives you an opportunity to really test the effects on human tissue, but in a lab setting. And I would tell you, Noah, I believe that can be an exciting near term market for us.
It's we're through a levy, we're now exposed to Hundreds of research laboratories around the world. We can take the technology we've developed for organs and other human applications And refine it to apply it to laboratory settings, leveraging what Alevia has done in their customer base. So I would tell you, I think the pharmaceutical industry and Things like cosmetics and other skin care, I think that could very well be a revenue stream for us that's certainly measurable next year And could contribute in the long term to the business substantially. It can be an enormous business for us And it will be for someone and I feel good about our leadership role in that today. It's nascent, it's evolving and we want to be out in front making it happen.
Thank
you. Our next question today is coming from David Mizrahi from Berenberg. Your line is now live.
Hey, guys. A line guided to CapEx So greater than $300,000,000 this year, while last year's attracted roughly $150,000,000 and part of this is going to support new factory in Poland. Can you just
No, we really can't. We really can't. I would love to tell you about the conversations we have with individual customers, But we just can't go there. I love our customer base. We have a terrific customer base and some very long term customers that have done very well in their industry, But we just can't talk about them.
It's too sensitive to them. As much as I would love to talk about it ourselves, we just can't do that. But We're excited. I mean, clearly, medical in total is growing really nicely for us across the range of big named Healthcare companies and end market end users like surgeons, same with dental. It's an exciting business and a dynamic business and It's broader than you might think and it's going very, very well.
But I just David can't really comment on individual customers. I'm sorry.
Our next question today is coming from Paul Coster from JPMorgan. Your line is now live.
Hi, this is Paul Cheng on for Coster. Thanks for taking my question. So I see that you're splitting out healthcare and industrial by operating profit in the 10 Q. Will you be kind of providing the historical data and how should we think about the margin performance between the segments moving forward? You know there's kind of quite a discrepancy today.
Yes, Paul. Unfortunately we won't be providing Historical data, so to provide that operating segment data, we as you know made a Substantial restructuring of our business last year into these 2 verticals, healthcare and industrial, That required a pretty substantial rewiring of our financial systems to be able to now report by segment Down from just revenue not just revenue, but down to operating profit, healthcare and industrial. We did that on a prospective basis, Not a previous year basis. So we don't have the ability other than kind of Excel spreadsheets to report historical results. Going into 2022, we'll have 2020 result 1 results that you'll be able to see year over year impact.
So that's our plan going forward.
And how does that margin performance evolve kind of through the year and into 'twenty two and getting to your goals, Longer term goals. Thank you.
Yes, I would expect that if you look at our business in totality, I think as we look at EBITDA margins for the year, right, I would expect just looking Kind of where consensus revenue guidance is right now, right. If I take consensus revenue guidance for the balance of the year, I apply the midpoint of our gross margin guidance range 40% to 44%, and I say OpEx will be About where we were in Q1, maybe marginally up from the investments that we're making. I think that gets us to low single low double digit Adjusted EBITDA margins and I think that will be roughly split between healthcare and industrial the way you saw in Q1.
Well, I would just add in terms of our long term financial model for the company, I mean, we certainly see healthcare. Healthcare has got A great future to it. It's and it lends itself to kind of what's called mass customization through additive The implant side and on the dental side really, really well and it generally is growing faster and carries a higher margin. So in terms of supporting our long term financial objectives, you can see the mix between the businesses that we would expect that trend to continue And that kind of supports our when you extend out, that kind of supports our longer range targets. And we'll be talking more about that at our Investor Day in September.
Thank you. Our next question is coming from Brian Drab from William Blair. Your line is now live.
Hi, good morning. Thanks for taking my questions Or question, I should say. And I'm sorry, I'm listening to 2 calls simultaneously, sir. I'm sorry if you addressed this. But are you hearing anything from Your largest customer in terms of their planned capacity expansions and the requirements of 3 d systems in 2021?
Thanks.
Yes, Brian. Again, we don't want to talk about individual customers. They really don't allow us to. They don't want us to. But I would tell you, we're very intimate with a number of our large customers and we I think we understand their growth plans themselves and What they would like us to be doing and investing for, and we're excited about that.
So across the board, I think all the guys we support are growing nicely And have exciting plans and I expect us if we execute our business well to be a key part of it.
Okay. Thank you.
Thanks, Brian.
Thank you. Our next question today is coming from Wamsi Mohan from Bank of America Securities. Your line is now live.
Jeff, you mentioned that you were excited about the reopening of the economy and the impact to your business. How should we think about seasonality from here As we go through the course of the year, I know, Jafar, you addressed sort of the OpEx side of it. But just from a revenue perspective, Given the reopening and easy comps, especially next quarter, any color around how we should think And just a quick clarification, on the reclass of the segments historically, you just gave us Q1 of 20 numbers on a restated basis. So why are you not able to give us the other quarters for 2020? Thank you.
Well, let me take the reopening question there, Ramesh, and I'll let Jack answer the second question you had. In terms of Revenue expectations, it is the big question. And the struggle we have 2 struggles. Number 1, the world Much different in different locations in terms of rate of opening. U.
S. Is good systematic opening. We see it's Kind of becoming predictable now, so you see customers behaving that way and ramping up their current capacity, planning for new investments, all of that. And then you've got Europe. On the extreme side, India, where Europe is really not opening quickly, to put it that way, And then India is kind of headed the other way, seeing these tragic headlines out of India.
So and we do some business in India. So you have to net it all out to look at revenue So I want to be very careful in Q2. Again, I'm really pleased with the demand profile we see out there and It's more of a pacing item. How fast can we how fast are customers comfortable placing purchase orders and ramping up their capacity. In the U.
S, I'd tell you very confident. Things look really good. Europe is much more of a flip of the coin and then places like India are still going backwards. So, it's tough. And I think that should clear up nicely in the second half of the year, but predicting Q2 is a little hard, which is why we're not giving guidance I'll give guidance out there.
On top of it, you have logistics and these short term, I think short term supply constraints And we're managing our way through that fine, but it's a week to week, month to month footrace to make sure we have All the components we needed to build products and ship it, it's going well, but we just have to it just remains a risk factor for us going forward. So The hardest thing frankly to predict right now is the short term. In the long term and Jack, I ran through your cost structure, that's pretty easy to predict. But The longer term or the short term outlook on revenue is a little bit trickier. It's more full of noise.
Dexter, you want to take the second half of the quarter?
Yes, I'll address the question I think, Wamsi, you had was on our segment revenue reporting. So we did discuss Q1, healthcare versus industrial. We do have the ability to do that for other quarters. What I was addressing in that prior Question was operating profit, but revenue we certainly have and we can make that available post this earnings call.
Okay. Thank you.
Thank you. Next question today is coming from Ananda Baruah from Loop Capital Markets. Your line is now live.
Hey, thanks guys. Good morning. Thanks for taking the question. Congrats on solid execution. Hey, just real quick, what how should we think about opportunity for divestitures going forward And then cash used now that's starting to collect?
Thanks. That's it for me.
Great questions. It's clearly, We started down this path on divestitures, having defined the purpose of the company. We looked at what's outside that envelope And we did we felt great we did a couple of them very late last year, right, as we rounded the curve into 2021. That work is still ongoing. We're still considering what is what do we want to hang on to, what do we want to divest, what fits within that core package.
I don't really want to talk more about it because it's obviously a very sensitive topic. But yes, we're not finished and we continue to work on that. You'll hear more about it in the coming months quarters. In terms of what we're going to do with the cash, I feel great. We've got nice cash on the balance sheet.
We're generating good operating cash flow. We've got no debt. I feel really good about our investment opportunities now And they should continue to expand. In terms of priorities, clearly, we're now on the hunt For smart investments across our business. So it could be technology investments like we did last quarter that Make printing more efficient or move us into a new market with regenerative medicine, that was an example.
Would love to do more in healthcare, We'd love to do more, some more in our core technologies. Although, I have to tell you, we're in really good shape organically on that as well. So, I love the additive works In addition, from a software standpoint, it was incremental to what we had the capability to do internally, which was great. Those kind of opportunities we look at, They are smallish, nichey kind of technology opportunities that really don't shift the needle In a given year materially, but they make a huge difference in the long term. So they open up new markets, they bring new technology.
So we'll continue to look for those. And fairly aggressively, I would tell you, there's no lack of opportunity. You just have to look at getting a good return on the investment for our shareholders.
So, no,
no, no,
no. Yes, I'll just add a little more color on top of the potential use of gas on M and A that Jeff mentioned and technology investments. I would also say, you'll see increased use for CapEx. I think our CapEx has been light for the last year now. We'll be increasing CapEx as we make investments in our business.
We talked about the expansion in Denver That and other areas of investment will get CapEx up closer to the 4% or 5% of revenue that we talked about. We'll still have some cash for restructuring activities as we continue to restructure our business and reduce costs. And then finally, I'd also say we'll probably have some inventory builds going into Q2 and maybe later this year, right? We are seeing increasing demand. We talked about supply chain concerns and wanted to make sure that we had sort of adequate product or components to meet in demand.
So we will probably be investing in inventory through the balance of the year.
Thanks, guys. Super helpful.
Thanks.
Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
Gentlemen, congrats on the nice results.
Thanks, Troy.
Hey, Jeff, just quick for you. I guess one new trend we've seen is High temperature DLP, you always think of Stratasys, excuse me, 3 d systems when it comes to SLA and DLP technologies. Could you just remind us, update us on what your strategy is to do more in Hi Temp DLP or maybe you haven't, I just am not aware
of it?
Number 1, Troy, we've really increased our investment internally on new materials For both SLA and DLP, it's we were playing a bit of catch up there and we've got some really exciting materials coming out this year, actually quite a lot. So in terms of developing new materials for our current platforms and our next generation platform, which we haven't talked about yet, but that will be coming soon. We want to make sure the materials pipeline is really strong. It's really hard to start getting the payback on those platforms. As you know, From your experience, it's really hard to get the payback on the platforms until you have good materials flow through it, plus customer adoption has helped tremendously by having a good portfolio of materials.
So, we're trying to get out in front of the materials question on those and we then have some next generation platforms coming along that we'll talk more about in the fall.
If I can piggyback a follow-up, just on that trend of materials, how about composites displacing metals? Are You're doing a lot more? Can we expect to see more on composite materials from
you? Yes, I think Troy, I think composites have a really nice role to play. And We're looking at it from a number of angles, both the material systems themselves and obviously the combination of matrix and fiber and what you do there, As well as the printing technology, just the printing hardware, how do you print, how do you best print composite structures. There's a lot of exciting work going on. And so we can progress some of it internally, some of it we're looking at through partnerships and acquisitions.
But I think there's you put your finger on it, there's a really nice evolving niche between classical polymer technology and metals technology For lightweight, strong, stiff materials of composites. So it will be a factor and we're excited about it.
All right. Well, good luck, gentlemen.
Thanks, Troy.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to John Nipoppar for any further or closing comments.
Thank you for joining us today and for your continued support of 3 d Systems. A replay of this webcast will be available after the call