Earnings call: 3D Systems projects growth despite 2023 challenges

3D Systems Corporation (NYSE: NYSE:DDD) conducted its Fourth Quarter and Full-Year 2023 Earnings Call, outlining its preliminary results and future outlook. Despite a challenging year marked by a decline in dental orthodontics and delayed customer orders, the company reported improved gross margins and remains optimistic about the growth potential of the 3D printing industry.

The company is delaying its annual report on Form 10-K, filing a Form 12b-25 with the SEC, and expects flat revenues for 2024 but aims for a positive adjusted EBITDA performance and operating cash flow. Notably, 3D Systems plans to introduce nearly 40 new products by the end of 2024 and invest in key regenerative products to maintain its lead in the market.

Key Takeaways

• 3D Systems anticipates benefiting from the 3D printing market's expected compounded annual growth rate of over 20% in the next five to seven years.
• The company faced a decline in its dental orthodontics business and delays in customer orders in 2023 but improved gross margins and expects further improvements in 2024.
• Cost-cutting measures are in place, yet investments in critical R&D for future growth will continue.
• The company is excited about its offerings in the orthopedic device market and plans to release nearly 40 new products by the end of 2024.
• Systemic Bio, a part of 3D Systems, has gained momentum with contracts from two of the top four largest pharmaceutical companies for its h-VIOS technology.
• Financial reports show consolidated revenues of $488 million for 2023, a 9% decrease from the previous year, and the company ended the year with $331.5 million in cash and cash equivalents.
• For 2024, 3D Systems expects revenues between $475 million to $505 million, non-GAAP gross margins of 42% to 44%, and non-GAAP operating expenses between $223 million to $238 million.

Company Outlook

• 3D Systems projects a seasonally soft start in Q1 of 2024, with full-year revenues expected to range from $475 million to $505 million.
• The company is aiming for non-GAAP gross margins of 42% to 44% and non-GAAP operating expenses between $223 million and $238 million.
• Adjusted EBITDA for the full year is expected to be breakeven or better.

Bearish Highlights

• The dental orthodontics business saw a 39% decline, and the overall dental business was down 32% in 2023.
• Elevated inventories and accounts receivables were attributed to insourcing activities and extended credit terms.
• The company may experience slightly negative free cash flow due to capital expenditures.

Bullish Highlights

• The company is optimistic about the growth of the dental market as it converts to 3D printing.
• Despite challenges, the company saw strength in the aerospace, defense, and semiconductor equipment markets.
• The company's regenerative medicine initiative is considered a strategic differentiator.

Misses

• The company reported a 9% decrease in consolidated revenues for the full year 2023.
• The slow progress of purchase orders, particularly in the consumer product market, was noted, though confidence remains that these will materialize if consumer demand persists.

Q&A Highlights

• CEO Jeffrey Graves addressed the emergence of Chinese competitors, emphasizing the company's strategy to compete through technology, materials, software, and customer service.
• The healthcare market is seen as difficult for Chinese players to penetrate due to regulatory and quality concerns.
• The company is restructuring with a focus on site closures to reduce operating expenses, with a more significant impact expected in the second half of the year.

InvestingPro Insights

In light of 3D Systems Corporation's (NYSE: DDD) recent earnings call and the outlook for 2024, insights from InvestingPro provide a deeper understanding of the company's financial health and market position. Here are some key metrics and tips from InvestingPro:

InvestingPro Data:

• The company's market capitalization stands at $536.4 million, reflecting its current valuation in the market.

• With a negative P/E ratio of -1.83 and an adjusted P/E ratio for the last twelve months as of Q3 2023 at -6.45, the company is currently not profitable.

• Revenue for the last twelve months as of Q3 2023 was reported at $505.95 million, with a gross profit margin of 40.93%.

InvestingPro Tips:

• Analysts have noted that 3D Systems is quickly burning through cash, which could be a concern for investors looking at the company's ability to sustain operations and invest in growth.

• The stock has experienced significant volatility and has taken a considerable hit over the last week. This could indicate a level of uncertainty or lack of confidence from the market, which investors should be wary of.

For those interested in a more comprehensive analysis, there are additional InvestingPro Tips available, which could provide further clarity on the company's performance and expectations. For example, while the company does not expect to be profitable this year, it's worth noting that its liquid assets do exceed short-term obligations, indicating some level of financial stability.

Investors looking to make an informed decision on 3D Systems may benefit from the full range of insights available on InvestingPro. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for access to exclusive data and analysis.

Full transcript - 3D Systems Corporation (DDD) Q4 2023:

Operator: Hello, and welcome to the 3D Systems Fourth Quarter and Full-Year 2023 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Mick McCloskey, Vice President, Investor Relations. Please go ahead, Mick.

Mick McCloskey: Good morning and welcome to 3D Systems conference call to discuss the preliminary results of the fourth quarter and full year 2023. The financial results presented on today's call and included in our earnings release are unaudited. The company is in the process of completing its quarterly and year-end close process. Accordingly, actual results may differ from the anticipated results discussed today and shown in our earnings release. We're delaying the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2023, and will file a Form 12b-25 notification of late filing with the SEC to extend the deadline to file the form 10-K. Our final audited financial results will be included in the Form 10-K once filed. With me on today's call are Dr. Jeffrey Graves, President and Chief Executive Officer, Jeff Creech, Executive Vice President and Chief Financial Officer, and Andrew Johnson, Executive Vice President, Chief Legal Officer, and Chief Corporate Development Officer. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in our latest press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, you will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2022. With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.

Jeffrey Graves: Thanks, Mick, and good morning, everyone. I'll begin this morning with a brief reflection on 2023 performance. I'll then shift focus to 2024 and our path forward, discussing not only our restructuring initiative to take cost out of the business, but equally important, the areas that we are consciously choosing to continue to invest for future growth. Finally, I'll wrap things up with some comments on our 2024 outlook, before handing things off to our new CFO, Jeff Creech, for a deeper dive into the financials. As you may recall, Jeff joined the company in mid-December. He brings over 25 years of experience in finance leadership and business transformation, and has already hit the ground running as he led us through the year-end close. Welcome aboard, Jeff. It's great to have you with us. Before I begin discussing our recent results and forecast for the year, I think it's an important time to reflect on the state of the industry and where 3D Systems is positioned within it. I'm now on Slide 5. 3D printing's been around since our founder, Chuck Hull, invented the technology in the early ‘80s. It very quickly proved useful as a prototyping technology, a role it continues to play today. However, the real value of additive manufacturing, as it's now more commonly called, is when it began to be used to manufacture real components, not just prototype parts. This evolution took over 20 years and it required advancements in the printing hardware, the software for process control, and most importantly advancements in the materials that could be printed. Fast forward to today and we have the technology to manufacture an incredible range of products from orthopedic and dental implants for human beings, to key components for aerospace, automotive, and many other industrial markets. This evolution has today provided companies with four key advantages that are not available through traditional manufacturing processes. The first is design flexibility, which means very simply that engineers can create much more complex shapes that can't be manufactured even with the most advanced machining or casting technologies. Importantly, these parts are made through additive techniques that are often less expensive and less wasteful than traditional methods, bringing cost down and reducing environmental impacts from manufacturing. The second key benefit and one that's bringing many large industrial companies into the market more recently is what we call mass customization. This means producing large quantities of parts, with each being slightly different from the prior one. This benefit has been enabled by the improving economics of 3D printing, enabled by increased printer size, speed, and reliability. We clearly see this. We clearly see this in our healthcare business where orthopedic implants and dental products can be customized for each person's need. In fact, in the orthodontic area, our technology enables the manufacture of over a million customized clear aligners per day and soon other products such as custom printed dentures will follow at a similar scale. On the industrial side, the same type of applications are now in focus spanning both polymer and metal technologies. The third benefit is low volume, high complexity parts. Once again, printing speed, combined with new materials that are designed to meet specific application needs, are a key to success. Electronic components and those used in semiconductor equipment manufacturing are but two of many examples. And finally, greatly enhanced supply chain flexibility, enabling production where you need it, when you need it, is more important than ever, whether you're printing replacement parts for an oil refinery out in the desert or on a ship at sea, or you're reducing risk by moving production closer to the point of assembly operations. Many new customers in the post-COVID period are evaluating the capabilities and economics of additive manufacturing and are embracing this new technology. So, what does all this translate to? While, while recent macro factors have slowed the investment for the entire industry in the short-term, these fundamentals support an expectation of compounded annual growth averaging over 20%, which translates to an $80 billion market opportunity over the next five to seven years. So, with all that as backdrop, I was asked recently by one of our directors, is 3D printing a growth industry? Well, given the expectation of market growth, an appropriate question to ask might be, why don't you as investors see it in the numbers? Well, there are two simple reasons. One is that recent economic conditions have impacted CapEx spending by our customers in the short term. This is expected to correct itself as interest rates ultimately decline and consumer demand becomes more predictable. The second is that new market entrants have emerged, particularly from China in the hardware element of the business. This has created a very fragmented industry, the one that increasingly seeks to consolidate, creating the scale and breadth of technology needed to service our global customer base in their factories around the world. So, with all of this, where does 3D Systems stand today and why should an investor be interested in our company specifically? Given that we're fundamentally in a growth industry, there are three reasons to invest in 3D Systems. First, we have the scale needed to support our global customers from a sales and service standpoint, while driving the internal efficiencies needed to sustain the R&D spend to meet our customers' application needs. At almost $500 million of revenue in 2023, we're one of the largest companies in the industry, with strong gross margins that continue to improve even in this difficult economic climate. Our R&D investments support the broadest range of additive technologies in the entire industry, bringing together metal and polymer hardware platforms and an exceptional materials portfolio with intelligent cloud-based software to deliver targeted application solutions to key customers around the world. We have the sales and service infrastructure to support our customers manufacturing plants wherever in the world they choose, and we have experience to show that it works. In one case, we have over 600 printers installed in plants in Central America, eastern Europe, and Asia, all printing in harmony to deliver custom products every day of the year. Last year, this single customer delivered hundreds of millions of bespoke products successfully to customers on virtually every continent, and now we're expanding our technology base into regenerative medicine. An emerging market with the ability to print vascularized human tissue will change healthcare forever. No one in the world is better positioned than we are to bring these solutions to the market, creating value for all of our stakeholders. In the short term, we have the flexibility to adapt to economic volatility by taking out costs and to do so without stifling future growth investments needed to serve that $80 billion addressable market in the years ahead, endorsed by a strong balance sheet, with a healthy cash reserve, providing headroom to execute on a strategy that delivers substantial value creation for the horizon ahead. So, with that backdrop in mind, let's turn to Slide 6. Without question, 2023 proved to be a challenging year, and it all centered on revenue, which remained under significant pressure all year long. Far and away the most significant impact on our year-over-year revenue decline was attributed to our dental orthodontics business. This was a headwind that we had begun to experience in 2022 when inflation first took its toll on consumer discretionary spending. This pressure built significantly in 2023 as demand in the orthodontics space tumbled and inventory spiked. In the end, our full year dental orthodontics business declined 39%. Making matters worse from a demand perspective, last year was a broad-based macroeconomic and geopolitical uncertainties, created in part by the rapid rise in interest rates used in an effort to dampen inflation. While clearly this was necessary, this rise in rates caused many of our customers to slow their capital spending as they waited to see what the impact would be ultimately on consumer demand. When we last spoke in November, our expectation was that this delay in capital deployment would moderate during the fourth quarter following the usual seasonality patterns for our company. Unfortunately, this did not happen. To be clear, this was a delay in placing orders, with very few cancellations as our customers remain committed to additive manufacturing as incremental capacity is needed and new products are introduced. Given that these concerns continue in the new year, we're assuming this trend of slow rolling purchase orders continues in 2024. This may prove to be conservative, but for now I think it's prudent. For this reason, we continue to take cost actions needed to drive near-term profitability and cash performance even in a static sales environment. One thing to point out, while navigating this challenging top line environment, I was very proud of our team's ability to deliver improved gross margins in 2023. Having driven through selective price actions to recover inflationary costs early in the year, as the quarters passed, we continue to focus on our insourcing of manufacturing into our newly formed centers of production excellence, and to begin optimization of our extended supply chain. This led to greater efficiencies for the business throughout 2023 as reflected in our rising gross margins, and we expect to unlock even more benefits going forward. The last point I'd like to acknowledge is already EBITDA performance. When we first entered the year, we had a much different outlook for revenue, and felt that at levels around $560 million, we could deliver at least breakeven profitability. In response to our more significant revenue challenges, we took extensive actions to remove operating costs from the business. As a result, we're seeing a reduction in core expenses, and we expect this to continue. Of note, these impacts were overshadowed in the fourth quarter by incremental investment in our regenerative medicine initiative and some higher than normal expenses near year-end, which Jeff will detail later on. Setting this aside, expectations for 2024 for reductions in OpEx and continued improvement in gross margin performance, both of which lead to improved EBITDA realization. Let's turn to Slide 7 to delve deeper into our restructuring initiatives. Like many of our industry peers, pressure on revenue growth in 2023 prompted significant cost reductions as a response. While we've implemented cost actions of our own, I'd argue our philosophy and strategy for doing so is fundamentally different. As a starting point, you just heard me talk about our strong balance sheet. With healthy cash reserves and an opportunity to drive considerable improvements in working capital through inventory reduction in the year ahead, we have an ability to be very methodical and deliberate in our restructuring efforts, balancing the need for improved operating efficiencies with support for critical R&D investments needed to deliver the growth we see ahead. In short, we're eliminating a substantial amount of costs to better reflect the current revenue environment, but we'll never do so at the expense of starving future growth initiatives that we deem to be critical to long-term value creation. That said, more simplistically, we're responding to our environment in order to thrive, not just survive. Our focus is not just on preserving this year ahead, but doing so in a fashion that still unlocks enormous potential for the years ahead. So, to summarize, at the midpoint of our revenue range, you'll see us pointing to a flattish performance as the economy finds its footing. Our efficiency programs and cost actions should deliver continued improvements in gross margins while decreasing our overall OpEx costs. We believe this combination will result in a positive EBITDA performance this year while maintaining our critical investments for growth. An enabler of this strategy is a keen focus on portfolio optimization, which will be an ongoing effort for us. The result may include decreasing investments in certain areas that no longer provide an acceptable return on capital, which may result in disposal of non-core assets or establishment of partnerships in certain areas while increasing investments in more attractive parts of our extensive portfolio. I'd like to give you an idea of some of the areas we find particularly exciting at this juncture. On Slide 8, you'll see our offering of end-to-end solutions to address the orthopedic device market. We have manufactured millions of medical devices within our own facilities, and a far greater magnitude produced by our customers leveraging our printers materials and software in their own facilities. In the $2 billion market for CMF, or cranial maxillofacial bone structures, we're among the leaders when it comes to supporting the full ecosystem of surgical planning, guides, and implants. This market is growing for us as we now expand from oncology and other planned surgeries to increasingly support trauma patients using both metal and polymeric solutions. In the $10 billion spinal market, we have the highest adoption rate of our DMP 300 metal printing technology to produce spinal cages, and surgeons are increasingly taking advantage of additive design capability to provide enhanced patient success. Building on the learnings from our CMF and spinal capability, we're now making significant inroads into the fast-growing foot and ankle market space, which is valued at almost $4 billion today, by supporting commercialization of several total ankle applications. Having now expanded our metals technology from titanium to cobalt chrome, we have the added capability to support replacement and repair of moving joints that are exposed to higher levels of fatigue over time. This is essential as we penetrate the foot and ankle market and then expand into the $20 billion hip and knee market, which will leverage our new triple laser metal printing system. Even in the difficult revenue environment of 2023, personalized healthcare was a positive outlier, if you flip to Slide 9, delivering double-digit growth year-over-year, and we expect this trend to continue. While significant element of growth will be expanded indications that I've just reviewed for you, another portion will be driven by geographic expansion beyond our core markets of North America, broadening our reach to more surgeons and patients across the globe. In the aggregate, we view the opportunities in personalized medicine space and our aggressive investments in this business to yield a tripling of revenue over the next five years. The second element of our healthcare business is dental. Historically, our largest revenue stream in this business has been orthodontics where we pioneered the 3D printing technology for clear aligners over 20 years ago. Now with the mass adoption of digital imaging advancements and advancements in materials and printing technology, we see continued opportunity to open new dental markets for additive manufacturing. A major market is for dentures, which until now have been manufactured through machining and hand assembly. For this reason, much of the manufacturing base moved to Asia to access lower labor costs, and lead times extended accordingly. However, just last week, we announced the introduction of the industry's first multi-material one piece Jetted Denture Solution. By adopting additive manufacturing, production cycle time, and even more importantly, the labor content for denture fabrication is dramatically reduced. This allows the process to be moved closer to patients and delivered faster and lower cost than ever before. With the addressable denture market expected to exceed $2 billion by 2028, this presents a tremendous opportunity for our Jetted Denture Solution. This denture combines our NextDent Jetted Denture teeth and base materials in one printing operation, delivering not only beautiful aesthetics, but exceptional brake resistance, a combination never before attained in a printed single piece denture. Combining our materials with the speed of our jetting printer technology drastically accelerates production rates to deliver these visually beautiful and extremely durable products to patients in a much shorter timeframe. When we introduced this product last week at the Annual Dental Show in Chicago, Glidewell, a longtime 3D Systems customer and the world's largest producer of restorative dental devices, commented specifically on it, citing its superior durability and aesthetics. As one of our key launch customers, we're proud to have Glidewell’s endorsement, an enthusiastic embrace of this new technology as we anticipate 510(k) clearance in the from the FDA in the second half of this year. Turning now to Slide 11, in offering the broadest range of technologies, we're concentrating heavily on our innovation in metals. Despite pressures in other industrial markets during the year, we delivered solid growth from both semiconductor capital equipment and aerospace and defense markets. We see additive continuing to generate momentum in these industries and others such as shipbuilding going forward. On the right-hand side of 11, you'll see a sample of some of the many proven solutions for different materials and applications we offer in key industries. Our technology enables the consolidation of parts, accelerating time to market for our customers and does so with improved performance facilitated by freedom of design. It's an overall continuation of the important contributions we can make in mitigating supply chain disruptions. Turning to slide 12. Since joining 3D Systems in the summer of 2020, we've had an intense focus on new products. While a few of these have come to market through acquisition, most are being developed through our R&D investments. With a typical three-year development cycle for a new platform, we're now beginning to see the fruits of our investment, which will continue to gain momentum over the next 18 months. During the fourth quarter alone, we delivered nine new products, five new materials, three printer upgrades, and one key accessory. More recently, we shipped our first MJP300W jetting system, the first of our new generation of jetting printer technology. We completed validation of testing on our SLS300 machine, and are now ramping production is removed toward the second quarter of this year. Additionally, we're on track to deliver on our commitments for our newest metal printer, the DMP 350 Triple laser system, as well as our revolutionary PSLA 270, which combines the benefits of SLA with a high speed projection technology and leverages the materials developed for our figure four printing system. This new printing solution set was introduced in concept at the 2023 Formnext show, and was met with great enthusiasm by our customers. Looking ahead, we are continuing to work tirelessly in the development of nearly 40 new product releases by the end of 2024, which will be a refresh of virtually our entire product portfolio of printing technology, setting the stage for an exciting 2025 and beyond. And finally, let's turn to our regenerative medicine initiative on Slide 13. As you've heard from me multiple times over the last few years, our regenerative medicine initiative is unparalleled and a strategic differentiator, with technology that may not only deliver transformational growth and shareholder value for our company, but importantly, profoundly change the future of healthcare. Leveraging our 3D printing technology leadership, regenerative medicine is structured into three distinct opportunities, human organs, non-organ tissue, and drug development. In December, we announced that Harriss Currie would join 3D Systems in the newly created role as president of regenerative medicine for us. Harriss will draw from his 30 years of experience in executive leadership, with a focus on building emerging businesses. Prior to joining us, Harriss was Senior Vice President and CFO for Luminex (NASDAQ:LMNX) Corporation, spending over two decades with the biotech company, helping lead their growth from a startup to more than $500 million in revenue during his tenure. The creation of his role reflects the increasing maturation of our exciting new technology as we move from early-stage conceptual development toward commercial application. Specific to our work on organs and our outstanding partnership with United Therapeutics (NASDAQ:UTHR), we’re working vigorously to produce the most complex product ever printed, the human lung. Something that once began as a dream is now well underway and continues to track toward our goal of human trials for 2027. Looking back on the last year, we eclipsed a critical point in lung development during the third quarter, our progress validated with recognition of a $4.5 million milestone payment for the program, and moving it yet another year closer to our target for human trials. On the drug development front, we're making great progress in our wholly-owned subsidiary Systemic Bio formed in 2022, and you'll see this on Slide 14. h-VIOS, our proprietary organ-on-a-chip platform, is a novel application set, which allows pharmaceutical companies to test their drugs on vascularized, cellularized tissue chips that mimic human response to drug therapies at scale in the laboratory. We believe Systemic’s h-VIOS platform has the potential to dramatically improve the drug discovery and development timeline, particularly important considering market research indicates that nine out of 10 drugs fail in clinical trials, leading to an average of $2.6 billion invested by pharma companies per drug approved, with over a 12-year time horizon to establish FDA approval for each drug introduced to the market. To this end, we've gained significant momentum and validation of our technology, and I'm pleased to announce that before the end of last year, Systemic Bio successfully closed their second contract with another large pharmaceutical company. In total, this represents collaborative contracts now with two of the top four largest pharmaceutical companies in the world, and an impressive pipeline of future opportunities ahead. Based on the extraordinary progress made to date and in order to propel this business forward, we're leveraging the strength of our core business, as well as our balance sheet to invest for continued progress in regenerative medicine. For 2024, we expect to invest in key regenerative products to continue our momentum and maintain the unrivaled lead we have over any 3D printing competitor in our space. While this is still a highly developmental area, and undoubtedly some avenues will advance more quickly than others, we continue to believe that regenerative medicine offers tremendous value creation in the future. We'll be proud to update you on our progress throughout the year. So, with that, I'll finish on Slide 15. So, to recap what you've heard from me this morning, given the current economic environment, we expect our full year revenues for 2024 to be relatively flat given the softness experienced throughout the year last year. We would hope that this is a conservative position to take, but it remains prudent to say so at this time. Our insourcing supply chain and restructuring work to date has provided a strong foundation for gross margin improvement, and we expect that to continue even in a static sales environment. Any volume leverage on revenue upside would further enhance this performance. And finally, with stable revenue performance, expanded gross margins and carefully managed OpEx at reduced levels from 2023, we're committed to deliver positive adjusted EBITDA performance and operating cash flow for 2024. With prudent R&D investments in our highest priority customer initiatives, we believe we can deliver on an exciting top line growth and sustained profitability in the years ahead. So, with that, I'll now turn things over to Jeff. Jeff?

Jeff Creech: Jeff, thank you very much and I appreciate the warm welcome, and good morning to everyone on the call. While I've already met many of you on the conference circuit in January, I look forward to meeting more of our investor and analyst community in the very near future. I'll begin with Slide 17 with our revenue summary. For the full year 2023, we reported consolidated revenues of $488 million, down 9% from the prior year. Year-over-year results were primarily impacted by a headwind in our dental orthodontics business, further amplified by broader macro weakness pressuring most other markets, which was most accurately reflected in printer sales. From a segment perspective, revenues in industrial solutions mostly held firm at $275 million, with full year performance declining about 1%, despite a tougher economic backdrop. Within industrial, headwinds from the prior year in more price-conscious markets such as jewelry, were largely offset by continued momentum and growth in areas such as transportation and motor sports, semiconductors and aerospace and defense. Healthcare solutions delivered full-year revenues of $213 million, declining approximately 18% from the prior year. The full year's performance was most heavily influenced by the decline in our dental orthodontics business, down roughly 39% from 2022, while the remainder of our healthcare segment was essentially flat. Although embedded in this was full-year growth of 12% for our personalized healthcare business. Shifting to our fourth quarter performance on Slide 18, we reported consolidated revenues of $114.8 million, declining approximately 14% from the fourth quarter of 2022. While our materials and services performed well in the quarter, growing from prior year, it simply was not enough to offset weakness in printer sales, again, most significant in dental, but also felt more broadly across our remaining businesses. From a segment perspective, industrial solutions reported fourth quarter revenues of approximately $64 million, a 12% decline from prior year. Similar to the full-year trends just mentioned within industrial, strengthen in markets such as aerospace and defense and semiconductor, was more than offset by broader printer weakness in most other industrial end markets. Healthcare solutions reported fourth quarter revenues of $51 million, down approximately 16% from prior year and across most markets. A notable exception to this was, again, the personalized healthcare delivering double-digit growth compared to last year's fourth quarter. Now to Slide 19 for a look at our gross margins. For the full year 2023, we reported gross profit margin of 40.7%. On this slide, you'll find non-GAAP gross margin. Non-GAAP gross margin for the year was 41.1%, a 130 basis-point improvement over the prior year, and primarily driven by favorable mix, operating efficiencies, and the positive impact of price increases to offset inflationary pressures. Specific to the fourth quarter, gross margin and non-GAAP gross margin were 40.4% and 41.9%, respectively, with the improvement in non-GAAP margins for the quarter largely driven by mix. It's important to note that while the favorable impact of mix is more indicative of the associated short-term pressures on customer CapEx deployments for printers, they're increasingly encouraged by our insourcing and efficiency efforts and the positive impact we expect them to drive on longer-term margin expansion. Coupled with our technology roadmap for new product introduction expected throughout 2024 and beyond, it's reasonable to expect continued improvement in gross margin performance on a year-over-year basis going forward. Now let's turn to slide 20 to finish up the P&L. Before I begin our usual readout on metrics for the year and for the quarter, I want to call your attention to a specific accounting-related charge or charges to GAAP and operating expenses that we took during year-end quarter, during the fourth quarter, as these are non-cash impacts and excluded from our non-GAAP metrics. The aggregate, these were approximately $313 million for the full year and $298 million for the fourth quarter related to the impairment of goodwill and other assets. Additionally, we realized a $32.2 million gain on our repurchase of 2026 convertible notes at a discount, and that's also excluded from our non-GAAP metrics. For the full year 2023, adjusted EBITDA of negative $24.5 million declined from the prior year by $18.7 million. The decline was primarily driven by lower revenues and increased operating expenses. For the year, non-GAAP OpEx was $246.6 million. For the fourth quarter 2023, adjusted to EBITDA of negative $12.3 million declined in the prior year by $7.5 million, primarily driven by the same factors as noted above. For the quarter, non-GAAP OpEx was $66.1 million. How we have taken considerable restructuring actions throughout 2023 and have additional items in place from our November initiative, their impact to operating expense was offset by four very distinct events or circumstances. We had increases in our regenerative medicine R&D stent. We experienced higher than normal or temporary external support fees associated with our year-end audit and frankly, my transition. We had an accelerated investment in our IT infrastructure for modernization and systems enhancement for cybersecurity, and we felt this was very important as the world gets scarier and scarier. As you are all aware, cybersecurity is a key issue for everyone. And finally, we incurred advisory and legal fees in association with December's convertible note repurchase. It's important to note as we consider where we stand going into 2024, one of the key costs that we incurred as part of my transition were some accelerated fees, or rather larger than normal fees associated with our year-end audit. We're currently transitioning to a big four due to our increasing complexity associated with our business. I mention these items specifically to clarify that we view them as temporary and specific operating expenses and reiterate our expectation to reduce operating expenses in 2024 based on the restructuring actions previously announced. Earnings per share full-year 2023 resulted in a fully diluted loss per share of $2.85 compared to a loss per share of $0.96 for 2022. Excluding stock-based compensation and other non-recurring charges detailed in our appendix, this resulted in non-GAAP loss per share of $0.26 compared to $0.23 for the prior year. For the fourth quarter, we reported fully diluted loss per share of $2.30 in 2023, compared to a loss per share of $0.20 in 2022. Non-GAAP loss per share was $0.11 in 2023 compared to a loss per share of $0.06 in 2022. Now, let's turn to Slide 21 for the balance sheet. We closed the year with $331.5 million of cash and cash equivalents on our balance sheet, with no short-term investments, compared to a total of $568.7 million of these same items at the end of 2022. The year-over-year decrease was primarily driven by cash used in operations of $80.7 million, acquisitions and other investments of $29.2 million, and capital expenditures of $27.2 million. Additionally, this also reflects slightly over $100 million used in the repurchase of the company's 0% 2026 convertible notes. Announced in December, we opportunistically repurchased $135.1 million notional value at a significant discount. The transaction strengthened our overall balance sheet, with the extinguishment of nearly 30% of the outstanding maturity, while leaving healthy cash reserves to invest in future growth to fund core operations and strategic optionality. Looking forward, we maintain the expectation that our insourcing actions taken over the past two years, will deliver a significant return in the form of increased gross margin and generating cash from inventory. Our expectation of improved profitability would also return us on the path to be a more regular generator of cash flow. That said, as Jeff and I mentioned throughout this morning's call, we view 2024 as a year of continued investment, and we'll continue to evaluate strategic opportunities through R&D and capital expenditures to fund our most critical growth programs. We'll be doing this while keeping a very close eye on cash usage across the system and throughout the year. I'll conclude now on Slide 22 with our 2024 outlook. As you've heard from us this morning, in current economic conditions, we view 2024 as a year of driving improved profitability while continuing to fund growth in a relatively flat revenue environment. In that regard, we expect full-year revenues in the range of $475 million to $505 million. And to aid with modeling, we expect a seasonally soft start to the first quarter, with revenues down sequentially and year-over-year. However, consistent sequential improvement each quarter throughout 2024. Non-GAAP gross margins in the range of 42% to 44% as a result of our ongoing operational efficiencies, and with particular strength in the second half of 2024. Non-GAAP operating expense in the range of $223 million to $238 million, reflecting a reduction in cost from our previously announced restructuring activities, and including incremental offsets and critical growth programs discussed throughout this morning's call. Finally, adjusted EBITDA for the full year is expected to be breakeven or better as the efforts in our improved margin profile and cost reductions should drive substantial improvement to consistent profitability, without the expectation of top line growth at the midpoint of our guide. We thank you for your time and continued support of 3D Systems, and we'll now open the line for questions. Operator, please.

Operator: Thank you. [Operator Instructions] our first question today is coming from Troy Jensen from Cantor Fitzgerald. Your line is now live.

Troy Jensen: Hey gentlemen, thanks for taking my question, and Jeff, welcome to the team. I guess first thing I want to ask is just dental all in, are you expecting this to grow here in 2024?

Jeffrey Graves: Yes, Troy, it's certainly in the process of bottoming. If you look at - we've got pretty good visibility to the ultimate customer in the end market. So, clearly, demand is rising. The complexity as 2023 ticked by was the clearing of inventory in the supply chain. So, there was a lot of work done last year to clear that inventory. So, I would tell you, it’s pretty much cleared. And so, we're - I would call Q1 here bottoming, and then we should see a lift going forward after that, primarily in materials and services for that business. I believe there's plenty of printing hardware capacity in that supply chain. It's more materials consumption rising out of rising demand. So, I think you'll see it kind of bottom out here. Whether it bottomed in Q4, is bottoming in Q1, is kind of hard to tell, but it's in the process clearly of turning.

Troy Jensen: Okay, perfect. And then sticking in dental here, I know you said you expect to get FDA approval for NextDent later this year. Is there also insurance qualifications you guys need too before it can really take off?

Jeffrey Graves: No, we're good to go. As soon as we get the 510(k) approval, we're good to go, Troy. In fact, we’re putting in printing capacity to handle printing that product now. So, we’re really bullish on that new product. It's a terrific looking and performing product. We've got to, as always, work our way through the FDA regulatory approvals, but we view that as very manageable, and we should have it in the market later in the year.

Troy Jensen: Okay, perfect. And last question and I'll cede the floor here. Can you remind us what you're spending quarterly on regenerative right now?

Jeffrey Graves: What we're spending quarterly on regenerative, it’s - and I'm not trying to hedge, Troy. It's a bit complicated because we spend a certain amount and we get some of that reimbursed from United Therapeutics. There's some things we do on our own, especially around pharma, but a lot of the organ work obviously is reimbursed. So, we spent about $10 million last year of our own money. If you take away all the noise, we spent about $10 million last year of our own money on regenerative medicine, okay, primarily to pursue the pharmaceutical market. And we continue to look at the range of applications. We could be chasing dozens of them. We're trying to be very disciplined about what we actually chase, and our highest priority with our own internal funding is the pharmaceutical pursuit, okay, because the payoff to making progress against the drug induction timelines is enormous. So, and the receptivity of the pharma companies has been really encouraging. So, we landed our second contract late last year, as I mentioned. We've got a really nice pipeline of interest coming forward, especially after the J.P. Morgan Healthcare Conference. So, things are looking very promising for the pharma pursuit. So, we're clearly giving priority to that right now. And then obviously the long work with United Therapeutics is an extremely high priority as well for the longer-term.

Troy Jensen: Yep. All right. Understood. Well, good luck going forward and a special shout out here to Andrew. Thanks for all the hard work over the years.

Jeffrey Graves: Yes, thanks for that as well. And thank you Troy for doing such a great job covering us. We really appreciate it.

Operator: Thank you. The next question is coming from Greg Palm from Craig-Hallum. Your line is now live.

Greg Palm: Hey, morning, everybody. I guess just thinking of back to Q4, it sounds like the vast majority of the shortfall was more system-based CapEx-driven than anything. Do you have the growth rates and systems versus consumables for the quarter, and any sort of general sense on how that trended for the full year as well?

Jeffrey Graves: Yes, we'll see if we can dig up a number. I can tell you qualitatively, Greg, the equipment was really tough last year with CapEx spending being down. We were quite surprised in Q4 to not see the normal seasonal lift, especially because customer engagement and sales has been very high. And we have this advanced applications group in our sales organization, and they’re bursting at the seams with work to do for new customer applications. So, we were very surprised to not see that flow through as it usually does seasonally at the end of the year. But I think it just reflects customers’ nervousness about what the rising interest rates will do to end demand. No lack of interest, which is the encouraging thing. I think it's more of a timing issue. Problem in their 2024 guidance was it's very hard to say when does that nervousness subside? And so, we've modeled it as a pretty flat year this year, and I hope that's conservative. Do we come up with an actual number for Greg? We don't normally break that out, but I can tell you, Greg, just qualitatively, our shortfall in revenue was hardware driven, not materials and services. Materials usage was actually pretty darn strong all year long. It's just people weren't adding incremental capacity.

Greg Palm: Yep, makes sense. And specific to the Q4 decline, I mean yes, it’s going back a long time and unable to really see that sort of sequential decline. Usually, you see sort of the opposite, but just the confidence level around that, it wasn't competitive loss. It wasn't share loss. It was more timing. Can you just maybe go in a little bit more detail on - yes.

Jeffrey Graves: We've got - it was a big question internally that I had, Greg, and I can tell you, we chased it to ground, and we've got line of sight to almost every printer hardware saw significance. And it was not lost market share. It was not a drop in customer interest. It was strictly a slow rolling purchase orders is what I would call it on their part is, look, can we - and it's not that they're short of cash. I mean, most of the people we sell to are fine from a cash perspective, balance sheet, very, very credit worthy big customers. It's more they weren't certain they needed the incremental capacity given where interest rates had gone. I think everybody just wanted to see the year turn over and how end demand affected their business. That’s as much as I can tell you, but I truly don't believe there was any share loss, and I think it was strictly slow rolling purchase orders on our customers’ part by and large.

Greg Palm: Got it. Okay. And then last question, Jeff, did you - did you give a non-GAAP operating expense number from the quarter?

Jeff Creech: I did. Non-GAAP OpEx was about $66 million for the quarter.

Greg Palm: Okay. That strikes me as being up quite a bit relative to the levels that you saw throughout the year, and obviously should have maybe taken into account a little bit of the restructuring that you announced in October. So, is that right? And I guess, what's - just to be clear, that restructuring you announced in October, can you just remind us just timeline and how much is OpEx versus gross margin?

Jeffrey Graves: Very logical question, Greg. It's a good one. So, there were four items in OpEx in Q4, which we did not take - we did not exclude to get to a non-GAAP number because they truly by definition weren't strictly one time, but I would tell you they were very short-term investments focused in Q4. Why don't you run through those, Jeff, real quickly?

Jeff Creech: Sure. So, again, what we saw in the fourth quarter were spikes higher than normal expenses in our external support fees. And again, this consists of audit fees and external consulting fees that we had to make a very intentional investment in to get us to the end of the year, and quite frankly to provide some added assistance in the CFO and internally at a CAO transition level. So, those were very intentional for us. We did make some accelerated investments in our IT infrastructure and really around, again, this concept of cybersecurity. We've had a lot of conversation internally about cybersecurity exposure, we know that it's a very scary world out there and we know that we, in a technology business, maintaining intellectual and proprietary information is extremely important to us. We need to be cognizant of what those threats are. So, we accelerated some of our investments in that area. We, of course, had the very distinct legal and advisory services associated with our debt repurchase, and those expenses hit in the fourth quarter. And again, as I mentioned, some increases in our regenerative medicine R&D. So, all four of those things were higher than normal. And with the exception of reg med, would be considered temporary in nature, and we would expect to see them go to more moderate and in some cases be eliminated altogether.

Greg Palm: Yes, got it.

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

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

Brian Drab: Hi. Thank you. I just wanted to clarify one thing first. So, when you say the dental orthodontics was down 39%, is that a different number than dental overall, or is that - that's a number for dental?

Jeffrey Graves: It is a different number than dental overall, but it is the predominance of dental, if you look at it today, Brian. So, it was the big driver. The rest of dental did not suffer the same kind of impacts, because the rest of dental is much more reconstructive work that we do in the mouth, and that’s really not optional spending. It's back to orthodontic work that we're involved with. It's a big number and obviously it's discretionary. So, when inflation spikes, consumers just put off buying them, and I think you can see that. I'm very pleased with the commentary around, hey, people are buying more of them now. It's coming back, blah, blah, blah. But there was a lot of excess supply chain inventory to work down and we worked through that largely in 2023.

Brian Drab: I'm just curious, I think that you've been giving the dental number in the past, right, the decline or increase in the dental business overall. I don't know if you have that potentially at your fingertips for - I'd just be curious what 2023 looked like for dental and for the fourth quarter for dental overall, just given that's something I think a lot of people have been tracking.

Jeffrey Graves: Yep. So, performance for dental overall in 2023,

Jeff Creech: 32%.

Jeffrey Graves: Yes, it was down 32%. All of dental was down 32%. And then we gave you the orthodontics number was down, what did we say, 39. So, yes. So, the rest of it was up. And I'm glad you're watching the rest of it, Brian, because as dentistry now converts to 3D printing, and I was at this dental show last week, it's remarkable, as dentures and other reconstructive items in dental go, I think you'll see much of a broadening in that market away from orthodontics, just orthodontics. Orthodontics will grow, but the rest of it I think has enormous growth coming and we’re really excited about it. That's why our focus is very broad on dentistry right now.

Brian Drab: And overall, dental is probably down less than 32% in the fourth quarter, I imagine, right? Is that the decline moderating?

Jeffrey Graves: Yes. Correct.

Brian Drab: Okay. I'll follow up more on that later. One other question I wanted to ask at the moment though is that I noticed inventories and accounts receivables remained somewhat elevated going into the end of the year. I mean, I guess the main driver of that is discrepancy between your expectation and actual sales. But could you comment on that? And then also I'm just curious if the elevated inventory potentially weighs on gross margin in the near term.

Jeffrey Graves: Yes, so, actually a simple answer on the inventory part of that, Brian, was, we completed our insourcing activity last year. We were really aggressive about insourcing our manufacturing that we started in 2022. We completed it in 2023. With that insourcing from contract manufacturers, you have to pick up the inventory they had on hand. So, that big spike in inventory from last year was the taking on of their inventory that we now have to burn down. The AP and AR balance, we generally were able to hold pricing in the marketplace. We did have to extend some credit terms to some folks, especially smaller customers. And we've been a good payer of suppliers, particularly since COVID to make sure we had adequate supplies. So, we're working on all elements of working capital. Clearly, there's a really nice ability to generate cash from that working capital this year, and we're working that aggressively. So, we're done with the inventory purchases from contract manufacturers. We'll be burning it down now.

Brian Drab: And just the last question on that topic is, you said EBITDA breakeven is a target for the year. Is it logical to make the conclusion that you'd also expect to be cash flow breakeven in 2024?

Jeffrey Graves: We'll generate - we'll be positive in operating cash flow. And the free cash question is just how much we end up spending on CapEx. We have our normal CapEx required for maintenance, and there's some factory improvements with the insourcing we have to do. There's a couple of extraordinary growth areas that we have to put capital in in 2024 to grow in 2025. They're not huge numbers, but it will put pressure on CapEx. So, you'll probably - you'll see positive operating cash flow this year. You'll see a slightly negative - my guess is a slightly negative free cash flow as we invest CapEx, and we'll update you on that throughout the year.

Brian Drab: Yep. Okay. Thank you very much.

Operator: Thank you. The next question is coming from Jacob Stephan from Lake Street. Your line is now live.

Jacob Stephan: Yes. Good morning, guys. Thanks for taking my question. I just want to focus on the industrial side of the business. We've seen more investments in kind of the aerospace market. So, what kind of investments are you making there, if any?

Jeffrey Graves: So, in terms of investments, I would tell you, the primary investment there, you'd say, really is in our cost of sales, and it's our application engineers. What we see from aerospace right now is they really like - they really do embrace polymer processing a lot, but a lot of their interest is in metal processing and the use of proven, but new materials with additive. So, I'd say they’re not as far along as developing a lot of new materials, brand new chemistries for additive as the polymer site is, but they’re deeply in, in the process of evaluating existing materials on 3D printers. So, we spend a, a lot of investment money on our application engineers, working with customers on specific applications. And it’s very interesting, the driver of that. There's two camps. One of them is improved performance. They want to design a part that can't be machined, at least not easily. So, there's the performance-driven designers, and then we're seeing an increase in those that are motivated by risk reduction for their existing infrastructure. So, like oil and gas, we have a lot of interest in oil and gas because oftentimes those oil rigs or refineries are in very difficult parts of the world. And so, the customers are forced to hold huge amounts of inventory to make sure they stay up and running. They're really interested in localized manufacturing that could do just-in-time production of spare parts. So, we’re pursuing a lot of that for the electrical infrastructure, for oil and gas. So, if you look at investments, that doesn't require us to build new plants and things. There's not a lot of investment except in sales for application development for those folks. So, if you see an increased spending, it's around sales cost for those new industrial markets. Does that make sense?

Jacob Stephan: Yes, yes. That's helpful. And then you noticed that you were - or sorry, you had said that your in-source initiative has been completed in 2023, but maybe just kind of give us an overall progress update on the restructuring initiative. Do you still expect the majority to be completed by Q1?

Jeffrey Graves: Yes, I'd say I would say mid-year more than Q1, but - so there's different - there's three legs of the stool of our restructuring. There's straight headcount reductions, and of course you’ve got to look at north America versus Europe in terms of timing there. All of the North American actions virtually were completed. The European stuff is in progress. You've got - for us, you've got site closures. We're closing 20 of 50 sites, and these are acquisitions that were done years ago largely that had remaining small groups of people that we’re now able to get efficiencies by closing those and consolidating the hubs, if you will, for design and manufacturing. You've got a lot of that work going on this year. And the tricky part of that is, when do the accounting regulations allow you to recognize the savings? So, we're driving to specific dates this year on these site closures, which are all underway. All 20 of the 50 are underway. It's a matter of when do they - when are they completed from an accounting standpoint, and what credit can you take in the year? That's why there's a range on our restructuring savings, frankly, because those accounting rules are really complicated. So, we're just driving to get them closed, get them done, get it finished and consolidated. And then, of course, we have the efficiency gains from insourcing. So, driving operational efficiencies all the way through the supply chain now that it's insourced. We recognized a little bit of that in Q4 and last year, but there's a lot more to come this year as we go forward. So, those hit both the OpEx line and - the restructuring hits both OpEx line and the COGS line, especially in manufacturing. So, that’s why we see a lift this year in our gross margin in 2024. And we'll get obviously a big swing in EBITDA by bringing OpEx down. So, that - qualitatively that's - it's in those three buckets and that's why you'll see the lift in both gross and EBITDA margins, even in a flat sales environment.

Jacob Stephan: Okay. Thank you. I'll turn it over.

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

Ananda Baruah: Yes. Thanks, guys. Good morning and thanks for taking the questions. And yes, Andy, also, really have enjoyed working with you over the years. So, best luck on everything. Jeff, could you - I guess, maybe sort of put a little context around the remarks you made about the China competition when you started the call, what are you seeing in there and what's the right way we should be?

Jeffrey Graves: Yes, Ananda, the industry - it's very interesting. The industry's really changing. We've got our traditional competitors in the industry and they’re smaller companies. And then obviously some bigger companies, and some of them, the bigger ones are owned by very large industrial companies. So, you've got that historic competitive base. But increasingly, we see the emergence of Chinese players. And it's very interesting because you can buy a lot of the key components on the market. And what we see them coming into the market primarily is on the hardware side, not as much on materials and certainly not as much on software, but in terms of just raw hardware design and sales, they’re moving into the markets. They're moving into Europe. They're moving into the States. It's definitely happening. And they're just like - and not to generalize too much, but they're competing on price with hardware. The way - strategically, the way we compete with that is on not only the hardware technology, but bringing it together with materials and software and servicing the customer well, because they often struggle with that. So, broad-based, we're seeing a lot more entrants from China on the hardware side. And it does make it a challenge when you strictly look at the hardware itself. So, part of the pressure on R&D spend is to make sure that technologically we stay ahead in our core markets, that we stay ahead. I'm not talking about regenerative medicine. Clearly, we're ahead on that, but it's our core industrial and even healthcare markets, make sure we stay ahead on hardware, software, and materials, and then make sure we have the scale enough to service customers from a sales and service standpoint. So, while I will comment that we have sufficient scale to do it, we spend a lot of money servicing customers, and that's where when you talk about consolidation in the industry, scale helps. It really helps you more economically spread the costs. So, that's the full landscape around China. I'm glad you asked the question.

Ananda Baruah: Yes, and so just a quick follow-up there. They've sort of like, they've been present in the way that you've described it in the past, call it at the consumer slash workshop level with the same kind of approach. Is it now you're seeing it kind of move up into - sort of into the bread and butter market? And I guess one more question to ask, kind of a distinction, is it both prototyping and production? And I guess, just sort of where - like context around that question would be great. Thanks.

Jeffrey Graves: Yes, sure. No, all good questions. So, clearly, it's more industrial and healthcare, and I'm very glad we have a healthcare business because with all the regulatory environment and the quality concerns and everything else, healthcare is the most difficult market for them to penetrate, as is aerospace and defense. So, I think those are probably the last markets at a production level that would be exposed to that. Again, talking about production applications, they're going to work in their way, and again, I'm sorry for the broad-brush commentary, but working their way into the other industrial markets, particularly industries that produce consumer products where quality is important, but it's not a differentiator, things like that. They're working their way into those kind of consumer-driven markets, which again, we have lighter exposure on broadly, but it's still important because that trend will continue, and it's one we have to set ourselves up for. Initial prototyping, clearly easier market, lower risk for them to get into, but it is definitely - they're definitely working on the industrial markets now, beginning with the easier ones, and working their way up to the harder ones. So, hopefully it answers both parts of your question.

Ananda Baruah: Yes, absolutely. Appreciate the context. I'll just put an eye on time here. I'll see leave it there and just get you guys on the call. Thanks a lot.

Jeffrey Graves: Okay. Well, we look forward to talking to you, Ananda, as always. Thanks.

Operator: Thank you. Next question is coming from James Ricchiuti from Needham & Company. Your line is now live.

James Ricchiuti: Hi. Good morning. Most of my questions have been asked, but just wanted to follow up to see if I can get a little bit more color on the decline in the industrial business, which the quarterly level looks like the lowest quarter of the year. And you talk about areas where the business has held up better, I think aerospace, defense, semi. But yes, what areas in particular were weak in the quarter and did that - was it more pronounced in any one geography?

Jeffrey Graves: No, it was - Jim, I'll try to answer all of those. It was pretty equal between the US and Europe. Most of our sales are in US and Europe. So, it was pretty equally split there, because frankly, central banks in both parts of the world have been raising interest rates. It was much more consumer market-driven, consumer end market-driven. So, if you look at all of our customers, industrial customers, big industrial companies, customers on the industrial side, some of them serve consumer markets. And I think the concern, Jim, that they all had was, with this rapid rise in interest rates, were consumers going to be able to buy as much and did they need the capacity? So, it's not like they canceled orders, but they just - again, I keep using the phrase, they slow rolled POs. So, you call them and say, where's the PO? Yes, next week, next week, next week, it's coming. So, they weren't canceled, and I believe they are all coming. I believe we'll continue to see a slow roll until they're convinced that the consumer isn't going to go away. And the closer you get to specialized equipment like semiconductor equipment manufacturer, very strong for us. We've been working in that market for a long time. So, people that are putting in semiconductor equipment, heavy industrial equipment, that business remains strong, no doubt about it. Defense and aerospace remain strong. It was, as you go closer to companies that make consumer products, those are the ones that were hesitant on the CapEx spend. And with all of that said, industrial hung in there better than healthcare last year. But again, healthcare was dominated by dental being off due to orthodontics. And then again, they had a lot of capacity in printers themselves. So, you saw some roll off in printers, even in healthcare. But industrial, we almost offset the decline by new customers coming in. So, while we didn't see an uptick, we didn't see as much of a decline on the industrial side either. So, if there's a ray of sunshine in there somewhere, it's probably that. My disappointment was Q4 is usually a very strong quarter and clearly it was not. We did not see the lift. We usually see people just hung onto their purchase orders.

James Ricchiuti: Got it. And just last question from me is just on the non-GAAP OpEx to what you're guiding for in 2024, that would seem to suggest a pretty healthy step-down in Q1, but I don't know if that's going to be more backend loaded with some of the restructuring actions you're taking.

Jeffrey Graves: Yes, Jim, I would say it's probably a little bit more backend loaded. We took a lot of action quickly in North America when we launched this in terms of the headcount component. The tricky part is now the site closures, which again are split between US and Europe. The site closures take a little bit more time, and then the accounting resolution isn't done until you're out of the facility basically. So, we've got to be a little careful. So, you see a range of OpEx in our guidance. And again, I'd like to think we'll do better than that, but it’s - we try to be realistic about timing because I do think you'll see a big hit in the first half, which is good, but a lot of the benefits don't start flowing through until the second half.

James Ricchiuti: Got it. Thank you.

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

Jeffrey Graves: Thanks, Kevin. Listen, thank you all very much. I know we went beyond time, but I wanted to field questions because I know it's a volatile time for our company and for the industry. So, thank you very much for hanging in there and asking the questions you did. I appreciate you joining. We are cautiously optimistic about 2024. We look forward to the year ahead. We'll look forward to updating you each quarter on progress. Thanks very much for calling.

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

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