Hello, and welcome to the 3D Systems Q4 2021 Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to John Nypaver, Treasurer and Investor Relations. Please go ahead, sir..

Thank you, Kevin. Good afternoon, and welcome to 3D Systems conference call. With me on the call are Dr. Jeffrey Graves, our President and Executive Officer; Jagtar Narula, Executive Vice President and 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 post questions via the web.

The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially.

Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures.

In our press release and slides accompanying this webcast, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.

Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2020. Now I'm pleased to turn the call over to Jeff Graves, our CEO.

Jeff?.

the first is craniomaxillofacial reconstruction, which has been a cornerstone of 3D Systems health Care for many years and 1 of which we're the dominant player for titanium solutions today.

Having the unique Kumovis printing capability will allow us to expand our virtual surgical planning portfolio to include PEEK implants in addition to surgical instrumentation and on anatomical models.

The second application area is spinal cages, where 3D Systems is a leader in the development, production and sale of both implanted titanium components and complete printing systems for in-house OEM medical production.

Kumovis expands the material options for customers in this key product line, enhancing patient experience by allowing us to provide the best solution custom tailored for each patient. And third, bone plates for trauma patients.

Kumovis is developing a carbon fiber reinforced peak process for bone plate applications for patients suffering from severe trauma and fractures.

In addition to mass-produced custom patient solutions, Kumovis has also developed a unique self-contained clean room printing system, which opens new opportunities for 3D systems to expand our point-of-care market segment for trauma patients, where printing capability is provided locally within the hospital or even within the surgical suite itself.

These applications offer perfect complements to the point-of-care work we're doing today with large medical institutions such as the VA hospital system. We believe the point-of-care printing for customer patient solutions will be an increasingly exciting market in the years ahead and one for which we're a clear leader.

When taken in total, we believe the Kumovis market opportunity is measured in hundreds of millions of dollars and the synergies with our current offerings and infrastructure are outstanding.

Given the FDA approvals that are already in place for PEEK materials in human applications, we expect regulatory clearance for printed PEEK components to be granted later this year and that this technology will contribute in a meaning way to our health care business in the years to follow.

So in summary, with our tremendous progress over the last 18 months, our continued strong momentum, our breadth of technology, combined with our clear application leadership and the benefits of scale as one of the largest pure-play additive manufacturing companies, we entered 2022 with a great deal of optimism.

This optimism is not only for 3D systems, but for the additive manufacturing industry as a whole. As new production opportunities open each day, we firmly believe that additive manufacturing adoption and production settings will continue to grow at an exciting pace, and we're confident that we will help lead this transformation.

Our value proposition is simple. We offer the strongest and most complete portfolio of additive manufacturing technologies brought together with the most knowledgeable and creative engineering teams to solve the most valuable application needs of our customers.

We do so by combining a belief in financial discipline with an overlay of strategic perspective to guide our continued investments for the future. As we look forward, we see a growing industry and a tremendous potential to serve our customers.

For us, 2022 will be a year of exciting growth and investment as we continue to strengthen the company for the future.

Our investments will continue as they have over the last year, including adding industry-specific application expertise, back office infrastructure, and this is important, the foundational technologies that enable the value we bring to our customers.

Specifically, we'd expect that over the next 18 months, we will refresh our entire lineup of metal and polymer hardware platforms, while continuing to release record numbers of new materials and improvements to our software products offered through Oqton.

In partnership with United Therapeutics, we will make substantive progress in our regenerative medicine efforts, creating what we believe will be significant value in the years ahead. We recognize that bureaucracy is an impediment to growth.

So we're committed to remain a lean and nimble organization, the challenges itself to execute flawlessly, introducing new products on an almost continuous basis, while reducing manufacturing costs and maintaining industry-leading quality.

Growing adoption of our technology into customer production applications will drive high-margin, post-install recurring revenue streams via consumable materials, software and services.

In the coming years, we're confident that this focused approach and simple business model will result in consistent year-over-year double-digit organic growth with expanding gross margins, our goal of which is to exceed 50% over time.

With 3D systems at the forefront and driving adoption of additive manufacturing, we'll continue to transform existing industries within health care and industrial markets as well as creating entirely new markets such as regenerative medicine.

With that, let me turn the call over to Jagtar who will now describe our fourth quarter and full year financial results in more detail.

Jagtar?.

Thanks, Jeff. Good afternoon, everyone. As Jeff said, 2021 was a tremendous year. Our teams worked extremely hard and delivered outstanding results which I'm pleased to share with you today. I'll begin the discussion with full year 2021 numbers, starting with revenue. Revenue for 2021 was $615.6 million, an increase of 10.5% compared to the prior year.

This increase occurred despite the divestiture of our portfolio of noncore businesses. When adjusted for those divestitures, 2021 revenue increased 31.8% as compared to 2020 and versus pre-pandemic 2019 revenue increased 16.9%.

This impressive performance against both 2020 and 2019 validates the transformation efforts we have guided the company through and upon which our team has executed over the past several quarters.

Our strategy of providing additive manufacturing solutions for industrial and health care customers, utilizing a broad portfolio of hardware, materials and software solutions combined with applications expertise, is delivering consistent, strong double-digit revenue growth. Gross profit margin for 2021 was 42.8% compared to 40.1% in the prior year.

Non-GAAP gross profit margin was 43% compared to 42.6% in the prior year. Gross profit margin increased primarily as a result of prior year nonrecurring write-downs related to equipment and inventory. Operating expenses for 2021 on a GAAP basis decreased 13.3% to $296.8 million compared to the prior year.

On a non-GAAP basis, operating expenses were $214.7 million, a 9.4% decrease from the prior year. The lower non-GAAP operating expenses are primarily a result of restructuring efforts done in late 2020 and businesses divested as part of the company's strategic plan.

We had GAAP earnings per share of $2.55 for 2021 compared to a GAAP loss per share of $1.27 in 2020. The increase was primarily due to the gains recognized on businesses divested during 2021. Our non-GAAP earnings per share for 2021 was $0.45 compared to non-GAAP loss per share of $0.11 in 2020.

This increase was primarily due to our higher revenue combined with the lower operating expenses talked about earlier. Now we'll turn to fourth quarter results. For the fourth quarter, we generated revenue of $150.9 million, a decrease of 12.6% compared to the fourth quarter of 2020. The decrease is a result of the aforementioned divestitures.

When adjusted for divestitures, we saw strong double-digit growth of 13.1% versus Q4 2020, a 10.4% increase over Q3 2021 and impressively, a 21.9% increase versus pre-pandemic Q4 2019.

We are seeing great demand in both Healthcare and Industrial segments that are driving this consistent growth in our core business, which I'll speak to in more detail shortly. In the fourth quarter, we had GAAP loss per share of $0.05 compared to GAAP loss per share of $0.16 in the fourth quarter of 2020.

Non-GAAP earnings per share was $0.09, flat to non-GAAP earnings per share of $0.09 in the fourth quarter of 2020. As I mentioned earlier, our revenue growth is being driven by strong demand in both Healthcare and Industrial segments.

On a full year basis, adjusted for divestitures, revenue in 2021 for Healthcare increased 40.1% and Industrial increased by 24.4% as compared to 2020. The rebound in Industrial began in Q4 of 2020 and has continued through 2021.

Industrial revenue in the fourth quarter 2021 outpaced Q4 2020 by 22.2% and in Q3 2021 by 12.4% after adjusting for divestitures. In fact, this marks the fourth consecutive quarter of year-over-year organic growth in the Industrial segment.

This consistent growth pattern is a result of the strategic investments we have made, such as adding crucial application expertise in key industrial subsegments like aerospace and transportation as well as our focus on materials development to provide customer solutions to complex problems.

And perhaps most importantly, we continue to invest in our software platform which not only enables customers to move from design to successfully builds faster than ever, but also allows them to literally run their entire manufacturing process with one integrated cloud-based software solution.

This will be a key driver in empowering customers to make the transition from traditional to additive manufacturing at an ever-increasing pace. And our investment in Titan Robotics with their extrusion-based technology opens up even more opportunities for our industrial business to grow as we enter new markets.

Healthcare growth was broad-based in 2021 from dental to personalized healthcare and point-of-care services, with dental enjoying a large tailwind from the sale of materials for aligners, crowns and dentures. These subsegments are heavily influenced by patient access to dental and medical offices.

2021 ended with a substantial wave of Omicron cases and a similar pattern to the original COVID wave. Patients were either unable to get appointments or offices were understaffed due to infections, resulting in a reduction in short-term demand for certain elective health care procedures during Q4.

As such, we expect material sales to moderate early in 2022 as existing inventory originally met for Q4 is consumed during the first half but demand should remain strong for Healthcare as the backlog of appointments are filled throughout the year. In addition, our investment in Kumovis opens up new markets for us in medical devices.

We have a leadership position in this area and are now able to satisfy customer application requests for parts and hardware that require medical grade polymers like PEEK. Now we turn to gross profit margin.

GAAP gross profit margin was 43.9% in the fourth quarter 2021, bringing the full year GAAP gross profit margin to 42.8% as compared to 40.1% for the full year 2020. Non-GAAP gross profit margin in the fourth quarter was 44.1%, bringing the full year non-GAAP gross profit margin to 43% compared to 42.6% for the full year 2020.

Gross profit margin and non-GAAP gross profit margin increased in the fourth quarter, primarily as a result of better absorption of supply chain overhead resulting from higher production volumes combined with strong inventory management, resulting in reduced obsolescence.

GAAP operating expenses decreased 2.3% to $70.1 million in the fourth quarter of 2021 compared to the same period a year ago. On a non-GAAP basis, operating expenses were $54.3 million, a 6.4% decrease from the same period a year ago, driven primarily by lower SG&A expenses due to restructuring efforts and divestitures.

GAAP operating expenses for the full year 2021 decreased 13.3% to $296.8 million compared to the prior year, primarily as a result of a goodwill impairment charge of $48.3 million and cost optimization charges of $20.1 million that both occurred in 2020.

On a non-GAAP basis, operating expenses were $214.7 million in 2021, a 9.4% decrease from the prior year. The lower non-GAAP operating expenses are primarily a result of restructuring efforts done in late 2020 and businesses divested as part of the company's strategic plan.

Adjusted EBITDA, defined as non-GAAP operating profit plus depreciation, was $74.1 million for full year 2021 or 12% of revenue compared to $28.7 million for full year 2020 or 5.2% of revenue.

The year-over-year improvement was primarily due to higher revenue in spite of divestitures and lower operating expenses as a result of cost optimization actions and divested businesses. Now let's turn to the balance sheet. I will begin by noting that we issued a $460 million 5-year convertible bond in the fourth quarter.

We decided to issue this bond after considering the growth potential of our industry and business, and the robust investment opportunities that we see going forward.

The marketing of our bond met with a very healthy demand, and we were able to issue our bond at a 0% coupon providing the company with a significant arsenal for investment with very low carrying costs.

After completing this bond offering and combined with our previous activities of divesting noncore assets, making strategic organic investments and generating $48.1 million of cash from operations, we ended the year with $789.7 million of cash on hand, an increase of $705.3 million from the beginning of 2021.

We believe we are good stewards of investor capital, as we manage our cash and evaluate investment options that will drive future growth and profitability.

We were excited to have an early opportunity to invest some of our cash as we expand our hardware technology to include 2 extrusion-based platforms through the acquisition of Titan Robotics and Kumovis. The acquisitions are expected to close in the second quarter. We are very excited about these investments.

Both of these acquisitions bring unique capabilities and are well positioned for the Industrial and Healthcare applications that they are -- that they intend to serve. We expect that these acquisitions will add a point or more of organic growth and be accretive to earnings in 2023.

Going forward, we believe cash from operations, along with a portion of cash on hand, will fund organic growth opportunities, and we will continue to explore a robust M&A pipeline to support our strategy of driving recurring revenue growth and greater adoption of additive manufacturing in both the Industrial and Healthcare segments.

I want to reiterate my view that our revenue growth, strong adjusted EBITDA, cash generation and cash available for investment, sets us apart from others in our industry. Beginning last year, we provided guidance on a full year non-GAAP -- on full year non-GAAP gross profit margins.

This year, we are expanding our guidance to include revenue and non-GAAP operating expenses. We believe these are helpful data points for investors to evaluate our company. For full year 2022, we expect revenue to be within a range of $570 million and $630 million.

Non-GAAP gross margins to be between 40% and 44% and non-GAAP operating expenses to be between $225 million and $250 million. Our revenue guidance reflects our expectation of an expanding additive manufacturing opportunity that will drive demand and as a result, our continued revenue growth adjusted for divestitures.

At the same time, we see demand continuing to expand not just in 2022, but in future years as well.

As a result, our operating expense guidance includes our commitment to invest organically in the technology behind our market-leading hardware, materials and software platforms as well as investing in the right talent to continue the successful execution of our strategy.

We believe these investments will position the company to continue to lead the additive manufacturing industry with robust market-leading solutions.

Our guidance does not include the potential for significant additional macroeconomic events that could negatively impact our business, such as COVID-19, geopolitical events or other factors that could further impact either demand or disrupt our supply chain.

Before we turn the call over for questions, I am thrilled to announce that we have finalized the date and location for our Investor Day event. It will be held in Detroit on May 16 prior to the opening of the RAPID + TCT Trade Show, a leading additive manufacturing conference.

This will be an in-person event, and we are excited to give attendees more details about our strategic vision, including our plans for new products, services and exciting new applications. Invitations will be coming soon. We hope to see you there. With that, we will open it up to questions.

Operator?.

Our first question today is coming from Ananda Baruah from Loop Capital..

Congrats on the momentum. I have this -- yes, yes, you got it, of course. I have kind of like 1.5 questions. One is going to be super quick, and then one sort of more like a legitimate one.

But of the '22 growth forecast, what -- how are you guys thinking about the organic growth contribution in that forecast and what's a good way for us to think about it? And then just on the new product and then what would be the new product contribution in '22? Or what's the best way to think about that? You guys -- it seems like clearly you're sort of setting a context for us to expect ongoing new product introductions throughout the portfolio for the next couple of years.

And so what's the right way to think about it? Or a usual way to think about new product contribution in '22? And so those are my 2 questions..

I'll comment and Jagtar or if you want to add something, you're welcome too. So the vast majority of our growth this year will be organic. And on the investments we made late last year and then we've made now with Kumovis and Titan, they'll primarily impact starting in '23. It will be relatively immaterial in '22.

And we're nicely that we have a very strong demand profile right now. So when we talk about double-digit growth this year, it's virtually all organic. There will be some small contributions from these acquisitions, but most of those will ramp up materially in '23, so that's really what we're positioning ourselves for.

In terms of new product contributions, we'll talk a lot more about that as we go through the year. We were pleased to launch a few in the fourth quarter of '21. You'll see those increasingly roll out through '22 now and into '23. And by the time we're finished, we'll refresh our entire platform over that period of time.

The revenue from that will obviously phase-in over time. And again, most of that will be hitting in '23 is what we're thinking.

Jagtar, any other color to add?.

Yes. The only thing I'd add for you, Anand, is that if you go to the press release, we did provide a disclosure on revenue, excluding divestitures of $550 million for 2021. So if you want to see what 2020 will look like now, those divestitures are behind us and so you can see what that means for year-over-year growth based on our guidance..

Our next question today is coming from Greg Palm from Craig-Hallum..

Yes. Congrats on the good end of the year here..

Thanks, Greg..

Starting with gross margin, really good Q4 performance. And I'm just sort of -- what are the assumptions behind the guide, knowing that Q4 was sort of the first clean quarter? It looks like the guidance for fiscal '22 is a little bit below what you did in Q4. So just trying to get a little bit more color there..

Yes, we had a great Q4 on gross margin, Greg. As I said during my prepared remarks, right, Q4, we were at higher production levels which helps us from the perspective of absorption on fixed costs in our supply chain. We did a great job of managing inventory, so didn't have a lot of obsolescence or scrap or other areas.

That was the primary 2 drivers of gross margin performance. There was pricing and mix a little bit, but that was less impactful than just good solid execution on the supply chain. So as we look to '22, we will continue to manage supply chain tightly.

But really, gross margins will be impacted a little bit by what's going on kind of geopolitical wise or economy-wise as we're seeing kind of the supply chain constraints around the world sort of continuing for at least the first half of the year and the rising costs that are resulting.

So that's a little bit of the delta as well as kind of production volumes and to the extent that we continue to manage the supply chain tightly. So hence, the range, we think we did an excellent job executing in Q4. Obviously, continue to manage execution going forward, but that was basically the assumptions of the wind to the range..

There's no hidden messages in that at all, Greg. We're just trying to anticipate risk factors around ongoing cost and supply issues for building product and then just the overall unknown between COVID and geopolitics. We just wanted to be at the beginning of the year here, realistic about risk factors and to factor that into the guidance range..

Totally understandable. Okay. And then in terms of the breakout between segments, Healthcare and Industrial, looks like, specifically in Q4, Industrial was really the standout.

I don't know if I missed it, but did you give a dental and a nondental growth for health care?.

We did not. Dental was up, I would say, just eyeballing it, 15%-ish. Non-dental was flat to slightly down..

Okay. And then just one quick follow-up on Jeff, on your remarks about Russia.

I don't they're a material part of your revenue, but do you have any sort of estimate on the revenue contribution that might be impacted by your decision not to sell into that region?.

No, it's not -- it's really not a material number, Greg. It's a bit more point of principle in symbolic on our part. But it was a market that we're excited about growing when everything was under control and going well. But with this recent incursion into Ukraine, we just don't want to be supporting them with sales right now.

So that's why we've taken this position..

Next question today is coming from Troy Jensen from Lake Street Capital..

I also want to say congrats on the great quarter and great year..

Thanks..

Thanks, Troy..

So Jeff, for you. I'm just interested on Titan.

Can you help me now, is this a high temp build envelope? And specifically, can they do all temp material? And then how is it tie-in with Roadrunner?.

Yes. 2 good questions, Troy. So it is designed for higher temperature applications as well as rooftop applications, but it can go to higher temperatures. We'll be extending those. So it is designed to encompass all temp type materials and high-performance materials.

What I love about it, Troy, is the high production rates and the cost of the raw material using pelletized materials unique and it's a significant cost advantage for customers building large parts. So we really like that.

It's a starting point on the progress path to the Roadrunner, which is more what we're seeing as the goal of our entire extrusion program, if you will. So we'll factor in both filament now and extrusion technologies as we evolve that next-generation product.

So there'll be more about that at Investor Day in May, but that's our really laying out our long-term road map for extrusion-based technologies..

All right. Perfect. And maybe one for Jagtar. Thank you for the full year guidance here on revenues. Any thoughts or any help on normal seasonality? I mean I always think of Q1 is kind of down 12% -- maybe 12% to 15% sequentially. Q2 is up nicely, Q3 is flattish and then a bigger spike in Q4.

But I'd just like to get your thoughts now with divestiture behind us?.

Yes. Sure, Troy. I think what you'll see, I think you'll see similar profiles to prior year, excluding 2020, which was a little bit of anomaly. The one thing I'd point out is that right now, we're more supply constrained and demand constrained.

Meaning that the issues in supply chains that we've been all reading about have been more the impacting item to revenue for us right now than the customer demand. So as a result, I think you'll see seasonality in Q1 a little lighter than normal, not by much, but a little.

And hopefully, with supply chain issues getting fixed as we expect, Q2 and Q3 will be a little bit stronger than normal, then you'll have your normal Q4 ramp..

Next question is coming from Brian Drab from William Blair..

Did you say -- or can you tell us since the K is now out, what percentage of sales was in '21 to your largest customer?.

Yes, it was -- actually, I don't have that number off the top of my head, but it was about 25%..

25%, for the year in total?.

For the year. Yes..

Okay. And then I think it was Titan, right, is the acquisition that is using an open consumables model.

Is that -- I'm just curious, is that something that you've considered exploring for other product lines, the open consumables model? And what sort of margins can you generate with a product line like that relative to your corporate average?.

Yes, so good questions, Brian. We want to do what's best for our customers and what will allow them to adopt additive the fastest. And that really varies platform by platform. In some cases, it's really difficult to separate the material from the print platform. The process is just so interdependent. And in reality, that would apply all the time.

It's just some machines are easier to adapt to standard off-the-shelf materials and others from a processing standpoint for customers. So we want to make sure the customer experience is good. If that requires us to go with a fixed set of materials from ourselves, we do that.

If not, we open it up to them buying materials from other -- from third parties. So that's one way to look at it is where a machine is versatile, flexible enough to accommodate off-the-shelf materials, we'll make it open.

And we'll do that knowing that we can make an acceptable margin on the hardware and, of course, the aftermarket software services, all of that as well. We can refine our model to tune in a process for a material for a customer if they want to use that with them buying off, still off-the-shelf materials for the future.

So I'm not giving you a real crisp answer, Brian. It will vary by platform and over time. But I would tell you, we're looking at it from a very open minded perspective now about what's best for our customer for each platform we sell, and we're also looking at the materials availability.

We have a great portfolio of proprietary materials, and we're also looking at how best to take those to market. So as we think customers broadly will value those materials. So we're looking at both dimensions of the materials question..

Brian, I just double checked that percentage number for the largest customer, it's 21%..

21%. Got it..

Your next question is coming from Jim Ricchiuti from Needham & Company..

I just wanted to maybe go through again the gross margin guidance for the year. And it sounds like just some of the puts and takes there. It sounds like, to some extent, you're looking for potentially a little bit of a slower start.

That impacts some of the gross margin guidance for the year, coupled with what you just also noted, what we're all hearing about supply chain challenges.

And should we assume that, that just picks up as we go through the year?.

Yes, that would be a fair assumption, Jim. We know supply chain is challenging right now as we see it. we're seeing shortages of supply for certain parts that we're then having to go through a broker to obtain, which is, in some cases, resulting in higher costs.

So I would expect margins to be -- as I think about the seasonality of margins for the year, I would expect that margins will be a little lower in the beginning of the year. And then as volumes increase and supply chain issues, hopefully start to evaporate, the margins will increase over the balance of the year..

Got it. And Jeff, I want to go back to your comment and the reception so far since it's been part of 3D Systems.

I wonder if you could elaborate on what you're seeing in the market there?.

Jim, you broke up on a little bit of that, but you want a perspective on the market now that I've been --.

No, no, I'm sorry. Hopefully, you can hear me okay now. I wanted to go back to the comment you made on -- and the resection of some of the other industry players to the acquisition. How satisfied are you on the way this is developing? Sorry about that..

I know I'm with you.

It's the software question around Oqton, Jim?.

Yes, that's right..

Got you. Got you. Yes. No, I'm pleased, and I understand this. This industry is still relatively young. There were a lot of emotions involved early on, and as the industry matures. But my perspective, Jim coming in the last couple of years is the industry is maturing now.

And you got folks who truly set -- kind of a increasingly set a motion aside and look at what's going to drive the adoption of additive most quickly. So I know I've been very pleased. It's -- we still fight old feelings and things. But more and more, I think across the industry, everybody sees the inroads that additive is making.

And whatever opens up those doors faster is good. So as you look at it, the Oqton platform is the best in the industry. And the more that -- our customers adopt that, the easier everybody will have a chance to sell their technology into the customer base, and it can handle all these platforms.

So increasingly, we're seeing acceptance among the industry on using that software and also a fairly rapid acceptance by our customers. And we're still highly in the demonstration phase. But as customers start to use it, certainly, that encourages the rest of the industry to use it as well.

So yes, would I like it to move faster, sure, I absolutely would. But I think as people see that we are running the business as a platform business for the entire industry, that increasingly they'll adopt it. So it's coming along, Jim. I always wish things moved faster, but I am pleased with the progress.

And I think we'll continue to see it in future quarters and years..

Congrats on the year..

Thanks so much, Jim..

Your next question is coming from Paul Chung from JPMorgan..

So it's great to see annual guide again. So I just wanted to kind of expand on that. What do you think are the kind of relative growth between Healthcare and Industrial verticals? You had very strong performance in both, comps might be a little bit tougher in Healthcare this year. I think you mentioned additives may start to come back.

Just any additional thoughts there between the segments?.

Yes, Paul. So we're not really giving guidance by segment, I will say that I think I expect both businesses to do well. You are right, comps for Healthcare are a little bit harder, but we've got a great business there. Now added by a new acquisition that will help the business. So I would expect both businesses to perform well in 2022..

Paul, it's interesting dynamics. The Industrial markets are probably in total larger, if you add them up, they're probably larger and have greater potential for growth. There's -- some are more competitive than others in terms of what the application demands and all that stuff.

Healthcare may be slightly smaller, but the payoff for additive is extremely high in Healthcare with some of these mass produced customized solutions for patients. And I think the adoption rate will continue to be exciting.

So it will be a real foot race between the conversion of Industrial markets to additive and the embrace of the Healthcare business. And it's very hard to handicap, but nicely, you have them both together and you get really good solid double-digit growth year-over-year organically, which we're just thrilled about..

Got you. And then just on the kind of pricing versus shipment dynamic for guidance. How do we kind of think about maybe some anticipated pricing increases, just the overall unit shipments? And then any comments on your pipeline and visibility that kind of provided you the confidence to reinstate guidance? That would be helpful..

Yes, sure. So on pricing -- so pricing is something we constantly evaluate. We did do a temporary surcharge in Q4 that we've continued this year. We will -- we're continuing to evaluate pricing of our products pretty regularly. Especially, since certain of our products, we are frankly, just supply constrained right now.

And certain of our products, we've got more demand than we've got availability. So we are evaluating pricing at all of them.

And what was the second part of your question, Paul?.

Oh, sorry. I was just talking about the pipeline and the visibility..

Oh, yes, the pipeline. So I really can't comment on pipeline, but I will say we -- last quarter, I talked about how much revenue we left on the table going into Q4, which you may recall, I said $3 million. I will say coming into Q1 this year, exiting Q4 because of supply constraints, we left about $8 million on the table.

So that number increased despite the great results we had for Q4. So as I said earlier, we are more supply constrained right now than demand constrained..

And Paul, I think the only comment I'd add is if you get back to just the fundamental, the revenue guide, how much is baked in for price versus volume stuff, predominance of our growth and revenue is going to be volume based. And we're looking for pricing opportunities because our costs are also up.

And we've got other cost initiatives trying to keep them down. And we do have, as Jagtar mentioned, some surcharge kind of logistics cost pass on that we're trying to do. But by and large, the revenue growth is volume-driven because of increasing demand in both of our business units..

Got you. And then lastly, just on your kind of implied operating margin guide. It sounds like you're recognizing much of the OpEx related to some of the acquisitions you did last year and this year, sales may be expected to kind of scale in '23.

So maybe how should we think about kind of normalized operating margins at the gate when those businesses do start to scale maybe in '23 and then you see some normalization of gross margins?.

Yes. I think we are focused on the strategic plan that we've talked about, and we'll talk more about this particular topic on Investor Day, but our ultimate goal is 50% gross margins, double-digit revenue growth and 20% adjusted EBITDA margins.

And obviously, for this year, this is an investment year, to continue to modernize our product portfolio or improve our product portfolio to have the -- continue to be the leader in this industry. So we're making those investments.

The financial goals that we've said as part of our strategic plan are firmly still our objectives, and we'll talk about more about the details at our Investor Day..

Your next question is coming from Sarkis Sherbetchyan from B. Riley Securities..

I'll try to make it quick.

Can you give us a sense for what's being paid to acquire Titan Robotics and Kumovis?.

Yes. So the 2 acquisitions together were just under $80 million..

Sorry, that's $80 million, 8-0?.

8-0. Yes..

Okay. Perfect. And I'm assuming, is that going to be all cash? Or is there a mix of cash that’s --.

All cash. That's all cash. All cash..

Great. And related to that, can you maybe dive a bit into your build or acquire strategy? Just kind of looking at the big balance sheet you have today, and clearly, it sounds like you're gaining talent here for your business for the organic side as well besides the acquisition.

So just want to get a sense for what you're willing to spend on from an acquisition perspective and what you're willing to kind of build organically?.

Yes, sure. No problem. So our default is always can we do it ourselves? Can we hire the talent, do it ourselves. It's the lowest risk, highest controlled way to develop a new product. We have great in-house capability, and we continue to expand that.

And we do it -- we take an equal view of software materials and hardware platforms to see what we can afford to do and what we need to prioritize. Beyond that, we're opportunistic about acquiring technologies. We're -- when you look at our portfolio, we've got a full spectrum of technology available to us.

If you go back to the earlier question, I think Troy asked about the evolution of extrusion technology as an example, we didn't have an extrusion platform. It was one of the few that we didn't have. We added that.

And now it's a matter, okay, how fast can you evolve that product line and expand it? So we'll look at doing that organically, investing in it. If there's a way to accelerate it, just using as an example, we would always consider the return on that incremental investment.

So if there's something opportunistically out there that would accelerate our strategic plan, our direction for our platform, we would consider it and look at the return on that investment.

Asset prices have certainly come down, which makes it a better race between internally and externally when you've got cash on the balance sheet, it's good to consider both. So we don't have a specific formula. We don't -- we aren't in such need of a new technology that we must go out and buy it, which is really a nice position to be in.

So we will opportunistically go to the outside and bring things in. And the more synergy they have with our existing systems, the more attractive that proposition becomes. If you look at the Kumovis acquisition recently, they bring a great printing technology and a new material to Healthcare.

We've got great synergy with all of our SG&A and overhead infrastructure in our Denver facility to get that product to market. So that all factored into the equation to go outside and bring that in to give us this wonderful new polymer technology for Healthcare. That's the way we look at it.

When those assets come along, we evaluate the cost of doing it internally in the time versus bringing it in from the outside. So that's the most definitive answer I can give you..

Your next question is coming from Noelle Dilts from Stifel..

Again, congratulations. Just on the hardware platform refresh.

I'm just kind of curious if you’re anticipating any sort of temporary impact to gross margin as you introduce those new platforms? And if that's incorporated into your guidance?.

Yes, it's certainly incorporated. And I wouldn't expect from a gross margin standpoint, we're trying to design -- obviously, I think both guys are trying to design products that will bring more value to customers that you can price for and also have a lower manufacturing cost.

So we're trying to drive gross margins in a positive direction through this introduction not a negative one, Noelle. But with that said, in terms of the R&D drag on the new platform, that we try to lay out with our OpEx guidance and there is an expense associated with it.

But from a gross margin standpoint, I would expect it to be certainly neutral and worse to positive over time.

Jagtar?.

Yes, I would add, Noelle, that as we introduce new products, we have costs within our supply chain that are devoted to sort of maintaining the products we have in the field today, right? When certain components go out of manufacturer, we've got teams of people and have to find new components that, right, source new components to go into those machines.

So by incrementally refreshing our portfolio, we're going automatically to components that are in production today at lower costs. So I would expect that as a result of that, over time, that will reduce the cost of supporting those machines in the field and our supply chain, and that will help gross margins over time.

But at this stage, I wouldn't be able to quantify that. But I think there is an expectation that, that will improve gross margins over time..

Okay. Okay. That makes sense. And then just on your -- you kind of talked about this robust acquisition pipeline. Could you give us a sense of sort of what the pipeline looks like in terms of size? And I think last quarter, you talked a little bit about where your priorities kind of lie in terms of the deals you'd like to take on.

If you could maybe touch on that as well, that would be helpful?.

Sure. Yes, there -- I think -- I would tell you after being in this role a couple of years, there seems to be a continual stream of printing technology that comes online.

And I think fundamentally, it's because the components continue to evolve, and there's creative people and little workshops around that are trying to put those together into a new printing technology, a few of which have real potential and many of which don't. So there's always a stream of hardware, new printers, if you will.

And we evaluate those all the time. And it, quite frankly, most of them are not -- most of them have Achilles heels to them and don't make it, but a few do. And the Kumovis application is one of that, Titan for that matter. I'm mean bring a much faster, lower cost components to customers that want big components.

So occasionally, one comes along that works, it's a really nice acquisition bringing in, but there's a lot of them. So we spend resources evaluating those. Materials is a lot harder to come by. There are very few really good material is out there to look to acquire.

There are partnerships which are equally difficult, but there are fewer opportunities for materials acquisitions, which is why we tend to invest a lot of R&D money into doing that ourselves. It's an extremely important part of the business.

And then software, we did a couple of big ones to provide missing pieces last year in process optimization and obviously, the Oqton manufacturing infrastructure, that was a big missing piece, I think, for the entire industry, frankly. So I love that one. I'm not sure there's a lot more to do in acquiring software.

There's just more to do in internal developments. But we'll continue to hunt and take a look, especially for production efficiency kind of things, that's important. So we'll continue to look for factory efficiency kind of software applications. Beyond that, Noelle, it's a lot of application expertise.

Are there ways to -- for customers to bring in new applications faster through the use of process simulation, specific application knowledge, things like that? There are little groups you can acquire to do that to just expand your application capability, which is really the cornerstone of our business, if you will, what's driving our growth.

So that's kind of -- I gave you soup to nuts on everything that's possible out there. There are a few larger acquisition potentials, much rarer and more difficult to do that would bring both revenue and cost synergies but those are highly opportunistic, and we continue to be open to those, but there's not many of them frankly.

So we mainly focus on technology and bolt-ons..

Our next question is a follow-up from Greg Palm from Craig-Hallum..

Yes. Just a couple of quick follow-ups.

Is it -- as it relates to the 2 acquisitions, is there revenue contribution included in this year's guidance? And if that's correct, what numbers are you expecting? Maybe better said, what contribution -- or what type of revenue profile did they combined have in 2021?.

Yes. So the revenue contribution for them is included in the guidance. We're not breaking it out specifically, Greg, but it's not a huge component of the guide this year..

Okay. Fair enough. And just going back to the question on customer concentration. I guess, by my math, even if you look at it on a revenue from Healthcare, excluding divestments, it looks like that the vast majority of that absolute increase in -- from fiscal '20 to fiscal '21 was driven by that one customer.

I guess, can you confirm if that math is correct, but more importantly, my assumption is the growth in '22 and beyond will be much more broad-based.

So I was just hoping you can maybe sort of go through those assumptions a little bit more?.

Yes. On the '20 to '21, clearly, that customer was a big contributor to the Healthcare growth. We did have pretty good growth in the Medical Devices segment, with the exception of Q4 for the reasons I talked about during the call with Omicron showing up, which kind of impacted services in the Healthcare industry, which then impacted our revenue.

I do think that in 2022, you will see kind of a much more broad-based increase. That customer is still a good customer, but we have a number of activities occurring in health care..

Yes, Greg, when you look at it, unfortunately, with COVID, a lot of the orthopedic procedures that we're really good in supporting were viewed as optional procedures and they were kind of the first to fall out when hospitals had to make tough choices. So we would expect that to be increasing nicely. It's a really good business.

It was unduly impacted by COVID, if you look at the full year. So while our large customers are in the Dental segment, we will obviously continue with nice growth. I would expect our growth to be much more broad-based next year -- or this year in '22 in both Healthcare. And then the Industrial market has been delightful.

I'm really pleased with the applications we're identifying in the Industrial market that we can really go in and make a difference with. It's really going well. And I got to tell you of the pleasant surprises since I've been with 3D Systems, the industrial growth right now has been really impressive and strictly organic. It's been a really nice change.

So I'm really pleased. I think '22 will be a broader success story across many market verticals. And again, I think we're -- as we sit here today, when we weigh the risks and the opportunities, we would tell you today we're going to grow double digits this year, that, now there's a lot of puts and takes that go into that.

As Jagtar mentioned, the acquisitions we've done really will not -- we don't expect to contribute materially this year, but they do help offset a little bit of risk and add to the potential positives in the year.

So I feel good about a double-digit basically organic growth seen for the year with all of the risk that you and I could both list that are going on in the world right now..

Yes. Well, I appreciate you taking the follow-ups and looking forward to seeing you guys in May..

Sounds good, Greg..

Thank you, Greg..

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

Thank you, Kevin. Listen, thanks, everyone, for joining our call this evening. While the world continues to be volatile, we're optimistic about the future, and we believe we're better positioned than ever to weather any storm while positioning ourselves for the bright future we see ahead. We wish you good health and a great start to the new year.

Thank you..

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..