3D SYSTEMS CORP Q2 2025 earnings call

Hello and welcome to 3D Systems' Second Quarter 2025 Conference Call. With me on today's call are Dr. Jeffrey Graves, President and CEO, and Jeff Creech, EVP and CFO. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in our latest press release and our filings with the SEC, including 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 2024. With that, I'll turn the call over to our CEO, Dr. Jeffrey Graves, for opening remarks.

Thank you, Mick, and good morning, everyone. I'll start today with a brief recap of our second quarter results before reviewing in detail where we're at in our restructuring and efficiency initiatives. While much of our dialogue must center on getting our cost structure right for today's market conditions, given the value creation for our shareholders that's tied to long-term growth, it's important to briefly mention the progress we're making against our key growth strategies as well. I'll then turn things over to our CFO, Jeff Creech, to provide details on the quarter's financials. We'll then open the calls for Q&A. Let's turn to slide five. I'll start by stating the obvious. The macro-environment for our company and 3D printing OEMs broadly remains challenging. You can see this very clearly simply by looking at our year-over-year revenue decline of 16%.

As I've stated for the last several quarters, this is primarily attributable to a rapid drop in our customers' CapEx spending for new production capacity. This decline is clearly correlated to the uncertainty around tariffs, which has given our large OEM customers pause on where to invest their capital most economically. While we believe this is a transient effect, it's been protracted, and therefore we're taking aggressive actions to adjust our cost structure to match this current reality. Fortunately, we've had the scale and balance sheet flexibility to navigate this large-scale restructuring while maintaining core R&D investments that are so essential for long-term growth. This is the balance we must continue to strike. While our year-over-year revenue decline was significant, we were pleased to see the stabilization of these pressures in our sequential quarterly results.

In fact, if you take away the impact of the software divestiture that we completed at the beginning of this quarter, which contributed roughly $7 million of revenue in Q1, our continuing operations grew 8% sequentially. While I don't want to overstate its significance, as I do expect continuing revenue volatility quarter-to-quarter until the tariff situation subsides, it was certainly a welcome outcome. We owe this success to our outstanding employees who've maintained their focus throughout this tumultuous period and to the strategic investments we've made over the past years in both medical and polymer 3D printing technology for critical markets such as medtech and aerospace and defense. As you'll hear from me later, these areas are growing rapidly, and specifically for medtech has now done so over multiple years.

Importantly, these are soon to reach a point of critical mass that we believe will drive meaningful revenue growth in the years ahead. All of this is supplemented by a reinforced balance sheet following our Q2 transactions, which include the sale of our non-core Geomagic software platform, our June debt transaction, and share repurchase. Taken in combination with our restructuring actions, we believe this places the company well in the path to sustainable profitability and long-term growth. We still have much work to do. Let's now move to slide six and talk about our near-term priority, which we call Profitability First. As I've shared before, we've identified actions across the entire organization to be executed through the first half of next year to drastically improve profitability. Our goal is to align our costs with the current market realities.

These actions are designed to positively influence gross margins, leveraged by additional efficiencies we gained from our decision to insource manufacturing two years ago. More significantly, they will unlock a material reduction in OpEx, targeting improvements in every single function and geography we operate in today. In the aggregate, we plan to deliver over $85 million in annualized savings by mid-2026. Based on the $50 million wave we announced in March of this year, annualization of the roughly $20 million of in-year savings from incremental actions we began implementing when we spoke in May, following the broad announcements around tariffs. While timing is always a risk, particularly when it comes to gross margins where there are so many dependencies, we're determined to move to positive cash flow even in the current market environment by restructuring our business and driving process improvements that translate to efficiency gains.

We have the scale to do this, and it is our top priority. To provide more perspective to items already actioned and those still in scope, the chart on this slide provides relative sizing of the broader market categories for our initiatives. Our organizational capacity alignment entails streamlining of our functions to efficiently match the needs of the business. R&D, for example, has historically operated at about 20% of revenues, a strategic decision we made for the last few years to ensure that our industry-leading portfolio of metal, polymer, and regenerative technologies remains at the forefront. This range of technology sets us apart from all others in the industry. As we're now entering the next phase of commercialization of dozens of new products brought to market through this investment, we're positioning to capitalize on these prior investments, allowing us to bring R&D spending to levels that are strong but sustainable.

Similarly, business and legal entity rationalization emphasizes the simplification and concentration of our efforts in core markets that will deliver not only significant value but on an attractive timeline. We're focusing on those that deliver the most compelling ROI that matches our internal mandate to return to profitability. We're critically evaluating the returns on our R&D investments. We've taken the hard decision to spin off or mothball some exciting opportunities that simply had too long or too expensive a runway to fully commercialize. For example, in July, we made the difficult decision to curtail the level of investment in Systemic Bio, a truly incredible technology that we believe has the potential to ultimately transform the way in which new drugs are developed in the pharmaceutical industry.

This technology, in which vascularized human tissue is printed on chips, allowing for new drugs to be tested in human-relevant models in the lab, simply had too long of a commercialization timeline given the conservative nature of the pharmaceutical industry in adopting new test methods. We put this effort on the shelf for now, having developed some unique IP, and we'll return to it in the future if the market dynamics become more favorable. This is the analysis we're undertaking with all of our long-term investments. Now, since I've touched on an adjacent element of our regenerative medicine program, I'll take a moment to confirm that our core efforts to develop to deliver the first 3D-printed human lung in close partnership with United Therapeutics continue to progress very well, as evidenced in yesterday's announced technical milestone recognition.

Thank you, Jeff, and good morning, everyone. Before I begin, I would remind you that we divested our Geomagic software business on April 1, 2025. Throughout today's call, in addition to comparisons to prior period results, we will also make specific reference to prior periods to exclude Geomagic operations for an apples-to-apples comparison. With that, I'll begin with our revenue summary on slide 13. Second quarter consolidated revenue was $95 million, down 16% year-over-year or 11% when excluding Geomagic. Sequentially, revenue was up modestly, and when adjusting for Geomagic in Q1, we saw 8% growth. Within our segments, industrial solutions revenues of $50 million declined 23% or 13% excluding Geomagic. This was primarily driven by printer and material softness in consumer-facing end markets.

Encouragingly, as Jeff highlighted earlier, this was partially offset by tremendous momentum in aerospace and defense, nearly doubling revenues from last year and growing over 50% from the prior quarter. Healthcare solutions revenues of $45 million decreased 8% from the previous year, predominantly driven by dental, with 2024 representing a significant year of purchases by a specific customer, as earlier mentioned. Outside of dental, medtech delivered impressive growth, up 13% from last year and 16% from last quarter. Now to slide 14. For the second quarter, we reported a non-GAAP margin of 39%, which compared to 41% in the prior year and 38% when adjusted to exclude Geomagic. Performance for the second quarter was very strong and also delivered a significant improvement on a sequential basis, primarily attributable to favorable manufacturing variances, given higher volume and cost efficiencies.

Additionally, gross margins include approximately $2 million of benefit associated with milestone recognition within our regenerative medicine business. Now turning to slide 15. In Q2, we delivered strong cost performance with non-GAAP operating expense of $47 million, down 27% year-over-year and 24% sequentially. This improvement reflects the impact of our restructuring actions, which drove meaningful efficiencies across nearly every function in geography, along with significantly reduced spend on external services. We also saw a benefit from a one-time compensation adjustment. Looking ahead, we expect continued sequential reductions through the remainder of 2025, targeting OpEx in the low $40 million by year-end, with the continued momentum we expect for our reduction initiatives. Now turning to slide 16 to finish up the P&L.

For the second quarter, adjusted EBITDA of -$5 million, significantly improved from the prior year by $8 million and prior quarter by $19 million, a testament to our profitability-first execution. As a result of gains related to our Geomagic asset sale and proactive debt repayment at a discount, we reported GAAP net income of $104 million for the quarter. This resulted in GAAP earnings per share of $0.57, up $0.78/share from prior year. On a non-GAAP basis, loss per share was $0.07, also an improvement compared to $0.14/share loss in the prior year. Turning now to slide 17 for our balance sheet. We closed the quarter with over $116 million in cash and cash equivalents and $17 million in restricted cash, which is predominantly related to the convertible note refinancing executed in June.

Our expectation is that the majority of this restricted cash may be used to address about half of the remaining $35 million in debt due November 2026. In the aggregate, cash and cash equivalents and restricted cash on our balance sheet totaled $134 million. This compared to $171 million at the end of last year, with the decline in cash driven by $60 million used in operations, $113 million generated by investing activities, largely representing the proceeds from our asset sale, and $97 million used in financing activities, which I'll expand on momentarily. In late June, we took proactive action to strengthen our balance sheet, permanently retiring $88 million in outstanding debt at a meaningful discount to par, extending the due date on an overwhelming majority of our debt out into 2030, and repurchasing $8 million of our common shares to reduce dilution.

The net result provides a very manageable convertible note maturity of approximately $35 million due in November 2026 and $92 million of senior secured convertible notes due 2030. The 2030 notes have a conversion price of approximately $2.24/share, a 20% premium over our share price of $1.87 at the time of the transaction. Looking forward, our improved profitability is already starting to have a positive impact on operations. At the beginning of August, we still held approximately $130 million in global cash and restricted cash and expect a more modest level of cash usage as a result of our cost improvements as we continue to execute against our plans to enable positive cash generation in 2026. We thank you for your time and continued support of 3D Systems, and we'll now open the line for questions. Operator?

Hey, John. Good morning. Congrats on all the improvements here.

Thanks, Troy. Good morning.

Hey, Jeff. Quick question for you, or maybe either Jeff, but $80 million you guys said for medtech. Is that, do you need to just break that out between hardware versus the kind of the customized healthcare services that come out of, like, Littleton?

Yeah. The vast majority of it is the latter, Troy. It's mainly the personalized health services we provide. We do sell printers into that market as well. It's been a little bit influenced as well by the tariff situation because those sites are scattered with our customers around the world. Obviously, we have our own printing capacity in Littleton as well to make parts. The sale of printers into that market is relatively modest. Most of it's services and parts.

Okay. Perfect. Is healthcare combined medtech plus dental plus lungs? Is that kind of how we think of it going forward?

Correct. That's the healthcare business, Troy. We're just trying to group because medtech now encompasses, you know, more and more things under the orthopedic banner. We're trying to group that, separate it from dental, and obviously, regenerative is a new area. All of that's embedded in healthcare.

Okay. All right. Perfect. How about just quickly on dental? I know that's been a vertical you guys have been really excited about with some of these new product launches. The NextDent 300, the kind of the next phase for you guys as far as kind of revenue milestones or products that'll kind of start to really help, just kind of a good update on kind of your dental progress here.

Yeah, Troy, we're still putting together the expected penetration rate of that market, but the economics are so favorable when you move to 3D printing of dentures that I think it will happen relatively fast. Now, we're not the only provider in that area, but I obviously, I love our solution and feedback's been great. We're hoping to have a meaningful share of that market. Today, it's $400 million in the U.S., rough number, and a generally equivalent size in Europe, which requires separate certifications, but which are well underway for us. The U.S. market alone is $400 million. The traditional way they make dentures through a lot of manual labor is expensive and slow. You know, 3D printing is a fantastic approach.

The challenge has been what took us long to get there was, you know, multiple materials that you're 3D printing at the same time and getting the aesthetics right and the toughness right because, again, the common way these things fail is by people dropping them in the sink or on the floor. That balance was tough to achieve, and we got there. I was very pleased we got there. We got FDA certification for it. We've gone through this really protracted beta testing to prove both the viability of the product, but also the economics and their excellence. We'll start giving more color on that as we go into 2026. I can tell you right now, folks have been waiting to place purchase orders, and they're starting to come in.

We're ramping production here in the third and fourth quarter, and I would expect next year it'll be a material contributor to the dental business.

All right. Perfect. If I can sneak one last one in for Jeff Creech here, just gross margins kind of exceed the revenue milestone. It looks like it's about 38%. Can you confirm that and thoughts on gross margins in the next couple of quarters?

Yes, that's exactly right, Troy. The milestone revenue falls directly to the bottom line, so it does have a very nice lift for us. It did cause the spike in the margin in the second quarter. What we see for the balance of the year is something that's a little more normalized, something akin to what we started the year off with. We're going to continue to pursue the manufacturing efficiencies and hopefully drive as much margin as we possibly can. Yes, for certain, the lift in the second quarter was significantly attributable to the milestone revenue.

All right, guys. Good luck going forward.

Thanks, Troy.

Thank you.

Hi. Thanks. Good morning. I just want to make sure I'm clear on this. Your dental business, excluding the aligner business decline, was down about 3%?

Yeah, including the drop in aligners, including the drop, which, and that drop, Jim, to calibrate you, that was 19%. That was a major headwind. In spite of that, we dropped in total for dental, we dropped 3%. We were very pleased with the remainder of the business. The aligner business, you know, clearly, it's been affected undoubtedly by the economy. Much of that we had anticipated and things that wasn't a surprise to us, but it was a major headwind.

Jeff, putting aside the aligner business, where we know what's happening with the large customer, you're seeing this kind of improvement in the broader dental business without the contribution that you're expecting on NextDent 300 working out to 2026?

Yes, that's exactly right, Jim. That's why the dental industry in total is great for 3D printing and particularly for our company because we've been in it so long. That's why I talk about all four elements. The straightening is one element that's been foundational for us. The protection is new, you know, with night guards. We're moving in that direction. We've got repair with our Vertex and NextDent materials, which we've been in for some time. Those continue to grow. Now we've got a brand new market in dentures, which is growing on top of that. I'm super excited about dentistry. I think 3D printing in total is going to be great for it, and 3D Systems will be at the front of that parade. We're very excited about it.

We expect to have the rest of our regulatory approvals around the world done over the next, you know, 12months-18 months, which will again multiply the U.S. market by several times. Today, we've got a $400 million new market to go after with compelling economics and a great product. You double that with Europe, and then you add on the rest of the world. It's an exciting horizon for us in dentistry.

Got it. When you talk about providing trained staff for point-of-care service or the personalized health portion of the business, is that something that's being done gradually? Do we have to think about that looking out next year, potentially layering in more of that? Presumably, that's going to be accompanied by revenues?

Yeah. It is a paid-for service, Jim. I don't look at it as a significant revenue generator. What I look at is it's an outstanding application developer. You're right at the front of how they want to use 3D printing in a hospital. Often, this is moving very rapidly. Somebody comes in with a trauma case, and they say, "Can we, can we just, you know, perform the surgery or even do an implant rapidly to help this patient?" It's pulling us into brand new applications, brand new areas. We get paid along the way. It's a nice service, but I don't look at it as a meaningful revenue stream. I look at it as an application area that will move us into new markets. It's confirmed our move into trauma very significantly.

We see outstanding trauma applications coming from this in, you know, obviously, bone repair to the skeletal system. Now moving into cancer treatment for bones, it not only provides a lot of bone cancer is very tricky in the way the tumors grow into the bones. Surgical guides, you know, FDA-cleared surgical guides are an important element to help the surgeon remove the tumor, but then to help them repair the bone or support the bone in some way through an implant is a great extension for 3D printing technology. We've got the polymer and metal technology to apply. It's the knowledge of where to apply it. That point-of-care service is the tip of the spear. That's really what leads us in these directions. We're now embedded in most leading research hospitals.

Got it. Thank you. I'll jump back. Thank you.

Okay. Thanks so much, Jim.

Hi. Good morning. Thanks. I'm just curious, maybe an update on just the broader macro, whether it's sales cycles, feedback, activity, any change over the last three, four months since we got our last update?

As I look back, Greg, yeah, I mean, clearly, before April, things were sluggish because people were worried about where interest rates were going to go. I'm generalizing, but if I can speak for our customers, they were worried about interest rates, what it would do to the in-demand, and all that stuff. There was already a drag on CapEx spending. After April and the incredibly volatile tariff environment that emerged quickly and continues, customers just started really dragging their feet on CapEx, saying they don't know where to put their new production capacity. It's not that their in-demand has been dramatically affected. It's they don't know where to make the product. Most of these folks have plants all over the world. We're working with them. You know, that's frustrating.

On the bright side, if there is a bright side to this, we see an increasing demand for short-term parts supply, limited quantity part production. Again, we're not going to move into the business of being a service bureau, but in terms of responding to a customer where they've proven the process, and I could give you 100 examples of, especially in the metal arena, for these high-reliability markets, they say, "Look, Jeff, we love 3D printing for this application. It's going to work. We don't know where to put our printers. So can you sell us, you know, 100 parts? Can you do something to bridge the period?" That's this gap that's opening up right now. I think it's sustainable. I think we're in a great position to bridge people from process development through limited parts production into putting capacity in their plants with selling them 3D printers.

It's ongoing, Greg. It's not getting better or worse right now. It's pretty stable. I think everybody's just in a wait-and-see mode about where things really shake out in terms of tariffs. In the meantime, we have a new growth area for us in manufacturing parts, and we're going to take advantage of that.

Yeah. That's a good color. In terms of the dental opportunity, are you planning, like, is this mostly going to be a CapEx seller, or are you planning on offering, you know, some sort of service? Just because where I'm going with this question is, you know, the same dynamics that have impacted the core business, you know, macro, lack of CapEx. What makes you confident that those same items aren't going to impact the dental opportunity if you're thinking this is going to be a significant contributor next year?

There's two reasons, Greg. Number one, people need teeth. In terms of a predictable demand, it's highly sustainable, in my opinion. There's not much of an option. The question is, how do they get them? It's a completely different CapEx consideration here because these printers are relatively inexpensive. They're affordable by regional labs. I mean, heck, even a dentist's office could get in the business if they really tried. It is the overused word of democratization. It moves dentures from being a very difficult process that often involves overseas labor and all of that stuff to something that can be done locally, regionally, and it could be done nationally as well with preferred economics. It is so much less expensive. The return on capital, first off, the CapEx spend is lower, much lower than these big metal printers or something that we're talking about for industrial applications. It's much lower.

These are much more affordable, and I don't think it's a major impediment for any dental lab of size in the country to buy. One of the parts of your question was, is it more of the traditional model that we followed? It is. We sell a printer. We sell consumables. We provide services to the printer. That's the model for us. I'm convinced demand is out there and very sustainable. The price of entry for our customers is relatively low. They'll most often probably do this regionally in laboratories. The economics are so preferential that the return for them on the capital investment is extremely manageable. You're talking kind of one year or less return on capital investment for the printer itself and the post-print processing. The economics and the quality of the product, Greg, combined, I think it's going to be just an outstanding business.

Not only for 3D Systems. I think it'll be a great business for 3D printing in general. I want to be at the front of that parade with our product.

Yeah, it makes sense. Just last one on the cost reduction program. It felt like maybe you're running a little bit ahead of where you thought you were. Maybe you can just give us a little bit more color on where exactly we are. Just to confirm, I think last quarter you were talking about being able to reach EBITDA profitability at this sort of mid-90s revenue level. Are you, when you're sort of fully done, still as comfortable with that target, more comfortable, less comfortable? What's your thought there?

Yeah, Greg. We're executing to plan. We're ahead of plan in some areas. We're executing to plan, though. Yes, in terms of the ultimate targets, where we're going, absolutely. At this scale, we can be profitable and we can generate positive cash. We have the scale to do that. We've got the mass to basically restructure to do that at this revenue level. I'm very comfortable with where we're going to get to. The problem is predicting timing. A lot of the headcount changes we've done are relatively fast to do, depending on geography, relatively fast. The trickier part is exiting complete facilities and worrying about subleases. Those things can take some time. That means I have to be a little squishy about the ultimate timing because it depends on somebody subleasing a building in many cases. Those are big dollars for us.

We've got a lot of upside for reducing our footprint in addition to efficiencies, just getting out of facilities and shedding fixed costs of leases and utilities and that stuff, but it requires somebody to sign a sub-lease. We're trying to help them as much as we can and where it makes sense and get it done, but it just takes time. In answer to your question, I'm very comfortable with where we're going, the exact timing on getting there. I'm pleased to date that we're basically running on our plan. Things are going well. We've got some of the tougher things at the end with these facility subleases and stuff we've got to get done as well. Okay?

Got it. Okay. Thanks for the color.

You're welcome, Greg. Thanks for the question.

Sure, Trevor. Good to hear.

I just wanted to ask you guys a little bit about, as it relates to the second half, some of the other markets like aerospace and defense and AI infrastructure. You know, you guys have given a lot of great detail on dental, but wondering if you could spend a minute on some of the other markets that are exciting to you right now.

Yeah. Aerospace and defense will continue to be an exciting market for us. The only frustration, and it cuts both ways, is it is a slow market to move into. You got to really pay your dues. We've been working at it now for the last couple of years. We've targeted some of our metal printing technology at some nice applications in aerospace and defense, in around like naval applications. Obviously, there's a lot of flight systems, rockets, drones, things like that. We've targeted our metal printing technology at a lot of those. They take a lot of time, Trevor, to get into, which is why it's been a slower growth. I'm not sure that anybody realized how far we've come. We're at about a $30 million trailing 12 months now, a little over $30 million in revenue, so on an annual basis.

It's starting to get up there to be one of our more significant markets. On the bright side, it's a very sticky market. I mean, once you're a reliable supplier to that market, it tends to be very sticky. You get qualified on an application, and you've got a good position as long as you execute well, which we will. I love that market. AI infrastructure is obviously, that is just changing so rapidly. We've been working with the chip equipment manufacturers for some time now. There's a lot of very good 3D printing applications in that manufacturing, particularly as it relates to heat management. Thermal management of those systems is so critical. You can do things with 3D printing in terms of the component geometry that you can't do any other way. It's a wonderful market. Those are very expensive machines. From our standpoint, they're high-value components. That's good.

In terms of volume, there isn't as many of them because they're very expensive, high-productivity machines. The growth in chip usage is great for that business. I love the position we've established. It's taken us well over three years to earn that position with some of the semiconductor chip equipment manufacturers. I like that. What we're really looking at hard now is thermal management of data centers. That's primarily around the printing of copper and other high-conductivity materials to get heat out of GPUs. How do you best extract heat from a GPU? Because heat is a killer in terms of degrading chip performance and life. When you hear people talk about power generation for data centers, a lot of that's around HVAC. A lot of it's around keeping the data center cool, and the equipment inside cool.

It's not so much around running the chips, which consume very little energy in total. It's around keeping the place cool. If we can help extract heat better from GPUs, we can help make that cooling more efficient. That's an area we're exploring very heavily right now. You can see from the one chart, we've got a revenue stream developing there. It's still smaller, but it's exciting. Data center build-out, I think, is very good for us. The aerospace and defense, which tends to be a regional business, is also important. We've got the U.S. OEMs that we've gotten the most traction with. We've also gotten customers developed in Europe that we service out of our Belgian facility, for applications in aerospace and defense, which ranges from flight systems to ground and water systems to rocketry. That's a little bit more color on those.

Those are the two, what I would say, are the two most exciting markets right now. Oil and gas, obviously, is up there, and it's going to continue. There's an emerging demand for customers in those types of industries to reduce working capital. They want to reduce these billions of dollars of parts they have in warehouses to keep things like refineries and oil and gas pipelines running. That inventory management is helped by on-demand 3D printing of metal components. We won't be in the business of making those components, but we will be in the business of providing printers to people that want to be in that business of making metal components to get that inventory down.

A lot of our work in Saudi Arabia around their electrical system and around the oil and gas infrastructure there is geared towards that goal of helping them better manage working capital and improving their ability to respond to urgent needs in their infrastructure. Those are the types of markets we're going after. They have in common high reliability, high-value components. Our approach is to develop a process with the customer, do some limited part production as they ask, and then as quickly as possible, sell them printers so they can build out their infrastructure to manufacture parts.

Yeah. Good question, Alek. Let me be very clear on this. We insourced manufacturing and supply chain over the last two years. That's virtually complete, okay? We've got a few odds and ends that we're still insourcing, but it's virtually done. We did that for two reasons. Number one, and first and foremost, control the quality of the product for the customer. Our products are moving into production facilities around the world. Customers cannot have quality issues. We found contract manufacturing just wasn't—we couldn't command enough attention to ensure quality of our product. We insourced it all. We have complete control, and I'm really pleased with what we can ship today. It had the added benefit of being more efficient. First of all, you're not paying somebody else's profit margin for outsourcing. Secondly, you can drive Six Sigma and lean programs to get your own costs down.

Those benefit COGS, okay? That benefits COGS and contributes to gross margin, not so much OpEx, okay? It's COGS and gross margin. We are pushing hard on those efficiencies to offset tariff impacts on the cost of certain components that we still buy overseas. Obviously, we're trying to qualify onshore suppliers here and in Europe as much as possible. We can actively work that because we control our own supply chain. All of those things contribute to COGS and are offsets of tariffs. On the OpEx side, it's much more around back-office efficiency. Automation and back-office operations, insourcing of things that were very expensive professional services that we had outsourced—we're insourcing those now to build up our own expertise internally, and it's lower cost. As we introduce automation, we'll take some of that cost out over the next few years. Those are all OpEx-related.

Obviously, the R&D spending contributes to OpEx as well. Those are the different elements of our cost reduction. Facilities closures and subleases largely contribute on the COGS side of the equation as we consolidate those fixed costs more in the business. Okay?

Thank you for the color. Just a quick other question. Guys, any discussion with your customers around buying your systems as a way to mitigate tariffs on their part?

Oh, yeah, Alek. It's a great thought. They certainly are having that discussion with us more and more. The problem is, you know, where do they put it? It can mitigate tariffs if you know where tariffs are going to be. The problem they face is the tariff landscape is a moving target, and they don't know whether they need to do it in the United States or overseas. Many of these customers have factories overseas that they're buying for, and they want to know where to put the capital. You are absolutely correct in saying that they want to have the discussion. The frustration that I think they have is not to speak primarily for them, but the frustration they have is where do they put it? Where are tariffs not going to impact their production?

If they're here in the States, like aerospace and defense, it's a pretty easy discussion. It's, you know, bring it onshore, do it here in the United States as much as you can. If they have factories around the world, it's a little bit more complicated for them to know where to put it. That's the drag we're seeing on POs, is them deciding where to put their capacity. In the meantime, if they, you know, like in aerospace and defense and other high-reliability markets, if they say, "Look, we see the advantage of 3D printing. Sell us a few parts. Sell us some parts." That's why we talk about the three Ps, process, parts, and printers. If there is a bridge there, we can supply until they make that CapEx decision. That's what we're working on right now. Makes sense?

Thanks, Kevin, as always. For everyone calling in, thank you for joining us today. We'll update you again in future quarters. We look forward to the discussion. Have a good day.