Michael McCloskey; Investor Relations; 3D Systems Corp
Jeffrey Graves; President, Chief Executive Officer, Director; 3D Systems Corp
Jeffrey Creech; Chief Financial Officer, Executive Vice President; 3D Systems Corp
James Ricchiuti; Senior Analyst; Needham & Company LLC
Troy Jensen; Analyst; Cantor Fitzgerald
Greg Palm; Analyst; Craig Hallum
Trevor Sahr; Analyst; William Blair & Company
Operator
Greetings, and welcome to the 3D Systems fourth quarter and fiscal year 2024 earnings conference 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, Investor Relations. Mick, please go ahead.
Michael McCloskey
Hello, and welcome to 3D Systems fourth quarter and full year 2024 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. Additional information about factors that could potentially impact our financial results is included in our latest press release and our filings with the SEC, included on our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures in our press release and slides accompanying this webcast. You will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures.
Finally, unless otherwise noted, all comparisons in this call will be against our results for the comparable period of 2023.
With that, I'll turn the call over to our CEO, Jeff Graves, for opening remarks.
Jeffrey Graves
Thank you, Mick, and good morning, everyone. We're pleased to have you with us today to discuss our 2024 results and our view of 2025. While we'll go into more financial detail in a moment, it's important to highlight at the offset that our fourth quarter results reflected the change in accounting estimates for our Regenerative Medicine program. This change in estimate was driven by the refining of our technical acceptance criteria for the program milestones. This resulted from a change in testing methodology for 3D printed human lungs, which is the focus of this program.
If you followed our -- let me give you a little more color on what that means in layman terms. If you followed our company for the last several years, you'll remember that since 2018, 3D Systems has been in a terrific partnership with United Therapeutics with a goal of developing the world's first 3D-printed biocompatible human lung. The program has made remarkable progress since its inception. And as we now move closer to our goal of manufacturing human lungs for transplantation, the scientific requirements will be actively refined as a result of our advanced research and testing.
This refinement may be in a more challenging technical direction or in some cases, an easier one. But in any case, these milestones will be periodically updated to reflect the experience we gain each day in the development process. In the fourth quarter, a key element of consideration was an update in the testing methodology for the lung. In short, the program now contemplates the incorporation of what's called in vivo human decedent testing, which has recently been successfully demonstrated by our partner, United Therapeutics, for kidney transplants. These new test methods offer invaluable insights into both the performance and biological acceptance of the manufactured organ in a human body.
And the earlier this information is available, the sooner this technology can be introduced for the thousands of patients that are in desperate need of lung transplants around the world. From an accounting standpoint, the updated milestone criteria related to this testing methodology required a corresponding change in revenue recognition, which, in this case, resulted in a $9 million reduction to revenue and gross margin in Q4. This revenue will obviously be available to us in the future as updated criteria are achieved. Given this accounting change was not anticipated in our 2024 guidance, I was pleased that our core business still delivered within the full year revenue range that was communicated in our prior forecast and that the end markets showed welcome signs of strengthening in the fourth quarter. For simplicity through the remainder of this morning's call, we'll simply refer to this item as a change in accounting estimate.
So assuming you're not all exhausted, with that explanation behind us, I'll start today's call with a recap of 2024. I'll then shift focus to some of our key markets and our progress on new products.
Finally, I'll finish my remarks by narrowing on specific actions we're taking in the near term to drive improved profitability and enhance shareholder value in 2025. Then our CFO, Jeff Creech, will provide more details on our financials, and we'll then open the line for Q&A. Let's move to slide 5. 2024 as a whole proved to be a challenging year for top line performance across our industry. While our full year sales were clearly impacted by the broad weakness in customer CapEx spending, our fourth quarter performance reflected for the first time in several quarters, stabilization and even a degree of strengthening in customer demand for new capacity.
This improvement in sales of new industrial printers, it was an encouraging note to close the year on. While on a full year basis, new printer sales were pressured, our consumables sales were basically flat with this resilience, reflecting increased utilization rates across our large installed fleet of printers as the year progressed. Material sales benefited most from our orthodontics business, which on a stand-alone basis, grew over 30% in 2024. So in short, 2024 was a tough year from a demand standpoint as our customers faced economic and geopolitical uncertainties that caused them to curtail CapEx spending until the future was clear. With a rise in capacity utilization and increased printer sales in Q4, we're hopeful that we've seen the worst, but only time will tell.
On a more positive note, as the performance, reliability and economics of 3D printing continuously accelerates, customer interest in production applications continues to rise unabated. In fact, for 3D Systems, the level of customer exploration and engagement in our additive technology has never been higher as reflected in our Application Innovation Group activity, which was up 18% for the year.
This increased interest was punctuated by several exciting customer announcements throughout the year as customers incorporated 3D printing into their future fulfillment plans. Examples included our collaboration with Daimler Truck, which described a spare part fulfillment model that integrates digital rights management and regionalized on-demand print capabilities linked together with the Oqton software platform to address an additive automotive market for spare parts expected to reach nearly $8 billion by 2027.
In another example, our strategic partnership with Precision Resources advancing metal component manufacturing and high reliability markets like automotive, aerospace and medical devices. These high reliability markets are of growing importance to our company in an area where we have a strong focus moving forward.
Over the course of our quarterly earnings releases through the coming year, we plan to expand on these markets for you, including their size potential and strategy on how we win. In just a few moments, I'll begin this series by diving more into our dental business for this call. Given the rapid pace of additive technology evolution for both health care and industrial applications, we have great confidence in our longer-term growth prospects. But in the near term, we also acknowledge the need for more aggressive cost actions given the current economic environment. I'll describe these new cost actions in a moment, but it's worth mentioning some of the actions taken previously that will bear fruit in 2025.
One of the most important changes in the company over the last two years has been the insourcing of our manufacturing operations and supply chain management. This transformation was designed to give us full control over our new product introduction process, our manufacturing costs, delivery schedules and product quality. I believe these changes are long-term competitive advantages that set us apart from others in this industry. While sales volumes were weak in 2024, this in-sourcing initiative, which is now largely complete, will pay dividends as our new products introduced and volumes rise in the future.
In addition, 2024 also saw significant investments in our back office operations in parallel with the change in company auditors, all of which increased our OpEx spend in the short term, but will yield continued improvements in our operating efficiency and performance as we expand our global operations moving forward. Fortunately, we were in a position to support these investments in addition to our ongoing R&D activities given the strength of our balance sheet, and we can now build upon these efforts with new actions moving forward. Now to slide 6. Our 3D systems were driven by relentless curiosity and our legacy is the pioneers of 3D printing, delivering the highest value application-driven solutions to empower our customers to innovate without limitations. Our new mantra is transforming manufacturing for a better future.
This core objective is why today we offer 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 application solutions to key customers around the world. It's also why our installed fleet of production printers is responsible for over 1 million custom components per day, more than the rest of this industry combined. We're organized into two distinct business segments: health care and industrial with a structure that allows us to develop targeted strategies for our core end markets. For 3D Systems, we leverage our unmatched application engineering expertise and depth, breadth of technology and our global footprint to focus on strategic industries, such as the ones shown on this slide. These range from advanced rocket and satellite systems to rapidly expanding AI infrastructure to personalized human applications for dental and orthopedic patients.
Let's turn to slide 7. To delve deeper into the one of the most significant and immediate strategic growth opportunities in front of us today, which is the dental market. For our company, dental applications reside in 4 key pillars, which we categorize as straighten, protect, repair and replace. These 4 areas are all converting to a large extent to 3D printing technology, which lowers cost, improves performance and shortens lead times for the patient. What you'll see on this slide is our estimates for the first time that we shared publicly for the addressable market size for each of the 4 areas by 2029.
2 important items to note. These figures are specific to 3D printing companies that are active in the broader dental market, and they are only the US opportunity, which represents roughly one-third of the global total. The straightened market comprises products such as indirect aligners today and the potential of indirect printed -- direct printed aligners in the future. While it's the most relevant for current operations, and we are the dominant supplier to these customers today, it's important to note that it's also the smallest of the four opportunities in the longer term with an expected addressable market size of $125 million in the US.
Our significant position in the aligner market today gives us a strong foundation to build upon. At 1 customer alone, we've deployed fleets of production printers totaling over 600 that operate simultaneously across 3 continents globally each day and have the ability to print over 1 million custom parts per day. Our expertise in this domain was evidenced in the landmark contract we announced last summer with a leader in the clear aligner space, valued at $0.25 billion to support the production of clear aligners over 5 years.
With the emergence of technology into direct print aligners, we anticipate further expansion of this market in the coming years, and we plan to lead the way. Our Protect product strategy will be centered on Night Guards which are rapidly expanding in both the dental and sleep apnea applications. While repair encompasses crowns and bridges, a market we participated in through our NextDent materials brand for many, many years. Each of these markets represents an additional opportunity of approximately $150 million in the future. And again, those are US.
numbers alone. Lastly, replace. The largest -- is the largest opportunity, by far, estimated at around $600 million in the United States. With recent announcements regarding our monolithic multimaterial jetted dentures, and 510(k) clearance from the FDA in hand, I believe we're better positioned than anyone to secure a dominant share of this market in the world ahead. Our combination of product beauty and toughness is simply unmatched, and the operating efficiencies we offer through our new printer platform that is scheduled for release this summer is compelling for both large and small dental labs alike.
Taken together, the dental opportunity we have in front of us is estimated at over $1 billion in the United States alone, and we're targeting as one of the largest company priorities going forward. So a key question you might ask is, why will we win in this market?
From my standpoint, it's very simple. Our legacy and current leadership in the well-established aligner market is undeniable. The reputation for quality, reliability of our next-gen materials further strengthens our brand in the market each day. Across the entirety of our Healthcare segment, we have the experience and proven track record to bring customized patient solutions to the market, and we have a proven ability to navigate complex regulatory markets having been granted over 100 FDA-cleared and CE-marked devices across our portfolio.
Supported by our tenacious approach to innovation, I believe we're best positioned by far to capitalize on this $1 billion market opportunity as dentistry quickly pivots to 3D printing technology for the future. Continuing this theme, let's turn to slide 8. 2024 was a historic year of innovation for our team. Despite challenges in the broader macro, our approach to R&D has been sustained over this period and highly disciplined, yielding dozens of new printers, materials, software and product enhancements to the market in order to capitalize on increased customer interest and embracing the new technology for production applications. While our innovation engines are certainly not slowing down, we're also equally focused on commercializing these recent advancements.
We cover the full range of polymer and metal printing platforms, the broadest range of technologies in our industry. By way of example, just a few weeks ago, we launched our NextDent 300 printer at a conference called LMT Lab Day in Chicago, which is the largest North American dental trade show each year. The printer is central to both NightGuard and jetted denture production. On display at Lab Day was not only the beauty, but notably the durability of our printed dentures, as customers were actually encouraged to drop samples of our dentures into a porcelain sink to show the toughness of the product in a common customer environment. In a flawless demonstration of their strength, our jetted dentues were dropped and even thrown from a distance without a single fracture to their integrity as they landed in the sink.
Customer response was strong, and we closed multiple preorders for the NextDent 300 at the show.
At the upcoming RAPID TCT trade show, which is the annual additive manufacturing show, which will be held in Detroit next month, we'll be demonstrating our ability to drastically reduce costs and amplify throughput for customers as we showcase our new Figure 4 135 solution. This immediate focus for printer platform is high-mix, low-volume polymer parts, encompassing a broad range of applications. Including importantly, electrical connectors, a market we currently estimated over $90 billion. 3D printing is targeted at the enormous tail of the curve, meaning complex, low-volume, high-mix part types where injection molding tooling often presents a prohibitive return on investment for the OEMs. To serve these markets, a solution needs to include not only a reliable print platform, but also specialty materials and a software solution for the full workflow, which gives us an advantage in meeting these application challenges.
These are just a few examples of the new printers and applications that we're excited about for the coming year, and we'll update you regularly on our progress. However, in order to maintain support for innovation at this pace, we recognize the additional actions we must take to improve overall profitability. Now turning to slide 9. Last evening, we announced cost reduction and restructuring actions targeted at over $50 million of annualized savings through actions we will take through the middle of 2026. These actions are designed to improve our gross margins through a reduction in cost of goods sold and to reduce operating expenses.
These actions will expand upon the benefits from previous actions that I described earlier and will lead to significant improvements in EBITDA performance and cash flow throughout the year. To support this objective, we've created a dedicated transformation office, the leader of which reports directly to me, and is responsible for managing the large number of actions that are underway, tracking their completion and effectiveness and ensuring a clear tie out to our financial results. In the first quarter, we've already executed four site closures and a global head count reduction among other items, which will result in approximately $5 million in annualized savings tied to our plan. From a cash perspective, in addition to the cash on our balance sheet, which totaled over $170 million at the end of last year, we announced the divestiture of our Geomagic software platform for $123 million. This transaction is expected to close shortly, having now received all of the necessary regulatory approvals over recent days.
Given our strong R&D potential that will fuel organic growth, our priority for cash usage is investment in our operational improvements and support to our organic growth initiatives. To be very clear, we have no need for high-risk acquisitions to fuel our growth. With our scale, we simply need to drive ongoing efficiency programs, invest in our technology platforms and over time, expand our sales and service network to ensure we continue to serve our growing customer base.
In other words, our priorities are to focus strongly, execute well and simply run a good business. To give you a little more color on our cost plans, let me offer the following. In real estate, when I arrived at 3D systems in the summer of 2020, our global footprints stood at roughly 50 locations, as a result of a long history of acquisitions with little consolidation. Between the actions we've taken over the last two years and the ones we'll take in the coming months, we'll reduce this number by over 50%, resulting in millions of dollars in annualized savings. For manufacturing, with our in-sourcing activities which we complete, we expect to realize incremental benefits from our sourcing initiatives involving raw materials and other expenses, a leaner footprint and operating model will also yield greater efficiencies for logistics, factory utilization and inventory control through our Lean and Six Sigma implementations, all of which is expected to contribute to gross margin improvement.
Indirect procurement consolidation and overall reduction in vendor spend are expected to yield over $20 million in annual savings driven by the investments made within our teams to replace contractors and other external support with internal talent. From a timing standpoint, we anticipate these actions will materially ramp in the second and third quarters of this year. Alongside this will be the review of our back office functions, incremental to actions already taken in an effort to streamline costs and efficiency across the organization. With 10% of the $50 million target already implemented in early 2025, we plan to provide regular updates on our progress in the quarters ahead. Now turning to slide 10.
I'll ask Jeff to discuss our formal 2025 guidance at the end of this morning's call. Let me start at a high level. Given continued uncertainty in the macroeconomic climate, we're expecting revenues normalize for our planned divestiture of Geomagic in the year-over-year comparisons to range from essentially flat to modest growth. However, with the cost actions I just referenced, we expect a dramatic profitability improvement during 2025, even in a flattish sales environment. This translates to 3 things: expansion of gross margins despite the loss of an accretive Geomagic business, which was included in our 2024 results.
Year-over-year operating expense improvement in every quarter with the most significant impacts being beginning in the second half of the year. Meaningful adjusted EBITDA improvements in every quarter, culminating with breakeven or better EBITDA by the end of the year. We believe these improvements taken in combination with a significantly enhanced balance sheet following our asset divestiture place the company on an exceptional footing for meaningful shareholder value creation going forward.
And with that, I'll now turn things over to Jeff Creech. Jeff?
Jeffrey Creech
Jeff, thank you, and good morning, everyone. I'll begin with our revenue summary on slide 12. For the fourth quarter, we reported consolidated revenues of $111 million, declining 3% from prior year. This was primarily driven by a $9 million decrease associated with the change in accounting estimate, but somewhat offset by strong services revenues across the company and a healthy finish to the year with respect to industrial printers. Within our segments, Industrial Solutions grew 11% in the fourth quarter with revenues of $71 million, primarily related to strengthened printer systems sales and services.
Revenues for the quarter were up across nearly all major industrial end markets with the most significant contribution from Aerospace and Defense. Healthcare Solutions reported fourth quarter revenues of $40 million, down 21% from prior year. This includes the $9 million impact from our change in accounting estimate in addition to softness in printers and year-end inventory management across dental customers with respect to materials.
Shifting to the full year on slide 13. We reported consolidated revenues of $440 million, down 10% from the prior year, primarily impacted by broader macro pressure on printer sales. As Jeff mentioned earlier, revenues ended within our full year guidance range, even when considering the $9 million unexpected headwind related to a change in accounting estimate that was not originally contemplated in our expectations. Revenues for Industrial Solutions of $250 million declined 9% from prior year.
Within their end markets, growth in critical focus areas such as aerospace and defense, energy and AI infrastructure were offset by weaknesses in most other industrial markets. Healthcare Solutions delivered a full year revenue of $190 million and declined by approximately 11%, primarily related to printer sales and our change in accounting estimate, but were partially offset by double-digit growth in dental materials. In addition, full year revenues for our personalized health care business grew nearly 12% from prior year, which represents yet another full year of impressive double-digit growth. Now to gross margins on slide 14. Specific to the fourth quarter, non-GAAP gross margin was 31.3%, down from 39.8% for the prior year period, primarily driven by our change in accounting estimates.
For the full year '24, we reported non-GAAP gross profit margin of 37.4% compared to 40.6% in the prior year. The decline from prior year was primarily driven by our end of year change in accounting estimate and increase in inventory reserves and lower volumes. Excluding the impact of the referenced accounting change, non-GAAP gross profit margins were 36.3% for Q4 and 38.7% for the full year '24 offering a perspective on our core health care and industrial business performance.
Turning to slide 15 for operating expense. Non-GAAP operating expense for the fourth quarter was $58.4 million, in line with our expectations, representing both sequential and year-over-year improvements. When viewed at their peak, in the first quarter of 2024, our most recent quarter represents an $8 million run rate improvement. Operating expenses benefited from our previously announced cost reduction initiatives. And as just mentioned, present a significant opportunity for further reduction in the quarters ahead.
On a full year basis, operating expense was $250 million compared to $246 million in the prior year. The increase was mostly driven by professional services spend and partially offset by our cost initiatives during the year. Turning now to slide 16 to finish up the P&L. For the fourth quarter, adjusted EBITDA is negative $19.1 million, declined from the prior year by $5 million, primarily driven by lower revenues and gross margin. For the fourth quarter, we reported fully diluted loss per share of $0.25 compared to $2.25 in the prior year.
Non-GAAP loss per share was $0.19, compared to a loss per share of $0.13. For the full year 2024, adjusted EBITDA of negative $66.4 million declined from the prior year by $40 million, driven by headwinds just discussed for revenue, margin and operating expense. For earnings per share, full year 2024 resulted in a fully diluted loss per share of $1.94 compared to a loss per share of $2.79 for 2023 and non-GAAP loss per share of $0.62 compared to $0.28 for the prior year.
Turning now to slide 17 for our balance sheet. We closed the year with $171 million of cash and cash equivalents on our balance sheet compared to $332 million at the end of the prior year. The largest use of cash during the year was $87 million used to repurchase $111 million of debt in March. This repurchase in combination with the previous repurchase of $135 million in debt in late '23, opportunistically reduced our original November 2026 convertible note maturities outstanding balance by more than 50%. Both transactions were also executed at a highly attractive discount in comparison to the current market value, which is now trading significantly closer to par.
As a result of these prudent liability management exercises upon the expected closing of our Geomagic divestiture in the near future, which we expect to bring back approximately $100 million of cash to our balance sheet after taxes, the company will be in an overall net cash positive position. Cash used in operations during the year was roughly $45 million, representing nearly $36 million of improvement when compared to the prior year.
Much of this improvement is attributed to a reduction in working capital with the largest driver being a reduction in inventories to more normalized levels now that our in-sourcing actions are complete. Looking forward, in tandem with broader profitability improvement plans for the new year, we would also expect an overall improvement in cash usage for the company. However, I would point out that the calendarization of this will be most significant in the second half of the year.
Finishing on slide 18. Assuming no material change in current macroeconomic conditions and the expected divestiture of the Geomagic business to occur during Q2 '25, we are providing the following full year 2025 outlook. Revenue within the range of $420 million to $435 million, representing essentially flat to modest growth after excluding Geomagic revenue in Q2 through Q4 of 2024. We expect revenues to be flattish from prior year for the first quarter, with a modest increase in the second and third quarters, resulting in a most significant growth in the fourth quarter as more of our recent innovations in the market ramp up over time. Additionally, I would also note that our dental orthodontics business was particularly strong in 2024, while our long-term purchase commitment provides for a strong foundation for share leadership.
We also acknowledge that year-over-year inventory management of consumables by our customer may create short-term volatility. Non-GAAP gross profit margin was in the range of 37% to 39% and non-GAAP operating expense with the range of $200 million to $220 million, both of which will have a significant contribution from this morning's cost reduction plans, but will also be expected to benefit further in 2026 as the remainder of our planned actions are concluded.
Finally, as a result of these items, we would expect an improvement to adjusted EBITDA in every single quarter of 2025 and the degree of annual improvement should continue to grow throughout the year with the expectation that we will achieve breakeven or better adjusted EBITDA by the fourth quarter.
We thank you for your time and continued support of 3D Systems and we'll now open the line for questions. Operator?
Operator
(Operator Instructions) Jim Ricchiuti, Needham & Company.
James Ricchiuti
Question just on the Industrial vertical. The improvement that you saw in revenue. It sounds like that was more on the system side. You alluded to the strength in the aerospace and defense market being one of the drivers. Just wondering what you can say about that vertical in Q1.
I know it's a seasonally weaker quarter, but maybe just some color on a year-over-year basis, how we should think about that?
Jeffrey Graves
Yes, thanks for the question. Jim, it's -- it was really encouraging in Q4 to see the uptick in new printer sales into industrial market. And as I believe we mentioned it, it was driven by those high reliability markets. Rocketry, space, satellites, a little bit of automotive, especially some of the more luxury automotive. The -- and I would expect again, Q1 is normally a little bit weaker.
But I think the big overhang, Jim, is just these -- the tariff situation. And our customers clearly are struggling to figure out where they should be spending their CapEx. Their demand profile is growing. They see more customer demand out there right now, even in an uncertain market. The question is, if you're -- for example, automotive is probably the best example, if you're a big automotive company.
You have factories all over the world, where do you put your new capacity, where do you put it? When they put that capacity in, I think 3D printing will play a nice role. And so certainly, industries that are completely contained within the United States where it's big growth, like we love rocketery, we love satellites, defense and aerospace, that's good because it's within the country. Those guys have more stable plans, if you will. It's the multi-continent global players that are just hesitant to spend a lot of CapEx.
So if you add all that up, Jim, I think we'll probably follow a more normal seasonality pattern this year is my best guess quarter-to-quarter. But as we said in our guidance, I think it will be -- everything else being equal, I see no reason why it just wouldn't be a flattish to slightly positive year. I think overall capacity utilization is up. So they're going to need some more printers and their plans include -- for capacity, include 3D printing, which is terrific. We just want to see that CapEx unleashed.
They all have strong balance sheets, I'd say all -- virtually all of the majors have strong balance sheets and are ready to invest. The question is where do they invest for growth. I mean, clearly, with most of our operations and focus being in the United States, the more they bring that into the US and expand here, the better it is for us. We have a better cost position.
Obviously, it's US-based technology that we design and manufacture here. With our in-sourcing complete, that's really magnified. So we're in a position to benefit from that. But I think it's just such a darn volatile environment right now that they're struggling in order to spend money. So I net that out, Jim, to say it's probably going to follow a normal seasonality pattern this year, and the overall trend is going to be flat to slightly up.
And I could be right -- I hope I'm wrong and that this capacity utilization leads to a higher CapEx spend. I hope I'm wrong in that direction. But we're really -- that's why we're really making sure we focus on our cost and execution plan, and we'll let the macro work its way through.
James Ricchiuti
Got it. Just -- a quick question just on dental. Is it fair to say the bulk of dental in '25 continues to be more on the aligner side of the business. I guess, what I'm trying to get to is the other 3 segments, which certainly look attractive from a growth standpoint longer term, do you see meaningful revenues for that more toward '26?
Jeffrey Graves
Yes, I'd be realistically, Jim. I think it will be a '26 ramp-up. But a lot of the investments will start being made here in '25. And especially, I think the denture -- it's all flipping to -- certainly, it's all flipping to digital. A lot of the new capacity is flipping to actual 3D printing.
And as I mentioned, I think we're well positioned for that. In terms of sequencing, aligners has already gone there. Clearly, the indirect printing method for aligners is focused on 3D printing for years now, and we're a very big player there. The direct printing of aligners is probably going to ramp over the next couple of years. It's probably 2 years out.
The Night Guard production is near term as is the denture production. And dentures by far, it's 3 to 4x the size of the other markets individually, and I'm super excited about that. I think once you see momentum building there, that a lot of the new spend will be in that area for printers and then consumables as they ramp up, which is why it's right at the front of our parade right now.
So some of it I guess -- to be clear, Jim, some of it will hit in '25. I think the bigger impact obviously will be in '26 and beyond.
Operator
Our next question is coming from Troy Jensen from Cantor Fitzgerald.
Troy Jensen
Jeff, maybe to start with you, I'd love to get an update on the cost cut side of it. And I always think about bioprinting, I think about system-on-a-chip, I think about segments for you guys that aren't generating revenues, but I know they're huge growth opportunities. So can you just talk about where you are now in the spending for those kind of categories? And if that's all of the cost cuts.
Jeffrey Graves
Yes. No, you got it. It's a very thoughtful question. I hope the weather is improving in Minneapolis. So very thoughtful question.
If I go back -- if I put it in a historical context, we had developed so much new technology in bioprinting over the last several years. But certainly, about 2 years ago, it really started becoming clear. We had something novel there. So we went through a heavy exploration phase in the last couple of years. through organs on a chip and the printing of human tissue for wound repair and breast reconstruction for mastectomies.
We did a lot of exploratory work to see what the potential is for that technology. And what we were able to do, Troy, is kind of put time lines on it. It's all really interesting. And I'm sure it will all come to pass at some point in the future.
The question becomes for a company our size, how long can we carry that development? How far should we carry it. We have a good IP position. We have done a lot of pioneering work there. The question then becomes in a down market like we have right now in a macro sense last year.
So how long can we carry the R&D spend for that? And so the natural thing is we look for, okay, how do we focus it? What should we be doing versus others? Should we bring in partners in that area? Or should we just pause in some of the areas and let time go on until the rest of the market comes back.
So if you add all that up, Troy, what I would say is we are looking really hard at how much we spend on bioprinting right now outside of the human lung. The human lung clearly is an enormous activity for us. It's supported with this partnership we have in United Therapeutics. It's magnificent. And it spins off a lot of technology that we can use in these other areas.
We realistically, Troy, we will slow some of them down. Some we may halt for a while and put on the shelf and in other cases, we may look for partners to pick them up that are better positioned to, number one, support the R&D, but also take the product to market. We always knew we need some partners to go to market with that. So we may just accelerate that. So we're -- you can put all that in the heavy focusing area, make sure we get cost out of that because some of the longer-term activities, we're just going to have to slow down or curtail.
Troy Jensen
All right. Perfect. And now may be a question for Jeff Creech here. Can you just talk a little bit about Q1 seasonality? I mean we're kind of deep into the quarter here.
So I'm pretty sure you got good visibility. But couple that with -- I'm assuming you're going to get one quarter of Geomagic sales and then [Geo] probably falls off in Q2. So just kind of help us with the first half kind of revenue thoughts.
Jeffrey Creech
Sure. You've got it exactly right, Troy. So what our modeling indicates and frankly, what our actions will result in is that after the first quarter of this year, revenues associated with Geomagic fall off. Our expectations for the year, which I just mentioned a few minutes ago, contemplate that fact, right?
And so what we'll see as we move through the balance of the year is a revenue number that, of course, excludes those Geomagic revenues and really provides what you might describe as more of a core look at our business for Industrial and Healthcare. All of these comparisons have been essentially taken out of our forecast that we're going to be able to present to The Street and to all of you guys going forward, a picture that essentially excludes Geomagic, both from the numbers and from the conversation.
Troy Jensen
Okay. So the $420 million to $435 million, this is kind of all organic ex-Geo, but you may get some revenues here in Q1 from that. So -- and then just a quick comment. Gross margins at that -- I was impressed. I guess, I thought it was going to be worse given you're selling the Geo business.
Because if I remember last year, I think you guys guided for 38% to 40% gross margins and now you're taking out the software components. So is that just all cost cuts that have driven kind of almost stability in gross margins despite the exclusion of that Geo.
Jeffrey Graves
Yes. It's a bit of cost cuts, Troy, and it's much more the efficiency gains from the in-sourcing activity. It's -- so you're starting to see that show up now in our gross margins, even if these reduced volumes, we've got an excellent geographic position down here in South Carolina with a great workforce. They're able to drive productivity. We took responsibility for supply chain management, all of that for the last couple of years.
So we run a better supply chain. We do a more efficient assembly operation in our plants, and I'm thrilled with the prospects. And I think you'll really see that as volumes tick up in the future. But even see a bit of that coming into the year-end results, as you pointed out. It's -- so I'm really happy with that lift.
And most of that is really through that in-sourcing initiative.
Operator
Greg Palm, Craig-Hallum Capital Group.
Greg Palm
It sounds like you were -- ex this accounting change that impacted the revenue profile in Q4, it sounds like you were maybe pleased with just how the year ended. I'm curious, outside of kind of normal seasonality, what is the tone from the customer base as we sit here almost done with Q1. Has it changed at all versus kind of what you saw at year-end?
Jeffrey Graves
So here's the question, Troy. We've been trudging through the desert as an industry in the last 4 to 6 quarters from a sales standpoint. We hit a bit of an oasis in Q4. It was great. We were able to take a drink of water and say, this feels good.
The question is, is it an isolated oasis or is there -- are we land on the other side of the desert here. Customers are really excited about where 3D printing has come in the last couple of years for production environments. And I say that broadly, it's not just for 3D Systems. I complement to our -- some of our competitors. I think the industry has gotten cost down and reliability up and the throughput up and the parts you can make are amazing, obviously.
So there's a growing backlog of people that are interested in investing in the technology for their plants. What's holding them back right now, Greg, and you get a real sense of this here in the new year is what's happening in the macro environment. The geopolitical situation is still volatile. Maybe it's coming a little bit, still volatile. The macroeconomic environment with tariffs is still wildly fluctuating.
And I think customers need to think through where they're going to spend their CapEx. How much is here in the States, how much is elsewhere because a lot of our customers are global players. They've got plants in every -- on every continent -- in every major continent where they do business. And they got to decide where they spend their money. So we definitely see a hesitation on their side saying, do we really need to place the purchase order in this quarter?
Can it wait a quarter. Demand is building. So it's good to see that. So I feel good about that. Our applications here are very busy.
The question is timing, and I wish I could help you more. I really believe everything else being equal -- and again, you saw it in the press this morning, the situation is very volatile. But everything else being equal if it just maintains this level of volatility or maybe ratchets down a little bit, then in the tariff and macroeconomics scene, I think you'll see demand starting to rise. But as it sits right now today, we're saying, let's plan for a flattish environment, let's focus on cost, get cost out of our business, improve gross margins, improve our OpEx position, which we're in a position to do. And then the top line will take care of itself.
If we get stronger growth, great. If it's flattish -- or even if there were some additional headwinds, we are well positioned with our new product pipeline. We can focus on costs now and just get more efficiency in the business. So I don't -- I can't tell you if it's going to be a protracted rebound or not. The volatility still exists out there.
Greg Palm
Yes. Okay. That's helpful. As it relates to the cost cuts that you announced here, what is the expected or potential revenue impact of those, whether it's, I don't know, discontinuing certain initiatives, halting. And I'm just curious, of the $50 million that you talked about, how much of that is permanent?
I guess, it's a little bit unclear on how much is you're permanently halting versus some of the stuff you're pausing and might start back up at some point?
Jeffrey Graves
Greg, the vast majority is permanent. There's -- yes, there's -- and I expect very little revenue impact from the cuts we're making. It's really focused on efficiency improvements. And when we layer those in, and it's things like site consolidation, things like that, that are permanent changes as we change our footprint and introduce more efficiency initiatives. Those are permanent changes.
And so I won't say there's zero impact on revenue, but extremely small, very immaterial.
It's much more -- and again, because we've gotten a lot of new products out, and there's a lot based on the funding that we've maintained over the last couple of years, a lot coming still, we can really focus down on efficiency and leverage the insourcing, focus on a lot of our back-office operations that still need improvements or can benefit from improvements in efficiency through -- basically through integrating acquisitions that were done years ago and getting cost out of the business. So -- and I put that in the permanent category, Greg. I don't think many of these things are just volume driven and you'll see costs popping back. Okay.
Greg Palm
Yes. Okay. And then lastly, just on cash flow expectations for kind of the year and then as we look to sort of that bridge from EBITDA breakeven, I'm just curious if you've got a specific quarter in mind likely in fiscal '26 when cash flow turns positive based on what you know today?
Jeffrey Graves
Greg, I wish I had an ability to predict that really accurately. Clearly, that's our goal. We're driving to be EBITDA positive late this year. We want to continue that trend in '26 because some of our cost savings are back-end loaded. So we -- clearly, we expect that to flip positive for the year next year and continue to improve with that, obviously, comes cash flow.
I don't think we have any extraordinary CapEx spending plan. So hopefully, we'll get into quickly and operating cash flow positive situation. And then beyond that, a free cash flow positive situation. Will it happen in '26 or beyond is somewhat demand dependent? And also the timing on some of those cost takeouts we have that we'll do late in the year and in early '26.
And those would relate to some of the more complex consolidations and deeper changes in our back-office systems, if you will. Those will be back-end loaded, and that will all affect the timing in '26. So I just can't give you -- I can't give you an outlook. But I think the trend is certainly very clear. And our goal, I can say very clearly, our goal is to flip to operating cash flow positivity and then free cash flow positivity in '26.
That's our goal. Now we'll see how the timing is on the cost takeouts and all of that and what happens to volume, what happens to demand. Those will certainly impact the timing of that. Jeff, is that a correct summary?
Greg Palm
Entirely consistent with our expectation, guys, I couldn't have said it better myself, our expectation, our goal is for '26 positivity in free cash flow as well as operating cash flow, but a lot of it will be dependent on how well we execute our cost takeouts and as Jeff said previously, on demand. So we've got a very focused perspective on the issue.
Operator
Trevor Sahr, William Blair.
Trevor Sahr
This is Trevor on for Brian Drab this morning. Just one for me. It was great to see some of the detail you provided in the slide on the dental growth strategy. I guess, just from a high level, could you help us understand a little bit more both in the US market kind of how penetrated you are specifically on the replace, the larger side of that, the dentures market, what the opportunity is here in the near term in 2025?
And then also internationally, kind of the larger opportunity set internationally, how you expect to penetrate that market and maybe a time line if it's near term or if it's over the next couple of years?
Jeffrey Creech
Yes. Trevor, all good questions. So in terms of the penetration profile in those different verticals, clearly, aligners are entire -- virtually entirely dependent today on 3D printing. So those are great. The indirect printing of aligners and we're a big supplier into that market.
The direct printing will come along in a couple of years. And I don't -- I mean personal -- my personal opinion is I don't believe it will supplant the indirect method. I think it will add to it. I think it will be incremental and you'll see some upside there on overall market. But that's just Jeff Grave's view of life.
I think the direct printing opens up many options for more aggressive teeth repositioning. And you'll see that continue to grow versus the traditional wire braces for people. But that -- we'll see how that technology works out. It's still a couple of years out. Indirect print aligners I think, are here.
They're taking off. They're taking off in the US, Europe and in Asia. And the biggest player in that market is well positioned for it. The others are following suit. So overall, that will be a growth market worldwide, the indirect printing of aligners worldwide.
In terms of the other market verticals, dentures, I really believe Trevor are going to flip pretty fast. Now will that translate to a lot of revenue in '25? Probably not because people have to buy machines, get them installed and prove them out. We've got an FDA approval in the United States for our denture product. So that's in hand.
What is needed in Europe, which nobody has is the approval for prolonged use in the human body for dentures.
It's very similar to the FDA approval process, it just takes longer. Nobody is there yet. We're well on our way and we would expect approval in the -- over the coming year, but the rate at which things are approved in Europe right now for those -- for medical devices, which this is. And I'm not talking about the level of approval where you can put them in for 30 minutes or something. I'm talking about the full approval equivalent to an FDA equivalent 510(k ).
That approval, that takes an extended period of time. When that happens, which will be late this year, I believe, Trevor, to be clear, I think then you'll see Europe following in the footsteps of the US, and it will double that market size. So remember, that $600 million for dentures is what we think 3D printing can address today in the United States, okay? That market is opening up with our FDA approvals, okay? And we launched the printer for that this summer.
Europe, it is, thumb in the air, it's about the same size, with the same needs for people that are all -- are aging like the United States and the demand is there. Once that European approval is granted, I think that whole market opens up and the market doubles. So you'll see an uptick. And you'll see the beginnings of purchases for this year, you'll see more aggressive purposes and the introduction of production in '26. And then I think Europe will just lag up that nominally 12 months, okay?
So you'll see an uptick in investment in '26, you'll see a ramp in revenue in '27.
So I think dentures are strongly on that path. When you look at how they're manufactured today, Trevor, by any measure. And I know you guys at William Blair have done a nice job of doing background work in this market. It's archaic. I mean by modern manufacturing methods.
3D printing brings it into the -- into -- right up to the cutting edge of technology. It's fast, it's inexpensive. The turnaround times are magnificent. So I think the patient benefit is clear. The demand is out there.
We just need to get the technology to market.
So a long-winded way to say, I think in the US, it will start happening this year. I'm not overadvertising the revenue benefit. It will trend in the right direction. '26, I think it will be a much stronger year for dentures in the United States. And I think Europe will be about a year behind that.
Night Guards are really interesting because Night Guards in the past have been viewed as a pretty inexpensive protection media for the mouth. With 3D printing, as we've talked about before with you guys, the ability for us to use dual materials, soft around the gums, hard on the service of the teeth. So the more flexible materials compositions, the ability in the future to even embed instrumentation to monitor the health of somebody wearing them has outstanding potential.
So I really like the Night Guard market. And I'm hoping we can add to and even displace some of the technology today over the next 12 months. It's also interesting that doctors are looking at it more and more for sleep apnea applications. If you're wearing a Night Guard for teeth protection, can it help for sleep apnea. So I love those dynamics.
And I think, again, 3D printing is excellent for that broadly. And I think we're well positioned to capture part of that market. So needless to say, I'm bullish on the market. I love the 4 pillars that we're going after, and it is a very high priority for this company.
Operator
We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.
Jeffrey Graves
Thanks, Kevin. And just to thanks to the audience for tuning in today for going with us on our year-end wrap-up. We'll look forward to updating you again in short order here on Q1 and then the following quarters. We'll try to provide color on these end markets that help you understand where 3D printing is going and where our company is headed as well as updating you on progress on our cost of reduction and efficiency programs.
Thank you again for joining us. We look forward to talking to you again soon.
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.
