Categories Earnings Call Transcripts, Industrials

3D Systems Corporation (DDD) Q4 2020 Earnings Call Transcript

DDD Earnings Call - Final Transcript

3D Systems Corporation (NYSE: DDD) Q4 2020 earnings call dated Mar. 02, 2021

Corporate Participants:

Melanie Solomon — Investor Contact, 3D Systems Corporation

Jeffrey A. Graves — Chief Executive Officer and President

Jagtar Narula — Executive Vice President, Chief Financial Officer


Jim Ricchiuti — Needham & Company — Analyst

Greg Palm — Craig-Hallum Capital Group — Analyst

Brian Drab — William Blair — Analyst

Ananda Baruah — Loop Capital — Analyst

Paul Coster — JPMorgan — Analyst

Wamsi Mohan — BofA Securities — Analyst

Noelle Dilts — Stifel — Analyst

Sarkis Sherbetchyan — B. Riley Securities — Analyst



Good afternoon, and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the Preliminary Results of the Fourth Quarter and Full Year 2020. My name is Brock, and I will facilitate the audio portion of today’s interactive broadcast. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I would like to turn the call over to Melanie Solomon, Investor Relations.

Melanie Solomon — Investor Contact, 3D Systems Corporation

Thank you, Brock. Good morning and welcome to 3D Systems conference call. With me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer; Jagtar Narula, Chief Financial Officer; Andrew Johnson, Executive Vice President and Chief Legal Officer; and John Nypaver, Vice President and Treasurer.

The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along in 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 access to 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 the slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in last night’s press release and our filings with the SEC, including our most recent annual report on Form 10-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 2019.

Now, I’m pleased to turn the call over to Jeff Graves, our CEO. Jeff?

Jeffrey A. Graves — Chief Executive Officer and President

Thanks, Melanie, and thank you all for joining our call this morning. Before we begin, let me wish all of you a healthy and happy New Year ahead. 2020 was an unprecedented year for everyone dealing with the COVID virus, but I’m happy to see improvements around the world as the new vaccines are being distributed in increasing numbers. I trust that 2021 will be a much better environment as we emerge from this crisis period.

Before discussing our progress in 2020, let me comment on the postponement of our 10-K filing. As you know, one of our key actions last year was to begin divesting assets that were not core to our Additive Manufacturing business. We quickly prioritized the sale of our two software businesses GibbsCAM and Cimatron. They were focused on subtractive or machining technology. This divestiture, while complex to execute, went very well, and we closed at the end of the year, which allowed us to eliminate our debt and have cash on the balance sheet for future investment.

While this was a great outcome, auditing of the presentation of our cash flow statement proved more challenging than expected, driven in part by the geographic diversity of the divested assets. Our auditors have asked for a little more time to bring their work to a close, and we therefore filed for an extension of our 10-K.

With that said, we were very pleased to be able to release our Q4 and full year operational results last evening, which we have labeled as ‘Unaudited’ for clarity, and to discuss them with you today.

With that, let me now recap the progress we’ve made in our business and our view of the future.

For 3D Systems, 2020 presented both significant challenges and, along with them, clear opportunities for us to focus our company on what we believe will be an accelerating need for Additive Manufacturing across many industries moving forward. Many of you may recall that one of my first actions upon joining the company last May was to clearly define our purpose statement, that is to be the leader in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products.

Using this as our guidepost, we then developed a four-stage plan to deliver increased value to both our customers and our shareholders. Our four-part plan was simple: reorganize into two business units, Healthcare and Industrial solutions; restructure our operations to gain efficiencies; divest non-core assets; and invest for accelerated profitable organic growth. We set aggressive measurable goals and timelines and focused intensely on execution. These efforts began bearing fruit quickly with a return to growth in Q3, and rapidly building momentum on both our top and bottom line in Q4.

I’m proud to review a few of the high points from our Q4 with you this morning with Jagtar providing greater detail to you in a few moments.

From a topline perspective, the results really speak for themselves. Both our Healthcare and Industrial businesses delivered exceptional double-digit revenue growth on a consecutive quarter basis with our Healthcare business even surpassing last year’s pre-COVID performance by a significant margin. From a bottom-line perspective, the combination of volume growth and the increasing benefit from our restructuring efforts, improved operating margin significantly, returning the company to profitability and positive operating cash performance. This was our first quarter of year-over-year revenue growth since 2018, and we delivered it while still battling the worst global pandemic in modern history and while executing a massive top to bottom reorganization and restructuring of the company.

I could not be prouder of our leadership team and our tremendous employees worldwide who never took their eye off meeting our customer commitments through all of this change. This success has left us in a terrific position moving forward as the virus subsides and the world begins recovering in earnest later this year.

With that quick summary, let me share a few highlights from each phase of our plan. Let’s begin with reorganization. As a reminder, our company is focused on application-specific solutions for our core vertical markets, Healthcare and Industrial.

Over the second half of 2020, we reorganized our sales and marketing activities, combining our hardware, material, software, and services resources into a unified application-oriented customer-focused organization, rather than having multiple independent teams as in the past. This reorganization not only improved our sales efficiencies, it also allowed us to work much more effectively with our customers on specific application solutions, which is a cornerstone of our strategy moving forward.

Within each of our two business units, we have market-specific vertical leaders focused on key growth markets, such as dentistry, personalized health services, and medical devices within our Healthcare business, and aerospace, automotive, electronics, and consumer products for our Industrial business units. These business and market leaders determine both our go-to-market strategies and our development priorities for new products and services, ensuring the specific customer application needs are kept at the forefront of our resource allocation process.

In addition to these changes in our sales structure, we also created a new group we call our customer success team. This group ensures that our customer needs continue to be met after their initial purchase over the life of the system. It includes servicing and upgrades of the equipment, providing our customers immediate access to our rapidly expanding materials portfolio, and delivering software upgrades that drive improved efficiencies in their manufacturing environment. These benefits ensure that the value our customers receive from their 3D Systems solution grow substantially over the life of their ownership, which can often exceed 15 years from the initial purchase.

A testament to our success in delivering this value is seen in our customers’ operations around the world each day. The 3D Systems technology provides over a 0.5 million production parts every 24 hours, 365 days a year, which is more than the rest of the industry combined. And with the breadth of our additive technologies now spanning an enormous range of plastic and metal application solutions, we’re well positioned to build upon this foundation at an even faster pace moving forward.

So with an understanding of how we’re organized, let me comment briefly on our sales performance in the fourth quarter and the current market dynamics.

For Healthcare business, we delivered exceptional growth in Q4 and notably this growth was seen broadly in both dental and medical applications, the latter of which includes medical devices, personalized healthcare, simulation systems and — moving forward — regenerative medicine or bioprinting for short.

I’ll comment further on this new area of the business in a few moments. But for now, suffice to say that our Healthcare business exited the year firing on all cylinders and we’re very excited about the short and long-term outlook for this business.

For our Industrial business, while we are still in a recovery phase from the extreme softness we experienced in the middle of 2020, in Q4 we were pleased to build upon the positive momentum we had established in Q3. Our Industrial business growth reflected increased demand in markets like aerospace, automotive and consumer applications as the industrial economy continued to slowly recover. We expect this momentum to continue in 2021. However, the risks of COVID headwind still linger until the vaccines are more widely distributed later this year. Once these pressures fully subside, we’re very bullish on the outlook for this business.

Next, I’ll spend a few minutes summarizing our restructuring efforts. Last summer, we announced a restructuring program that was designed to ultimately yield a $100 million of run rate cost savings with $60 million to be achieved by the end of 2020. I’m pleased to say that we achieved our $60 million savings target by year-end and that our efforts are continuing unabated.

Looking ahead, we have detailed plans within our core additive business to deliver an additional $20 million in savings this year, with the balance of $100 million linked to our analysis of future divestitures. As these efficiencies are realized, we will make prudent investment decisions to support the increasing opportunities for growth and profitability that we see ahead for our company and for the additive manufacturing industry in total. Jagtar will talk more about this in a few minutes.

Moving next to our divestiture efforts. Having defined our company’s focus last summer, we progressively evaluated all of our assets using this lens. It quickly became clear last year that certain of our businesses, while good performers in their own right, clearly did not feel well within our focus on additive manufacturing. As such, we began discussions with interested parties in several areas and successfully completed the sale of Cimatron and GibbsCAM at the year-end. These two businesses were focused on digital machining technologies and, as such, were outside of our core. Completion of the sale brought us increased organizational focus while enabling us to eliminate our debt and add cash to our balance sheet for future investment. We will continue to evaluate assets for divestment, consistent with our core strategy in the quarters ahead.

The fourth phase of our transformation process corresponds to investment for growth. As we move into 2021, we see two significant drivers of accelerated demand. One is the technical maturity of additive solutions on an industrial scale, which is now become increasingly clear to OEMs worldwide. The second is an accelerating cultural change in our customer base associated with the rise of a new generation of engineering design leadership that was exposed from a young age to additive manufacturing. These engineers, which began entering the workforce in large numbers over the last decade, are embracing the benefits and design paradigms associated with additive manufacturing, which essentially decouples component complexity for manufacturing costs. This allows our customers to design products that have greatly enhanced performance and reliability, while avoiding cost penalties that would occur using traditional machining, molding, or casting methods. When combined with the new materials that are now available for printing, the result is a dramatic increase in demand for Additive Manufacturing solutions.

To be a leader in this exciting market, we believe that a company must have expertise in hardware and software, with a strong portfolio of advanced materials to enable application solutions that are critical to our customers’ product performance and cost objectives.

Solving for specific applications often requires a unique combination of these elements which we bring together through our application engineering experts. Moreover, many customers have a strong need for both polymer and metal solutions, which is why we continue to invest systematically in both technology areas and leverage them as required to meet these rapidly evolving needs.

Looking ahead, we see significant growth opportunities in each of our core markets. Within Healthcare, this includes dental applications as well as a rapidly growing range of medical device applications and the emerging field of personalized health services. These services encompass both surgical aids that are custom-created, to match a patient’s specific procedure as well as implanted devices that aids in the patient’s recovery or quality of life. We anticipate all of these applications for which performance and quality are of paramount importance to be both the near-term and long-term drivers of the business.

Adding additional exciting momentum to our Healthcare business over the long-term, meaning 2022 and beyond, will be our newest area of development, regenerative medicine. As we announced in mid-January, over the last three years, our Chief Technology Officer and the Inventor of the entire Additive Manufacturing industry, Chuck Hull and his team, have been working very closely with our partner, United Therapeutics, to demonstrate the capability to actually print human organs in order to address the enormous need of transplant patients.

The first application selected for development was a fully-functioning biocompatible human lung. In December, we created a — we reached a critical milestone in these efforts. In short, we demonstrated the capability to reproducibly print extremely complex, ultra-thin walled structures using collagen-based and other biocompatible materials. These structures which have the required balance of properties needed for organ application, enable vascularization to support blood flow, and thus the ability to sustain human life.

The printed structures are perfused with human cells, which can thrive and multiply, which is why the team has named the process Print to Perfusion.

While there is more work to do, including completion of the required regulatory approvals, the printing technology that has now been demonstrated for the lung application can be taken in many additional directions.

Near term applications are numerous, such as the creation of customized soft tissue implants for trauma patients or for use in breast reconstruction following mastectomy.

In the laboratory, the creation of test modules termed tissue-on-a-chip could be used to better simulate human response to new drug therapies, shortening the development time and reducing or even eliminating the need for animal testing. All of these applications and a host of others are now within reach, which is why we’ve made the decision to increase our internal investments and to expand our application partnerships in regenerative medicine in 2021.

So in short, looking ahead for Healthcare business, we see an exciting year ahead. This momentum continues to build with expanding applications and an even more exciting long-term outlook as regenerative medicine opens entirely new and potentially significant markets for the company.

Turning to our Industrial business, we see a continuation of recovery as the impact of COVID on the global industrial economies recedes. We are particularly excited about our near-term efforts in space systems, where additive manufacturing of large, complex, metal components for rocket propulsion is helping build a foundation of experience for our newest generation of metal printers, which are particularly well suited to high temperature, lightweight materials.

Automotive and semiconductor equipment applications are also offering near-term growth potential, as is electrical componentry applications where customization is beneficial to performance.

Based upon our development pipeline, we also expect 2021 to be an exciting year for expansion of our materials portfolio, which is central to the benefits that our customers derive from the use of additive manufacturing. The availability of these new materials in concert with our customer success team, organizational change, is intended to maximize the benefits we bring to our customers over the lifetime of their investment in our printing technology.

To end on an exciting note, with regard to our Industrial business, we were very pleased to announce last week a brand new industrial product platform for 3D Systems, which we refer to as High Speed Fusion or our HSF technology. This filament fusion process developed in conjunction with Jabil is specifically targeted at aerospace and automotive applications. Growing out of a project, we referred to as Roadrunner, the printer itself is three times faster and more precise than competing systems in the market today. It also has a significantly larger working volume and very high temperature printing capability that is essential to next generation polymer systems for the demanding aerospace and automotive applications with size, speed and precision that exceeds any of the current market offerings.

Equally important, we will be offering a broad range of materials for this new platform, which should further accelerate its adoption in the market. Based upon our initial analysis, these new markets that Roadrunner will open for us are in excess of $400 million and we’ll expand from there as the full capabilities of the new platform are adopted.

This development effort has been underway for over a year, and we expect the platform to be fully available to the market in 2022. This adds one more exciting dimension to our Industrial business.

So let me conclude my introductory comments by saying simply that we’re very pleased with our progress over the last six months. We look forward to building upon this momentum with a strong focus on growth and gross profit margin expansion in our core Additive Manufacturing business moving forward.

With a strong balance sheet, improving margins and exciting growth opportunities opening ahead of us, we look forward to a terrific future for all of our stakeholders.

So with that, let me turn the call over to Jagtar, who will now describe our results in more detail. Jagtar?

Jagtar Narula — Executive Vice President, Chief Financial Officer

Thanks, Jeff. Good morning, everyone. Let me begin my commentary by reminding everyone that the financial data that we are discussing remain subject to final audit by our independent registered public accounting firm. As a result, our actual results may differ from the anticipated results discussed.

Next, I’d like to discuss the presentation of our numbers. As Jeff discussed earlier, in the fourth quarter, we achieved a development milestone in our regenerative medicine efforts. This triggered a cash payment from one of our development partners related to this achievement. That payment and our growing initiative in regenerative medicine prompted us to reevaluate our accounting methodology for this contract. As a result of this analysis, in our earnings release, we have recast numbers for prior periods to reflect this accounting change, which is also reflected in my commentary on this call.

However, it is important to note that this recasting has only a minor impact on the numbers and does not have any impact at all on our bottom line reported results. In addition, to be extremely clear, when viewed in the context of our overall revenue growth in the fourth quarter, the impact of this payment was immaterial to our results. Even if the payment would have been entirely excluded, we would still have seen year-over-year growth in the fourth quarter.

Now moving on to the numbers, starting with a look at the full year 2020. 2020 revenue of $557.2 million decreased 12.4% compared to the prior year, primarily due to the impacts of COVID-19, the effects of which occurred most severely at the onset of the pandemic, with a strong rebound in activity in the second half of the year.

As we discuss our results in the future, it will be important to compare our growth to a baseline that excludes revenue from divestiture activities, such as the divestitures that closed just after the new year. This revenue will no longer be part of our operating model, and we want to provide a clear baseline revenue for 2020 on which we intend to grow organically in 2021. As such, excluding $44.4 million of revenue from businesses that were divested last year or at the beginning of this year, baseline 2020 revenue would have been approximately $512.8 million. Our growth from this baseline provides a way to measure performance of our Additive Manufacturing business in 2021.

Gross profit margin on a GAAP basis for the full year 2020 was 40.1% compared to 44.1% in the prior year. Non-GAAP gross profit margin was 42.6% compared to 44.8% in the prior year. Gross profit margin decreased primarily due to the under-absorption of supply chain overhead resulting from lower production and end-of-life inventory changes of $12.4 million and mix.

Operating expenses for the full year 2020 on a GAAP basis increased 1.4% to $342.3 million compared to the prior year. On a non-GAAP basis, operating expenses were $236.9 million, a 16.2% decrease from the prior year. The lower non-GAAP operating expenses reflected savings achieved from cost-restructuring activities as well as reduced hiring and lower travel expenses resulting from the coronavirus pandemic.

Moving on to the specifics of the fourth quarter. For the fourth quarter, we expect revenue of $172.7 million, an increase of 2.6% compared to the fourth quarter of 2019 and an increase of 26.8% compared to the third quarter of 2020, driven by growth in both Healthcare and Industrial. We were quite pleased with this organic revenue growth, which we delivered while still facing headwinds from the pandemic that impacted our operations and those of our customers.

We expect a GAAP loss of $0.16 per share in the fourth quarter of 2020 compared to a GAAP loss of $0.04 in the fourth quarter of 2019.

Turning to non-GAAP results. We expect non-GAAP income of $0.09 per share in the fourth quarter of 2020 compared to non-GAAP income of $0.05 per share in the fourth quarter of 2019.

Consistent with our new strategic focus announced late last year, we are now discussing revenue by market, Healthcare and Industrial. Revenue from Healthcare increased 48% year-over-year and 42.4% quarter-over-quarter to $86.6 million, driven by all parts of the Healthcare business: dental, medical devices, simulators and regenerative medicine. Excluding dental applications, revenue in the balance of the Healthcare business, which we refer to broadly as medical applications, increased 27.7% year-over-year. In short, we were very pleased with both the magnitude and the breadth of the revenue growth in our Healthcare business in the fourth quarter.

Industrial sales decreased 21.6% year-over-year to $86 million as demand has not fully rebounded to pre-pandemic levels. On a sequential quarter-over-quarter basis, we saw broad-based revenue improvement of approximately 14.2% in our Industrial business, with no single customer or segment responsible for the improvement.

Now we turn to gross profit margin. We expect gross profit margin of 42% in the fourth quarter of 2020 compared to 44.1% in the fourth quarter of 2019. Non-GAAP gross profit margin was 42.9%, compared to 44.3% in the same period last year. Gross profit declined year-over-year, primarily as a result of timing and the reallocation of costs from opex to cost of goods sold.

Looking forward, and as mentioned previously, our gross profit will be impacted by the sale of our Cimatron and GibbsCAM software business. While revenue in these two businesses were expected to decline, their divestiture is expected to negatively impact gross margins going forward by about 300 to 400 basis points, while our restructuring and transformation activities will benefit gross margins. Net, going forward in 2021, we expect non-GAAP gross margins in a range of 40% to 44%.

Operating expenses for the fourth quarter were $71.7 million on a GAAP basis, a decrease of 9.2% compared to the fourth quarter of 2019, including an 11.2% decrease in SG&A expenses and a 3.1% decrease in R&D expenses. Importantly, our non-GAAP operating expenses in the fourth quarter were $58 million, a 15.8% decrease from the fourth quarter of the prior year as we saw the benefits from our restructuring efforts. The primary differences between GAAP and non-GAAP operating expenses are $6.1 million in restructuring charges as well as $4 million in amortization of intangibles and stock-based compensation and $3.7 million in legal and divestiture-related charges, consistent with our historical GAAP to non-GAAP adjustments.

Next, I would like to briefly touch on our cost-reduction activities. Recall that in 2020 we announced a restructuring to reduce operating costs by $100 million per year, with $60 million of annualized cost reduction by the end of 2020. As Jeff mentioned, we were pleased that we delivered on our objective of $60 million cost reduction in 2020. In addition, we have plans for an additional $20 million of cost reductions in 2021.

Additional cost reductions beyond what is currently planned for 2021 require us to streamline and integrate parts of our business that we may instead choose to divest. Therefore, the plans to achieve the remaining $20 million towards our $100 million cost-reduction plan will be achieved by divestitures or through further cost reductions that we will implement once we have finalized our divestiture analysis.

As we look forward in 2021, our operating expenses will be impacted by the sale of our Cimatron and GibbsCAM business, our cost-transformation activities and our investment decisions that are expected to drive future growth. We are excited about the opportunities in our markets and will continue to make investments in 2021 to position the company well for future growth.

This quarter, we are introducing adjusted EBITDA as a metric that we find useful in measuring the health of the business. We focus on adjusted EBITDA as evidence of the results of our strategy and restructuring actions, and we believe it is a helpful metric to use to compare to prior results.

Adjusted EBITDA, defined as non-GAAP operating profit plus depreciation, was $28.7 million or 5.2% of revenue in 2020, compared to $31.2 million in 2019 or 4.9% of revenue. For the fourth quarter of 2020, adjusted EBITDA improved materially to $22.9 million or 13.2% of revenue, compared to $12.9 million or 7.7% of revenue in the fourth quarter of 2019. The improvement is the result of the business growth in the quarter as well as the results from our restructuring efforts. We were pleased that we could grow adjusted EBITDA in Q4 despite the challenging economic environment.

Now let’s turn to the balance sheet. We ended the quarter with $84.7 million of cash on hand, including restricted cash and cash and assets held for sale. Cash on hand decreased $50 million since the beginning of 2020. Importantly, our cash on hand increased $8.4 million from Q3 2020 to Q4 2020. We did not issue any shares under our at-the-market equity program called the ATM program during the quarter. Therefore, the increase in cash on hand reflects the improved operating performance of the company and the flow-through of cost actions that we have taken.

Our term loan at the end of the year was $21 million. We have a $100 million revolver that was undrawn as of December 31, 2020, and has approximately $62 million of availability based on terms of the agreement.

Following the sale of our Cimatron and GibbsCAM business, which officially closed at the beginning of January, we used part of the proceeds to pay off the term loan, making us debt-free and in net cash position as we moved into the new year. Additionally, as previously discussed, we terminated the ATM program.

As we look forward into 2021, we have greatly improved the operating efficiencies of our business and are continuing to do so. We are focused heavily on reinvesting for growth based on the increasing opportunities we see for our core additive manufacturing business, and we are continuing the evaluation of our portfolio with an eye towards the potential for divestitures and subsequent reinvestment of proceeds into our core business efforts.

We believe that our market opportunity has considerable growth potential. We have made tremendous progress in cost reduction and operational efficiency and have chosen to reinvest portions of the savings back into the business to drive future growth.

With that, I’ll turn the call back to Jeff. Jeff?

Jeffrey A. Graves — Chief Executive Officer and President

Thanks, Jagtar. In 2020, we completed the reorganization and restructuring of our company to drive growth in our core businesses, successfully achieving our targeted cost savings while focusing on delivering application solutions for our customers. As a result, we’re now a company with a strong focus on two key markets, Healthcare and Industrial Solutions, and one that has a much more streamlined and efficient cost structure.

We started 2021 by completing the sale of our Cimatron and GibbsCAM software businesses, and we’ll continue to see cost savings from our restructuring efforts throughout the year. We’ll continue to explore divesting noncore assets and look to grow our customer relationships through focusing on application solutions in our most exciting growth markets.

We believe revenue in our core business centered around a solutions-based approach to Additive Manufacturing will grow rapidly moving forward. And we’ll selectively invest for growth opportunities like regenerative medicine, materials development and ongoing improvement in our product lines.

Many may ask what rapidly means in terms of growth rates. All we can say today is that uncertainty remains around the pace at which COVID impact will receive and the global economies rebound. We’re hopeful that the momentum continues to accelerate. And with that, we’ll be able to deliver double-digit growth rates in our core additive business in the year ahead, but these next few months will ultimately determine this outcome.

What I can say with certainty is that our continued focus on operational execution. We are very excited about the trajectory we’re on and the future value we expect to bring to all of the stakeholders in our company.

And with that, we’ll now open the floor for questions. Brock?

Questions and Answers:



Thank you. [Operator Instructions] Our first question today is from Jim Ricchiuti of Needham & Company. Please proceed with your question.

Jim Ricchiuti — Needham & Company — Analyst

Thank you. Good morning. Just a question, I wonder if you could, Jeff, maybe give us a little bit of a sense as to how business is trending thus far in the quarter? We’ve got about a month left. And I guess where I’m going with this is, if you could talk perhaps to the seasonality, Q4 to Q1, which in past years we’ve seen declines, and we’re in the high teens to — I think it was 25% last year. So what I guess I’m asking is whether there was perhaps unusual strength in Q4, maybe in medical, that might lead to more seasonality in Q1 of this year? Just trying to get a sense as to how the business is shaping up Q4 to Q1? Thank you.

Jeffrey A. Graves — Chief Executive Officer and President

Hey, good morning, Jim. Good to hear from you. Yes, that’s — Jim, this is kind of the million-dollar question. It’s a competition of factors out there right now. So yes, we do expect kind of normal seasonality Q4 to Q1. The real question is there is a rising tide of applications. And I would tell you, I’m particularly excited around health care. I think a lot of folks put off Healthcare treatments during the COVID period, and they’ve come back strongly in both dentistry and other medical applications. And obviously, the fourth quarter was just tremendous.

And I would expect that Healthcare momentum to continue provided hospitals stay open. And I’m very encouraged about the — and you probably read as much as I do about the declining, certainly, death rates, but even hospitalization rates from recovery now with the combination of masks and vaccines. So that’s really encouraging because hospitals can then address this backlog of patients that need surgery, need devices; dentists, people that need work on their teeth or mouth. So those are all really good for our Healthcare business. I would expect that to continue to have a very strong look ahead. Again, with just a distant caveat around COVID on that market. And it’s more of a short-term concern than long term.

I think, once we get through summertime, unless these variants in the virus prove to be substantial, it looks like that momentum will continue and just continue to accelerate as the world opens and probably at an even faster clip, Jim, frankly, because there’s a big backlog of demand.

On the Industrial side, it’s a little dicier in the short term because it’s spotty. You run into countries and borders that shut periodically and especially around the variants in the virus. You — you’ll get a customer in a locale where they suddenly have to shut down for a few weeks or something like that. It doesn’t reduce the demand for other product, but it certainly postpones the — it can postpone order placement. It certainly postpones shipment and installation. And some of these, especially with regard to our metal printers, you don’t recognize some of the revenue until the project is completed and demonstrated in the customer factory. So that’s been a real drag.

I’m really pleased with the take-up on our metal solutions and how people are embracing those. It’s that installation piece and knowing that we can get out to service someone that is the factor.

So I wish I could give you real numbers. I do expect the seasonality to be there. And hopefully, a more normal seasonality kind of impact than was last year. Because I think, in Q1 last year, people were probably already starting to anticipate the virus. So maybe it should return to more normal levels. But I think we’ve always had significant seasonality in this company. So that — I don’t expect that to ever go away.

But beyond that, I see really strong demand for additive solutions in general for the whole industry. And I think our technology in many, many areas, we have leading technologies. And particularly, the combination of our product and software with our materials platform is really powerful. We have an ability to get out there and address solutions for customers very quickly. without requiring them to go to another materials manufacturer to actually optimize the solution.

So I’m really bullish once the virus lifts in the summer. The question mark is around Q1 and Q2. And so far, so good. We just keep our fingers crossed each day.

Jim Ricchiuti — Needham & Company — Analyst

Yeah. That’s helpful. On the High Speed Fusion — just final question. Interesting announcement that you made. And I’m wondering if you can give us a better sense as to when it might be available in ’22 and how it’s perhaps differentiated from your other polymer printing solutions?

Jeffrey A. Graves — Chief Executive Officer and President

Yes, certainly, Jim. I — on the launch date, we said — we’ve certainly demonstrated capability on the machine. We have some more normal industrialization and move into manufacturing, so I’ll hedge a little bit on the exact launch date in 2022. I’m confident we’ll have it out in the market in 2022. And it will be out there, I think, significantly.

In terms of the benefits of the product, Jim, it’s a fantastic product. It’s our — the numbers we publicized are over 3 times faster than the current technology that’s on the market today being used and a much larger workspace and higher temperature capability, which really opens up a broad range of polymer solutions, particularly for aerospace and demanding automotive parts.

So we — there is the existing market out there that’s substantial, and we estimate that at over $400 million today. I think this machine has a really good chance of, over time, taking a nice share of that business. And then I think when people actually measure the economics and the throughput, it will open up some new markets versus competing technologies.

So we’re very bullish. I am thrilled to be able to offer a portfolio of materials when we launch the platform. So there won’t be much of a delay between launching the machine and launching materials for our customers to use, which is kind of our trademark. That’s what we like to do.

And just like the old cartoon we all grew up with, Roadrunner versus The Coyote, I think this thing is going to run circles around it. I’m really, really bullish on it, Jim.


The next question is from Greg Palm of Craig-Hallum Capital Group. Please proceed with your question.

Greg Palm — Craig-Hallum Capital Group — Analyst

Yes. Jagtar, Jeff, thanks for taking the questions here. Just starting off, the Healthcare revenue, I think, was really eye opening. And just kind of curious, how much of maybe the upside to that was due to timing of large projects? I don’t know if that was a tailwind at all. It sounds like dental was maybe an outsized driver, but just a little bit more color on healthcare, specifically for Q4?

Jagtar Narula — Executive Vice President, Chief Financial Officer

Yes, Greg, this is Jagtar. So I wouldn’t say it was any sort of timing of large projects. I mean, we’ve talked about the milestone payment that we received in my prepared remarks. That was almost immaterial to our Q4 results. So outside of that, what we saw was kind of normal course of business in both printer sales, material sales, advanced manufacturing and other parts of our Healthcare business. We were very pleased with the broad-based nature of it. We saw very strong performance, as you saw in dental, but we also saw very strong performance outside the dental business. And none of that, I would say, was kind of — we had large printer orders, but we also had good materials move in other parts of our business. So none of that, I would say, is kind of nonrecurring in nature.

Jeffrey A. Graves — Chief Executive Officer and President

Greg, I’ll just — I’ll give you a little more color. If you picked up the numbers as we went through the script, the overall Healthcare business was up tremendously, I mean, almost 50% year-over-year. It was great. And what was encouraging is the breadth of demand that even the — if you separate out the dentistry applications from the medical applications broadly, medical applications grew 30% — almost 30% year-over-year.

So we are just thrilled. This concept of mass customization where you can customize solutions for patients is really catching on. And it’s a differentiator for additive manufacturing in general. Because we have very strong application facilities and advanced manufacturing facilities that are approved by the FDA, we can access those applications relatively quickly. And we were really excited to see the — both the pent-up demand being relieved as well as strongly growing new demand, new applications for additive solutions there.

So we love the Healthcare business, and it’s got many facets to it. And longer term, the regenerative medicine — I don’t want to oversell it in the short term, but you fast forward a few years down the road, this idea of implantable biocompatible products for long-term use in the human body is amazing, absolutely amazing.

So I love the business. We continue to invest in it heavily. And we’re excited about the growth.

Greg Palm — Craig-Hallum Capital Group — Analyst

Got it. Good color. And then just as a follow-up, can you comment at all on consumable trends within the quarter? Did that specifically return to growth as well? And if so, any sort of end markets or applications that drove that?

Jagtar Narula — Executive Vice President, Chief Financial Officer

Yes. So consumables trended about like we have seen historically. We don’t break out the specifics of our consumable numbers, but I’ll say that it did grow year-over-year, quarter-over-quarter. I wouldn’t say there’s any specific area that we saw consumable growth. Healthcare was very good for us, in line with the overall Healthcare business, but it grew across all segments of our business.

Jeffrey A. Graves — Chief Executive Officer and President

No, Greg, I commented briefly in the prepared text about our strong focus on supporting customers over the life of the product once they purchase it. And certainly, the consumable aspect of that is a big deal as is software upgrades. Our printers last generally over 15 years in many environments out there, and we want to make sure we’re delivering increasing value over the life of that machine. So they may make a capital purchase upfront, but we want them to get more and more use out of it over time. So we’ve reorganized our go-to-market team to support that activity. And what will fuel the growth there is the software materials that feed the system.

So we want them to optimize their printing platform every day and then, obviously, get the most value out of it in terms of printed parts. And that’s often with our own materials that we provide them, and they’ve been optimized for printing. So we love that formula. Customers like it. And that’s more and more our go-to-market strategy over the life of the machines.


The next question is from Brian Drab of William Blair.

Brian Drab — William Blair — Analyst

Hi. Thanks for taking my questions. I’m looking at the gross margin, first of all. You said Cimatron should be a 300, 400 basis point headwind. That’s what I was expecting. The cost-cutting program, though, as it was laid out, had me thinking that $40 million of the $100 million coming from the COGS line, and the commentary thus far have me thinking about $30 million would be out of the 2021 numbers, then that should have a positive impact on gross margin, about 600 basis points.

You did 43% gross margin this year when volume was down severely, so I would think the baseline expectation based on information that analysts had without any volume recovery should have been about 46% for 2021. And I’m wondering if you could just help me bridge from what I was thinking was going to be closer to maybe 46% to the 42% midpoint of the guide.

Jagtar Narula — Executive Vice President, Chief Financial Officer

Sure, Brian, like I said in my prepared remarks, so the Cimatron divestiture was about, call it, 300 to 400 basis point drag on gross margins, right? Now on the cost savings initiatives, we said $60 million we achieved in 2020. About 30% of that, I would say, was on the COGS line, so that would give you about $18 million of flow-through in 2021, some of which was actually recorded in Q3 and Q4 2020, right? We did achieve those numbers during the year. So the gross margin for the year that you’re looking at includes a portion of that 30% of the 60% that was saved.

For 2021, as of now, we’re talking about $20 million additional savings. Like I said, pending the analysis divestiture. Again, I expect that split to roughly be a 30% of the gross margin line. That will be achieved over the course of the year. So you expect about half of that to actually kind of show up as achieved during the year.

So you net that all out, that doesn’t get you back to 400 basis points of gross margin you lost. We expect it to be somewhere in between. And some of the uncertainty will be dependent on growth of the business and the level of printer sales, right? Like we saw in Q4, printer sales were very strong. Printers, lower gross margins than consumables. That drags down our gross margin a little bit. And so hence, the range we’re providing for 2021.

Brian Drab — William Blair — Analyst

Yes. Okay. That’s helpful, because I had 40% coming from COGS. And I note, since the 30 versus 40, it’s a full 33% more in cost coming out of COGS that I was assuming. So that will help me get the math straight. Thank you.

And then one other question. I think this is related to divested businesses. I’m just trying to understand if there was something divested in the fourth quarter — revenue that was divested that was not in the fourth quarter but was in the third quarter because — just trying to reconcile that I had seen in the press release, right, the pre-announcement that the industrial business was up more than 20% sequentially on an organic basis, but the slides today are showing that the industrial business was up 14%.

Jagtar Narula — Executive Vice President, Chief Financial Officer

Yes. Those are — sorry, those are actually two different items. Let me address both of them. With regard to divestitures in the fourth quarter, we divested two small assets, one in China and one in Australia, two small-on-demand printing facilities. I would say the revenue loss for those — from those in the quarter was relatively material.

Regarding our pre-announcement for Industrial at 20% plus sequential growth versus the 14.2% that were in our kind of actual announcement, the difference there was, frankly, just the mischaracterization of some of our revenue from Healthcare to Industrial in the pre-announcement. We have some small Healthcare customers, small things, small hospitals and the like, highly geographically dispersed, that we mischaracterized, unfortunately, as part of our Industrial business when we did our pre-announcement. But then as we were refining our numbers, we realized that those were actually Healthcare numbers and reflected that in our Healthcare totals rather than our Industrial totals. So that’s what flipped that number.

Jeffrey A. Graves — Chief Executive Officer and President

Brian, the —

Brian Drab — William Blair — Analyst

Has that changed previous — [Speech Overlap] Go ahead. Sorry.

Jeffrey A. Graves — Chief Executive Officer and President

It’s a detail, but it’s one that, with your following of the industry, you’ll understand. We — so when you have an emerging customer in health care, we often deal with those on a geographic basis through our channels, some indirect, some direct, but through our channels. And the customers we call on out of our Healthcare business directly work through a very dedicated Healthcare channel. Those are the ones that are easy to quantify. It’s the collection of geographically distributed ones that it took some refinement here at the end of the year to actually carve out and attribute those to the Healthcare business. So there was some movement in revenue between the two business units as we clarified those small customers. And they are potentially very important for the future, but we call on them initially from a geographic perspective.

Brian Drab — William Blair — Analyst

Okay. Got it. Thank you.


Next question is from Ananda Baruah of Loop Capital. Please proceed with your question.

Ananda Baruah — Loop Capital — Analyst

Hi. Good morning, guys. Yes, Jeff, Jagtar, Andy, thanks for taking the question, and solid job guys so far. You did a nice job with everything that you’ve done.

Just real quick, because I’ll be a little sensitive of time here. Jeff, you had made mention about sort of double-digit revenue growth during the prepared remarks in a particular context. I’m just wondering, do you feel any differently today than you did 90 days ago about the potential to be double-digit revenue growth? And there’s nothing magical per se about the double-digit revenue growth. I think just having a sense of what you guys think the potential trajectory through this year is and if that’s changed over the last 90 days. And then I have a quick follow-up.

Jeffrey A. Graves — Chief Executive Officer and President

Yes, good morning, Ananda. Thanks for the kind comments. I had to chuckle, because I think views of the world change every 90 minutes, not 90 days. It’s — there’s just so much short-term volatility with the virus. I am really pleased — every announcement I see about vaccines and about just the benefits of social distancing and mask wearing and combined benefit, I’m really pleased with that trend. It’s kind of like going on a speed boat through choppy waters. There is still short-term issues that pop up geographically, which are frustrating, around shipments, around servicing and installing equipment, all that stuff.

So there’ll be some short-term noise, which is why we’re really reluctant to ever comment on revenue in Q1, Q2. But behind that, there is just tremendous growth in applications. And I think, for any company running itself well and has some good position in this industry, there is a really nice tailwind of application growth that’s available to folks. I like our combination of technologies very much. I like our — certainly like our installed base. My goodness. We’re putting 0.5 million parts a day in our customer base. And that builds up a wealth of experience you can draw on when you design new products, and it certainly fosters customer relationships. So I am very bullish on the industry. I’m very bullish on our company.

I think the double-digit growth rate is perfectly attainable in our core business. That view has not changed in the last 90 days, to answer your question.

The key for us, there’ll be some short-term noise as we may or may not choose to divest some assets. So you’ve got to always factor those out. But when you look at our core additive manufacturing business, I’m very bullish on double-digit growth and gross margin improvement. We’ve set kind of a goal for ourselves of being over 50% in gross margin in the coming years and be supported by volume growth. I think that will be exciting. Health care, in general, brings a bit higher gross margin on average than our Industrial business. And all have very big moats to entry, the markets we’re targeting.

So it’s — the high growth, it’s sustainable growth, and it’s expanding gross margins. The exact time frame on getting to those parameters, I can’t be specific on. I — especially in the short term because of the COVID situation, but I would say it gets better generally each day. And we remain very, very excited about the business.

We are coming in excited and sprinting every single day, Ananda. It’s — I have never experienced before in my professional career such an exciting dynamic environment. And those are the folks we’re attracting to our company, it’s the customers we’re attracting to the business. And it’s simply fabulous.


The next question is from Paul Coster of JPMorgan. Please proceed with your question.

Paul Coster — JPMorgan — Analyst

Yes. thanks very much for taking my question. Jeff, you have indeed done a great job this last year of bearing down on expenses in addition to everything else. But I wonder, some of the applications that you’re going after now are really quite hard, at least that’s my impression. And the R&D associated with them has potential to be sort of never-ending, I guess. Is there a risk here that you — I mean, I guess, people are interested in the scalability of this business over the long haul, and the application-centric approach to it means a lot of R&D just kind of accumulating. Can you scale on that R&D?

Jeffrey A. Graves — Chief Executive Officer and President

Paul, that is a great question. We have to — you have to be really careful when you’re surrounded by so many targets of exciting things to go do that you’re disciplined about how you invest because you could — and you can see examples in this industry all around you. People chase a lot of different directions. They spend a ton of R&D, try to do it. And we’re trying to be a bit more selective than that and go after things that — the application focus is, in general, a high-touch focus. It’s — we spend our R&D — to be clear, we spent our R&D on the underlying technology. So printers, materials and software. That’s where R&D spending is.

In SG&A, there’s a chunk of that that goes to application demonstration. And that’s exciting. We have way too many applications coming in the door each day that all look interesting. And we’re getting more disciplined about saying — okay, these select ones have really good return on the investment. So that’s how we’re going to spend our SG&A dollars.

R&D, we’re just trying to drive efficiencies and address the broadest range of applications we can. We’re tying the development to specific applications, Paul, wherever possible. And we’re not going to get out in front of our skis on, frankly, overspending and losing money. It’s — I think it drives a good discipline to say you want to be profitable and generating cash and use that cash prudently to invest for growth. We have tons of opportunity for growth around us.

I’m confident, Paul, we could deliver double-digit organic top line growth over time and not spend ourselves into oblivion.

So that’s — in general, that’s the direction. I don’t believe I’ve answered your question very well, but I — if you heard discipline out of that, I hope, because we’re just not going to chase every rabbit that crosses the field in front of us.

Paul Coster — JPMorgan — Analyst

Got you. Okay. And then the other thing, which is kind of interesting, I think, for investors is just the proliferation of companies in the space, right? Now it seems like it’s a large market. I’m sure there’s white space out there. But to what extent are you going after the white spaces where no one else is playing versus head-on competition? And where there is head-on competition, do you see pricing becoming a consideration yet? Or is it still a sort of value sale?

Jeffrey A. Graves — Chief Executive Officer and President

Yes. No. Good thoughtful questions, Paul. So in terms of white space, the white space, Paul, and I would characterize it, yes, we’re going after a lot of white space related to new applications. Where customers are coming in and saying, “Hey, look, I’ve always made this very simple geometry by machining, I’d like to make it out of additive, but it has to have very unique mechanical properties in addition to a fancy geometry.” Those are ones we love, because we’re up against really no one else, and we can bring our materials expertise to bear and our software and really, really take our printing platforms and make the most of them. Customers then tend to run with those. And I call that white space. There are applications that were not additive before. And across both Healthcare and Industrial, Paul, there’s tons of those. There’s many, many of those.

What I don’t like is where you have a customer that’s used additive for a long time, they’re now trying to drive it to standard components, and there’s five different printer companies that are competing and using a very standard off-the-shelf material. Those are not great businesses for us, so we tend to steer toward industries and applications that get the most bang out of additive. And it’s often with a unique — a very good printer itself, but a unique combination of software with that printer and materials that go through it, Paul.

If you can bring those to bear in any way, and the epitome, Paul, was what we’ve seen in regenerative medicine. I — we just had a — there was an article run on what we’re doing in Forbes Magazine a few weeks ago. It is amazing. The combination of materials, software, printing and the application combination, that’s the white space that we love and we’re going after.

There is increasing competition in simple printer technology, because the components are becoming a bit more off the shelf. So low-end applications, broad-based, those are becoming commoditized, and they’re just not our business. That’s really not where we’re going.

So we tend to develop more and more specialized, specialized with significant market opportunity applications and the hardware-software materials around it. Does that all make sense to you?

Paul Coster — JPMorgan — Analyst

It certainly does. Thank you very much, Jeff.

Jeffrey A. Graves — Chief Executive Officer and President

Thanks, Paul.


The next question is from Wamsi Mohan of BofA Securities. Please proceed with your question.

Wamsi Mohan — BofA Securities — Analyst

Yes. Thanks for fitting me in. You’re clearly focused on Healthcare and Industrial. I was wondering if you could maybe share how much of your baseline $513 million of revenue does not fall into either of those categories and if all of that is up for divestiture. And what’s the sense of urgency around that? You noted that the assets are good in their own right, but just not core to you. Now that your balance sheet is in a much better place, is this going to be a quick process? Is it going to be a slow process? Any color there would be helpful.

Jeffrey A. Graves — Chief Executive Officer and President

Yes. It’s — those are really good questions. I — in reality, I like to paint it as black and white, in the core, outside the core, it’s simple to think about. In reality, there are assets that are in a gray zone, in between. And that’s — those are tougher calls. You’d really have to take a hard look and say how much — what’s best in terms of value creation. And one of my acid tests I always use is, is the business worthy of investing in? Is there a good return on investment? And if you own a business where the incremental investment is — does not have a good return, or it doesn’t make it up your priority list in returns, you have other better things to do with your money, those businesses, generally, you should feel a drive to sell and let them be owned by someone else that will treat them as their highest priority.

We have some really exciting opportunities in additive manufacturing, more than we can possibly run after every day. And so nonadditive technologies, things that are even borderline on that, are of lower priority to us. And when it’s a lower priority, I’m definitely of a mind to get rid of it, not because they’re not good businesses. I want to be clear, they’re really good, but they need to be owned by somebody that will love them and nurture them and treat them as their highest investment priority.

So if it works its way down our list when we rank our priorities, we tend to get rid of the ones that are lower on that list. It’s better for the customers, the employees and certainly our shareholders. We’ll reinvest that cash into our core business where we have tremendous growth opportunities.

Wamsi Mohan — BofA Securities — Analyst

So Jeff, would you say, of the $513 million, like how much it falls outside of Healthcare and Industrial?

Jeffrey A. Graves — Chief Executive Officer and President

Yes. It’s — in general, I would say it’s, by definition, quite little. But bear in mind, Industrial is a very broad word. So how much of it is — a key question is how much of it is additive? How much of it is really integral to additive manufacturing. And if you say it that way, we still own assets that are predominantly exposed to nonadditive markets. And those are the ones we really look at. And there’s two options. We either convert them increasingly to additive manufacturing, and we hang on to them or we sell them and take the cash and invest in the core business for faster growth and margin expansion.

So it’s — — conceptually, it’s that simple. And you have to find a buyer that really wants the assets and — because some of these are — and this came up earlier about gross margin volatility, some of these are really nice gross margin businesses. It’s just under our ownership we’re not going to invest a lot for growth. They’re a lower priority, and they should be owned by someone else.

So I can’t give you — it’s very hard to give you a percentage of what is not Industrial or Healthcare. In terms of nonadditive, it’s not a very — it’s not an extremely high percentage, but we still have some assets that are not additive.


The next question is from [Speech Overlap]

Jeffrey A. Graves — Chief Executive Officer and President

Go ahead, Brock.


The next question is from Noelle Dilts of Stifel. Please proceed with your question.

Noelle Dilts — Stifel — Analyst

Thank you. And again, congrats on good performance in a tough environment. You covered a lot of ground in the Q&A, but I did want to go back to a couple of questions and just try to get — try to, I guess, ask them in a slightly more granular way.

So first, going back to Paul’s question on R&D investments. You mentioned that you’ll see discipline there. But right now, your R&D is running, I think, at kind of the lowest level since 2014, makes sense in a COVID environment. Do you think there’s — are you looking moving forward at kind of scaling — do you think there’s opportunity to kind of pull that back a little bit more and leverage that more? Or do you see that rebounding a little bit as we move into recovery in 2021? Thanks.

Jeffrey A. Graves — Chief Executive Officer and President

Thanks, and thank you for the kind comments. I appreciate that. In this industry, I would just give you a very general comment. In this industry, I think you could spend nominally spend 10% of revenue on R&D and deliver double-digit growth. If you’re running a good business, you have a good range of technologies and you can drive double-digit organic growth in this industry, I believe, at a 10% kind of number.

Now there may be years where you say — gosh, I have this really exciting opportunity two years or three years out. And I’m going to spend an incremental 1% or 2% on that. That’s fine. You can do stuff like that in the short term. The discipline we want to have is to just draw a line somewhere and say that’s what we can afford to do and leave it at that. I do not believe in long term money losing businesses. I think it lacks discipline.

So we don’t come in of a mind every day to make sure we maximize daily profits. But at the same time, we’re not going to get on discipline in R&D spend. And I think in the long term, if we do it right, 10% of sales is a fine number. Now I say that, I’m not sure how we’ll end up this year with the revenue — with revenue being impacted by COVID off and on in an uncertain way. But in general terms, I would tell you that that’s why I think this industry can also be a strong cash-generating business.

I think the reason we’re rolling out now adjusted EBITDA as a metric, is I look at — we moved from single to double-digit EBITDA performance through leaning out of the business and a focusing of it, I like that. I think it’s good. I’d like to see our gross margins get to 50% and above. I think we can get double-digit organic growth on 10% of our spend on R&D. And I think we’ll just be disciplined in our SG&A to drive that. And then I think EBITDA margins moving from the mid-teens into the 20s is perfectly doable in this industry. And it won’t happen immediately, but I think we can get there. If you run a good business, you can get there in this industry.

And that’s an exciting business. That’s one that generates cash to reinvest and leaves you with excess cash on the balance sheet for opportunistic acquisitions in the future.

Noelle Dilts — Stifel — Analyst

Okay. Great. That’s really helpful. And then kind of taking that last point and also revisiting the question on divestitures, so again, as you look at this process, the divestiture process, are you — is this something that’s ongoing that could kind of be a multiyear process? Are you kind of looking to get the business to where you want it to be in 2021? And then as you do build cash on the balance sheet through those divestitures and through generation, ultimately, what are some of the key areas that you’re really looking at in terms of investing through acquisition? Thanks.

Jeffrey A. Graves — Chief Executive Officer and President

Yes, great, great question. Thank you. So I’m impatient by nature. I really like to move out on things when you see what can be better to get it done. And we did that on GibbsCAM and Cimatron last year. It was a home run. I mean, we generate cash that really strengthened our balance sheet. And those assets ended up in the hands of owners that will really care for them and grow them in the way that they should be cared for. They were great businesses, and they just were not our businesses.

So when we look at our other assets, there are some that we look at and say — that’s closer to the core, but it’s not quite there. So if we could generate enough value through a transaction and leave it in a better owner’s hands, if you will, who’ll give it a priority, we would take that cash and redeploy it. And so in parallel, so we look at assets we can divest — and increasingly, we’re looking at assets that we could invest in, either partially or totally to own and add to the core business, there are really great, great opportunities, especially around technology companies, small technology companies and things across our whole technology portfolio. Printer, certainly, that’s the obvious one people jump to. But if you look at materials and you look at software, we have an outstanding suite of software today, and — but more and more customers want red button, green button kind of solutions for optimization. And you can — there are software you can add on to make it increasingly user-friendly, for example. Materials, same thing. What customers really care about is the printed part, and the material it’s made of is absolutely vital.

So we continually look at assets out there around materials. Can we partner with folks? Can we acquire folks or acquire partial ownership and people that are really going to be — deliver some unique material for printing in the future, very exciting, really exciting stuff. So we’re kind of running those processes in parallel. What can we divest, what can we invest in, because this industry is going to go through a nice growth evolution. And we believe, with our platforms, we’re beautifully positioned. And we just want to enhance those. That’s what we’re trying to do.

And will it happen in ’21? I will make continued progress in ’21. We’re not driving ourselves to any specific timeline to get anything finished because you never really are. But this — for example, this opportunity to partner with Jabil on the Roadrunner, very exciting. Really great stuff, fast, high temperature, large machine for printing industrial parts for really tough applications. As those come up, we want to have the cash to invest in them. Does that help?

Noelle Dilts — Stifel — Analyst

It does. Thank you. Yes, that’s great detail. I appreciate it.

Jeffrey A. Graves — Chief Executive Officer and President



The next question comes from Sarkis Sherbetchyan of B. Riley Securities. Please proceed with your question.

Sarkis Sherbetchyan — B. Riley Securities — Analyst

Thanks for taking my question here. Jeff and Jagtar, I just wanted to come back to the double-digit organic growth commentary. I think I just want to frame this right. What’s your organic sales growth expectation for fiscal ’21? Like how are you internally thinking about growing the top line? And I have a follow-up.

Jeffrey A. Graves — Chief Executive Officer and President

Yes. And from the outside, it’s hard. It’s very — this year is going to be a little tough to see, because what we define and think of as our core of core businesses, we do believe those are going to grow really nicely this year. And unless COVID really sets us back, I believe they’re going to grow at double-digit rates.

What you’ll struggle with me outside is we still own some assets that we would consider potentially noncore, and they’re not directly related to additive in large part, and they’re not going to be growing. So that will certainly mute the — what’s perceived as the overall growth rate of the business.

But in our — we are very impatient for growth in our core business of additive. And I really believe, knock on wood, if the work continues getting better, that will deliver double-digit organic growth this year, okay? And we’ll explain in earnings calls what the results were, what they mean. It’s going to remain a little bit more difficult from the outside to predict the parts because some won’t be growing and some will.

Sarkis Sherbetchyan — B. Riley Securities — Analyst

Thanks. I’m knocking on wood with you. So looking to your EBITDA margin, you delivered 13% this quarter. You talked a little bit about mid-teens to 20s doable in the industry. I guess, in the near term, what’s the business capable of? And where do you specifically plan to take EBITDA margins, say, in the next three years or five years?

Jeffrey A. Graves — Chief Executive Officer and President

Yes. Oh, I would hope to be over that goal in the next three years. It’s — I think if — unless, again, I never — two years ago, who would have envisioned a pandemic. So you always have to have that in the back of your mind. But the way I see this thing going is, our Healthcare business is really firing on all cylinders. And we’re going to continue to fuel that engine, add to it, grow it. It’s terrific. And it carries with a generally higher gross margins and exciting growth rates and a very sticky business all the way around.

Now you have to be good to do it, so we’re really focused on quality, delivery, a lot of the underlying operational metrics that are required, and they are just absolutely essential because it’s direct customer impact, direct patient impact oftentimes and FDA-regulated. We want to do a really good job with that.

So I would tell you that what will drive the EBITDA performance are a couple of things. Overall volume growth and efficiencies there, supply chain excellence, obviously, working right along with that to get cost and efficiencies and operations. What will really help it is business mix. And so Healthcare growth is really good in terms of driving margin improvements. Any margin you want to talk about, including EBITDA margins. And then the mix — the aftermarket mix, supporting our customers after they buy a printer with materials and software wherever we can to add value to their purchase, that’s really beneficial to us. It helps the customers a lot, and it’s very beneficial to our financial performance.

So we love the model. We’re going to be investing heavily in the model, but with discipline. And I would expect EBITDA margins to regularly climb from mid-teens to over 20. And gross margins, I don’t like the level they’re at now. So with that growth, we want to see gross margin lift. And our real goal is to get those gross margins over 50%.

It will not happen overnight, but we will be on a steady trajectory of improvement. The choppiness will only come from unanticipated effects of COVID or divestitures, which could, in the short term, impact those parameters because they carry a higher gross margin/

Okay. I think that we should probably draw it to a close. We let the time go a little long because we had no longer introduction, but very much appreciate everybody’s interest in the company and in our performance. I appreciate the feedback, as always. And we’re happy to follow up with you after the call.

So thanks very much for joining today and for your continued support of the company. We look forward to updating you again in the quarters and years ahead. Thanks, everybody.


[Operator Closing Remarks]


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