3D Systems Corp (DDD) 2020 Q1 法說會逐字稿

Good afternoon and welcome to 3D Systems' conference call and audio webcast to discuss the results of the first quarter 2020. My name is Jesse, and I will facilitate the audio portion of today's interactive broadcast. (Operator Instructions)

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

Good afternoon, and welcome to 3D Systems' Conference Call. With me on the call are Vyomesh Joshi, our President and Chief Executive Officer; Todd Booth, Executive Vice President and Chief Financial Officer; and Andrew Johnson, Executive Vice President and Chief Legal Officer.

Please note that given the current situation with the COVID-19 pandemic, we are all participating from different locations. 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.

Participants who would like to ask questions at the end of the session related to matters discussed in this conference call should call in using the phone number provided on this slide and in the press release that we issued today. For those who have accessed the streaming portion of the webcast, please be aware that there may be a few second delay and that you will not be able to post questions via the web.

The following discussion and responses to your questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. During this call, we will discuss certain non-GAAP financial measures. In our press release and slides accompanying this webcast, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.

Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2019.

Now I'm pleased to turn the call over to Vyomesh Joshi, our CEO. VJ?

Thanks, Melanie. Good afternoon, everyone. First, I hope everyone is staying safe and healthy. Our thoughts are with those people affected by the COVID-19 virus, and those on the front lines: Doctors, nurses, other health care professionals and all of the other essential workers who are providing needed services for the rest of us.

At 3D Systems, we have taken balanced measures to protect our employees and their families while maintaining our operations, including hosting this call remotely. We formed a Crisis Response Committee that has shaped everything from employee health and safety to following government mandates applicable to our business and facilities worldwide. Our close partnership with our local site leaders around the globe has been critical in understanding and addressing challenges at the local site level. Our team has stepped up and is doing our part to connect people in need with those who can help using digital manufacturing solutions.

The rapid spread of COVID-19 has put many health care workers under great strain as they provide treatment and care to affected patients. Our company has a unique ability to architect solutions specific to customers' needs through a combination of breakthrough materials, hardware platforms, software and professional services, creating a path forward to integrating additive into traditional production environments. As a result, manufacturers are able to achieve design freedom, increase agility, scale production and improve overall total cost of operations.

One of the greatest benefits of additive manufacturing is that it allows companies to reduce dependency on the supply chain, manufacture parts internally or make them on demand. This has proven to be extremely important in the current COVID-19 pandemic as health care environments have been lacking basic supplies due to the need for protective measures for both health care professionals and patients and backlogs from bottlenecks and shortages in worldwide supply.

We asked our network of partners, customers and other within the additive manufacturing community to circumvent the supply chain and help produce these parts as quickly as possible to meet the urgent needs of the health care sector as they care for patients and contain the spread of the virus. We received offers from the community for everything from printer materials, usage of facilities for printing, engineers' time and expertise and even offers to fund efforts. I truly believe that collaboration like this will be key to saving lives.

Over the last several weeks, we have seen applications of our technology and software being used to assist COVID-19 efforts. Due to the shortage of personal protection equipment, our employees wanted to focus on a high-impact area where we could really help health care workers on the front lines. We identified face shields as being something additive manufacturing could quickly support. What we brought to the table for emergency, face shields was massive capacity. We designed and developed our own high-efficiency face shields frame over the course of 2 days, and our printers can output 100 face shields every 24 hours.

We also gave away the data file to the community to enable others who have an SLS printer to go from CAD file to production in minutes. We logged 300 downloads in the first 24 hours. The facial frame is printed in medical-grade nylon 12.

One of our first customer response was from Lonati SpA, a manufacturing company based in Brescia, Italy, who deployed a 3D Systems ProX SLS 6100 3D printer with DuraForm materials to 3D print more than 100 venturi ventilator valves for respiratory machines, which are facing a critical shortage throughout the world because of severe cases of COVID-19 require intensive care and oxygenation. 100 valves were designed, developed, produced and delivered in only 3 days, showing the key capability of our technology and the value proposition of fast response time.

We now have a ventilator project going on all over the world and in hospitals, and we are working with the NHS in the United Kingdom on venturi valves that can be deployed quickly and close to the point of care.

In March, we released a new ultrasound module to train physicians on COVID-19 diagnosis through lung ultrasound. Using ultrasound, physicians can immediately diagnose and monitor patients of the point of care. The module has already been deployed globally and was received enthusiastically. We went as far as mobilizing an ultrasound simulator that rotated between all Israeli hospitals to train doctors fighting COVID-19.

As the situation continues to develop, we have been able to apply our solutions to changing treatment paradigms. With a very recent trend of moving from ventilators to CPAP masks, which need adapter components, we have another example of how additive manufacturing can address problems quickly, turning what would have been a 1 to 2-month project into a solution on day 1, with unit build time of just over 1 hour and finished product in 1 day.

Finally, as widespread diagnostic testing of COVID-19 begins to ramp, there are known shortages of diagnostic tools, such as nasal swabs. Our customers have been looking at repurposing dental and industrial Figure 4 printers to 3D print nasal swabs using dental- and industrial-grade resins as well as medical-grade nylon 12. A single Figure 4 engine, for example, has demonstrated the ability to produce over 18,000 swabs per week. We have received interest from both hospitals and OEMs and are currently engaged in clinical validations with several teams.

These activities show our thought leadership in additive manufacturing and a balanced approach to how the industry can quickly address supply and demand needs amid COVID-19. However, despite these important activities and our contribution to the fight, COVID-19 has been a negative impact on our overall business, with significant impact on printers and on-demand manufacturing for a few reasons.

The first is end user demand. Overall CapEx spend is down across the industries we serve, including aerospace, automotive and health care, where elective surgeries have been canceled or delayed. This has affected demand for new hardware and associated software licenses.

Second is the overall dental market, where demand has slowed as material consumption has slowed. With the majority of dental and orthodontic procedures considered elective, consumers aren't going to the dentist or starting new treatments.

Next, within our own facility, there has been a supply chain disruption as we are a global company. Facilities in China couldn't operate for a period of time; and in Europe, some capacity was limited.

Finally, we couldn't extend service technicians for installations because of our customer sites being closed. This provides some context to the first quarter results.

Total revenue in the first quarter was $134.7 million, reflecting a decrease of 11.4% over 2019. GAAP gross profit margin was 42.4%, and non-GAAP gross profit margin was 43.1%. While overall margins were slightly down comparatively, materials margins have held at 69%. We reported GAAP loss of $0.17 per share and non-GAAP loss of $0.04 per share. Our overall operating expenses were down 13% year-over-year, and we shut down our on-demand operations in Brazil.

We continue to work on optimizing our cost structure and taking costs out. And as we start seeing COVID impact, we focused even more on cost structure. Amid the pandemic, our executives and Board members took a 10% pay cut, and the majority of the employees are taking limited furloughs. We pushed out some R&D programs and have reduced hiring significantly. We believe these actions strike the right balance between near-term cost savings and also being prepared when the market comes back. Our overall CapEx is down, and we are focused on generating revenue, reducing operating expenses and preserving cash.

Todd will now provide more details on our results for the first quarter of 2020. Todd?

Thanks, VJ. Good afternoon, everyone. For the first quarter, we reported GAAP revenue of $134.7 million, a decrease of 11.4% compared to the first quarter of 2019. GAAP gross profit margin was 42.4% compared to 43.2% in the first quarter of 2019. GAAP operating expenses decreased 13.4% to $75.4 million. We reported a GAAP loss of $0.17 per share in the first quarter of 2020 compared to a loss of $0.22 in the first quarter of 2019.

During the quarter, we recorded a tax benefit of approximately $3.2 million from utilizing net operating losses allowed as a part of the tax legislation enacted on March 27, 2020, and Under the Coronavirus Aid, Relief and Economic Security Act, also called CARES Act.

We reported non-GAAP loss of $0.04 per share in the first quarter of 2020 compared to a loss of $0.09 per share in the first quarter of 2019. As VJ mentioned, our revenue was impacted by COVID-19 effects on our business.

Printer revenue decreased 35.5% to $19.3 million. Material revenue decreased 0.1% to $41.4 million. Health care revenue decreased 7.3% to $46.3 million. On-demand manufacturing revenue decreased 12.8% to $19.7 million. Software revenue decreased 7.7% to $21.2 million.

In the second quarter of 2020, we still expect significant impact from COVID-19, and we'll focus on continuing to take cost out and maintaining cash. We reported GAAP gross profit margin of 42.4% in the first quarter of 2020. Non-GAAP gross profit margin in the first quarter of 2020 was 43.1%. GAAP operating expenses for the quarter were $75.4 million, a decrease of 13.4% compared to the first quarter of 2019, including a 13.8% decrease in SG&A expenses and a 12.1% decrease in R&D expenses. Non-GAAP operating expenses in the first quarter were $63 million, a 13.6% decrease from the first quarter of the prior year and a 5.1% decrease sequentially.

Compared to the 2019 quarter, non-GAAP SG&A expenses decreased 13.9% to $43.9 million. Non-GAAP R&D expenses decreased 12.8% to $19.1 million. Non-GAAP operating expenses decreased due to continued focus on reducing cost structure.

We ended the quarter with $112.8 million of cash and cash equivalents. During the quarter, we used $2.3 million of cash from operations, generated $1.2 million of cash from financing activities and paid $4.4 million for capital expenditures. In addition, we used $10 million of cash for acquiring the remaining 30% of the capital and voting rights of our joint venture in Brazil and used $2.5 million of cash for the second of 4 yearly installments to acquire the remaining controlling interest of our previous joint venture in China.

I also want to comment that as of today, we have not drawn on our revolver, and we are focused on preserving cash along with reducing costs and working capital.

With that, I'll turn the call back to VJ. VJ?

Thanks, Todd. COVID-19 will have long-term impacts that we cannot yet quantify. Our business is sound and our products are relevant, but our near-term results will continue to be impacted by COVID-19. We shipped factory metals in April as planned, but unfortunately, the timing means that the demand is low right now. Medical device manufacturing continues to grow. In health care, while consumers are canceling unnecessary surgeries, our simulator business is doing well. Capital constraints will continue to put pressure on new hardware and software sales. In our ODM business, R&D projects are continuing, but demand driven tooling purchases have been slowed.

In this uncertain environment, we remain focused on cash generation and optimizing cost. The search for my successor continues to go well as we make good progress on the CEO search. I want to take this opportunity to thank all of our employees and customers for their loyalty and dedication during these trying times as we navigate this pandemic together.

As a leader in additive manufacturing and health care applications, we are helping health care professionals and companies bridge the manufacturing gap and accelerate new design ideas. The clear value proposition that we have demonstrated with the speed at which our technology can produce necessary supplies gives me confidence in our long-term potential.

I'm proud of the work we and our customers have done to address some of the challenges posed by COVID-19 with our 3D printing capabilities, and we will continue to look for ways to collaborate and strengthen as a community.

And with that, we will now open the floor for questions. Operator?

(Operator Instructions) Our first question comes from Greg Palm with Craig-Hallum.

Glad to hear you guys, everybody is doing okay, and nice to see some of your technology has been used and helped in this fight against COVID? Can you hear me okay?

Yes. Yes. We can hear you.

Good. Just you spent some time on the COVID-19 impacts on the quarter. And I was hoping you could maybe help us understand or at least bucket out the various impacts. You've got lower end-user demand, which presumably is CapEx-driven and some slowdown in elective procedures versus you talked about supply chain disruptions versus some of the lack of service revenue because customer sites were closed. So help us understand what was most important, least important in terms of impact to the quarter.

Yes. So I think let's start with the hardware, the printer hardware. I think that was major. I think, as Todd talked about, we had a 35% decline in hardware revenue. And that all new hardware was related to, my view, the COVID-related. When you think about the SLA printers, the printers for dental, we talked about the dental market being slow. The jewelry market also because that's a category which is not going to be really consuming a lot of materials because that's an item people will not be really buying in the current very tough environment.

So on the hardware side, I think our Figure 4 did okay because, as I said, the new materials, and Figure 4 is ideal for doing new R&D designs. And dental was slow, but the other stand-alone Figure 4 was doing well in this. And SLS machines, I think their demand because of the -- you could do with nylon 12 that I talked about. So I think it's mainly SLA, MJP and dental printers on the printer side.

And when you go to the software, the new software licenses. So if you think about the manufacturing software, because the manufacturing activity has really impacted negatively. So the Cimatron software, especially with the automotive market in a very different place right now when they had a tough already 2019, and in addition with all these COVID stuff. The other software, all the Geomagic software, especially the inspection software, also had a negative impact because of the COVID.

So new hardware, new software licenses are the core thing. You saw the materials, we did okay, but I think you're going to start seeing that impact in second quarter because clearly, material consumption on the dental and orthodontic procedures, and our enterprise customer also talked about that. We also -- as I said, jewelry material and SLA material because of the automotive segment that we really address.

So I think in Q1, we did okay, but I think as the COVID spread now happening in Europe and now in Americas, there will be some impact of that in Q2. With respect to health care, all the elective surgeries, so the surgical planning services, you're going to see the impact. But the medical device manufacturing, I think we are still very healthy. So I think that's the kind of a color I can give you, Greg. I hope it addresses the question.

Yes, that was. I mean, are you managing the business currently with the thought that Q2, the June quarter will be sort of the worst, will be the bottom? And I don't know if you can give us any sense of what sort of company-wide trends or maybe segment trends from a demand or decline standpoint, what you're seeing in April, specifically, that can sort of help us make some assumptions on sort of what the June quarter and full year might look like.

So I think clearly, COVID started in China and then in Europe and then it came to America. So there was not a full impact of COVID in Q1. So clearly, Q2 will have -- and I think Todd talked about significant impact, especially in the new printing hardware and new software licenses. So I think you're going to see that, and some materials also, impact in Q2. It all depends on now how the market opens up and how the activity, the manufacturing activity, will start ramping up. I think in China, you're already seeing sign that it's slowly coming back. I think Italy and Spain are slowly coming back. But I think it will be very hard to predict how this is going to really play out. I can tell you that Q2 will have more impact than Q1. Whether Q2 is a bottom or not, it's very hard to say.

And I think in April, we are seeing consistent with what I'm telling you with respect to what we saw especially in March and playing it out in April.

The next question comes from Chris Van Horn with FBR.

Okay. So on the supply chain side, are you seeing some of your suppliers, are they recovering? Or do you have to find new avenues for your supply chain?

I think fortunately, on the supplier side, we are okay. But still, they are also going through shutdowns, availability of the critical parts. The good thing is the contract manufacturers we work with, like Sanmina and Georg Fischer, they have kept up. Clearly, they had a shutdown, but slowly, they're bringing their capacity back, which is a good news for us.

But it's now really, the question now is more on the demand side than supply chain disruption. I think what we need to do is get the manufacturing activity going. And then our customers will start ordering new hardware, new software and materials. So I think that's what we need to really paying attention to.

Fortunately, the way we managed our supply chain, I feel very good about, we will be able to meet the demand. It's more going to be now with respect to how the end-user demand will develop. The other important part is our own facilities, and with working with our site leaders, they have shown incredible leadership here, that our own factories, like for example, our on-demand manufacturing factory in China, we slowly are ramping it up. Our on-demand manufacturing facilities in Italy, in France, in Netherlands are also slowly coming up. Our facilities in Seattle and Lawrenceburg in U.S. also is operating.

So I think it's really now, can we get the demand so that we will be able to fulfill that? So I think that's where we are.

Okay. Got it. Well, just a follow-up on the demand side. Is a lot of the pushout in potential revenues, is it deferring of orders, is it cancellations, a combo of both? What are the customers kind of giving you a sense of in terms of timing?

So for right now, what we are seeing is our pipeline is healthy, and we are not hearing lot of cancellation. It's really pushing out because everybody is really paying attention to the capital spend. And so the good news is, I think they have interest in our technology. They have -- really believe, especially with the value proposition now that we have shown with this tough COVID, the positive sign was the power of additive manufacturing. So I think they are all very much interested in making sure they continue to invest in additive manufacturing. So it's more about pushout than cancellation.

The next question comes from Jim Ricchiuti with Needham & Company.

I'm sorry, I had my phone on mute. I apologize. The question is regarding the channel. I'm wondering how much of a disruption are they facing even in terms of getting to customers, getting on-site with customers. Has that been an issue that you're hearing from your channel partners?

So I think it's different by regions. Clearly, in earlier part from China, the Chinese channels had a lot of difficulty in reaching customers and then it went to Europe, so our European channel partners. But they were very innovative in some cases, they found some ways to communicate, especially when there was a need to provide certain materials or certain hardware so they can continue to develop or print using our technology.

But like jewelry segment, clearly, that had a major impact because the demand was very different. So I think depending on the -- and then on the dental side, I think on the materials, dental materials, at least in Q1, we had a lot of backlog. So we were really managing that. But I do believe that the printing hardware side, there is a slowdown because the overall, as we talked about, that there are not many dentists whose offices are open, and people are delaying a lot of dental work right now. So I think depending on the segment, we saw very similar things that what we are seeing at our corporate level. So it's not any different than what I talked about from the segment's point of view.

VJ, you entered the year with, I'm sure, higher expectations, stronger new product portfolio. And then you have this happening. So I'm wondering how are you going to -- given the demand environment, how do you strike a balance between continuing to make the investments in marketing and R&D with this environment, which is pretty unknown at this point in terms of how long it continues?

Yes. I think you're right on, Jim. So I think what we are doing is a balanced approach. It's very clear that there is an impact on revenue. And I think what we need to do is really have -- work on the cost structure. So if you saw that our cost structure point of view, we took the operating expenses down year-over-year 13%. And we need to continue doing that in Q2 because we, as I said, will be more impacted in Q2. So we need to take more cost out in Q2. And that will have -- and I think I talked about it, will have impact on our R&D programs because when you take -- so I think we need to just be very prioritizing saying, these are the programs that we need to protect, and these are the programs that we need to slip because it's just -- there is no other alternative.

Same thing with our marketing cost. We know there are not going to be any shows, so we canceled coming out of all the shows, major shows, because that's not going to happen. So we put all our marketing dollars on digital because I think -- we think that that's where we can really drive the demand generation and lead generation because we need to really drive revenue because revenue line is going to be very important.

And as a matter of fact, with all these additive manufacturing attention, our web traffic on our website has increased significantly. And so we think that our investment needs to be really focused on digital because we think that, that is the way. So I think we are taking out all other marketing spend that we were doing on shows because we believe that this is the right way to approach, to really drive the lead-generation engine.

And with respect to -- we have put -- I think I talked about it, we all at executive level have taken 10% pay cut. We have done furloughs depending on the region because we absolutely believe that we have incredible talent, and then we want to preserve the talent, so when the market comes back, but at the same time, we need to take the cost out. So focusing on costs.

And the last part is cash. I think we are in a good place in the cash right now, but we need to make sure. So we took our capital expenditure down in Q1, and we're going to continue to take it down in Q2, Q3, Q4 because we must make sure that -- and we are very comfortable with our current cash position. And -- but we want to be very prudent with respect to that.

So I think that's what we are doing, finding that right balance. Safety of our employees is our highest priority. And then doing these things so that as the revenue comes down, we take the OpEx down and preserve the cash.

Okay. That makes sense. Good luck. And by the way, thank you for what you guys have done in this whole fight.

That means a lot to us. Thank you.

Our next question comes from Ananda Baruah with Loop Capital Markets.

VJ and Todd, is there any way you could give us some sort of sense of maybe what the April run rate was, not dollar run rate, but you did a great job of giving us the growth run rate for the various businesses. And in some context, giving us sort of what the run rates are for April, so we can get a sense of what the quarter may look like. I know you're not giving guidance, but that would be helpful. And then I have a follow-up as well.

So let me start here. On April, clearly, I think I talked about it. We are seeing the new printing hardware and new software licenses are really slow. And the impact is also on on-demand services because the manufacturing companies are not really ordering tooling. There are some R&D projects, but they have slowed down. So those 3 businesses, definitely, we are seeing the impact globally in all the regions. Because even though China may come back, but they are not really changing the orders. So I would say, in April, it's very much what I talked about.

Our medical devices, that business is doing well. And it continued to grow in April. And the elective surgeries are down, so our dental business and our aligner business and our surgical planning business is impacted.

And VJ, would you guys -- can you say if you were -- like through February, if you were tracking to your revenue expectations? I'm just trying to be able to develop a sense for, I'm sure, ourselves, we're trying to do this. Sort of what the, sort of the acceleration, rate of decline was in March. And I'm happy to back into the numbers. If you can tell me just sort of tracking to your internal plans through February. We can do the math...

I think if you remember, when we had our conference call in February, we said we had not seen any material impact at that time. But things changed very, very radically starting second week of February and March. So I think you could just understand that up till that point, we were doing okay, and then the kind of the revenue decline you are seeing. So I think you could model that way.

Okay. That's great. And then just my quick follow-up is, in the past, a decent portion of your customer base has included engineering firms, design firms, some of whom could be considered to be small, medium businesses, and maybe even some of your channel partners could be considered that as well. So I guess my question is, are you in touch with those guys yet? Should we consider that to be sort of a meaningful wildcard from a risk perspective as we move forward here, given that sort of small, medium businesses have been kind of more in the heart of what's been going on? And then that's it for me.

Yes, but I think it's not about a small and medium businesses, even the enterprise customers are seeing. So like auto industry, aerospace industry, there is a major impact going on at least from our customer base point of view. So yes, small and medium businesses, from jewelry segment, that you could say there is a big impact. The dental segment, for the dental labs, is a big impact. But it's not just limited to small and medium businesses because the enterprise customers in automotive -- as you know, some of the companies in United States, they are not doing any more producing autos, they are producing ventilators.

So I just think that you have to look at our segment. So I think the impact is much more broader than just the small and medium businesses.

I appreciate that. I guess really what I'm asking is do you guys have incremental concerns that some portion of your customer base may not come back?

Well, I think it all depends on the segment. I think jewelry segment will come back. I'm not very worried about. Dental customers will come back. So the small design firms, and that's not a very big part of our business, and I don't think that that's our concern. Now in on-demand, some of the transactions that people will be doing, but I think it will be doing different transaction because there is actually the value for additive manufacturing in doing design iterations. But I think we may get different set of customers, but I'm not as much worried about that kind of a risk profile. Okay?

Our next question comes from Brian Drab with William Blair.

First, on the materials, materials held up really well in the first quarter and really just a touch below the run rate, quarterly run rate, that you had throughout 2019. And I'm wondering, VJ, if in some other way, besides just saying that it was slow in April, can you give us a sense more specifically what you saw in terms of declines? Like down double digits, down more than 50% in materials in April?

Yes. I won't give you any specific numbers like that, but I can give you directionally where materials are okay and where materials have impact. So I think the dental materials, as I said, some of the backlog, we are filling for the NextDent, we are doing okay. But the other orthodontic, I think you heard from the enterprise customer, they are seeing impact, so there is some impact of that in Q2.

SLA, there is an impact because a lot of auto companies and their suppliers use SLA for a lot of prototyping. And as I said earlier, the automotive businesses have an impact. And so that we are seeing on the SLA side.

The jewelry segment, as I mentioned, so which is our wax materials, that slowdown is now also showing up in the decline in April and Q2.

SLS and Figure 4, because I think our Figure 4, especially the new materials which are really very, very powerful in doing the design iterations, I think we are holding up very well in those materials, both SLS and the Figure 4 materials. So that's the kind of color that I can give you.

All right. Okay. And then a couple of questions have been asked around OpEx, marketing and et cetera. But just wondering if you can more specifically say. From fourth quarter to first quarter, you took out about $6 million in G&A. Is there another -- is there an opportunity to take out that much again? Or was that kind of the bigger cut, and there's more to come, but not another cut that significant?

So I think in second quarter, you will see the impact of our 10% cut at the executive pay. And you'll see the furlough that we have implemented in Q2. Todd, do you want to say something more on the OpEx side?

Yes. So you have the 10% that VJ just mentioned at executive level. But then the furloughs, on average, about 2 weeks across the company. So you will see it go lower in Q2, but we don't give dollars.

Our next question comes from Wamsi Mohan with Bank of America Merrill Lynch.

I was hoping that you or Todd could bridge the printer gross margins from fourth quarter of 2019 to the first quarter. And I was wondering, in particular, were there any elements in Q1 that can help possibly soften the impact to 2Q printer gross margins? Or will it possibly be negative, given your revenue commentary? I'm just curious if there are elements in Q1 that sort of help...

Let me make it a high level, and then I would like Todd to add more color, okay?

So clearly, when you have 35% decline year-over-year in printing hardware, your factory utilization is going to be very different. And I think the other very important part I talked about within that, when we are seeing fewer units like of say SLA machines, we are going to have a mix issue also, which will be causing the printer margin going down. And as we see continue to having this kind of a decline in the hardware, you're going to see the decline of printer margin.

The other important part, that our materials was very good margin in Q1, and it was kind of flat. As we see more material decline, that mix between hardware and materials will be also something that we'll have to pay attention to. Todd, you want to add anything on that?

I think, VJ, you covered that. You got a 35% drop on volume and then the mix, and that's what was driving the Q4 versus Q1 margin.

Okay. That's helpful. And then as a follow-up, if you look at materials more broadly, it looks like pricing and mix, the impact on materials was a little bit larger in the quarter. Can you address what drove that? And as we look into 2Q, are you expecting something? I mean, clearly, that you're going to have incremental volume hit. But as far as the pricing and mix, can you help us...

Yes, I'm not worried about the pricing and mix. I think it's more about the overall -- as I said, the SLA, dental materials, jewelry materials are going to have impact. And so that mix could play out, but it's not because of our pricing. We're not making any pricing moves. I think it's more about -- and then the overall volume will go down. And then the mix between hardware revenue and the materials revenue is going to be different. So I think that will have impact on the overall margin for the company.

Your next question comes from Paul Coster with JPMorgan.

I echo comments of Jim Ricchiuti earlier on, thanks so much for the contribution you've made. Turning now to the balance sheet for a moment, accounts receivables. I'm just wondering, do you see any credit risk in your accounts receivables? And when you think about the pipeline, is there anything in the pipeline that also kind of worries you in terms of credit risk? Are there specific customer types that look a little vulnerable?

Okay, Todd, why don't you take that?

Yes. So what we actually saw from Q4 to Q1 is actually our past dues greater than 90 days actually improved a little bit. But we do expect in Q2 a little bit delay on payments. And so -- but from a write-off, at this point right now, we're not seeing -- our customers have been paying fairly well, but we're on top of it. But also as our revenue went down from Q4 to Q1, our receivable base was a little lower. So there's a lot less risk on the credit.

Got it. And as you look at the pipeline, is there any sort of subsets of customers that you're concerned it would be difficult to close deals with?

Not at this point, no.

We do have a follow-up question from the line of Greg Palm with Craig-Hallum.

Just you alluded a little bit sort of the potential long-term impacts from everything going on. But obviously, all of the disruptions globally on supply chains and you've got customers who are looking for on-demand production. So I don't know, might be a little bit early, but any anecdotal commentary that you're getting from customers out there that suggests an increased use or focus on digital manufacturing and 3D printing when we emerge from all of this?

Yes, I absolutely believe that what we have proven, especially for supply chain disruptions or iteration of R&D ideas, how we could use this technology, I would say that in the last 2 months, I got more -- hello. Can you hear me?

I could still hear you.

Okay. So in last 2 months, I think we got more interest from additive manufacturing capability and value proposition than in, let's say, last 6 months. I really think that the long-term potential and the value proposition of fast turnaround time for design iteration and bridge manufacturing, we have now a very proven track record. And I think that should help us set up very well as we move forward.

Got it. And presumably, a lot of that is probably from some new customers. But what are you seeing from some of your larger enterprise customers. I mean given everything going on, any indications of expansion longer term, whether that's increasing the amount of printers at existing sites? Or maybe even adding additional printing sites in the future? Are you seeing or hearing anything? Or is it too early to know?

Too early to know. I do believe medical device manufacturing, I really think -- I'm very excited about that segment. That I absolutely believe is going to be more expansion. But beyond that, I will be -- I think we need to still see more signals.

We have an additional follow-up question from the line of Ananda Baruah with Loop Capital Markets.

VJ, this could be for you and Todd as well. Can you just give -- walk through the cash framework, just for a second? How much cash do you guys want on hand to run the business? And what's in the revolver?

Yes. At the high level, I'm very comfortable where we are with the cash position. I'll let Todd talk more details. Talk Todd?

Yes. So as you know, we ended the quarter at $112.8 million of cash. And then as I stated earlier, that we have not drawn on the revolver as of today. And so we have that availability as well. And I feel comfortable with our available liquidity position going forward, 2020 and beyond. So we're in good shape right now.

Okay. Awesome. And can you remind us what's available through the revolver?

Yes. So we have a term loan, which we've drawn. And then there's a revolver. The revolver had available bill, we disclosed in the 10-Q that it has availability, we could have drawn up to $42 million through the end of Q1 based on our debt covenants. And then as of today, we have the ability to draw on that up to about $90 million, but we have not drawn on it.

There are no other questions at this time. I would like to turn the call back over to Melanie Solomon for closing remarks. Melanie?

Thank you all for joining us today and for your continued support of 3D Systems. A replay of this webcast will be available after the call on the Investor Relations section of our website. Stay healthy. Thank you, everyone.

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.