3D Systems (DDD) Q2 2017 Results - Earnings Call Transcript - Seeking Alpha

8/7/2017 3D Systems (DDD) Q2 2017 Results - Earnings Call Transcript | Seeking Alpha
3D Systems (DDD) Q2 2017 Results - Earnings Call Transcript

Aug. 3, 2017 1:29 AM ET4 comments
by: SA Transcripts
Q2: 07-30-17 Earnings Summary
Press Release News
EPS of $0.08 misses by $-0.04 | Revenue of $159.47M (+ 0.9% Y/Y) misses by $-3M
3D Systems Corp. (NYSE:DDD)
Q2 2017 Earnings Call
August 02, 2017 4:30 pm ET
Executives
Stacey Witten - 3D Systems Corp.
Vyomesh I. Joshi - 3D Systems Corp.
John N. McMullen - 3D Systems Corp.
Analysts
Wamsi Mohan - Bank of America Merrill Lynch
Patrick Michael Newton - Stifel, Nicolaus & Co., Inc.
Robert Joseph Burleson - Canaccord Genuity, Inc.
Matthew Cabral - Goldman Sachs & Co. LLC
https://seekingalpha.com/article/4094117-3d-systems-ddd-q2-2017-results-earnings-call-transcript?part=single 1/50
David Ryzhik - Susquehanna Financial Group LLLP
Timur Ivannikov - Jefferies LLC
Ananda Baruah - Loop Capital Markets LLC
Jeffrey Rand - Deutsche Bank Securities, Inc.
Brian P. Drab - William Blair & Company LLC
Kenneth Wong - Citigroup Global Markets, Inc.
Troy D. Jensen - Piper Jaffray & Co.
Hendi Susanto - Gabelli & Company
Robert W. Stone - Cowen and Co. LLC
Shannon S. Cross - Cross Research LLC
Operator
Good afternoon and welcome to 3D Systems Conference Call and Audio Webcast to
discuss the Results of the Second Quarter and First Six Months of 2017. My name is Rob,
and I will facilitate the audio portion of today's interactive broadcast.
At this time, I would like to turn the call over to Stacey Witten, Vice President, Investor
Relations, 3D Systems.
Good afternoon and welcome to 3D Systems' conference call. I am Stacey Witten and
with me on the call are Vyomesh Joshi, our President and Chief Executive Officer; John
McMullen, Executive Vice President and Chief Financial Officer; and Patrick Rogers, Vice
President and Assistant General Counsel.
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 at www.3dsystems.com/investor.
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 numbers provided on the
slide and in the press release 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 you will not be able to pose 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.
During this call, we will discuss certain non-GAAP financial measures. In our press
release, and slides accompanying this webcast, both of which are 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 2016.
Now, I'm pleased to turn the call over to Vyomesh Joshi, our CEO. VJ?
Thanks, Stacey. Good afternoon everyone. We have continued to drive customer shift
from prototyping to production, with our comprehensive 3D printing solutions. We are
focused on meeting production customer needs, productivity, durability, repeatability, and
leadership in total cost of operations. Demand from healthcare and industrial customers
supports this strategy and validates our focused innovation and investments.
We are pleased with the growth in production printers, materials, software and healthcare
in the second quarter, and our ongoing progress in on-demand manufacturing services.
However, professional printers' revenue was soft and our execution geographically was
uneven. And we are particularly disappointed in the results in the Asia Pacific region.
For the second quarter, total revenue was $159.5 million and gross profit margin was
50.6%. Non-GAAP operating expenses increased 7% compared to the second quarter of
2016, as we continued our investments in R&D including Figure 4, metals and materials.
While non-GAAP SG&A expenses increased 2% inclusive of IT and go-to-market. We
reported non-GAAP EPS of $0.08 per share in the second quarter of 2017.
Based on the results and our plans for the remainder of the year, we are revising our full
year 2017 guidance. We now expect revenue growth for the year will be in the range of
2% to 6% and non-GAAP EPS will be approximately flat for the full year compared to the
year 2016. We are focused on building the company for the long-term and we will continue
to make investments including accelerating quality and reliability improvements for our
customers, innovation including our Figure 4 platform, metals and materials, go-to-market
strategy in support of the shift to 3D production, and IT systems and infrastructure to
improve our overall effectiveness and efficiency as a company.
Over the past several months, we have performed very well in some areas and other
areas require improvements. While it has taken longer and cost more than initially
anticipated, we have made significant improvements in quality and reliability and expect
these costs to continue throughout the balance of the year. We are putting very clear
actions in place both organizationally and operationally to address short-term issues as

well as longer term needs of the company to achieve accelerated performance in 2018
and beyond.
Previously, we discussed the key drivers for 2017 performance and I would like to take a
moment to recap where we are with these. These drivers included continued double-digit
growth in healthcare, continued growth in software, continued growth in materials, on-
demand manufacturing returned to growth, and printer revenue returned to growth.
Several of these key areas performed well during the second quarter, including
healthcare, software and materials, and we expect growth in these areas during the
second half.
We continue to make improvements in our on-demand manufacturing services and

believe our ongoing efforts and investments can result in positive growth in the second
half. Printer revenue declined during the second quarter and increased in sales of
production printers across all of our technology platforms was offset by softer MJP
revenue during the quarter.
We expect continued growth in production printers combined with ramping our

manufacturing capabilities to meet increasing demand for our new ProJet MJP 2500 Wax
printer will result in improved total printer revenue performance. We will continue to invest
strategically to drive higher revenue growth in the second half of the year and beyond,
while, at the same time, driving further cost of sales reduction and reducing operating
expense.
Now, let me turn it over to John to discuss our second quarter 2017 performance in more
detail. John?
Thanks, VJ. Good afternoon, everyone. For the second quarter, we reported revenue of
$159.5 million, an increase of 1% compared to second quarter of 2016. Gross profit
margin was 50.6% compared to 50.9% in the second quarter of 2016 as cost savings from
supply chain and manufacturing improvements continue to support strategic investments
and competitive pricing.
GAAP operating expenses increased 4% or $3 million to $88 million of higher R&D

expenses. We reported a GAAP loss of $0.08 per share in the second quarter compared
to a $0.04 loss per share in the second quarter of 2016.
For the first six months, we reported revenue growth of 2% to $316 million, flat gross profit
margin at 50.9%, and slightly lower operating expenses of $177 million. We reported a
GAAP loss of $0.17 per share in the first six months of 2017 compared to a loss of $0.20
per share in the same period of the prior year.
Compared to the second quarter of 2016, non-GAAP SG&A expenses increased $1

million to $46 million as we continue to invest in IT and go-to-market initiatives while
driving cost reductions in other areas. R&D expenses increased $4 million to $24 million,
primarily driven by investments in our Figure 4 platform, metals and materials. We
reported non-GAAP earnings of $0.08 per share or $9 million in the second quarter of
2017 compared to non-GAAP earnings of $0.12 per share or $13 million in the second
quarter of 2016.
For the first six months of 2017, we reported non-GAAP earnings of $16 million or $0.14
per share compared to non-GAAP earnings of $18 million or $0.17 per share in the same
period of the prior year.
Healthcare revenue for the second quarter of 2017 increased 25% to $49 million as a
result of growth in all categories within healthcare. While timing of system orders
continues to be lumpy, we are pleased with the overall demand trends for printers,
materials and services from medical and dental customers.
Software revenue increased 9% during the quarter to $24 million, a strong rebound from
flat software revenue in the first quarter. On-demand manufacturing revenue decreased
5% from the quarter from the prior year period to $26 million in the second quarter. We
continue to make progress and believe our investments will drive a return to growth during
the second half of this year.
Printer revenue decreased 14% to $28 million in the second quarter. While total printer
revenue decreased, production printer revenue in units increased compared to the prior
year's quarter. During the quarter, there was increased demand for SLA, SLS, and DMP
systems which was offset by lower sales of MJP professional printers. We've had very
positive reception of our MJP 2500 printers including the 2500 Wax and we continue to
improve our production efficiency and capacity to meet increasing customer demand of
these printers.
Materials revenue increased 8% to $44 million from ongoing strong utilization by our
installed base combined with a contribution of Vertex materials. Continued growth in
materials is indicative of success in the shift to production applications that provide higher
volume materials usage which is key to our business model. We reported 50.6% gross
profit margin in the second quarter of 2017. Cost savings in supply chain and
manufacturing continued to support strategic investments and competitive pricing to align
with the market, drive adoption and expand our opportunity going forward.
Additionally, in the second quarter, we've made significant investments in quality and
reliability improvements for our customers. And we expect this will continue through the
balance of this year. GAAP operating expenses for the quarter were $88 million, down 2%
sequentially, and a 4% increase compared to the prior year.
Non-GAAP operating expenses in the second quarter were $71 million, a 3% decrease
sequentially, and a 7% increase from the prior year. Compared to 2016, non-GAAP SG&A
expenses increased 2%, and R&D expenses increased 17%, primarily from additional
investment in production opportunities including Figure 4, metals and materials.
In the first six months of 2017, we've made significant investments in IT, go-to-market, and
innovation. For the remainder of the year, we plan to continue to invest in these strategic
areas while accelerating other cost reductions, including operating expenses. We used $1
million of cash in operations in the second quarter, resulting in $18 million of total cash
generated from operations during the first six months.
While cash from operations may fluctuate quarter-to-quarter due to timing, we continue to
expect positive cash from operations for the full year 2017. We also continue to drive
improvements in working capital performance and our cash conversion cycle in 2017. We
ended the quarter with $154 million of cash compared to $162 million at the end of the first
quarter of 2017.
Our $150 million revolving credit facility remains fully available. Before turning the call
back to VJ, as he noted previously, based on the results and our plans for the remainder
of the year, we are revising our full year 2017 guidance. We expect annual revenue to
grow between 2% and 6% compared to 2016, which results revenue in the range of $643
million to $671 million.
We expect non-GAAP EPS to be approximately flat for the full-year 2017 compared to
non-GAAP earnings of $0.46 per share for the full year of 2016. We expect GAAP EPS to
improve to approximately a $0.14 loss per share for full-year 2017 compared to a loss of
$0.35 per share for full-year 2016. Additionally, we expect positive cash flow from
operations for the full year.
We continue to see good execution and performance in several key areas of the company
that remain significant drivers to 2017 and beyond, including healthcare, software and
materials. However, it is necessary that we improve our execution in the geographies and
areas that are not performing as well to drive stronger growth in the second half. We also
need to accelerate cost reductions, including operating expenses while supporting
strategic investments. We have plans in place and actions already underway to improve
our execution and cost structure while continuing to invest in quality and reliability,
innovation, go-to-market, and IT. We believe we are taking the right actions to position us
well for 2018 and long-term sustainable profitable growth.
With that, I'll turn the call back to VJ for some concluding remarks. VJ?
Thanks, John. We continue to focus on driving the shift in 3D production. We are placing
more SLA, SLS, and metal printers into manufacturing environment. Growth in materials
continues from higher utilization of production applications and software revenue is
growing.
We are leaders in precision healthcare and are growing that category at double-digit rates.
We are accelerating cost reductions into the latter half of 2017, while continuing to invest
in innovation, so we can enter 2018 with an improved product portfolio, and more
streamlined cost structure to drive higher growth and improved profitability.
We have plans in place to step-up regional execution in the Americas and Asia Pacific,
and grow on-demand manufacturing and overall revenue from printers in the second half. I
truly believe we have a phenomenal opportunity to lead the additive manufacturing
industry. And the investments we are making today position us well for the long-term.
With that, I would like to turn the call back to Stacey, who will open the floor for questions.
Stacey?
We will now open the call to questions. We would like to ask you to limit yourself to one
question and one follow-up, thus allowing others to participate in the discussion. As a
reminder, please direct all questions to the teleconference portion of this call. The
telephone numbers are provided again on the slide. If you are calling inside the U.S., the
number is 1-877-407-8291. And if you're calling outside the U.S., the number is 1-201-
689-8345.
Question-and-Answer Session
Operator
Thank you. At this time, we'll be conducting a question-and-answer session. Our first
question today comes from the line of Wamsi Mohan with Bank of America Merrill Lynch.
Please proceed with your questions.
Hey, Wamsi.
Yes, thank you. Hi, VJ, hey, John. So when we look at the miss in the quarter, right, both
on revenues and margins and you clearly lowered your fiscal year outlook as well, what
really changed in the last 90 days? Would you say that the demand ended up being
weaker or was it competitive dynamics and pricing got more aggressive or was it just
largely execution in some of the areas that you noted?
So I think it's largely execution, because if you look at our – Asia, that deteriorated
significantly. And our professional printers, their revenue declined year over year. And I
think there are two parts. One, our new 2500 Wax product, the acceptance is very good,
but we couldn't make enough. And the second part is, especially in Asia, we saw that we
were not able to sell as many professional printers. As far as the production printers, we
did very well in Q2. We grew both units and revenue well. So I really believe our own
execution in Americas and in Asia, I would say, that that's what the issue is.
And the reason why you think that the – you were not able to sell as many printers as you
had originally hoped, was that competitive or pricing-based or not?
No, I think the first one is, our quality and reliability issues we had, which continued.
Frankly, the problems were deeper than I thought on the quality and reliability. I will be the
first one to say I was a little bit more optimistic that I could solve the problems and deploy
them into the field faster. So I think that was the one issue that probably I miscalculated.
And the second thing is, and I said, our professional printers, I thought that we will sell
more. And those are the two key things, and the regional uneven performance will be the
way, because a lot of people were concerned about HP and the competition there, and
actually we sold more SLS units than last year. So I don't see any issue from competition
from Carbon or HP. I think it's really our execution, and that's why I want to focus on
execution. And the reason for looking at second quarter different – based on second
quarter differently, I just wanted to make sure we get confidence in our execution and I
think that's the reason on the revising the guidance.
Okay. No, I appreciate that. And then if I could just follow up one for John as well. I mean,
this increase in R&D was substantial. I think you noted that, there will still be continued
investments, but you're also accelerating some of the cost reduction initiatives. So can you
give us some sense of how we should be thinking about the timing for the return of these
current investments that you're doing? And I mean that sort of, I think, bridges most of the
EPS shortfall as purely this OpEx increase. So should this continue into the back half with
really no offset from – coming from the cost reductions?
Yeah. So first of all, I think you got it right. I think that, clearly, the drivers of R&D and then
what you saw on a year-over-year basis in Q2 are bringing Figure 4 platform to market
between now and the balance of the year and increased investment in metals, what we
believe, that's a very important business for us over time.
What we haven't talked about so much and even in the Q1 call, we've been very focused
on cost of goods sold cost reductions and we talked about focusing on operating expense
more as we enter 2018. We're going to move quicker on that in the back half of 2017 to
help offset on both the cost that we're incurring from an R&D point of view, but, honestly,
this cost is associated with the quality and reliability issues that VJ is talking about as well.
So we've got a series of actions teed up that make perfect sense where the company is
now, don't interfere with the future, and we're going to get after them.
So Wamsi, I think one more very important point I want to make. Really we are building
the company for long-term, it's very important for us to make sure our customers are
happy with quality and reliability, it's very important for us that we invest in R&D to really
have a very different production portfolio because, frankly, getting into the consumer
business and those distractions where not something I want to shift to production and I
want to make sure that we develop our Figure 4 with that robust platform so there are no
quality, reliability and manufacturability issues. I want to make sure we have a broad
materials portfolio. And as John mentioned, I want to make sure we have the right metals.
So, I really believe what we have decided that, short-term, we may invest more but, long-
term, we will really set the company up for profitable growth.
Okay. Thanks a lot. I appreciate the color.
Operator
The next question comes from the line of Patrick Newton with Stifel. Please proceed with
your questions.
Yeah. Good afternoon, VJ and John. Thank you for taking my questions. I guess, first one
a follow-up on the quality and reliability issues you're talking or is this specifically
associated with a printer, a technology or an end market or is this more of a generic
statement across the company?
No, no, no, I think our production printers are really very well designed and they are doing
extremely well. It's really the professional printer that we have some real issues in quality
and reliability. And I think what we wanted to do was to make sure that, as I said, we want
to make customers happy. So it's really local issues with the professional printers. And I
think that's why having that reliability, quality issue and not making enough of Wax
product, the combination is a result. We had a weak revenue in professional printers.
The other thing to I think about with the quality and reliability space for us is that – and we
learned a lot more about this in Q2 and it's – we've invested a lot over the last six months
in building a much more rigorous service model than the company's had historically. We
brought some key people into the company. And certainly in the second quarter that we
learned by having more customer focus, from a service point of view, that we have more
problems on a legacy basis out there than we don't understood earlier in the year and late
last year. So it's a good thing in the sense that we're getting the right visibility and we're
doing all the things we need to do to make our customers happy and want to continue to
move forward with us. But there's a little more work than we thought...
And what...
...and the happy customers is job one and we have to take care of it.
And just to clarify one more fine point in the quality, reliability is, there is nothing around
the metals side, given some of the challenges there.
Well, I think our older platform, we had some issues. And I think that the 300 metals, we
have issue. So, I don't want to just focus on professional. And specifically on 300 and
that's why our 320, our new product line, I'm very, very happy with that, because the
performance of 320 in the marketplace is excellent. But with 300, we made beautiful parts,
but the robustness of that platform was an issue. So no, I agree with you on that also.
All right. And then, as my follow-up, VJ, I think you had previously said, if you were to
march towards your full year guidance that you just reduced, that you could – you'd be on
pace to set up 2018 for 10%-plus organic growth excluding anything from the Figure 4,
and given the reduction in guidance and it seems like a little bit more of a slide in the back
half of the year. Is there any kind of recalibration of that 2018 comment that you can
provide us currently?
No, I think my view is – I think, of course, we need to demonstrate that we can do the
high-end of the range, the new range that I gave. But if we do that, I'm still feeling very
comfortable; I think a double-digit growth in 2018. I think the most important for 2018, is to
really make sure that we launch our Figure 4. We execute second half, as I said, so that
we can be at the higher range of the – that 6% number, I feel very confident about that.
I also would like to state that in November, we're going to have an Analyst Day. And there
what we want to do, we want to layout a little long-term business model so that you all can
see how this whole long-term approach that I'm taking will allow us to really grow the
business double-digit in 2018. And we can show you, by business, the appropriate
revenue growth and the margin that you can expect on the business models.
Yeah. The other thing, it kind of goes back to the first question of Wamsi is that, we want
wanted to give visibility to a multi-year view, at least directionally – it won't be a multi-year
guidance but directionally on how we see it, because it will help people understand how
some of those investments that we're making, this year in particular, started to work their
way out of the business model from a cost structure point of view, 2018 and beyond. And
we know we've gotten a lot of questions about that in conversations outside our earnings
calls. And so we're going to try and do a real good job of providing that kind of insight.
Great. Thank you for taking my questions. Good luck.
Thank you, Pat.
Thanks, Pat.
Operator
The next question comes from the line of Bob Burleson with Canaccord. Please proceed
with your questions.
Hey. Good afternoon.
Yeah.
Yeah. So, I guess going back to professional printers, is there a relationship you guys can
kind of point to in terms of your customers R&D and kind of just design a new products,
design works that's done out there. And the natural level of professional printer growth that
you would expect?
Well, I think, our professional printers – first of all, what I wanted to do is there are three
key markets that we are really aiming at. There are two verticals, the investment casting
and jewelry, are very important for our MultiJet printers. And the third particular one is
entry-level prototyping. And, as I said, with our Wax product, we are seeing tremendous –
the response is fantastic on our Wax printer. And frankly, we could have sold more if we
had the capacity to build in our production line. So I think that, that part of the business,
I'm very bullish and I think that's why seeing that printer revenue growth in second half, I'm
really counting on our success of 2500 Wax product globally.
As far as the R&D part and the saturation, I think that that's a different problem in the
entry-level or the prototyping business, but I think our success is more going to be in the
verticals, especially jewelry, dental, and investment casting.
Okay. And then for my follow up, just wondering, if we should be concerned about any
kind of knock-on effects in terms of materials growth given multiple quarters of low overall
printer demand?
Well, I think what we are doing there is putting more production units into the installed
base. Now, all these things is not going to be showing up in materials growth overnight,
but because the usage of the production printer is significantly more than professional and
the consumer printers. My view is, we are going to continue to see the growth in materials
and that will accelerate in 2018, because now the shaping of that installed base is very
important to me, and creating more and more production opportunities and applications,
that would be the driving force. So I don't think that the negative revenue growth that we
are seeing in printer now for a few quarters should have a significant impact on our
materials growth. And mainly because the shaping of the installed base that I'm talking
about.
And in addition to that, VJ noted the execution issues that we had and they're pretty – we
know where they are and we're dealing with them aggressively.
Okay. Thank you.
Operator
Our next question comes from the line of Matthew Cabral with Goldman Sachs. Please
proceed with your questions.
Hi, Matt.
Yeah. Thank you. Hi. How are you? I have two questions about pricing, so I'll just ask
them at the same time. The first is just on the 30% price cut that you guys announced in
April on the ProX SLS 500. I guess now that it's been a few months, I'm curious as to what
you learned from the move and what that means for your broader pricing strategy going
forward? And then the second question, just taking a step back and thinking more about
the competitive response and just if you've seen any changes in the wider pricing
environment over the last couple quarters?
So, I think, let me start off with the answering the first question. I believe that with our 30%
reduction in SLS and appropriately positioning that product and basically great in terms of
total cost of operations is we are seeing the results. We are seeing that our SLS printer
both from unit and revenue has grown year-over-year. So I really believe that it is a very
positive move on our side.
The other important point that I want to make, SLS printers have a lot of materials
consumption, so connecting the dots back to the earlier question, I think putting SLS
machines into the marketplace will also enable us for more materials growth. As far as the
competitive pricing, we don't see that much. I mean I think I really believe that the
opportunity for us is to continue to drive more production growth and then come up with
the right kind of verticals which I've talked about for our MJP, which is a jewelry, dental,
and the investment casting, because I think those are real production niches that we can
have with our MJP printer. And my view was, once the Figure 4 will be there, we will be
really having the right kind of a portfolio.
And on the metals side, I really believe our 320, especially in the healthcare side, we are
very successful. As a matter of fact, you saw the 25% healthcare growth. And having
metal printer for healthcare, people are not looking for another metal printer, they are
looking at the whole workflow and our 3DXpert software, the materials, we are very
successful in metals in the healthcare. And I think our main thing that we want to do, is we
want to expand into the industrial, into the aerospace with the metal opportunity.
So I believe that it's not about the pricing, it's just having the focus on the right verticals,
the right applications where we have a contribution to make.
Thank you.
Operator
The next question comes from the line of David Ryzhik with Susquehanna Financial.
Please proceed with your questions.
Hey, David.
Hi. Hi, guys. Thanks so much for taking the question. Just going back to materials,
excluding Vertex coming out with 2% year-over-year growth approximately materials,
what's – how can we think about like the go-forward growth rate now that you've kind of
gotten your arms around the installed base, and I have a follow-up?
Well, I think we need to continue to see materials growth, because of the shaping of the
installed base. Because, see – if you look at the company in the last two-and-a-half to
three years, I think that's how we should look at it. What happens is, you look at the
installed base, and which part of installed base is coming out, which part of installed base
is active, and how much usage they do per year, so that's how we do all our modeling.
And now for the last two quarters, last two to three quarters where we are focusing on the
production printer, I'm feeling now that slowly we are changing the way the installed base
in constructed. And as we go more and more on these vertical applications like jewelry
and investment casting rather than the simple prototyping, my view is we are going to
continue to see the materials growth. The other important part is, as I always said,
because we do R&D in materials, we will be also able to maintain our gross margins.
Got it. Thanks. And I would just love to get an update on Figure 4, your conversations with
customers, and when I guess we can see timing of shipments this year. I guess your other
competitor in the 3D space has taken the approach of a lot of collaborations with large
customers. Can we see some of these collaborations with Figure 4...
Yeah.
...public announcements, et cetera, would love to get just further insight? Thanks.
I think we are working with customers, that's a very important part, is that some of our
customers, they don't want to make a public announcement. So I think that's the key. But
for us, we've got to have that whole platform developed, and we will have revenue in later
part of 2017.
Thanks.
Thanks.
You're welcome.
Operator
Our next question comes from the line of James Kisner with Jefferies. Please proceed with
your questions.
Hey, James.
Yeah. Hi, VJ. This is actually Timur Ivannikov on for James Kisner.
Yeah.
Yeah. Hi. First, a quick clarification here. So, your printer segment has been somewhat
weak in terms of growth for several quarters now. Can you disclose what portion of your
printer segment is production printers versus professional printers?
Sure. So, our SLS, our high-end of SLA like 800 and 950 and the metal printers are all
production printers. The professional printers are MJP, CJP, and the 6000 and 7000 SLA
printers. Okay?
All right.
And our weakness in Q2 specifically was not SLA, but specifically MJP. So, I just wanted
to be clear.
Yeah. Just to isolate a little bit more for folks a few. If you took the year-over-year
performance that – the poor performance that we had in Asia Pacific, and what we weren't
able to fulfill with the 2500, those two things effectively accounted for the whole year-over-
year decline in total printer revenue.
Okay, great. And I guess another clarification about the MultiJet printer. So when you're
saying – it looks like you were saying, you said you had quality and reliability issues with
that printer, but did you have to do any discounting? Did you have to cut prices in any way
to customers?
No. I think the main thing that I'm saying and I think John really articulated very well in the
way he answered, if you think about our APJ and our not fulfilling the 2500 Wax would
have explained the whole thing. I think moving forward, I'm actually very excited about
MultiJet Printing, as I said, our acceptance of 2500 Wax product is exceptional. Our dental
product in 2500 is also very successful. So I really think we just have to focus it on the
three key verticals that I talked about, dental, investment casting, and jewelry. And we will
do extremely well. My opinion is what we need to do is continue to focus on verticals that
we have production capabilities that we're offering to the customers.
Okay, great. And so I mean it looks like you're forecasting about, if I'm not mistaken, 9%
half-over-half growth and so is that mostly driven by this MultiJet Printers coming back or
is that fundamental?
No. So let's talk about all the drivers, so that I want to make sure. I absolutely believe our
healthcare business will continue to grow. Remember, healthcare business grew 27% in
Q1 and 25% in Q2, so we need to really make sure. As I promised that software will now
become positive, so remember it was flat in Q1, now it is 9% growth, so we need to
continue our software growing. Materials growth was 8% this quarter. We will continue to
grow our materials as I've talked about it.
I think those three are going to continue to grow. They are going to be very important part.
In addition, our on-demand parts business, which was minus 5% which actually improved
from minus 6% to minus 5% going to the Q2, now in Q3 and Q4 they're going to be
positive because we invested into capital, we are investing into that sales and marketing.
And I absolutely believe that will be another important part or another important driver for
the growth that I'm talking about. And then finally, on the printer side, continue to grow our
production printers. But now – with MJP, now contributing to the growth that will be the
fourth element in terms of the growth that you're going to see.
Okay, great. Thank you very much.
Thank you.
Operator
Our next question is from the line of Ananda Baruah with Loop Capital. Please proceed
with your questions.
Hey, Ananda, how are you?
Hey, VJ, John, Stacey, thanks for taking the question.
Yeah.
Yeah, thanks. Hope you guys are great. A couple for me, just a little higher level to start
with the guidance. There is a bit of a range with the revenue guidance, but you guys are
saying flat EPS. So why wouldn't there a view (42:20) – if you sort of fall at the high end of
the range, why wouldn't there be some leverage and does that mean you're sort of going
to manage – will you be investing more if you actually achieve the high-end of the range, I
have a follow-up there, too. Thanks.
Well, I think there are two parts. We want to continue to invest in R&D. As I've said, R&D
is important and the IT, because remember, we want to make sure that we create
automation of the processes, because effectiveness and efficiency is going to be very
important. So those two are important things that we need to do. The last part is, as we go
to the production, we need to add direct salespeople into the region will be the investment
that we need. So I think you have to look at that revenue growth that will be a flow-through
definitely from the gross margin point of view that we will be able to achieve and we will
have a cost reduction that we are doing in cost of sales.
But to really make sure that we look at our long-term, what we want to do for the company,
we want to continue to invest in the very specific strategic thing that we are working on. At
the same time, we are going to do things organizationally and we are going to really be
controlling how we want to do discretionary. And maybe, John, you want to add few things
to that.
Yeah. I think it was – tactically, was your question around why we didn't put a range
around that the EPS that (43:51) correlated with 2% to 6% or...?
Yeah, John, it is. I guess the way – I mean, you guys, it sounds like...
Yeah.
...there is so many things you'd like to invest in so...
Yeah.
...the way it occurred to me was, if you did the high end of the range maybe you take the
opportunity to just sort of lean into new investment a little bit more.
Yeah. So we were very conscious in saying approximately flat with – on a year-to-year

basis, when we did the revision to the guidance. I mean we don't want to have a broad
range around that. We have a lot of cost things going on. We're going to be watching cost
very carefully through the second half and we have – we got pretty good insights to where
we think revenue could head for us in the second half. But I don't want you to think that
there could be a little movement one way or the other. I mean, I wish we were that good,
but we can't peg it right to exactly the $0.46 right now.
I think the thing for us to think for that's really important to understand here is that we
certainly could have, based on Q2 results, based on some of the areas where we know
we're spending, where we want to spend for the future, where we need to solve for the
past, there is certainly other options from a cost point of view that you could take to drive
your EPS number up short-term. That's not what it's about for VJ and I right now. We want
to do the things that are appropriate and responsible in response to where we are from a
performance point of view. But we're not willing to do that and sacrificing the future of the
company. We have too many things that we're trying to bring forward that are going to
drive a lot of great things for the company next year and beyond.
So our decision here and what you see from a non-GAAP EPS point of view is really
driven around us trying to strike the right balance between having a reasonable
performance with things we know we need to deal with and there is a number of them.
Part of it starts with accountability when we have areas in the company that are not
performing well, we need to address them. In Asia Pacific, particularly one country in Asia
Pacific was a real problem. We've already made leadership changes there. We have skills
mix issues in the company that we need to address for the business going forward. There
will be some work there.
We have discretionary areas of the company that, over the last six to nine months, it was
appropriate spending more money (46:26) so a lot things that we have that will help us
between now and the end of the year and put the cost structure where we wanted as a
starting point going into 2018. But we didn't want to start cutting into the things that are
going to make a material difference for the company 2018 and beyond. And so the net of
all that was pulling back a little bit on the EPS.
Got it. That's great. I appreciate it. Thanks a lot.
Thanks.
Operator
Thank you. Our next question comes from the line of Sherri Scribner with Deutsche Bank.
Please proceed with your question.
Hi. It's Jeff Rand on for Sherri. Gross margins were down despite the fact that hardware
was down and higher margin materials business was up. Can you just talk through that a
little bit?
Yeah. I think part of it is the mix particularly within hardware, the mix within the hardware
business. We saw a bit of a sequential decline in materials margins, nothing that was
unusual. But we're at – we're low-70s kind of margin profile in materials and we can move
around couple of points quarter-to-quarter. Nothing unusual in the quarter other than that
the mix of what we're selling. And to be honest, we didn't meet our own revenue
expectations in the second quarter, and when you do that, you have other issues,
absorption type issues that can have a small impact on margin. Had we met our own
internal forecast, we would have done better from a margin point of view.
Great. Thank you. And just as a follow-up, can you – how much did acquisitions add to
material sales during the quarter?
You mean Vertex or anything incremental?
Yeah, anything incremental in Vertex. Yeah.
No, nothing incremental. No acquisitions during the quarter that added to our profile.
Great. Thank you.
You bet.
Operator
Next question is coming from the line of Brian Drab with William Blair. Please proceed with
your questions.
Hey, Brian.
Hey, Brian.
Hey, good afternoon. Thanks for taking my questions. Can you just remind me and maybe
add if there is anything new in your reseller base. I've been in discussions with some of
your resellers, come to understand that you are asking some of them to make a decision
to prove and kind of show you how committed they are to selling 3D Systems and to focus
on 3D Systems equipment rather than selling 3D and equipment from competitors. And
I'm wondering if that kind of asking them to make that decision is paring down your
reseller base and maybe having some impact on the sale of equipment?
So I think we made those decisions earlier in the quarter because I felt that it's important
for us. I think channel is very important to the company. We absolutely believe that we
want healthy channel. We want the channel that will work with us, invest with us, because
it's important not just about having a channel, but marketing. My view is we need to be in
front of our customers with clear value proposition that means we need to invest together
in making sure that we provide that value proposition to the customer.
The second part is we also rely on the channel on servicing our professional equipment
that means that they need to have skills, they need to have staffing, so that they will be
able to serve our customers (50:10) quality and reliability issues frankly – we had to really
make sure that whatever channels that we work with, they will have time, energy, and
investment dollars to invest both on the marketing and on the services side. And I think
that's how we made the decision. I am very happy about the channel partners that we
have. We need to probably do more as we go into our dental business with the Figure 4.
So I really believe, I think, we are very happy with overall our channel, and I think what we
need to do is make sure we invest together on marketing and services.
Okay. Thanks. And then, on the healthcare business. At this point, I am wondering – I am
just wondering how much of that segment or that business is actually 3D printing – 3D
printers and 3D printing related services versus some of the Simbionix related, the virtual
training solutions. How does that break down 3D printing versus non-3D printing at this
point?
I think we are seeing growth across all the categories here. So not just about Simbionix...
Yeah. Very balanced performance.
Very balanced performance.
Very balanced performance over the second quarter (51:33).
It's on our services, (51:33) 3D printing, parts that we do for our healthcare companies,
our printers, our materials, our software. This has been a broad, and I think – I really
believe that the healthcare vertical is extremely important for the company, and growing at
25% across the board, and across all the categories is a very, very positive thing for the
company. I really believe...
Can I just ask...
Yeah. Go ahead.
I'm just trying to get a sense, too, is it like 50% 3D printing and 50% non-3D printing or is
that way off.
No, it's way off. I think it's more 3D printing than what you think.
Okay. Well, I don't know what to – I don't know what to think, I'm trying to poke you at the
number to see if you give me one back.
But, if that's the plan, I'm giving you...
I don't know what to think.
So, what I'm just giving you – I'm giving you, already telling you, it's more than 50%.
I got it. All right, I got it.
The way we think about healthcare is it's our own internal benchmark for what we want
future production environments for 3D printing to look like, as the market moves more
towards that. So we use that as our own guiding light. And it's a very good balance for the
business.
So, Brian, I think the way you want to think about that is as I always talk about the
workflow from digitization to design, to manufacture to manage, and that's a perfect
example of that vertical. And I would like to create similar vertical approach in aerospace,
in dental, in automotive, I think that's where the things are going. And I think that they're
going to continue to really replicate and scale that model that we have in healthcare.
Okay. Thanks for taking my question.
Thank you.
Thank you.
Operator
The next question comes from the line of Ken Wong with Citigroup. Please go ahead with
your questions.
Hey, Ken.
Hey, Ken.

Hey. How is it going guys?
Very good.
On – so kind of building on the gross margin question earlier, as you guys weigh the
efficiencies that you're extracting and then also the pricing, how should we think about
what that trajectory looks like maybe in 2017? And then, I mean, I know you guys aren't
really targeting 2018, but is 2018 when we might see some uplift to those margins?
Yeah, I think we'll – on 2018 and beyond, we'll talk a little bit more around models when
we set up an event in November. I think for the balance of the year, this year, I would think
about margins very similar to what you've seen in the first half, not a lot of movement. If
we were successful in driving more growth, we could see a little bit of uptick. I think I don't
expect our gross margins in general to move quickly over time. I think that the thing that's
going to shape us most from a gross margin point of view will be the longer-term (54:36)
that can be a benefit to margins and it can be an offset for any other areas that we might
want to invest in. That's the way I would think about it right now.
We'll continue to – you can be sure that as we go 2018 and forward, we will continue to
goal our great leaders in supply chain to generate additional productivity improvements.
But – so that doesn't necessarily stop for us. And right now, it's a good balance for us in
terms of helping to fund some of the things that we want to do in our company with the
short-term things we can do while also allowing us to be competitive in the marketplace.
But I think I continue to feel pretty solid about margins.
Got it. And then, VJ, maybe kind of marrying the kind of the tick-down in guide and then
some commentary around you guys are really kind of pushing to get the Figure 4 out.
Should we still think about that revenue contribution coming in Q4 as being on track or is
that still something you guys are – or is that something that might have gotten pushed
out?
As I've always said (55:47) significant revenue of Figure 4 will be in 2018 and that thing
has not changed. Hello?
Hello?
Yeah. Oh, no, sorry, I got really scratchy. I wouldn't sure if it was my phone or your phone
or the conference line.
I think it's our phone, it's our line. We're trying to work through, hopefully it's okay.
It's okay?
Okay, yeah. Yeah, so I can hear you guys now. So what I got was like we will get some
revenue, but significant like – significant contribution will come in 2018 is – that's kind of
what I caught.
Yeah, that's when it ramps.
Yeah.
Okay. Okay. So still it sounds like Q4 is kind of the initial go-date?
Initial revenue.
Correct. Okay. Thanks guys.
You're welcome.
Operator
Thank you. Our next question is from the line of Troy Jensen with Piper Jaffray. Please go
ahead with your question.
Hey, Troy.
Yeah. Hi, VJ. Thanks for sneaking me in here.
Yeah. Hi. Sure.
Two questions I have – first, for John. John, if you look back last two years, Q3 has been
down kind of seasonally weak quarter. And I think a few years ago there was a divestiture
in there. So, can you just give us a bit of sense of seasonality in Q3, would you expect
revenues to be up, flat, or down sequentially?
Yeah, I think I'll probably talk more about the half, I mean obviously if we were to get to the
mid to high part of our revised guidance range, it implies growth half-over-half. Q3 and Q4
have moved back and forth over the last few years and a lot of that has been driven by the
timing of large account orders. We don't see anything unusual and we're driving for –
we're in driving for improved growth in throughout the second half.
I think it's much better to look at, Troy, is the half because sometimes the boundaries...
Yeah.
And I'm – I just don't want to get into it what ends up being like a quarterly guidance, Troy,
which is not where we're at right now.
Sure. Yeah, I completely understand it. I thought I cleared up (58:10). But then I'm – my
follow-up would be a – just a follow-up to Brian's question, just regarding the channel
partners. So just – did I understand you correctly VJ that anybody that picked up HP, you
will be severing ties with them and no longer partnering?
No, what I said was basically people who won't invest in what we are doing and not have
the right services, because my view is – and all that channel rationalization has already
happened, so I'm not working on a new plan, let me make sure. So I think you have – you
already are, you and Brian both talk to our channel partners. So basically what we decided
is already done and we are moving forward now.
And as I've said, Troy, frankly, we didn't see any change because of HP into our SLS
printers.
So, VJ, just to follow-up, though, on the channel partners, so companies like SYNNEX,
Hawk Ridge, MasterGraphics as a handful of others. I mean this create – I think they are
given like a 60-day window to close that pipeline. But beyond that, is there – I mean is this
a hole that you guys need to fill on your channel partners.
No. I think we need to recruit new channel partners for dental, because we believe that
dental is a tremendous opportunity for Figure 4. We are going to look at some other
partners because we believe that, as I said, channel is extremely important. I am not
interested in closing down anything. I am interested in building these channel partners.
All right. Understood. Good luck going forward.
Thanks.
Operator
Our next question is from the line of Hendi Susanto with Gabelli & Company. Please
proceed with your questions.
VJ and John, thank you for taking my questions. First – two questions. How should we
think about how long it may take to recover and improve execution in Americas and
APAC, and putting quality and reliability in professional printers behind?
Well, I think my view is in second half, that's where we need to deliver, period, because I
really believe that, as I said, the response that we are getting right now on our product
portfolio, I'm very excited, but I just want to deliver. I think in second half, we will be able to
see that.
Yeah, we've got a very good understanding of where we're executing well and where we
can do better. And we also have some pretty clear actions teed up for that. I think that we
should deliver – to deliver kind of trajectory we want to deliver in 2018 and beyond. VJ and
I both know that that there is – we've got to make very good progress in the second half. I
mean the good thing is as we know exactly where we can do better, that's really important,
and we've learned a lot about that in the second quarter in particular.
Got it. And then second, I noticed that APAC has lower materials sales, is that demand or
is that execution?
Well, I think, there are two parts, right. When you have reliability issues, people are not
using the printers, and when you don't use printers, then you don't have the materials. So I
think my opinion, that's why I wanted to focus on delighting our customers and solving our
quality and reliability issues. And I think the second part is, the profile of the printers, I
think there are more professional printers sold in Asia than production. And I think that's
another reason that you're seeing a different kind of a materials...
And on top of that, as we noted earlier in the call, Asia-Pacific was our biggest area of
weakness relative to the professional printer space on a year-over-year basis in Q2, I'm
very – so obviously that plays in any kind of short-term materials sales you're going to look
at there.
Got it. Thank you.
You're welcome.
Operator
Our next question is from the line of Rob Stone with Cowen and Co. Please proceed with
your questions.
Hey, Rob.
Hey, Rob.
Hi, guys. Thanks for fitting me in. The first question I wanted to ask is on visibility, you've
said a number of times you have things in mind for the second half, for example, you
expect the on-demand parts services to get from negative 5% to – in this quarter to
positive numbers in the second half. As you've been working on systems in the company
and improving the way you execute, what are you doing to drive your visibility specifically
and are you seeing changes in things like the linearity of a quarter or the lead-times.
You've already enumerated the things that you expect to drive growth. My question is
really, how are you, in the details, better able to see that? Thank you.
Yeah. So I think we have work to do there. My view is we didn't have the processes when I
joined, and we are building the processes in terms of the pipeline, in terms of really
understanding what are the probability of getting, converting the conversation into actually
order and then converting that into shipment. We have lot of work to do in this company.
And those are the processes that I'm bringing. I think we are making progress, and we are
getting much better visibility than what we used to, I would say, six months ago.
Yeah.
But we still have work to do, and I think that's something I believe is going to give us more
and more confidence and converting to the right kind of a revenue growth that we are
looking for. The last part is the skill set. It is easy to say let's move from prototyping to
production, but really bringing that direct sales kind of approach, the pipeline and the
whole processes to really figure out how do we have a CXO kind of a conversation rather
than a transactional conversation. Those are all the skill set that we are building and we
are investing into it. But I would say, Rob, that compared to six months ago, we have
much, much higher visibility. John, do you want to add anything?
Yeah, the way I think about it, Rob, is we've kind of gone from certainly in the 12 months
that I've been here and VJ started it, before I got here. We've gone from a company that
really didn't have a consistent defined operational cadence to a company that now as
weekly operations processes with a lot of good support from our finance teams and FP&A,
and we've gone – we took that to what felt more like a reporting exercise at the start, now
we're moving more to attainment.
And so we're really talking about how to get things done as opposed to flashing forecast
we hope happen. And then we get – the next step for VJ and I is we now have better
understanding where things are working well and where we need to focus more time on
and to let things go and run themselves. So it's an evolution, but it is definitely getting
better.
Okay. My second question is on the subject of pricing, and you talked about how you were
focused on more pricing towards an ROI model and driving the installed base towards
production printers as opposed to necessarily responding to competitors and, obviously,
you wouldn't want to preannounce and I'm not asking you to – anything else you got
planned there. But my question is, are you also willing to use price tactically, and do you
think that's the tool that you might be able to deploy? For instance, you said you want your
channel partners to invest and support you and if there are quality and reliability issues,
they have to be able to provide the local service and support. Would you, for example,
consider going out to those same partners and saying, this period we're going to give you
a bigger discount on this range or that model, because we want to move more of those
machines and we know it's going to take more work from you, that sort of things.
Yeah. I think that's what I call marketing that I was talking about. I think what we need to
do is to invest more into marketing and create the opportunity to talk about our value
proposition. See, the thing that I believe, we need to get much more sophisticated here
rather than just saying, hey, here is a product and sell it, we need to create a conversation
and that's why marketing is going to be as important as creating the sales process.
The second part is, I think my view is as we go more and more production, the
conversation is not about the pricing, it's about the total cost of operation and we need to
change the conversation. Because at the end of the day, they are looking for a part, which
either is complex or custom, and then if they want to make sure that they compare that
against the conventional process, and I think that's the experience that we are having. So
that's why my view is more and more we need to move the conversation of total cost of
operations.
The other thing Rob, and you touched on, in the quality and reliability space, as we're
building out a very different service model from where we were, say, a year ago, much
more engagement with our channel partners relative to issues around quality and
reliability that we're trying to take on. So we need to support the channel and in doing that
just like we're supporting ourselves in solving problems with customers. So there is good
engagement going on and an improving engagement going on in dealing with that and
making sure that our partners are well trained and prepared to solve problems and fix
them up. So that's a build as well.
All right. Thank you.
You're welcome.
Thank you.
Operator
Our next question is from the line of Shannon Cross with Cross Research. Please go
ahead with your question.

Hey, Shannon.
Hey, Shannon.
Hi. Hi, guys. So pretty much all the questions have been asked, but I just have one last
one. With regard to cash flow, I'm just wondering how you're thinking about cash flow, I
know you guided for this year, but I'm curious as you launch Figure 4, is that going to take
incremental inventory, how we should think about some of the accelerated restructuring
and how you are – just in general, how you're thinking about it as you look at this year and
then I know you won't give guidance, but maybe in general sense. Thank you.
Yeah. First of all, I think in the first half, it's a little lumpy because of sort of non-cash items
quarter-to-quarter, but on a net basis, we generated $18 million of cash flow from
operations in the first half. There is leverage in the second half with stronger performance
that helps that. Will we invest some of that? Sure, we may invest some of that. CapEx for
the first half was pretty much what we expected. We think we're tracking there. I think
we're going to have positive results for the year relative to cash flow. I don't doubt that,
and I think there is a lot of leverage from a cash flow point of view going forward as we get
some of these things behind us and we start to really ramp the business. There is just a lot
of leverage from a cash flow point of view. And we have a healthy balance as a company.
I don't worry about that. I spend more time making sure we're focused on those things that
are going to make that leverage real.
Thanks. And then actually just one last question. What specifically changed in Asia on a
quarter-over-quarter basis or maybe it was something that was building over a couple of
quarters.
So I think...
I'm just trying to understand what the – what sort of turned it this one quarter?
Yeah. I think the main – the things have really – clearly, this has been building, so it's not
the just the second quarter. And specifically, let me just tell you a country, Japan, but I
really think that we had a lot of issues in Japan. And I think as John talked about it, we've
made some leadership change...
Because they were more than we understood, Shannon, (01:11:20).
So that's where I believe our issues were very much, where – I think that, and as you all
know, Japan is a country where quality and reliability will be a prime thing and I think not
having that thing solved was the key issue. So I'm just trying to be very clearly articulating
what the issue was.
But the issue has been solved from your standpoint, so going forward, it's just a matter of
rebuilding?
That's what we are working on. But it takes time, right. So when you have those issues...
We've added (01:11:55).
...in the country like Japan, that is not going to be overnight but I'm just feeling that there
are two parts, right, as I mentioned that. What happens when you have a quality and
reliability issue and the people are not using their equipment, that is a materials growth
also is a concern. So I really think – I gave you a specific example of Japan because I
think this is something important that all our learning and then we need to really pay
attention how we want to globally drive the things that we are talking about. And that's
where we need to make sure we have the right channel, we have right training, we have
right kind of approach in making that happen.
Yeah. The other thing that we did, Shannon, over the last few months is we actually added
a senior leader, regional leader for all of APAC. We can assure he has been spending a lot
of time in Japan. And so, we needed that, we needed that focus as well. We found in
EMEA that leadership process and rigor has made a huge difference, and now we got to
solve for that in APAC, and we've been – honestly, we need to do better in the Americas
as well. So, there is, I think we understand that well.

Great. Thank you very much.
Thank you.
Operator
Thank you. There are no additional questions at this time. I would like to turn the call back
over to Stacey Witten for closing remarks. Stacey?
Thanks. Thank you for joining us today, and for your continued support of 3D Systems. A
replay of this webcast will be made available after the call on the Investor Relations
section of our website, www.3dsystems.com/investor. Thank you.
Operator
Thank you. Today's conference has concluded. You may disconnect your lines at this time.
Thank you for your participation.
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8/7/2017 3D Systems (DDD) Q2 2017 Results - Earnings Call Transcript | Seeking Alpha

3D Systems (DDD) Q2 2017 Results - Earnings Call Transcript

Q2: 07-30-17 Earnings Summary

Press Release News

3D Systems Corp. (NYSE:DDD)

Q2 2017 Earnings Call

August 02, 2017 4:30 pm ET

Stacey Witten - 3D Systems Corp.

Vyomesh I. Joshi - 3D Systems Corp.

John N. McMullen - 3D Systems Corp.

Wamsi Mohan - Bank of America Merrill Lynch

Patrick Michael Newton - Stifel, Nicolaus & Co., Inc.

Robert Joseph Burleson - Canaccord Genuity, Inc.

Matthew Cabral - Goldman Sachs & Co. LLC

David Ryzhik - Susquehanna Financial Group LLLP

Timur Ivannikov - Jefferies LLC

Ananda Baruah - Loop Capital Markets LLC

Jeffrey Rand - Deutsche Bank Securities, Inc.

Brian P. Drab - William Blair & Company LLC

Kenneth Wong - Citigroup Global Markets, Inc.

Troy D. Jensen - Piper Jaffray & Co.

Hendi Susanto - Gabelli & Company

Robert W. Stone - Cowen and Co. LLC

Shannon S. Cross - Cross Research LLC

Stacey Witten - 3D Systems Corp.

President and Assistant General Counsel.

Vyomesh I. Joshi - 3D Systems Corp.

actions in place both organizationally and operationally to address short-term issues as

We continue to make improvements in our on-demand manufacturing services and

We expect continued growth in production printers combined with ramping our

John N. McMullen - 3D Systems Corp.

GAAP operating expenses increased 4% or $3 million to $88 million of higher R&D

Compared to the second quarter of 2016, non-GAAP SG&A expenses increased $1

materials and services from medical and dental customers.

Vyomesh I. Joshi - 3D Systems Corp.

Stacey Witten - 3D Systems Corp.

Vyomesh I. Joshi - 3D Systems Corp.

Wamsi Mohan - Bank of America Merrill Lynch

Vyomesh I. Joshi - 3D Systems Corp.

Wamsi Mohan - Bank of America Merrill Lynch

Vyomesh I. Joshi - 3D Systems Corp.

Wamsi Mohan - Bank of America Merrill Lynch

John N. McMullen - 3D Systems Corp.

Vyomesh I. Joshi - 3D Systems Corp.

Wamsi Mohan - Bank of America Merrill Lynch

Okay. Thanks a lot. I appreciate the color.

Patrick Michael Newton - Stifel, Nicolaus & Co., Inc.

Vyomesh I. Joshi - 3D Systems Corp.

John N. McMullen - 3D Systems Corp.

Vyomesh I. Joshi - 3D Systems Corp.

John N. McMullen - 3D Systems Corp.

Patrick Michael Newton - Stifel, Nicolaus & Co., Inc.

Vyomesh I. Joshi - 3D Systems Corp.

Patrick Michael Newton - Stifel, Nicolaus & Co., Inc.

Vyomesh I. Joshi - 3D Systems Corp.

John N. McMullen - 3D Systems Corp.

Patrick Michael Newton - Stifel, Nicolaus & Co., Inc.

Great. Thank you for taking my questions. Good luck.

John N. McMullen - 3D Systems Corp.

Thank you, Pat.

Vyomesh I. Joshi - 3D Systems Corp.

Robert Joseph Burleson - Canaccord Genuity, Inc.

Hey. Good afternoon.