3D Systems Corp (DDD) 2006 Q4 法說會逐字稿

Good morning, and welcome to the TDSC 2006 earnings results webcast.

My name is Laurie and I will be facilitating the audio portion of today's interactive broadcast.

All lines have been placed on mute to prevent any background noise.

(OPERATOR INSTRUCTIONS)

At this time, I'd like to turn the show over to Chanda Hughes, Investor Relations for 3D Systems.

Good morning, and welcome to 3D Systems' conference call.

I am Chanda Hughes, and with me on the call are Abe Reichental, President and CEO; Damon Gregoire, VP and CFO; Jerry Pribanic, interim CFO; and Bob Grace, General Counsel.

The audio 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 via the Web at www.3dsystems.com.

Should you choose to do so, we recommend that you sign in for the interactive teleconference.

This will give you the ability to ask questions related to the operational issues raised in this conference call at the end of the session.

For those who have accessed the streaming portion of the webcast, please be aware that there is a three-second delay and that you will not be able to post questions via the Web.

Before we begin the discussion, I would like to preface our presentation today with a statement regarding forward-looking information.

Certain statements made in this presentation that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievement of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements.

In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements in the future or conditional tenses or that include the terms believes, beliefs, expects, estimates, intends, anticipates or plans, to be uncertain or forward-looking.

Forward-looking statements may include comments as to the Company's beliefs and expectations as to future events and trends affecting its business.

Forward-looking statements are based upon management's current expectations concerning future events and trends, and are necessarily subject to uncertainties, many of which are outside the control of the Company.

In particular, the factors stated under the heading Forward-looking Statements, Cautionary Statements and Risk Factors and risk factors that appear in the Company's periodic filings with the Securities and Exchange Commission, as well as other factors, could cause actual results to differ materially from those reflected or predicted in forward-looking statements.

At this time, I would like to introduce Abe Reichental, CEO.

Good morning, everyone, and thanks for taking the time to listen to our call this morning on such short notice.

Before I get going here, I wanted to clarify that as previously announced we will be holding our regularly scheduled comprehensive investor presentation at the [rocket] show today.

With that, let me address this morning's agenda.

While I'm very pleased that long last to be able to share with you our '06 financial results, I must also share with you how deeply disappointed I am that this has taken us this long to be able to do so.

Rest assured that with our new CFO, Damon Gregoire, on board, a stronger financial team in place and rigorous remediation underway, we are working very hard to return to timely reporting of our operating results.

As you may recall, in March we announced that we were unable to file our annual report on Form 10-K by the March 16 filing deadline, and consequently delayed issuing our fourth-quarter and full-year '06 operating results until we could file our Form 10-K.

However, in connection with the March announcement, we provided you with an indication of the results which we expected for the fourth quarter.

And I'm very pleased this morning to report that yesterday we filed our Form 10-K and that under the heading of no surprises, our results for the fourth quarter of '06 were generally in line with our previously announced expectations.

(inaudible) the fourth-quarter results of '06 were as follows.

Revenue declined to $42.6 million from $44 million in the '05 quarter.

But we exited the year with $5 million of backlog at the end of '06.

Operating loss was $5.3 million for the fourth quarter compared to $4.2 million of operating income in the '05 quarter.

Net loss available to common stockholders was $6 million compared to $5.9 million of net income in the '05 quarter.

And loss per share was $0.31 on a fully-diluted basis as compared to $0.32 per share of net income on a fully-diluted basis in the '05 quarter.

Gross profit for the fourth quarter of '06 declined to $16.1 million from $20.5 million in the fourth quarter of '05, while profit margin on product [decreased] to 44% in the fourth quarter of '06 from 51% for the fourth quarter of '05.

Services' gross profit margin decreased to 19% of consolidated service revenue for the fourth quarter of '06 from 31% for the fourth quarter of '05.

As we explained previously, gross profit was adversely affected by the disruptions that we encountered during '06 and that we shared with you in great detail in previous calls.

The residual impact of special accommodations that were extended to certain customers as the result of these operating disruptions continued to effect gross profit in the fourth quarter.

I'm pleased to share with you this morning that the impact of equipment, stability and related resource training constraints eased towards the end of the fourth quarter, as we made significant progress in our training and quality remediation efforts and corrective action planning.

We believe that our progress in remediating our new systems (inaudible) problems and training gaps resulted in greater market acceptance of our new systems, as reflected in our 5 million backlog at the end of the fourth quarter.

For the full year, revenue fell to $134.8 million from $139.1 million in '05.

Revenue from materials, however, increased 17% to $52.1 million compared to $44.6 million in '05, reflecting the early traction and success we're already enjoying as a result of our strategic decision to transform our systems and products portfolio.

Revenue from systems and other products was significantly impacted by these disruptions, as well as by our deliberate decision to retire certain systems.

Consequently, revenue for this category decreased to $46.5 million in '06 from $55.1 million in '05.

Revenue from Services, which was also significantly impacted by these disruptions and by our decision to discontinue providing service and selling upgrades to certain older legacy systems, decreased to $36.3 million from $39.3 million in '05.

Operating loss was $25.7 million compared to $8.4 million of operating income in '05.

Net loss available to common stockholders was $30.7 million for '06 compared to 7.7 of net income available to common stockholders in '05.

And our loss per share was $1.77 on a fully-diluted basis, as compared to $0.48 per share of net income on a fully-diluted basis in '05.

Amidst the consolidated revenue decline, I would like to highlight that revenue from materials increased by $7.5 million in '06, primarily from higher unit volume and favorable product and mix effects, and constituted by year-end almost 39% of our total revenue, a significant milestone towards achieving our long-term business goal and target.

Revenue from systems and services declined by $11.6 million in '06, due primarily to the business disruptions that we encountered and the deliberate retirement of certain legacy systems and services.

Geographically, the U.S.

accounted for most of the decline on revenue and Europe grew.

Although not as significant in its current revenue generation, the Asia-Pacific region performed on par with last year.

Consistent with our (inaudible) plan to proactively migrate our entire productline into state-of-the-art, integrated material cartridge systems, revenue from our legacy products continued to decline in '06 as we discontinued selling certain older flagship products, like the SLA-5000 and SLA-7000, while revenue from our new systems and products continued to increase.

In fact, notwithstanding our operating disruptions, sales of new products and services introduced since the latter part of '03 gained more traction, increasing by $7 million during '06 to $49.2 million, representing more than 36% of revenue for the year.

But because of the operating disruptions we encountered, the increase in new product revenue from our new systems was not enough to overcome the expected decline in revenue from deliberate discontinuation of certain legacy products.

As a result of the previously mentioned reason, gross profits declined to $46.3 million from $62.2 million for the full year of '05.

Gross profit margin on product decreased to 40% of consolidated product revenue in '06 from 50% in '05, and gross profit margin on services decreased to 19% of consolidated service revenue for the full year of '06 from 32% in '05.

But as I will show you in a few moments, the decline in gross profits slowed as we reached the end of the year.

And in fact, over the next few periods, we expect our gross profits to recover and exceed the historical levels.

But before I get to the trend analysis, let me cover operating expenses first.

Total operating expenses increased by $5.1 million to $21.4 million for the fourth quarter of '06, compared to $16.3 million in the fourth quarter of '05, and they increased by $18.2 million to $71.9 million in the full year '06 compared to $53.7 million in the full year of '05.

The increase in operating expenses for the full year was due primarily to a $10.9 million of higher selling, general and administrative expenses, $5.4 million of higher severance and restructuring costs related to the relocation of our headquarters to Rock Hill, South Carolina, which were generally in line with our previously announced expectations, and the $1.9 million of higher research and development expenses.

As you know, the higher research and development expenses relate to our continuing high level of new product development work, which includes our work on developing additional desktop 3-D Modelers, including the recently announced V-Flash desktop modeler and other Rapid Manufacturing solutions.

It also includes our research and development agreements with Symyx Technologies Inc.

The severance and restructuring costs reflect primarily the relocation of our headquarters to Rock Hill.

The higher selling, general and administrative expenses resulted mostly from higher expenses primarily related to the higher accounting fees and internal expenses related to our restatement activities.

Also, the ERP system consulting, relocation project, higher bad debt expense, higher depreciation and amortization expense, and non-cash equity compensation expense related to stock options.

In summary, there were about $14.5 million in operating costs that we incurred in '06 in connection with these discrete activities.

Slide 13 sums up the operating results story for the year.

As you will recall, we started '06 with a higher third-quarter revenue and an operating loss that reflected our previously announced expectations for restructuring and relocation costs for our move to Rock Hill.

However, the severe disruptions that we encountered in the second quarter led to a significant decline in revenue and a deeper operating loss.

After working to correct the sources of these disruptions, our revenue in both the third and the fourth quarter of '06 rebounded, increasing sequentially over the immediately prior quarter.

In the third quarter, our revenue increased 16% over the second-quarter revenue, and in the fourth quarter of '06, our revenue increased by 35% over that for the third quarter of '06, continuing our sequential quarter recovery and reflecting the (inaudible) impact for the corrective action plan that we began to implement in July.

At the same time, our quarterly operating losses, which increased significantly in the second quarter, improved in the third and fourth quarter.

So as you can see from slide 14, while we had not fully recovered by year-end, we believe that we ended '06 on the right trajectory, with revenue growth and gross profit trending up, operating expenses flattening and trending down, and, importantly, a decline in net loss.

Reflecting on this trajectory in combination with our remediation progress and the continued strong demand for our systems and products, we believe that our business model is sound and poised for sustained profitable growth.

Throughout '06, we funded all of our planned infrastructure investments, as well as the abnormal costs we incurred in connection with remediating the disruptions we incurred in our restatement activities.

The investment that we funded amounted to (inaudible) of $25 million and include our relocation to Rock Hill, our new ERP system, and our R&D and new product development efforts.

We ended the year with $14.3 million of unrestricted cash, of which $8.2 million was drawn against our bank credit facility that comes good the beginning of July.

We expect to begin work on renewing or replacing that facility shortly.

Our year-end cash position reflects in part our continued effort to improve our working capital management, which included a further reduction in our days sales outstanding in the fourth quarter of '06.

For your convenience and as a matter of compliance, slide 20 is a reconciliation of the data presented on this slide back to GAAP.

Moving on to slide 21, in fact I'm pleased with the steady progress we are making towards reducing our accounts receivables from over 100 days at the end of the second quarter to 74 days in the fourth quarter, and confident that as we make further improvements in our working capital management, we can expect to return to our historical levels of performance, both in accounts receivable, days outstanding and inventory.

Bottom line, we have experienced significant business setbacks and disruptions in the course of implementing our strategic initiatives that we believe are now behind us.

We are pleased with our continued strong order booking progression.

We are gratified with the [sequential] comeback we are making.

We are deeply disappointed that disruptions in delivery and service earlier in the year resulting from our initiatives let down our valuable customers and stockholders.

We are deeply committed to completing our remediation efforts and having state-of-the-art control procedures and processes.

And we continue undeterred to focus on our goals and our remediation efforts to transform our Company and the way we do business to establish a strong record of sustained growth and profitability.

I'm glad to spend the next few minutes reviewing with you recent developments in our business and how we see them contributing to our growth.

Although there is never a perfect time to embark on a major business transformation, as you know, after extensive planning, we decided to make '06 the year in which we would invest heavily in our Company to give us the required systems, facilities and products necessary to scale up and achieve the kind of sustained, profitable growth to which we aspire.

This included all the key initiatives listed on slide 20, which I shared with you before.

Ever mindful of the scope and duration of such invasive initiatives, we decided to condense as much as possible the (inaudible) period by running multiple projects concurrently.

Early in '06, we commenced with the execution of our ambitious plans.

We funded our investments during a time that for us was unfavorable for investments.

And while some questioned our strategy, we committed time, the effort and the money to deliver superior (inaudible) products and scalable infrastructure for the long-term benefit of our customers and stockholders.

In September of '03, when I joined 3D Systems, I immediately recognized the need for an extensive transformation, designed to create a solid foundation for scalability and sustained profitable growth.

AS you will recall, at that time our core products consisted of a few open systems and materials.

Recognizing the need to accelerate growth and expand the affordability and the reach of our [additive] manufacturing technology and benefiting from the increased affordability and availability of 3D CAD, we embarked on an extensive product performance transformation aimed at targeting 3-D Modeling and Rapid Manufacturing.

Today, our large (inaudible) systems include our Viper Pro and Sinterstation Pro Systems, two significant, new-from-the-ground-up Rapid Manufacturing solutions.

And our portfolio of 3-D Modelers consists of a growing family of modelers targeted at a variety of applications, along with numerous new materials.

We've also initiated several partnerships, reorganized our infrastructure to enhance the way we do business and better prepared ourselves for the future.

Regretfully, implementing these significant initiatives resulted in temporary disruptions that adversely affected our ability to adequately support our customers.

We believed that we had all the required resources in place to complete these activities smoothly, and clearly in hindsight, we did not.

However, I'm pleased to share with you that I believe that we've passed the critical point and are transitioning to a point where our recent choices and the resulting products and capabilities are now being validated by the very same customers who already are beginning to experience the difference.

In fact, one such early but significant indication that we are on the right track is clearly depicted on slide 28.

Materially, it represents the most important area for technological innovation in our industry.

End-use part quality is highly dependent on the materials used.

New developments and additional breakthroughs in the materials arena are therefore critical to extending the market potential of major opportunities, such as Rapid Manufacturing and 3-D Modeling.

Over the past couple of years, we accelerated our R&D spending, reinvented our own materials portfolio and introduced numerous new proprietary engineered materials and composites.

Looking beyond our own capabilities, we partnered with other significant industry players and entered into an innovative joint agreement with Symyx Technologies that we anticipate will aid us in discovering Rapid Manufacturing materials.

To deliver optimal customer performance and quality, we designed the means to efficiently integrate the entire materials packaging and delivery process into our systems.

Our new material cartridges incorporate proprietary design and authentication technology, such as radiofrequency identification, RFID, to deliver significant yields and quality benefit for our customers.

Consequently, the consumption of our materials continues its double-digit inquiries, indicating to us that our strategic initiatives are being realized in the here and now.

We believe that our growing install base, coupled with the integration of our new systems with proprietary material cartridges and the compendium of expert solutions should improve the profitability of our business as revenues from materials continues to outpace the growth in systems.

Accordingly, the stability of our revenue base should improve as consumable sales rise as a percentage of the product mix relative to systems.

Despite the disappointment that we encountered in '06, we managed to make significant progress in many areas as we continued to investing infrastructure, products, people and capabilities to achieve our strategic objectives.

These accomplishments are listed on slide 29 for your reviewing pleasure.

Recognizing that price points and sophistication of our traditional Rapid Prototyping systems limited their sale and use to a select group of customers, we developed and commercialized a comprehensive family of 3-D Modelers.

Our growing family of 3-D Modelers is easy to operate and better suited for desktop use, design departments and various microcasting operations.

Most importantly, our 3-D Modelers are much more affordable to operate and own, ranging in price from $9900 to $125,000.

Comparing functionality enhancements and price reductions and (inaudible) have lowered the (inaudible) barriers as well.

In fact, the CAD (inaudible) that 20 years ago would have sold for up to $100,000 can now be acquired for less than $5000.

As a relative newcomer to this space to the economical desktop modeling tools, we watched with interest the pioneering war that was already done by other industry players, and based on their earnings success, believed that at the right price point, 3-D Modelers will enable more companies to bring technology in-house.

In fact, today more than 1 million 2D plotters are already used as the optical device of choice by 3D CAD users.

Acting on this belief, in January of '07, we announced that we had successfully developed the revolutionary (inaudible) technology called field processor imaging, FPI, and planned to begin selling the compact V-Flash Desktop Modeler this summer for the economical price of $9900 per system.

Our ability to make good on our long-range plans and bring to market the (inaudible), compact and affordable desktop modeler within 30 short months of its inception underscores our commitment and capability to [hit] our technology and grow our business through technology.

We firmly believe that easy-to-use and affordable systems such as our V-Flash Desktop Modeler could enable us over time to replicate the impressive penetration that the 2D plotter industry enjoys today, and position us as the leaders and innovators in this exciting space.

And we are not done yet.

Last week, we announced the V-Flash HA-230 manufacturing system, the first economical, high-speed desktop manufacturing system for hearing aids, that we plan to introduce this fall in partnership with Dreve, a world leader in hearing aids.

This new system is based on our new (inaudible) film processor imaging technology, and is designed to build high-quality hearing aid shields within hours, demonstrating improved efficiency and provides multiple material options.

And just yesterday we announced the introduction of yet another worthy member of our 3-D Modeling portfolio, the InVision XT.

This new and improved InVision is fast and productive, delivering high output of ready-to-use complex geometry models.

It produces high-definition, functional and durable models, and is ideal for the most demanding form, fit and function analysis.

This new modeler will feature materials in multiple colors and will fulfill a wide range of demanding applications economically and efficiently.

We believe the most significant application of our proprietary and patented additive manufacturing technology is Rapid Manufacturing.

Today, our slate of Rapid Manufacturing solutions is viewed successfully in an indirect form in cases where our customers create disposable tooling or die casting patterns; or in a direct form in cases where the part that is produced on our machine is the actual end-use part.

We are benefiting from a convergence of marketplace migration towards mass capitalization and the improving ability of our additive manufacturing technology to deliver the desired accuracy, material quality and speed necessary for the manufacturing of everyday production quality parts.

Today, the use of our technology for end-use production already spans many different industries, ranging from high-performance aerospace parts and hearing aids to mass customization of jewelry and dental restoration.

Sophisticated desktop scanning technology and the availability of hand-held and interoral scanning devices are likely to further accelerate the adoption of Rapid Manufacturing into additional health care segments.

The Rapid Manufacturing opportunity, in our view, is not [sized] by comparing our additive manufacturing technology with traditional methods, such as injection molding for plastic or die casting for metals, but by recognizing the endless design and fabrication freedom our technology delivers that traditional processes cannot.

Short-run manufacturing that does not justify the tooling costs associated with traditional methods is a major opportunity.

This is particularly true for manufacturing companies desiring to stay in their primary markets, companies that have seen more traditional mass production migrate offshore.

Enabling efficient unmanned production of low-volume, specialized products available just in time represents a significant competitive advantage for our customers versus low-cost competition.

In addition to avoiding upfront tooling costs, our proven, new-from-the-ground up SLS and SLA solutions can incorporate extremely detailed microstructures and complex geometries.

This enables product designers to optimize their products in ways that are not possible with traditional manufacturing methods.

Reflecting on this multiyear plan, we believe that as production speed increases, materials more closely resemble today's finished product and accuracy improved Rapid Manufacturing will become our largest segment over the long-term, a segment which is truly in our view open-ended.

While the market opportunities represented by Rapid Manufacturing are relatively small today, 3D Systems has already sold and installed hundreds of systems into successful direct and indirect Rapid Manufacturing applications.

In fact, as we exited '06, more than half of the systems we sold were delivered into Rapid Manufacturing applications.

Today, according to several market surveys, Rapid Manufacturing parts made on 3D Systems solutions for applications such as hearing aids, aerospace and orthodontic pictures represent more than half of all the parts produced for all applications by all industry players.

We expect that higher output per application, coupled with our new manufacturing capable systems and materials, will be a strong growth driver.

We are continuing to pursue new, innovative ways and channels to accelerate and expand the adoption of our technology by more and more end-users.

In keeping with that objective, we recently entered into an alliance with Tangible Express of Springville, Utah, which offers the first (inaudible) fractional ownership program in the industry.

This alliance is supported by a fractional slate of 13 state-of-the-art SLA and SLS systems, and a complete 3D Systems materials portfolio.

It enables Tangible Express to deliver 3D Systems' technology and quality to more users, to provide to its customers manufacturing capacity without the associated operating costs, and enables owners to pay for what they need when they need it.

As part of this program, Tangible Express placed a 10-system order for a combination of six of our new Viper Pro SLA dual-mass systems, three of our Sinterstation HiQ, high-speed SLS systems, and a Viper SLA system.

We are very excited about this opportunity to team up with Tangible Express because we know for a fact that the most discerning part consumers on the market today are for SLA-like or SLS-like parts, and oftentimes settle for lesser alternatives as a result of the relatively small capacity requirements and limited financial resources.

We can say today why settle for a mimic if you can own a slice of the real deal.

Or better yet, a slice of each best-in-class technology without the ownership hassles.

As we survey the competitive landscape today, we believe that our wide-ranging product portfolio and expert presence in the marketplace underscores our competitive advantages.

The advantages are demonstrated by our four proprietary technology platforms; our market presence, which exceeds that of all our direct competitors worldwide combined; our record of leadership in shaping the future with disruptive technologies; our extensive capabilities in material developments; our broad range of materials for a wide variety of applications; our outsourced manufacturing network with unlimited capacity; and our (inaudible) targeted manufacturing penetration.

Now that we've had a chance to review our financials as well as the state of the business, I would like to address our business fundamentals and expectations.

As you already know from our earlier review this morning of our business recovery trends and current trajectory, we believe that we are making progress.

However, bear in mind that beyond the current progress, we also expect to maintain our [upward] selling prices.

Additionally, we believe that as the [friction] costs that have impacted our cost of goods sold subsides, our gross profit will return to more normal levels.

And as our special operating expenses arising out of the relocation to Rock Hill, our ERP implementation, financial restatements and the remediation of our material weaknesses come to an end, we expect our operating expenses to decline.

Consequently, we believe that our profitability will return to and exceed its historical level.

Regarding the current execution of our business plan, we expect to be able to revive healthy sales as we restore customer confidence.

One key element is the recent organization of our business around growth initiatives that we expect to drive growth.

I will review this new focused organization in more detail later today during our investor day conference at the [Rapid] show in Detroit, which will also be webcast.

And most significantly, we believe that proprietary materials will lead the growth of recurring revenues.

We are continuing to work hard to remedy all of the material weaknesses and achieve (indiscernible) effective controls, with the expectation that work will resume at an accelerated pace.

And to working capital, we expect to -- we expect the free cash flow and our relocation to Rock Hill by reducing inventory and returning days sales outstanding to a historical level.

We also believe that we can reduce expenses following the completion of our relocation and ERP implementations.

And we intend on achieving the anticipated savings from our Rock Hill operations.

We have all the key elements in place for returning our attention to leveraging our business.

Our revenue mix is changing as intended.

Materials was the highest margin in the mix, growing several digits.

Service was the lowest margin in the mix, flattening.

Systems, we've seen new systems growing at attractive margins.

And our targeted growth programs are poised to deliver and Rapid Manufacturing we expect to drive material volume consumption.

Higher-speed systems like our V-Flash Desktop Modeler will drive material volume consumption.

And the proprietary cartridges will ensure that we have recurring revenue retention.

In conclusion, we believe that our business model is sound.

We have made good progress in resolving the causes of the business disruptions and the material weaknesses that have adversely affected our operations since the second quarter of '06.

We have incurred [multiple] costs of our strategic initiatives and disruptions.

We have incurred abnormally high expenses related to the restatement.

(inaudible) for our materials and products suggests that the demand for our products remains strong.

Our growing install base of new systems with proprietary material cartridges should improve the profitability of our business, as revenue from materials continues to offset the growth in systems.

And the stability of our revenue base should improve as controlled sales rise as a percentage of the product mix relative to systems.

Reflecting on the progress we have made through '06 against our long-term objective and the significant infrastructure we have put in place for growth and scalability, we believe that our long-term operating model is achievable and we are keeping it unchanged.

We believe that we are continuing to turn the company around and place it on a solid, longer (inaudible) of sustained profitable growth.

Towards that end, we expect to continue to leverage our strong fundamentals, which include our leading market place position, which will continue to strengthen and build through unwavering commitment to technology leadership, our experienced team and organization, our clear customer priorities, our powerful brands, global presence, our differentiated portfolio of broad and patented proprietary technology, our proven track record of new business development, our healthy pipeline of additional opportunities, our performance improvements and remediation initiatives, and our focus on (inaudible) to grow progress 3-D Modeling and Rapid Manufacturing.

And our fundamental understanding that we are in business to deliver measurable value for our customers and stockholders.

We expect to continue to leverage these strong fundamentals as we transition ourselves from restructuring to profitable growth.

And finally, the decade of numerous customer successes demonstrates that our solutions reduce development time up to 50%, a powerful improvement in a fiercely competitive environment where time to market is a key variable.

Our proprietary solutions significantly shrink cycle times in numerous stages of product development and manufacturing cycles.

In addition to dramatically collapsing overall development time, our comprehensive technology platforms deliver substantial savings, enabling the optimization of the design for manufacturing at a much earlier stage of development and all the way through to manufacturing.

We believe that our demonstrated ability to deliver fresh, new, disruptive and innovative solutions to this space positions us as a significant technology leader and shaper.

We will now open the call to questions.

We kindly request that you ask one question at a time and then return to the queue, thus allowing others to participate in the Q&A session.

(OPERATOR INSTRUCTIONS) Eric Martinuzzi.

Good morning.

It looks like you're going to be returning the business to growth mode, and I just am curious as to the timeframe for that.

Are you able to give us a revenue range for the quarter ended March 2007?

Not yet, Eric.

But we would hope to be able to do that fairly quickly, as we also attempt to return as soon as possible to the timely filers as well.

But now that we've got the fourth quarter and the full year behind us, we will very quickly attend to the [first] quarter and hopefully will be able to share with you a revenue range shortly.

Jay Harris.

Abe, refresh my memory as to what the backlog was at the end of September.

It looks to me like the business that you wrote in the December quarter was significantly lower than the 17 million that you've reported as revenues.

I'm sorry, Jay -- we reported, I think, for the fourth quarter 42 point something million -- $42.6 million of revenue.

I can't remember off the top of my head what the backlog entering the fourth quarter was.

We exited the fourth quarter with 5 million.

And I'd like to say a few things about backlogs.

To me, generally in this business, we should not have that much of a backlog.

I think the backlog was a significant factor to mention in the '06 period, because it indicated to us, particularly at the time that we suffered major disruptions, that but for our inability to book and ship and invoice in a timely fashion, revenues in a given quarter would have been possibly much higher.

So revenues were understated as a result of it.

But to me, the fact that the Company could reduce over time its backlog indicates that the business is returning to transactional normalcy.

And historically speaking, as we've said all along, backlog should not be a big factor in this business unless we have some extraordinary event.

Cliff Ransom.

Abe, I know you are not (inaudible) quarters yet and the V-Flash is still slated for introduction sometime this summer.

Have you got a timeframe on when you will be able to tell us who the manufacturer, the contract partnership you will have, to do that?

No, we would hope within the next few weeks to make an announcement on who we selected to be our manufacturing supplier or contract manufacturer.

We are treating V-Flash very differently from all of our other products simply because we view it as a higher volume product that would benefit from different manufacturing disciplines, much higher quality standards, and more attention to user-friendliness and out-of-box delivery and reliability.

So we will be making, Cliff, an announcement within the next few weeks of who we chose and what were their required qualifications, and share it with you.

(OPERATOR INSTRUCTIONS) Dennis Wassung.

Thank you.

Good morning.

A quick question for Abe on the customer activity level.

Kind of maintained through some of the issues over the last few quarters that customers have still remained -- customer activity has remained robust.

I'm wondering if you have seen any increase with the resolution of a lot of these issues that you've been working through, just if you can comment on general customer activity level across the business and if you have seen any change.

I think that generally speaking, customer activity has been healthy and robust.

We certainly, in the second and third, and to a lesser extent in the fourth quarter, had to reach out and cast aside some of our customers that [for] special accommodations come into it.

But I'm happy to -- to ask the ultimate indication, Dennis, of the pulse of the business is material consumption.

Because that is -- you know, you sell a machine to a customer once in a while.

The way that you keep the relationship and enhance it is by continuing to sell them materials.

And to me, the fact that materials consumption increased throughout the year in a healthy pace indicates to me that the special accommodations that we made and the deep relationships that we have with customers are returning the desired results.

I will also mention that ultimately in this business what drives demands for machine sales is parts consumption.

And the people that buy parts today get to specify in what material and on what system they want these parts to be produced.

And so another indication of the early success that we are enjoying here, in our view, has to do with the fact that more and more parts consumers are opting for our materials by name; they are specifying it.

And that tells me that even along those lines we have done a reasonably good job of maintaining healthy customer activity.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions.

Are there any closing remarks?

We will now close the call.

Thank you for joining us today and for your continued support of 3D Systems.

A recording will be available two hours after completion of the call.

To access the recording, dial 1-800-642-1687 and enter the conference ID number.

A replay of the webcast will be available approximately 48 hours after the call on 3D Systems' Website under the investor relations section.

Thank you.

That does conclude today's TDSC 2006 earnings results webcast.

You may now disconnect.