3D Systems Corp (DDD) 2009 Q1 法說會逐字稿

Good morning, and welcome to the 3D Systems first-quarter 2009 earnings results conference call and audio webcast.

My name is Darla and I will facilitate the audio portion of today's interactive broadcast.

(Operator Instructions).

At this time I would now like to turn the call over to Chanda Hughes with 3D Systems.

Chanda?

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

I am Chanda Hughes, and with me on the call are Abe Reichental, CEO; Damon Gregoire, 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 the presentation may do so via the Web at www.3dsystems.com/ir.

Participants who would like to ask questions related to matters discussed in this conference call at the end of the session should call in using the phone numbers provided here on slide 3.

The phone numbers are also provided in the press release that we issued yesterday.

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 achievements of the Company to be materially different from 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 "believe," "belief," "expect," "estimate," "intend," "anticipate," or "plans" to be uncertain and 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 headings "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, President and CEO.

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

As you know, yesterday we released our operating results for the first quarter of this year.

We also filed our Form 10-Q with the Securities and Exchange Commission.

This morning, together with Damon, we will review these operating results with you and give you our perspective on our current business operations and prospects.

The unprecedented global slowdown that we experienced during the first quarter of this year adversely impacted revenue from all parts of our business worldwide, as our customers halted their capital spending and curtailed their operating expenses.

Notwithstanding this challenging operating environment, for the quarter our gross profit margin increased and our operating expenses decreased compared to the first quarter of 2008.

For the first quarter of '09, our total revenue fell from $7.8 million year over year as a result of the ongoing global recession, a very challenging operating environment that adversely impacted many of our automotive, aerospace, and consumer electronics customers and their first-tier service providers.

Our European operations were the most heavily affected, as they declined by 36% due to lower volume and an unfavorable impact of foreign currency translation.

While these unprecedented global economic conditions resulted in a significant decline in large-frame systems sales and slowed down our materials revenue growth, our new lineup of 3-D printers continued to grow.

In fact, 3-D printer sales increased 57% over the comparable '08 quarter and were slightly above the fourth-quarter '08 sales.

I am moving on to slide 7.

Amidst this global economic crisis, we continued to reduce our operating expenses.

We believe that the cost control measures that we have implemented thus far strengthen our operations and provide us with the resources required to weather this downtown while leaving us better positioned for the economic recovery ahead.

Even with our significant decline in revenue, our gross profit margin increased to 44%, up almost 400 basis points year-over-year.

We expect to continue to benefit in '09 from the cost improvements that we began in '08.

Our continuing efforts to reduce operating expenses and ongoing improvement in our gross profit margin, coupled with our efforts to improve working capital management, led to an improved quarter-end cash position.

Given the fact that we have no debt at this time, I believe that our financial resources remain adequate for our current and anticipated needs during this unprecedented economic period.

Regarding our integrated materials performance, I would like to give you a quick update here.

Our materials business felt the double impact of a decline in new large-frame systems sales and a decline in existing installed base usage, as our customers have cut back on design, engineering, and manufacturing activities.

We believe that these trends are temporary and will reverse with an eventual rebound in the marketplaces that we serve.

Notwithstanding the decline in total materials sales, integrated materials revenue grew some 17% since the first quarter of '08 and represented 35% of total materials sales for the first quarter.

This increase continued the sequential trend experienced for each quarter in '08, which not -- with not only a 7 percentage point increase over the fourth quarter of '08, but also a 9 percentage point increase over the full year of '08.

Our business model is built around significant recurring revenue components that have begun to generate improved contribution margins.

Now for a more detailed look at our financial performance for the first quarter of this year, I will turn the presentation over to Damon Gregoire, our Chief Financial Officer.

Damon?

Thanks, Abe.

Good morning, everyone.

As you can see on slide 10, the first quarter of 2009 we reported a 24% revenue decline from our 2008 first quarter, primarily due to a continued decline in our high-end large-frame systems sales, as customers continued to postpone significant capital investments and to manage their existing capacity for rapid prototyping and rapid manufacturing equipment; a 17% gross profit decrease to $10.5 million primarily on lower volume; a 4-percentage-point improvement in gross profit margin from the first quarter of 2008 and a sequential gross profit margin that was consistent with the fourth quarter of 2008; a 27% decline in operating expenses to $12.1 million; a 44% or $1.6 million improvement in net loss; and a 47% or $0.08 improvement in fully diluted net loss per share.

Net loss for the first quarter narrowed to $2.1 million and included $0.7 million of bad debt allowance as a result of certain customer solvency matters, including the previously reported Inks reorganization in Japan.

Net loss per diluted share improved to $0.09 from $0.17 in the first quarter of 2008.

Our continuing efforts to reduce operating expenses and ongoing improvements in our gross profit margin, coupled with our efforts to improve working capital management, led to an improved quarter-end cash position.

In fact, our unrestricted cash increased by $1.3 million during the first quarter to $23.4 million from year-end 2008.

On slide 11, we have broken out our first-quarter revenue by product category and region.

As you can see on the left, our largest revenue category was materials, which amounted to 44% of total revenue for the first quarter of '09.

The right side of the graph shows that North America was the largest revenue contributor geographically, with 45% of total revenue, followed closely by Europe with 41%.

Foreign currency translation negatively affected our sales outside the United States by $1.8 million.

Gross profit declined by 17% to $10.5 million for the first quarter of 2009 from $12.7 million in the 2008 quarter, reflecting our lower revenue.

Gross profit margin increased to 44% for the first quarter of '09, representing an almost 400-basis-point increase year over year.

The increase in gross profit margin was positively affected by certain supply chain efficiencies; the movement of certain third-party logistics activities in-house; the sale of systems upgrades; and by a reduction in field service cost.

This improvement was partially offset by the adverse impact of our fixed costs being allocated over relatively lower total revenue for the quarter.

In addition, the actual improvement in gross profit margin was overshadowed by a significant shift towards our 3-D printer business that continued to enjoy solid growth this quarter, and away from sales of our higher-priced large-frame rapid manufacturing centers that declined significantly.

As you recall, our mix last year favored our higher-priced, higher-margin systems.

Operating expenses continued their favorable downward trend in the first quarter of '09, declining by 27% to $12.1 million, from $16.7 million in the first quarter of '08.

On a sequential-quarter basis, operating expenses have continued their decline as well.

They declined 15% or $1.8 million from the fourth quarter '08 to the first quarter of '09.

The decline in SG&A cost consists primarily of contract labor, accounting fees, occupancy costs, sales commissions, bonus and incentive compensation, as well as travel and other discretionary cost-cutting initiatives.

We're also absent of the audit committee investigation expense that we had in the first quarter of 2008.

And our progress would've been even greater except for an increase in allowance for bad debt that for the quarter accounted for $0.7 million and represented a $0.3 million increase over the comparable 2008 quarter.

Over $0.5 million in allowance for bad debt arose from reserving 2009 sales to Inks made prior to their filing for protection in Japan in February.

And at this time, we continue to do business with Inks, but all of our receivables are fully reserved, and all sales are being made on a cash basis.

Accounts receivable, net, decreased by $8.5 million to $16.8 million at March 31, 2009, from $25.3 million at December 31, 2008, primarily due to the collection of year-end '08 accounts receivable balances and our lower first-quarter sales.

Notwithstanding this difficult credit environment, our diligence resulted in days-sales-outstanding decline to 63 days at March 31, '09, from 66 days at the end of 2008, reflecting the quality of our receivables portfolio.

Our gross accounts receivable declined by $8.3 million from December 31, 2008, to March 31, '09, on lower revenue.

Inventories decreased by $1.1 million to $19.9 million, from $21 million at December 31, 2008.

But days inventory on hand increased to 132 on lower sales.

This decrease primarily resulted from reduced materials and spare parts inventory, which was partially offset by a slight increase in systems inventory.

We are focused on continuing to manage additional inventory reductions.

And despite the contracting economy in which we operated, we ended the first quarter of 2009 with $23.4 million of unrestricted cash.

This cash amount was after we retired our industrial development bonds in January, using $3.1 million of previously restricted cash, and is an increase in cash compared to the $22.2 million of unrestricted cash that we had at December 31, 2008.

The increase reflects our improved cash management, inventory reductions, and cost reductions that generated $1.7 million in cash from operating activities.

And we expect our capital expenditures for 2009 to be in the range of $1 million to $3 million.

We believe that our financial resources are adequate for our current and anticipated future needs during this trying economic period.

And we continue to focus on improving our working capital management in order to pursue our near-term growth opportunities vigorously.

That concludes my comments.

Abe?

Thanks, Damon.

Before we begin the Q&A session, I would like to spend a few minutes reviewing the state of our business.

I would like to begin this portion with a few cautionary remarks.

As you know, we're currently operating in an environment with unprecedented economic volatility and uncertainty.

Based on current economic conditions, we expect the remainder of this year to be challenging.

In fact, it is entirely possible that we will continue to experience sales softness during this unprecedented global recession.

I would also like to note that based on current economic conditions, we anticipate reduced integrated materials revenue growth in 2009.

Furthermore, softness in some of the key industries that we serve, such as automotive, aerospace, and consumer electronics, can result in a continued decline of revenue from our direct rapid manufacturing systems during the next several quarters.

And finally, customer solvency issues could result in reduced recurring revenue as we balance potential collection risks against revenue opportunities.

On the other hand, we expect to realize some positive contributions during these unusual times.

Specifically, we anticipate that our service revenue growth and profitability may benefit from increased sales of iPro and sPro conversion kits and sales of additional service agreements as more customers seek to prolong the useful life of their aging systems during a cash conservation period.

We also expect that sales of our new direct rapid manufacturing systems could help compress the otherwise elongated capital spending cycle, aided by previously announced availability of the iPro XL and sPro Centers in March of this year.

During the month of April, we attended the IDS dental trade show in Europe.

And based on our current offering and the pulse of that show, we anticipate dental manufacturing solutions to continue to grow, even during this challenging period, aided by our commercial initiatives with 3M, Sirona, and SensAble; additional commercial alliances with other significant dental players; and the formation of a dedicated business development unit to accelerate penetration into this vertical marketplace.

We also believe that sales of our new lineup of 3-D printers will continue to grow as a result of our two new RealWax printers gaining traction in the marketplace; continued expansion of our reseller network; our previously announced plans to launch a larger-format 3-D printer, the ProJet 5000, during the third quarter of this year; and our plans to begin commercial shipments of V-Flash modelers, our sub-$10,000 desktop 3-D modeler, within the next few weeks, which is on track.

Once again I would like to remind you that as we begin to scale up shipments of our V-Flash system, we expect a quarterly drag on our EPS in the range of $0.02 to $0.04 per share for the initial four quarters of commercial activity.

I am moving on to slide 20, for those of you who are following the webcast.

Based on the improvements we made in our cost structure, we expect SG&A to be in the range of $35 million to $38 million for the full year '09, inclusive of our anticipated higher litigation expenses for '09.

We expect our research and development spending to be in the range of $10 million to $12 million without slowing down the rate of planned new product introductions for the balance of '09.

Throughout this global economic crisis, we have been able to reduce our operating expenses and cost-of-goods spending without impairing our ability to operate effectively or cutting the resources required to scale up as economic growth resumes.

However, should it become necessary as a result of further deterioration of the global economic conditions, rest assured that we will take further actions as required to reduce operating expenses further and conserve cash.

Despite the challenges presented by the global economy, we remain committed to our long-term goal of improving our customers' bottom line through economical rapid design and manufacturing solutions that help our customers reduce costs and accelerate their new products to market.

Similarly, although we deeply regret the delays that we have experienced surrounding the commercial launch of our V-Flash modeler, we believe that V-Flash is a breakthrough 3-D printer that represents a new value proposition in desktop modeling utility and functionality.

We remain resolute in our objective to accelerate the adoption of 3-D printers worldwide and believe that the commercial launch of our V-Flash desktop modeler, slated to commence within the next few weeks, represents a real economical alternative to slower, more expensive to own and operate, competitive 3-D printers.

Although we're feeling the impact of an unprecedented slowdown in manufacturing worldwide, we believe that our financial position and debt-free balance sheet are adequate to enable us to continue with our future plans.

Even within the current elongated capital spending cycle, our expanding lineup of 3-D printers and direct rapid manufacturing centers at attractive price points should help drive demand for our products during this uncertain economic period.

While the near-term economic outlook continues to suggest challenging global market conditions, the continued operating and cash improvements we are achieving gives us confidence that we have the people, products, and the discipline to weather this current economic storm.

We remain committed to our long-term profitable growth objectives and are confident in our ability to provide value to our customers and stockholders.

And with that, we will now gladly take your questions.

Chanda?

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.

As a reminder, please direct all questions through the teleconference portion of this call.

The telephone numbers are provided again on slide 22.

If you are calling inside the US, the number is 1-888-336-3485.

The conference code is 95902470.

(Operator instructions) Your first question comes from the line of Bill Gibson with Nollenberger Capital.

Good morning, Abe.

Good morning, Bill.

In terms of the 3-D printer growth year over year, what percent of that improvement was tied to the dental market?

Bill, we do not break out or disclose the growth of 3-D printers by application or by industry.

Certainly dental was a contributor to the growth but in and of itself was not a standout driver in the growth of 3-D printing revenue.

Thanks, Abe.

Your next question comes from the line of Jay Harris with Goldsmith & Harris.

In this difficult business environment, do you have a feel for, when customers start to come back for the large systems, whether there's a pent-up demand and at some point we'll get a surge in large-systems sales, in other words, or go through a period of time when the shipments of large systems may be above trend?

Or do you think the large-systems business will just start from this low level and then slowly, in a moderate fashion, rebuild?

Good morning, Jay.

It's very difficult in this volatile environment with so many moving parts to accurately predict what a recovery curve would look like for large-frame systems.

If I had to speculate a little bit, I would say that leading indicators would be somewhat of a return in material consumption of the current installed base.

That would be an indicator of a rebound in the economy, and that would then be followed by capacity extension and new customer additions thereafter.

It's entirely speculative, obviously, on my part because it's very difficult to accurately predict.

There's just too many moving parts, but that would be my sense.

Is there a relationship between opportunities for sales and unsatisfied conversion of manufacturing techniques?

Did you understand what I just said, or should I --?

I didn't get the unsatisfied conversion point.

Well --

Can you elaborate on that?

Yes.

It seems to me that you talked about just filling out installed capacity in customers' hands in terms of operating rate.

But there has to be a motivation at some point in time on the part of customers to replace conventional manufacturing with rapid manufacturing techniques.

And I just wondered whether there was --

I got you.

I got you.

Okay.

Talk a little --

Let me first clarify what I said.

You asked me if we can predict what might happen to the run rate of orders on large frames in a rebounded or recovered economy.

Would it happen above trends, below trends?

And I said to you that it's very difficult to predict that, simply because there are way too many moving parts.

And what I said is, I would speculate that before you see an uptick in large-frame systems orders, you will probably see an uptick in material consumption as the actual installed capacity that exists in the marketplace begins to be utilized at historical levels.

That to me -- my prediction would be that that would be some kind of a precursor and tell us that there is real demand in the marketplace that is returning back to normal.

See, because remember that what drives systems sales at the end of the day is demand for parts.

Now, you're absolutely correct that there are many traditional manufacturing operations that can benefit from our technology.

We are continuing to build a pipeline of opportunities for new sales into the various direct rapid manufacturing applications that we're targeting.

That activity is ongoing.

And my speculation here is that as credit frees up and as companies begin to regain the courage to make capital spending, we should enjoy the fruits of the kind of funnel of opportunities that we have been generating during this period.

Thank you.

Your next question comes from the line of Andrew Nowinski with Piper Jaffray.

Good morning.

Good morning.

Good morning.

Just wondering, has the macroeconomic environment impacted your previous expectation for an annual run rate of 1,000 units of V-Flash exiting the fourth quarter of commercial shipments?

No.

We believe that V-Flash fits into a different price point that allows for it to be purchased even in this environment fairly easily.

We believe that exiting the fourth quarter of commercial operations at a run rate of 1,000 units annually is attainable even in this environment.

And we believe that it's attainable just by studying the macro and micro conditions and looking at what happens to comparably priced competitive equipment in this environment.

So based on all of that, Andrew, I would say, no, it does not impact our expectations.

So in a recovering economy, do you expect it to be potentially higher than 1,000?

I mean, look, we have been very cautious, conservative, and modest in our first-year expectations regarding V-Flash.

We have tried to put out there what we consider to be a fairly conservative model.

We certainly would hope to exceed those, but we also believe that the model that we put out there could be executed again even in a more difficult economic environment.

Let's leave it at that for now.

Got it, thanks.

(Operator Instructions).

Your next question comes from the line of Jim Bartlett with Bartlett Investors.

Could you give us an indication of the level of automotive-related sales in the past as part of your product revenue?

And what impact you would be from Chrysler/GM's bankruptcy if that happens?

Good morning, Jim.

Obviously, automotive directly and indirectly -- and by indirectly, I mean via a variety of service providers -- is an important component to our revenue generation worldwide.

It's important to our revenue in the United States.

It's also important to our revenue in Europe and in Japan.

I think that in terms of impact on revenue so far, if you consider the first quarter of '09 to be the new bottom, if you will -- and I'm not speculating whether or not we have hit bottom in any way, but I'm saying if, based on current information, that's where the floor sits, automotive certainly is a component of it.

It's not the only component, but it certainly is a component.

With regards to the impact of a GM or a Chrysler bankruptcy, we have very little to no exposure with Chrysler.

We have been doing business with GM on an ongoing basis throughout this period and have managed to balance any kind of risk/reward on a weekly basis and have actually brought down our receivables with GM to a point where we feel pretty good about it.

And the good news is, notwithstanding their difficulties, they are continuing to be very active customers, which suggests to me that rapid design and rapid manufacturing plays well into whatever new business model they might contemplate.

You mentioned in the revenue outlook looking forward that sPro XL and sPro Centers -- availability this March.

Were you able to make any sales in the first quarter of these two new products?

And would you expect any coming up in the current quarter?

Well, the answer is yes, and the follow-on answer is that, while we can't predict what might happen in subsequent quarters -- and we're not in -- especially not in this volatile environment can give any kind of guidance about it, we certainly have expectations that we will go out there and sell hard our entire portfolio.

And with some of these systems, we have some unique value propositions.

And so far in the current -- in the second quarter, have you seen any change in the conditions that you saw in the first quarter?

That's a question that I would like to not answer at this point because it begins to fall into the realm of forward-looking guidance, which, given the volatility of the market, I would prefer not to answer, Jim, but thanks for asking.

Thank you.

Your next question is a follow-up from Bill Gibson with Nollenberger Capital.

Hi, Abe.

I just wanted to confirm what I think I heard is that you continue to think the impact of V-Flash is $0.02 to $0.04 a share a quarter?

Yes.

What we said is that for the first full four quarters of operation as we scale up production of V-Flash, we expect that it could represent a drag on our EPS to the tune of between $0.02 and $0.04 per quarter.

As this begins to play out and we see how it materializes actually in our financials, we will be able to give you perhaps tighter ranges.

But as a cautionary note, as we're ramping up here we think that you could expect that kind of a negative drag on EPS, at least for the first four quarters of operation.

Thanks, Abe.

Your next question comes from the line of Brian Drab with William Blair.

Good morning.

Good morning, Brian.

Sorry, I joined a little late, but I wanted to ask a question on the V-Flash.

And I'm sorry if someone's asked this already, but are you seeing the uPrint from Stratasys in the marketplace, and how would you describe the advantages of V-Flash over that product given that those are really the only two products on the market at such a low price point?

Well, we certainly have seen uPrint in a few trade shows, and we have seen it in some publications, so we have some sense of what it can do.

And we also obviously heard about its early acceptance and performance from the Stratasys senior management as they reported their own first quarter.

In terms of comparing and contrasting uPrint with V-Flash, we think that there are a few unique advantages, and those boil down to speed, simplicity, and advantages in total cost of ownership.

We believe that if you look at that desktop utility and functionality, the key differentiators in the value proposition to a designer and engineers, in our opinion and based on our beliefs, have to do with speed -- how quickly can you iterate and have something in your hand; simplicity from click to part, from the time that you click the print button and you actually get something in your hand; and the total cost of ownership, which to us is defined not just by the cost of the initial purchase but the cost to own, operate, and maintain.

And in those three areas, we think we have some distinct advantages.

Okay.

Thanks very much.

You bet.

Your next question comes from the line of Jay Harris with Goldsmith & Harris.

Abe, I'd like to get some insights on costs going forward.

You have a range for SG&A and a range for R&D.

To what extent is that range, particularly in SG&A, a function of revenue -- a range in revenue expectations; in other words, the compensation going to salesmen for booking sales?

And to the extent it's not related to that, what is the range related to?

Well, the range primarily, Jay, is driven -- let me say, the biggest component or the biggest variable in the range is litigation expense.

That's the, if you will, wild card in this, given primarily things like the DSM litigation in the mix.

And so for the abundance of caution, as we have done all along, we continue to provide a range to make sure that we in no way, shape, or form mislead or not leave ourselves enough latitude in this.

Salesman commissions will not really impact the range that much for the full year.

And so that's the main variable, if you will.

I want to say a few things about these ranges, which perhaps you wanted to ask but didn't.

We have tried very carefully to balance good cost control with the ability to operate and perform effectively, not just during a down economy but also as the economy begins to rebound and recover hopefully sometime down the road here.

And so our expectations and hopes and beliefs are that even as we begin to recover back to more normal or historical revenue levels, we will get to keep the gains that we made in SG&A and in R&D going forward.

I wonder if I could overstay my welcome and ask another question here about the first quarter.

Could you --?

Sure.

Could you characterize the product mix as we went -- and the trends as we went from January to February to March?

It has been fairly consistent, I would say.

If you look at the distribution throughout the quarter, it has been fairly consistent and steady in terms of the mix.

We have experienced some pickup in the third month of the quarter.

It seemed to be a little bit more robust than the first two months, but in terms of mix distribution it has been fairly consistent.

What product lines contributed to that pickup in March?

Well, if you look at the -- and maybe, Damon, you should repeat the mix, the 90-something --

Right.

Damon can basically repeat, and I'll ask him to do it, what constituted the mix of revenue for the quarter.

Go ahead.

Well, the large-frame systems represented 9% of our sales for the quarter.

3-D printers and the other sort of small- and mid-frame printer machines were 91%.

And as you move through those, the smaller -- the 3-D printers and the smaller-frame ones tend to be more constant throughout a quarter.

But I think everything bumped up a little bit in the third quarter but we just --

The third month.

Third month of the quarter, sorry.

But obviously, from that 9% total large-frame systems, we didn't get -- normally we'll get a number of our large-frame systems in that last month.

So the mix would normally change a little bit more towards large-frame in the third month, and it didn't this time, so it did stay fairly flat.

Did you get a change in material consumption consistent with the improvement in March versus the first two months?

Well, the first two months also, especially your first month in January, you're looking at people on holidays in different locations and things.

So it sort of normally picks up in the second half of the second month anyway.

So that's our normal experience and what happened, but at lower volumes for the reasons Abe had stated earlier also, though.

Yes, I mean, Jay, I'll add to what Damon said.

The answer is yes, we did experience a pickup in March in material revenue as well.

The cautionary note is that I can't predict or give you any assurance that this would continue in subsequent months.

But the straight answer is yes, we did experience a pickup in March.

Well, I was trying to come back to Jim Bartlett's question without crossing the line.

That's all.

Yes.

So I mean, the answer is yes.

If you ask me if this is a trend that is going to be sustainable, I will be very cautionary and say that I can't predict that it --

Well, no, but Jim I think was asking about April, and you didn't want to go there because you thought that if you said something about April, it would reveal something about May and June, which it doesn't.

But I was just trying to (inaudible) as possible.

I'm glad I could be of service.

All right.

Thank you.

(Operator Instructions).

Your next question is a follow-up from Jim Bartlett with Bartlett Investors.

I think previously you had indicated an inventory goal of $17 million by June.

Is that still realistic?

Well, it's a little bit -- let me say a few things.

One, the goal is the goal, and as Damon indicated in his prepared comments, we're continuing to focus on and working to reduce inventory.

Obviously, we set those goals ahead of the significant deterioration that we expected in the first quarter of this year.

We think that the goal is still attainable and achievable.

Whether or not we reach the mark in June, it's very hard to predict at this point, simply because we're a little bit behind as a result of the deterioration that we experienced in economic conditions during the first quarter.

So I can't tell you, Jim, if that will be achievable in June, but we think that it's achievable sometime this year.

And what can you tell us about the outlook for the programs that you had gross profit margins, which improved certainly up to first quarter -- about those programs or new programs going forward?

Well, I think that what you -- let's back up to the fourth quarter of '08 for a moment, which was the first quarter that we began to harvest, if you will, some of the fruits of our labor.

We worked on these initiatives for about two and a half, three quarters.

We gave you quarterly updates, and in the fourth quarter we began to harvest.

We were able to actually maintain the same improvement in gross profit margin even on substantially lower revenue in the first quarter.

And as Damon said, this improvement, certainly for the first quarter, was heavily overshadowed by a mix of revenue that heavily favored the lowest-margin products that we have, which are our 3-D printers.

It's another way of saying that but for the change in -- well, the significant change in revenue mix from large frames to low frames and printers, gross profit for the first quarter would have been higher.

And we also did not have -- on significantly lower revenue, we're not able to absorb all of our overhead in the way that we would have absorbed it if, say, revenue was closer to $30 million.

And so what that -- these two elements, the fact that we were able to maintain gross profit at a 400-basis-point improvement in a quarter where revenues were heavily depressed, at a quarter where we didn't have good overhead absorption, and at a quarter where the mix was adversely impacting gross profit should bode well for our ability not just to keep the cost improvements that we have in subsequent quarters, but also to hope that any change in revenue, any improvement in revenue generation, and any improvement in the mix should come down to the bottom line.

Thank you.

Did you have anything, Damon, to add to that?

Just to follow-up specifically on it.

Two quarters ago we announced that by the end of this quarter -- going out from this quarter, we would have about a $1 million sustainable increase to our margin number, due to fixed-cost reductions and items not dependent on volume.

There's nothing that -- we were on track for that still.

That's what we've achieved here, and as we walk out of this quarter, the remainder will have been recognized.

As volume does increase, our fixed costs will not increase for these items.

It's going to be the standard cost and your variable cost for these machines.

So this is sustainable, and it is very -- we're looking at it as very positive that with the lower revenue, we're still come out at this margin.

But I think the answer to your question in total, what we had announced before as our cost savings initiative we've achieved and will be in place going forward.

(Operator Instructions).

Thank you.

There are no further questions at this time.

I would now like to turn the call back over to Chanda Hughes for closing remarks.

Chanda?

Before closing, we would like to remind you of our upcoming one-day world conference, which will be held on June 22nd with this year's Time Compression Expo in Chicago.

We're also planning an Analyst Day at the Time Compression Expo and Conference from 10:00 to 3:00 on June 25th and invite all of our analysts and stockholders to attend.

Thank you for joining us today and for your continued support of 3D's business.

A replay of the webcast will be available after the call on the Investor Relations section of our Web site, www.3dsystems.com/ir.

Thank you.

This concludes today's conference call.

You may now disconnect.